File No. 333-
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON March 29, 2000
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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.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2731409
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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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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed
Title of Each Class of Amount Offering Maximum
Securities to be Price Per Aggregate Amount of
to be Registered Registered Security (1) Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, 175,000 Shares $8.53 $1,492,750 $394.09
$.01 par value -------------
Total $394.09
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<FN>
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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
average of the opening and closing price, as reported on (NYSE) New York
Stock Exchange, under the "PNG" symbol as of March 27, 2000.
</FN>
</TABLE>
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<PAGE>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 29, 2000
PROSPECTUS
175,000 Shares
PENN-AMERICA GROUP, INC.
Common Stock
We are offering our shares of common stock as part of our Agency
Performance Award and Profit Sharing Plan. Only qualifying independent agents of
Penn-America Insurance Company, our wholly-owned subsidiary, are eligible to
receive these shares. We are providing the shares as an incentive to our
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 shares and cash as
provided by the plan as described herein. Except where the context otherwise
indicates, when we refer to ourselves in this prospectus, we are referring to
Penn-America Group, Inc. and its wholly-owned subsidiary, Penn-America Insurance
Company, and its wholly-owned subsidiary, Penn-Star Insurance Company.
Our common stock is quoted on the New York Stock Exchange under the symbol
"PNG". On March 27, 2000 as reported by NYSE, the average of the opening and
closing price for the Common Stock was $8.53 per share.
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INVESTING IN OUR COMMON STOCK INVOLVES SEVERAL RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS DOCUMENT IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is March 29, 2000.
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AVAILABLE INFORMATION
We file reports, proxy statements, and other information with the SEC. Such
reports, proxy statements, and other information concerning us can be read and
copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Room. The SEC maintains an internet site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC, including ours. Our
common stock is listed and traded on the New York Stock Exchange. These reports,
proxy statements and other information are also available for inspection at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
This prospectus is part of a registration statement filed with the SEC by
us. The full registration statement can be obtained from the SEC as indicated
above, or from us. The SEC allows us to "incorporate by reference" the
information we file with the SEC. This permits us to disclose important
information to you by referencing these filed documents. Any information
referenced this way is considered part of this prospectus, and any information
filed with the SEC subsequent to this prospectus will automatically be deemed to
update and supersede this information. We incorporate by reference our Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the
SEC on March 27, 2000. We incorporate by reference that document and any future
filings made with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act of 1934 from the date of this prospectus until we file a
post-effective amendment which indicates the termination of the offering of the
securities made by this prospectus.
Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus shall be considered to be modified
or superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or any prospectus supplement or in any subsequently
filed document that is or is considered to be incorporated by reference modifies
or supersedes the statement. Any statement that is so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
We will provide without charge upon written or oral request, a copy of any
or all of the documents, which are incorporated by reference to this prospectus,
other than, exhibits which are specifically incorporated by reference into such
documents. 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
Penn-America Group, Inc. (PNG) is a specialty property and casualty
insurance holding company which, through our subsidiaries, Penn-America
Insurance Company and Penn-Star Insurance Company, markets and underwrites
commercial property, general liability, business automobile, and multi-peril
insurance for small businesses located primarily in small towns and suburban and
rural areas. During 1999, we announced the run-off of our entire book of
personal non-standard automobile insurance policies, which had been written in
seven states.
We provide commercial property and casualty insurance on both an excess and
surplus lines basis and an admitted basis. We market our products through about
50 high-quality general agents, who in turn produce business through over 25,000
retail insurance brokers located throughout the United States. We focus on
serving the insurance needs of small or non-standard markets. These markets are
generally characterized by small to average policy premiums and serviced by
retail insurance brokers with limited access to larger, standard lines insurers.
We believe that these markets are generally under-served by larger, standard
lines insurers who often limit their underwriting to policies above a certain
minimum premium size or to certain risk classes and who operate in large-scale
markets in which they can achieve economies of scale. We believe that our
distribution network enables us to effectively access these numerous small
markets. We believe we can do this for a relatively low fixed cost through the
marketing, underwriting and administrative support of our general agents, as
well as the localized market knowledge and expertise of our general agents and
their retail insurance brokers.
