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>
PENN-AMERICA GROUP, INC.
420 S. York Road
Hatboro, Pennsylvania 19040
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 19, 1999
The Annual Meeting of Shareholders (the "Meeting") of Penn-America Group,
Inc., a Pennsylvania corporation (the "Company"), will be held on May 19, 1999
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 directors to hold office until the Annual Meeting of
Shareholders in 2000 and until their respective successors are duly
elected and qualified;
2. To increase by 300,000 the number of shares authorized for
distribution under the Company's 1993 Stock Incentive Plan, as amended
and restated.
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 31, 1999 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,
Garland P. Pezzuolo
Secretary
April 12, 1999
Annual Reports to Shareholders, including financial statements, are being
mailed to shareholders together with these proxy materials, commencing on or
about April 12, 1999.
<PAGE>
PENN-AMERICA GROUP, INC.
420 S. York Road
Hatboro, Pennsylvania 19040
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1999
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by 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 19, 1999, at 420 S. 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 12, 1999.
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 nominees of the Board of Directors in the election of directors and the
increase by 300,000 of the number of shares authorized for distribution under
the Company's 1993 Stock Incentive Plan.
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 31, 1999, there were outstanding
8,736,201 shares of the Company's Common Stock, $.01 par value ("Common Stock").
Each shareholder of record at the close of business on March 31, 1999 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.
1
<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.
Security Ownership of Management and Principal Shareholders
The table below sets forth certain information as of March 31, 1999
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 6, and (iv) all directors and executive
officers as a group. On March 31, 1999, there were 8,736,201 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>
Name of Beneficial Owner Amount Beneficially Percent
Owned(1)(2) of Class
------------------------------ ----------------------- -------------
<S> <C> <C>
Penn Independent Corporation................ 3,087,500 35.0%
420 S. York Road
Hatboro, PA 19040
Irvin Saltzman.............................. 3,162,500(3) 36.0%
420 S. York Road
Hatboro, PA 19040
Jon S. Saltzman............................. 3,154,800(4) 36.0%
Jami Saltzman-Levy.......................... 3,088,400(5)(6) 35.0%
Eric Anthony Saltzman....................... 3,087,500(7) 35.0%
Robert A. Lear.............................. 51,000(8) *
Rosemary R. Ferrero......................... 18,166 *
James E. Heerin, Jr......................... 21,250 *
John M. DiBiasi............................. 47,524(9) *
Thomas P. Bowie............................. 10,000 *
M. Moshe Porat, Ph.D., CPCU................. 43,000(10) *
Charles Ellman.............................. 111,000(11) 1.3%
Thomas M. Spiro............................. 10,000 *
Paul Simon.................................. 7,500(12) *
Avenir Corporation.......................... 477,025 5.5%
Dimensional Fund Advisors, Inc.............. 532,900 6.09%
Kennedy Capital Management Inc.............. 544,062 6.2%
Neuberger & Berman, LLC..................... 547,250 6.3%
All executive officers and directors
as a group (13 persons)..................... 3,550,140 4.06%
<FN>
* Less than 1%
(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), and pursuant to a secondary offering of the common stock of the
Company in July 1997, which have not yet vested, over which such persons
maintain voting power, as follows: 12,000 shares for Mr. Jon Saltzman,
8,000 shares for Mr. DiBiasi, 6,000 shares for Ms. Ferrero and 10,000
shares for Mr. Bowie.
2
<PAGE>
(2) Includes shares subject to exercisable options as follows: 75,000 for Mr.
Irvin Saltzman, 45,000 for Mr. Jon Saltzman, 39,000 for Mr. Lear, 16,500
for Mr. Heerin, 22,500 for Mr. DiBiasi, 30,000 for Dr. Moshe Porat, 25,500
for Mr. Ellman, 3,000 for Mr. Spiro, and 3,000 for Mr. Simon.
(3) Of these shares, 3,087,500 are owned of record by Penn Independent
Corporation. Mr. Irvin Saltzman, Chairman of the Board of Directors, owns
48.12% of the outstanding voting securities of Penn Independent.