We can demonstrate the success of our strategy by our consistent growth and
profitability. From 1992 to 1999, commercial gross written premiums compounded
annualized growth rate was 20.7%, and grew from $22.6 million to $84.5 million.
Our distribution strategy is to maintain strong relationships with fewer and
higher quality general agents than our competitors. We carefully select a
limited number of agents in each state based on the agent's experience and
reputation and strive to preserve each agent's franchise value within their
market territory. We seek to grow with these general agents and develop strong,
longstanding relationships by providing a high level of service and support.
From 1992 to 1999, we achieved 273.9% cumulative growth in gross written
premiums with a 31.6% increase in the number of general agents from 38 to 50.
We maintain low fixed costs by underwriting the substantial majority of our
policies on a binding authority basis. We closely monitor the quality of
business we underwrite by maintaining close relationships with a small number of
general agents. We provide our general agents with a comprehensive, regularly
updated underwriting manual, which clearly outlines our pricing and underwriting
guidelines. We do not write high risk policies (e.g., medical malpractice,
environmental and aviation liability). We generally review new and renewal
commercial policies on a continuous basis to ensure that our underwriting
guidelines are being followed. In addition to standard commissions, we provide
strong incentives to our general agents to produce profitable business through a
contingent commission structure, which is substantially tied to underwriting
profitability. The contingent commissions are paid through the issuance of
shares of our common stock, options and cash.
Historically, we have underwritten the majority of our commercial lines
business on an excess and surplus lines basis. In recent years, we have
underwritten a greater proportion of commercial lines business on an admitted
basis, as we has identified profitable admitted markets which remain
under-served by larger standard insurers. We expect to continue to expand the
commercial lines business by offering additional products and packages which
enhance our current property and liability coverages, by identifying profitable
programs and books of business
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and by selectively adding high quality general agents. Examples of such
additional products and programs include a commercial automobile product and
specialty programs.
Our commercial insureds consist primarily of small, "Main Street"
businesses, including restaurants, taverns, mercantiles and artisan contractors,
located principally in small towns and suburban and rural areas. In addition, we
develop customized products and coverages for other small commercial insureds
such as daycare facilities, fitness centers and special events. We believe we
have benefited from a general migration of small businesses out of urban centers
and into suburban and rural areas. Industry consolidation, corporate downsizing
and the increased use of communications technology and personal computers, among
other factors, have contributed to the high growth in the number of small
businesses in these areas.
The run-off of the non-standard personal automobile business represented
approximately 12% of our gross written premiums in 1999 as compared to 25% and
34% of gross written premium in 1998 and 1997. In 2000, non-standard personal
automobile premium is not expected to represent more than approximately 2% of
our gross written premiums.
Since 1993, Penn-America Insurance Company has maintained an "A
(Excellent)" rating from A.M. Best Company, Inc., which rating was reaffirmed by
A.M. Best in January 2000, and included Penn-Star as a pooled rating. A.M.
Best's ratings are based upon factors of concern to policyholders, including
financial condition and solvency, and are not directed to the protection of
investors.
Our principal executive offices are located at 420 South York Road,
Hatboro, Pennsylvania, 19040 and our telephone number is (215) 443-3600.
RISK FACTORS
Except for the historical information contained in this Prospectus, matters
discussed in this Prospectus may constitute "forward-looking statements" (within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act.) This forward-looking information reflects our management's current best
estimates regarding future operations. Our actual results could 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 these factors are outside our 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 our 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 us, our businesses and the shares of Common Stock offered hereby:
Changes in the insurance industry beyond our control may affect our
performance.
We may incur significant fluctuations in operating results due to changes
in 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 impact of
these factors can dramatically affect demand for our products, insurance
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capacity, pricing and claims experience and, consequently, our business, results
of operations or financial condition.
We are exiting the non-standard personal automobile business.
In 1999 we announced that we are running-off our non-standard personal
automobile business in the seven states where it had been written. We wrote
$11.5 million of personal automobile premium during 1999 principally related to
renewal premiums in those states that require policies to be renewed for a
certain period of time if not placed with another carrier. We expect the run-off
from non-standard personal automobile written premium in 2000 to be
approximately $2.0 million. We expect that the run-off will ultimately increase
our ability to focus on more profitable lines of business; however, there is no
guarantee we will recognize these results.
Our business is cyclical in nature and is currently in a period of a soft
market.
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 us.
We may not be able to sustain our current growth.
We have grown rapidly over the last few years; however, this growth may not
necessarily continue. We believe that a substantial portion of any future growth
will depend on our ability, among other things, (i) to increase our business
from our existing general agents, and (ii) to expand our commercial lines of
business by offering additional products and programs. Future growth is
contingent on various factors, including the availability of adequate capital,
our ability to hire and train additional personnel, regulatory requirements and
rating agency considerations. There is no assurance that we will be successful
in expanding our business, that the existing infrastructure will be able to
support such additional expansion or that such new business will be profitable.
Our reserves may not be adequate to cover future losses.
We are directly liable for loss and loss adjustment expenses under the
terms of the insurance policies we underwrite. We establish 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 our established reserves for loss
and loss adjustment expenses are adequate and we annually obtain an opinion with
respect to loss reserves from an independent consulting actuary, ultimate loss
and loss adjustment expenses may vary from established reserves. We experienced
adverse development of net reserves for prior years' insured events of $8.4
million, $86,000 and $341,000 for 1999, 1998 and 1997, respectively. The
increase in 1999 prior year incurred losses is due to loss development in
non-standard personal automobile, which we are exiting, and commercial property
and liability lines. The increase in 1998 and 1997 prior years' incurred losses
is due primarily to loss development in non-standard personal automobile
liability.
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In addition, 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 our future loss experience.
Accordingly, there can be no assurance that our reserves will be adequate to
cover ultimate loss development. If our reserves should prove to be inadequate,
we will be required to increase reserves with a corresponding reduction in 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 our business, results of operations or financial condition.
We are heavily regulated and changes in the regulation of the insurance
industry may have an adverse impact.
We are subject to regulation, primarily from Pennsylvania, our domiciliary
state, and to a lesser degree, the 35 other states in which we are an admitted
insurer. The regulations are generally designed to protect the interests of
insurance policyholders, as opposed to the interests of stockholders. These
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 our business. Failure
to comply with certain provisions of applicable insurance laws and regulations
or significant changes in these laws and regulations could have a material
adverse effect on our business, results of operations or financial condition.
We may not be able to maintain required adequate capital.
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. 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, 1999 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.
Our agents have the authority to bind us to unprofitable policies.
We underwrite a substantial majority of our commercial policies on a
binding authority basis (approximately 97.8% in 1999, which generated
approximately 96.5% of the Company's commercial lines gross written premiums).
We generally have 60 days from the effective date to cancel a policy if the risk
insured does not comply with our underwriting guidelines. In the event that a
general agent exceeds its authority by binding us on a risk, which does not
comply with our underwriting guidelines, we are at risk for that policy until we
receive the policy and effect a cancellation. We generally require general
agents to deliver all policies to us within 35 days of the date written. There
can be no assurance that the general agents will bind us within the limits of
our underwriting guidelines or deliver policies to us in a timely manner. As a
result, we may be bound by a policy which does not comply with our underwriting
guidelines and, until we can effect a cancellation, we may incur loss and loss
adjustment expenses related to that policy.
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We operate in a highly competitive market.
We compete in the property and general liability insurance business with
numerous domestic and international insurers. Many of our 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 we do, and we 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 our ability to attract business at premium
rates which are likely to generate underwriting profits, and could have a
material adverse effect on our business, results of operations or financial
condition.
Our financial rating may drop, resulting in a loss of new or repeat
business.
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 our business, results of operations or financial condition, as current
and future customers may choose other, higher rated, competitors. There can be
no assurance that we will be able to maintain Penn-America's A.M. Best rating.
Our holding company structure makes us reliant on dividends from our
subsidiaries, which are restricted by regulation and other financial
considerations.