(4) Of these shares, 3,087,500 are owned of record by Penn Independent, Mr. Jon
S. Saltzman, collectively with Ms. Jami Saltzman-Levy and Mr. Eric Anthony
Saltzman, serves as a trustee of five trusts that own a total of 48.2% of
the outstanding voting securities of Penn Independent. Additionally, Mr.
Jon Saltzman serves individually as trustee of two trusts that collectively
own 0.7% of the outstanding voting securities of Penn Independent. Mr.
Saltzman also owns 0.1% of the outstanding voting securities of Penn
Independent in his own name. The total number of shares owned by Mr.
Saltzman excludes 20,050 shares held by Mr. Saltzman's wife to which Mr.
Saltzman disclaims beneficial ownership.
(5) Of these shares, 3,087,500 are owned of record by Penn Independent. Ms.
Jami Saltzman-Levy, collectively with Mr. Jon S. Saltzman and Mr. Eric
Anthony Saltzman, serves as trustee of five trusts that own a total of
48.2% of the outstanding voting securities of Penn Independent.
Additionally, Ms. Jami Saltzman-Levy serves individually as trustee of six
trusts that collectively own 2.5% of the outstanding voting securities of
Penn Independent. Ms. Jami Saltzman-Levy also owns 0.1% of the outstanding
voting securities of Penn Independent in her own name.
(6) 900 of such shares are owned jointly with her spouse.
(7) These shares are owned of record by Penn Independent. Mr. Eric Anthony
Saltzman, collectively with Ms. Jami Saltzman-Levy and Mr. Jon S. Saltzman,
serves as trustee of five trusts that own a total of 48.2% of the
outstanding voting securities of Penn Independent. Mr. Eric Anthony
Saltzman also owns 0.1% of the outstanding voting securities of Penn
Independent in his own name.
(8) Excludes 25 shares held by Mr. Lear's son to which Mr. Lear disclaims
beneficial ownership.
(9) 14,295 of such shares are owned jointly with his spouse.
(10) 10,000 of such shares are owned jointly with his spouse.
(11) Excludes 30,000 shares held by Mr. Ellman's wife and 150 shares held by Mr.
Ellman's daughter to which Mr. Ellman disclaims beneficial ownership.
(12) All shares are jointly owned with his spouse.
</FN>
</TABLE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees for Election
At the Meeting, the shareholders will elect nine (9) directors to hold
office until the Annual Meeting of Shareholders in 2000 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, Charles Ellman, James E. Heerin, Jr., Robert A. Lear, Jami
Saltzman-Levy, M. Moshe Porat, Paul Simon and Thomas M. Spiro. All of the
nominees 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.
3
<PAGE>
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>
Irvin Saltzman................. 76 1993 Chairman, Director
Jon S. Saltzman................ 41 1993 President and Chief Executive
Officer, Director
Charles Ellman................. 70 1994 Director
James E. Heerin, Jr............ 62 1993 Director
Robert A. Lear................. 53 1993 Director
Jami Saltzman-Levy............. 42 1994 Director
Dr. M. Moshe Porat............. 52 1994 Director
Paul Simon..................... 70 1997 Director
Thomas M. Spiro................ 43 1997 Director
</TABLE>
Mr. Irvin Saltzman is the founder of Penn-America Insurance Company
("Penn-America"), the wholly-owned subsidiary of the Company, and of Penn
Independent Corporation ("Penn Independent"), an insurance enterprise which owns
35.0% of the outstanding shares of the Company. Mr. Saltzman has been Chairman
of the Board of Directors of the Company since its formation in July 1993. He
has been active in the insurance industry since 1947. Mr. Saltzman is the father
of Mr. Jon S. Saltzman and Ms. Jami Saltzman-Levy. 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, Chief Executive
Officer and Director 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 and Ms. Jami Saltzman-Levy's brother.
Mr. Ellman has been a Director of the Company since 1994 and was a Director
of Penn-America from May 1976 until May 1995. Prior to 1994, Mr. Ellman was Vice
Chairman and a Director of Penn Independent.