As an insurance holding company, we are primarily dependent on dividends
and other permitted payments from Penn-America to provide for the payment of any
cash dividends to its stockholders. The payment of dividends to us by
Penn-America and to Penn-America by Penn-Star is subject to state regulations,
primarily the insurance laws of Pennsylvania. Generally, these laws provide
that, unless prior approval is obtained, dividends of a property and casualty
insurance company in any consecutive 12-month period shall not exceed the
greater of 100% of its statutory net income for the most recent calendar year or
10% of its statutory policyholders' surplus as of the preceding year end. The
maximum annual dividends payable by Penn-America without prior approval in 2000
is approximately $6,950,000. In 1999, Penn-America paid dividends of $14.5
million, of which $12.5 million were extraordinary dividends requiring prior
approval from the state of domicile's Insurance Department. Insurance regulators
have broad powers to prevent reduction of statutory surplus to inadequate
levels, and there is no assurance that dividends of the maximum amounts
calculated under any applicable formula would be permitted. In addition, we
signed a commitment letter with First Union National Bank for a $25 million
revolving line of credit, which will further restrict our ability to pay
dividends.
The continued payment of dividends 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. Our current annual dividend is $0.21 per
share.
We receive significant services from Insiders who hold a considerable
amount of our stock.
Currently, Mr. Irvin Saltzman and his family, substantially through their
ownership of Penn Independent Corporation, the Company's controlling
stockholder, beneficially own approximately 40% of our outstanding Common Stock.
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We receive services from executives (including Mr. Irvin Saltzman and Ms.
Jami Saltzman-Levy), staff and administrative personnel of Penn Independent,
including services in connection with our investment portfolio and human
resource administration and related services. Also, we have 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 1999, we were charged 33% ($66,500) of the amounts incurred by Penn
Independent for insurance, telecommunications, postage and office supplies.
Additionally, we paid to Penn Independent approximately $133,500 for the
services of Penn Independent personnel for executive, human resource
administration, investment advisory (Mr. Irvin Saltzman) and other related
support services.
Our headquarters in Hatboro, Pennsylvania are occupied pursuant to a lease,
effective June 30, 1995, with Mr. Irvin Saltzman, Chairman of the Board of
Directors. The lease is for an initial term of five years and we have one
five-year renewal option thereafter. The parties have agreed to renew the lease
for an additional five-year term. The parties are currently negotiating the
terms of the new lease. In no event will the rent be increased to an amount
greater than 50% of the cumulative change in the Philadelphia area Consumer
Price Index during the new lease term. The current rent is $281,112 per year and
we are required to pay our pro rata share of all increases in the base year of
taxes, fees, assessments and expenses on the entire office facility. As of March
31, 2000, there was no pro rata share charge. Management believes that the
amount being paid under the lease represents a fair market value annual rental
charge.
Several of Penn Independent's wholly-owned subsidiaries are insurance
agencies that write business with Penn-America. During the year ended December
31, 1999, the business written by these agencies for Penn-America represented
1.8% ($1,732,000) of the business of Penn-America. We believe that its
arrangements with these agencies are on terms no more favorable than they would
otherwise be if these agencies were unaffiliated third parties.
We depend on key personnel.
The efforts and abilities of our present management, particularly that of
Jon S. Saltzman, President and Chief Executive Officer, are very important to
our success. If we 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 our business, results of operations or financial condition. We do not
have employment agreements with any employee, but during 1999, we maintained key
personnel life insurance policies on Jon S. Saltzman, John M. DiBiasi and
Rosemary R. Ferrero (Vice President--Finance, Chief Financial Officer and
Treasurer).
We rely on our ability to obtain reinsurance.
We currently purchase reinsurance, which allows us to write more direct
insurance and at greater limits than we otherwise could. Our current treaty
reinsurance is with General Reinsurance Corporation. For catastrophe losses, we
are covered by a consortium of insurers which include General Reinsurance 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 us to the same
extent, and at the same cost, as it has in the past.
The maintenance of reinsurance does not legally discharge us from our
primary liability for the full amount of the risks we insure, although it does
make the reinsurer liable to us. Therefore, we are subject to credit risk with
respect to our reinsurers. Our reinsurance recoverable is
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primarily with General Reinsurance. Although management believes that our
reinsurance is maintained with financially stable reinsurers and that its
reinsurance support is adequate to protect its interests, the insolvency of
General Reinsurance or any other reinsurer, or their inability to make payments
under the terms of a reinsurance treaty, could have a material adverse effect on
our business, results of operations or financial condition. We may choose in the
future to re-evaluate the use of reinsurance to increase, decrease or eliminate
the amount of risk we cede to reinsurers.
The Plan provides for certain restrictions on your ability to sell stock
awarded to you.
The Plan provides for the qualifying agent to receive 25% of their award in
our stock, with an election to receive the remaining award balance in either
additional shares of 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 stock. In
addition to the amount received in stock and cash, a qualifying agent will be
entitled to receive stock options for policy years 1999 and later in accordance
with the provision of the Plan. 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, we will
award a one-time award of stock with a total value of $1,000. We will retain the
awarded stock certificates until the expiration of one year from the date of the
initial agency agreement signing, at which time we will deliver the awarded
certificates.
Plan participants are generally unsecured creditors and may not receive
awards under the Plan in cases of insolvency.
Participants in the Plan are generally unsecured creditors, and in the
event of our insolvency, there could be insufficient assets to pay the
Participants according to the terms of the Plan.
The value of the stock participants elect to receive may drop prior to
their receipt of the stock.
Participants are at risk should a decline in the value of the stock
distributed in accordance with the Plan occur 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 June 1. Participants will not be able to change their
elections to receive stock during this period.
USE OF PROCEEDS
The shares of common stock issued under the Plan will be issued as payment
of a bonus award payable to our general agents. We will receive no cash proceeds
from the issuance of shares under the Plan.
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THE PLAN
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
o There is a two-year waiting period for eligibility owing to loss
development.
o If the general agent satisfies all requirements, you are eligible for
your first payment by June 1 of the second year following the year of
initial eligibility.
o To initially qualify, the agent must have written at least $500,000
total calendar year premium according to our books as of December
31st.
o To remain eligible in succeeding calendar years, the agent must write
at least 90 percent of the previous year's total written premium,
subject to the $500,000 total premium minimum. This 90 percent
requirement is waived in any year the agent writes in excess of $1
million in premium.
o The agent must maintain E&O coverage in conformity with our standards
for such coverage.
o The agent must agree that our records are final.
Plan Components
The Plan has two components.
o New Agent Award. The Company will award to a new agent a one-time
award of common stock with a total value of $1,000. The award will be valued as
of the closing price on the day we execute the initial agency agreement and will
be rounded to the closest whole share. No cash equivalent will be granted.
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 are established for general liability, property coverages and
commercial automobile liability. Payments are based on a profit calculation
formula applied to the loss development of the business over three policy years.
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 target policy year loss ratios and the agency's
actual loss ratio.
10
<PAGE>
Payment Schedule
For all commercial lines of business, payments are made in three annual
installments of one third each of the agency profit share. Because a "policy
year" could actually cover 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).
Modification of the Profit Sharing Plan
We have 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," we 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 us. If the general agency agreement remains in effect at the expiration of
the one-year period, we will deliver a stock certificate for the number of
shares granted pursuant to the "New Agent Award."
Stock, Cash, and Option Payments Under the Plan
o Under the Plan, 25% of all compensation due to an agency under the
Plan will be distributed in shares of stock, rounded up to the nearest even
share. For purposes of these calculations, stock will be valued at its New York
Stock Exchange closing 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 choice, exercisable by notice to us, of
taking a specified greater percentage (either 50%, 75% or 100%) of its profit
sharing compensation in stock.
o In addition to the amount to which the agent is entitled for their
profit sharing in a given year, the agent is entitled to receive stock options
based on the following formula: Their profit sharing for the policy years 1999
and later, times 10%, divided by the stock price on the date of grant. The
options will vest as of the date of grant and will be exercisable for a period
of five (5) years from the date of grant.
o The stock will be delivered to the agency by June 1, 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.
11
<PAGE>
LEGAL MATTERS
The validity of the shares of the Common Stock offered by this Prospectus
and certain other legal matters will be passed upon for us by Reed Smith Shaw &
McClay LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements and schedules at December 31, 1999
and for the year then ended included or incorporated by reference in
Penn-America Group, Inc.'s Annual Report (Form 10K) for the year December 31,
1999 have been audited by Ernst & Young LLP, independent auditors, and at
December 31, 1998 and for each of the two years in the period ended December 31,
1998 by KPMG LLP, independent auditors, as set forth in their respective reports
incorporated herein by reference, and are included in reliance upon such reports
given on the authority of such firms as experts in accounting and auditing.
12
<PAGE>
------------------ -----------------
175,000 Shares of Common Stock
PENN-AMERICA GROUP, INC.