Mr. Heerin has been Vice President and General Counsel of Penn Independent
for more than six years and was General Counsel and Secretary of the Company
since its formation in July 1993 until March 1995. Prior to joining Penn
Independent, Mr. Heerin was Vice President and Assistant General Counsel for
Pitcairn, Inc. Mr. Heerin is currently Senior Vice President and General Counsel
for InterAg Technologies, Inc.
Mr. Lear has been President and Chief Executive Officer of Penn Independent
since September 1996 and previously served as Executive Vice President-Finance
and Chief Financial Officer of that company for more than seven years. He was
Vice President-Finance and Chief Financial Officer of the Company from its
formation in July 1993 until March 1995. Mr. Lear has been a Director of Dynasil
Corporation of America since February of 1998. Prior to joining Penn
Independent, 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 Vice President-Human Resources of Penn
Independent and a Director of Penn-America for more than six years. Ms.
Saltzman-Levy is Mr. Irvin Saltzman's daughter and Mr. Jon Saltzman's sister.
Dr. Porat has been Dean of the Fox School of Business and Management at
Temple University since August 1996; and previously was 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. Simon is Professor and Director of the Public Policy Institute at
Southern Illinois University. Mr. Simon founded the Institute in 1997, shortly
after retiring from the United States Senate after twelve years of service as a
senator from Illinois. His distinguished political career includes 14 years in
the Illinois House and Senate and a term
4
<PAGE>
as Lieutenant Governor of the State, the first Lieutenant Governor 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. Mr. Simon is the
recipient of 44 honorary degrees and has written 16 books. He is currently
Director of the Chicago Mercantile Exchange, as well as director of a number of
foundations.
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.
Meetings and Committees of the Board of Directors
The Board of Directors ("Board") held eight meetings in 1998. The Board has
established a Compensation and Stock Option Committee, an Audit Committee and a
Nominating Committee.
The Compensation and Stock Option Committee met one time in 1998. Dr. Porat
and Messrs. Ellman and Simon are members of this Committee with Dr. Porat
serving as Chairman. See "Report of Compensation and Stock Option Committee."
The Audit Committee met one time in 1998. Messrs. Spiro, Ellman and Dr.
Porat are members of the Committee with Mr. Ellman serving 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 met one time in 1998. In 1999, the Nominating
Committee met and recommended the nominees for election to the Board of
Directors. Members of the Committee include Messrs. Spiro, Simon and Dr. Porat,
with Mr. Spiro 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 85% of the Board and Committee meetings in
the aggregate in 1998.
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 Company 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 1998.
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation Awards
--------------------------------------- -------------------------------------------
Number of
Other Annual Restricted Securities All Other
Name and Bonus Compensation Stock Underlying Compensation
Principal Position Year Salary($) ($)(2) ($) Award(s)($)(3) Options(#) ($)(4)
- ------------------ ------ ----------- ----------- ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jon S. Saltzman 1998 310,308 117,000 0 38,719 0 4,999
President, Chief 1997 259,192 184,950 0 236,250 0 2,505
Executive Officer 1996 230,000 80,500 0 0 0 1,800
John M. DiBiasi 1998 196,800 58,333 0 25,813 0 5,000
Executive Vice 1997 180,327 86,646 0 157,500 0 3,716
President 1996 156,000 45,000 0 0 0 2,375
Rosemary Ferrero 1998 169,327 50,000 0 19,359 0 5,000
Vice President, 1997 155,493 50,000 0 118,125 0 3,658
Chief Financial 1996 126,000 30,000 0 0 0 1,950
Officer
Linda Spaide 1998 109,339 9,501 0 0 0 2,749
Vice President
Claims
J. Ransley Lennon 1998 103,539 15,513 0 0 0 3,374
Vice President
Information Services
<FN>
- ----------
(1) Excludes certain perquisites and other amounts which, for any executive
officer, did not exceed in the aggregate 10% of the total annual salary and
bonus for such executive officer.
(2) Messrs. DiBiasi and Lennon, and Ms. Ferrero and Ms. Spaide received 50% of
their 1997 bonus during 1998 in cash and the balance in stock of the
Company. The stock received was 1,422 shares by Mr. DiBiasi, 1,219 shares
by Ms. Ferrero, 231 shares by Ms. Spaide and 378 shares by Mr. Lennon. The
value of the stock granted was the average of the bid and ask price on
December 31, 1997. When referencing bonuses received in 1998, the chart
reflects bonuses earned in 1997 and paid in 1998.