------------------
Page
The Company................... 3 ------------------
Risk Factors.................. 4
Use of Proceeds............... 9 PROSPECTUS
The Plan...................... 10
Legal Matters................. 12 ------------------
Experts....................... 12
March 29, 2000
------------------ -----------------
13
<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 ........................ $ 394.09
Blue Sky Fee and Expenses.................... ---
Accounting Fees and Expenses ................ 3,000.00
Legal Fees and Expenses ..................... 2,500.00
Miscellaneous ---
----------
Total $5,894.09
==========
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
3.1 Articles of Incorporation, filed with registrant's Registration
Statement on Form S-1 (No. 33-66892), filed with the Securities and
Exchange Commission on August 2, 1993.
3.2 Bylaws of the Company, filed with the Securities and Exchange
Commission on August 2, 1993.
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) Consents of Ernst & Young LLP and KPMG LLP
14
<PAGE>
Item 17. Undertakings
(a) 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.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the
change in volume and price represent no more than 20% change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
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.
(b) 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
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
15
<PAGE>
(h) 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 policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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 29, 2000.
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/ Irvin Saltzman Chairman of the Board of Directors March 29, 2000
- ------------------------ and Director
Irvin Saltzman
/s/ Jon S. Saltzman President, Chief Executive March 29, 2000
- ------------------------ Officer and Director (Principal
Jon S. Saltzman Executive Officer)
/s/ Robert A. Lear Director March 29, 2000
- ------------------------
Robert A. Lear
/s/ Rosemary R. Ferrero Vice President-Finance, and March 29, 2000
- ------------------------ Treasurer (Principal Financial
Rosemary R. Ferrero and Accounting Officer)
/s/ Garland P. Pezzuolo Secretary and General Counsel March 29, 2000
- ------------------------
Garland P. Pezzuolo
/s/ Paul Simon Director March 29, 2000
- ------------------------
Paul Simon
/s/ Charles Ellman Director March 29, 2000
- ------------------------
Charles Ellman
/s/ M. Moshe Porat Director March 29, 2000
- ------------------------
M. Moshe Porat
/s/ Jami Saltzman-Levy Director March 29, 2000
- ------------------------
Jami Saltzman-Levy
17
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation, filed with registrant's Registration
Statement on Form S-1 (No. 33-66892), filed with the Securities and
Exchange Commission on August 2, 1993.
3.2 Bylaws of the Company, filed with the Securities and Exchange
Commission on August 2, 1993.
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) Consents of Ernst & Young LLP and KPMG LLP
Exhibit 4
GENERAL AGENCY PROFIT SHARING ADDENDUM
THIS ADDENDUM, effective * forms part of the agreement between PENN-AMERICA
INSURANCE COMPANY and PENN-STAR INSURANCE COMPANY (hereinafter referred to as
"Companies") and [[agency]] (hereinafter referred to as "Agent"), dated
[[date]].
I. INTRODUCTION
A. This plan is designed to reward you for your favorable underwriting
results on a policy year loss ratio basis.
B. Payments of your Agency Profit Sharing under this Addendum will be
made 25% in stock of the Companies' parent, Penn-America Group, Inc.
("PAGI") ("PAGI Stock" or "Stock") and 75% in cash though you can
choose to be paid 50%, 75%, or 100% in shares of stock. Payments will
be in accordance with the provisions of Section IV below. This change
applies to Profit Sharing payments made beginning in May of 2000.
C. In addition to the amount which you receive for your profit sharing in
a given year, you are entitled to receive stock options for policy
years 1999 and later in accordance with the provisions of Section III
below.
II. HOW YOUR AGENCY QUALIFIES FOR THE PLAN
A. There is a two-year waiting period for eligibility owing to loss
development.
B. If you satisfy all requirements, you are eligible for your first
payment by June 1 of the second year following the year of initial
eligibility.
C. To initially qualify you must have written at least $500,000 total
calendar year premium according to the Companies' books as of December
31st.
D. To remain eligible in succeeding calendar years, you must write at
least 90 percent of the previous year's total written premium, subject
to the $500,000 total premium minimum. This 90 percent requirement is
waived in any year you write in excess of $1 million in premium.