(3) Represents restricted stock awards granted to Mr. Saltzman (15,000 shares),
Mr. DiBiasi (10,000 shares) and Ms. Ferrero (7,500 shares), which vest
ratably over 5 years.
(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 1998 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 1998 by the Company's Chief Executive Officer and the named executive
officers, and the number and value of options held on December 31, 1998 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.
Aggregated Option Exercises in 1998
and Option Values at December 31, 1998
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Value of Unexercised
Acquired Unexercised Options at In-the-Money Options at
On Value Dec. 31, 1998 (#) Dec. 31, 1998($)(2)
Exercise Realized ----------------------------- ----------------------------
Name (#)(1) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------- -------------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Jon S. Saltzman 0 0 45,000 0 138,000 0
John M. DiBiasi 0 0 22,500 0 69,000 0
Rosemary R. Ferrero 0 0 0 0 0 0
Linda Spaide 0 0 0 0 0 0
J. Ransley Lennon 0 0 12,750 0 39,000 0
<FN>
- ----------
(1) No Stock Options were exercised during fiscal 1998 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 New York Stock
Exchange as of December 31, 1998 and the exercise price of the options,
multiplied by the number of option shares.
</FN>
</TABLE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee (the "Committee") consists of
Dr. Porat and Messrs. Ellman and Simon, 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 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.
Compensation paid to the Company's executive officers in 1998 consisted of
up to three separate components; salary, bonus (comprised of 50% Company stock
and 50% cash) and stock options and restricted stock awards. The base salaries
of executive officers were 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.
7
<PAGE>
Compensation paid to executive officers in 1999 will be based on salary, cash,
stock options, and restricted stock awards.
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 10% to 35%
of annual salary when the target goals are achieved and an additional amount if
targets are exceeded by 5% or more. A portion of the bonus pool is awarded at
the discretion of the CEO. Incentive bonuses are paid to all participants 50% in
cash and 50% in stock, except that in 1998 and 1997, 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 Committee.
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 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
1998, 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 million 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 million
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
million limitation.
Compensation and Stock Option Committee
M. Moshe Porat
Charles Ellman
Paul Simon
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during fiscal 1998 were Dr. Porat
and Messrs. Ellman and Simon, 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.
Compensation of Directors
The Company pays to each of its non-employee directors an annual retainer
of $15,000 for attendance at Board of Director meetings and $5,000 for committee
work, including chairing one committee. An additional $500 is paid for any
special meetings called by the Board's Chairman. The Company pays all
out-of-pocket expenses incurred by the Directors for attending meetings.
8
<PAGE>
Under the Company's amended and restated 1993 Stock Incentive Plan (the
"Plan"), an option grant for 3,000 shares of the Company's stock is made to each
non-employee director on the date of 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 New York Stock
Exchange and the Standard and Poor's Insurance Composite for the period October
28, 1993 (the date of the Company's initial public offering) through December
31, 1998, assuming an initial investment of $100 and that dividends are
reinvested annually.
[GRAPH OMITTED]
------------------------------------------------
PNG NYSE Composite S&P Insurance
Index Composite
------------------------------------------------
10/28/93 $ 100.00 $ 100.00 $ 100.00
12/31/93 $ 85.50 $ 100.03 $ 94.95
12/31/94 $ 82.00 $ 96.89 $ 92.96
12/31/95 $ 158.33 $ 127.23 $ 130.00
12/31/96 $ 179.17 $ 151.47 $ 158.44
12/31/97 $ 341.67 $ 197.38 $ 228.80
12/31/98 $ 151.00 $ 230.05 $ 233.97
9
<PAGE>
PROPOSAL NO.2
APPROVAL OF INCREASE BY 300,000 OF THE NUMBER OF SHARES AUTHORIZED FOR
DISTRIBUTION UNDER THE COMPANY'S 1993 STOCK INCENTIVE PLAN
The Board of Directors has declared advisable an increase in the number of
shares authorized for distribution under the Company's 1993 Stock Incentive
Plan, as amended and restated, and has directed that the increase be submitted
to the shareholders at the annual meeting.
The Plan, as amended and restated April 4, 1994, currently authorizes
525,000 shares of Common Stock for distribution to key employees, consultants
and advisors to the Company to provide such individuals with additional
incentive to devote themselves to the future success of the Company. Since its
inception, the Company has distributed 475,000 of the 525,000 shares authorized
for distribution. The Board therefore considers it desirable that the Company
obtain authorization for the distribution of additional shares in order to
continue the Company's efforts to motivate, attract and retain individuals upon
whom the Company's sustained growth and financial success depend. Having the
additional shares available for distribution, without the expense and delay of
obtaining the approval of shareholders at a special meeting, will afford the
Company greater flexibility.
The additional shares authorized for distribution will have the identical
powers, preferences and rights as the shares now authorized under the Plan. If
the shareholders authorize the additional shares for distribution, the
authorization will go into effect upon the shareholders' approval of the
increase.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE INCREASE IN THE NUMBER OF
SHARES AUTHORIZED FOR DISTRIBUTION UNDER THE 1993 STOCK INCENTIVE PLAN.
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 Director, 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 $281,000 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 in the aggregate. As of March
31, 1999, there was no assessment for 1998 that would cause the Company's
pro-rata share of the taxes, fees, assessments and expenses to exceed $224,000.
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 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, 1998, the business written by the Agencies for Penn-America
represented 1.35% ($1,278,941) of the business of Penn-America. Penn-America
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.
Agreements with Penn Independent Corporation
Penn-America receives services from executives (including Mr. Irvin
Saltzman 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.
In 1998, Penn-America was charged 6.6% ($45,000) of the amounts incurred by
Penn Independent for insurance, telecommunications, postage and office supplies.
Additionally, the Company paid to Penn-Independent
10
<PAGE>
approximately $180,000 for the services of Penn Independent personnel for
executive, human resource administration, investment advisory (Mr. Irvin
Saltzman) and other related support services.
Carl Domino Associates, L.P.
Penn-America, and its wholly-owned subsidiary, Penn-Star Insurance Company
("Penn-Star"), have retained Carl Domino Associates, L.P. ("CDA"), a registered
investment advisor, to recommend purchases and sales of equity securities. Penn
Independent and Mr. James E. Heerin, Jr., a Director of the Company, each own a
3.3% limited partnership interest in CDA. From November 1993 to April 1997, CDA
managed Penn-America and Penn-Star's entire investment portfolio. Effective
April 1997, CDA manages only the equity portfolio and was paid a total of
$100,921 for services rendered in calendar year 1998. The fee is based on a
monthly calculation of 1/12th of the annual percentage rates assigned to
designated market values of the account. CDA receives an annual fee based on the
market value of the companies' equity security assets which it manages at an
annual rate of 0.45%.
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 LLP, the auditors for December 31, 1998, 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.
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, 1998 through December 31, 1998 were made on a
timely basis.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Annual Meeting of
Shareholders in 2000 must be received by the Company at its principal office in
Hatboro, Pennsylvania, no later than December 31, 1999, in order to be
considered for inclusion in the Company's 2000 proxy statement and form of proxy
relating to the Meeting in 2000.
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.
11
<PAGE>
PROXY
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 GARLAND P. PEZZUOLO, 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 19,
1999 at 10:00 a.m. at 420 S. 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.
1. Election of Directors (nominees as listed)
Nominees: Irvin Saltzman, Jon S. Saltzman,
Charles Ellman, James E. Heerin Jr., Robert
A. Lear, Jami Saltzman-Levy, M. Moshe Porat,
Paul Simon, Thomas M. Spiro FOR WITHHELD
[ ] [ ]
For, except vote withheld from the following nominee(s):
___________________________________________
2. To increase the number of authorized shares
by 300,000 under the Company's 1993 Stock
Incentive Plan, as amended and restated. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To vote on such other business which may properly come
before the meeting.
Dated__________________________________, 1999
Signature____________________________________
Signature____________________________________
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.