E. You must maintain E&O coverage in conformity with the Companies'
standards for such coverage.
F. You agree that the Companies' records are final.
1
<PAGE>
III. THE PLAN
A. Eligible Lines of Business include only the following and will be
evaluated at the end of the second, third, and fourth years. At the
end of each year, you will receive one-third (1/3) of the profit
sharing payment for that year:
1. CMP and Garage Liability includes Section II of commercial multi
peril, liquor liability, garage liability, and when written as
part of commercial multi peril professional liability classes and
increased limits general liability.
2. Monoline General Liability includes general liability, liquor
liability, professional liability and increased general liability
limits when written on a monoline basis.
3. Commercial Automobile Liability includes bodily injury, property
damage, uninsured and underinsured motorists, personal injury
protection, medical payments, and hired and non-owned coverages.
4. Property Business includes Section I of commercial multi peril,
monoline fire and allied lines, crime, glass, inland marine,
automobile physical damage, dealers open lot, and garage keepers
liability.
NOTE: Any classes not specifically mentioned above are not included in
the Plan.
B. Your loss ratio is calculated on a policy-year basis, earned to
incurred. Incurred losses include indemnity paid, reserves, and loss
adjustment expenses and credit for salvage and subrogation.
C. Your profit sharing will be calculated for each policy year you
continue to remain eligible as of March 31; if you qualify, you will
be paid by June 1.
D. The profit calculation includes the following "loss ratios":
o "Desired loss ratio" is the target. A loss ratio below the
Desired loss ratio will generate profit subject to the Floor. A
loss ratio above the Desired loss ratio will reduce profit in
other lines of business subject to the Ceiling.
o "Ceiling loss ratio" - If you are above this figure, the
calculation will be completed using this figure (a sort of "stop
loss").
o "Floor loss ratio" - If you are below this figure, the
calculation will be completed using this figure (a sort of "stop
gain").
2
<PAGE>
E. Because the policy-year formula is used, there is no need for loss
carry forwards or stop losses - each year stands alone.
F. The "Desired" loss ratio is the ratio which your agency loss ratio
must be below to be eligible for profit sharing. The "Floor" loss
ratio is the lowest loss ratio eligible for profit sharing as any loss
ratio below the floor is calculated using the floor. Similarly, the
"Ceiling" loss ratio limits the amount by which a loss ratio above the
ceiling will reduce profits in other classes of business.
G. The current annual "Companies' Desired, Floor, and Ceiling Loss
Ratios" are:
<TABLE>
<CAPTION>
Pay Out Floor Desired Ceiling
Class of Business Year Ratio Loss Ratio Ratio
----------------- ---- ----- ---------- -----
<S> <C> <C> <C> <C>
CMP and Garage Liability 1st Year 12.50% 27.50% 42.50%
2nd Year 17.50% 37.50% 57.50%
3rd Year 30.00% 47.50% 65.00%
Commercial Auto Liability 1st Year 27.50% 40.00% 52.50%
2nd Year 35.00% 47.50% 60.00%
3rd Year 37.50% 50.00% 62.50%
Monoline General Liability 1st Year 12.50% 20.00% 27.50%
2nd Year 17.50% 25.00% 32.50%
3rd Year 25.00% 35.00% 45.00%
Property Business 1st Year 40.00% 50.00% 60.00%
2nd Year 40.00% 55.00% 70.00%
3rd Year 40.00% 55.00% 70.00%
</TABLE>
3
<PAGE>
EXAMPLE:
Policy Year 1999 - Total Written Premium Volume $1,400,000:
- ----------------------------------------------------------
(CMP Liability Written Premium = $300,000)
(Monoline Liability Written Premium = $500,000)
(Commercial Auto Written Premium = $100,000)
(Property Written Premium = $500,000)
<TABLE>
<CAPTION>
Profit Calculation:
(Subtract commission paid from Per Year
earned premium; multiply by Pay Out Value
1999 difference between Companies (1/3 of 1/2
Policy Year Company Agency Desired Loss Ratio and Agency agency
Valued Class of Desired Actual Actual Loss Ratio; divide by half to portion) of
As Of Business Loss Ratio Loss Ratio establish value of Agency portion) expected profit
- ----- -------- ---------- ---------- --------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
3/31/01* CMP and Garage 27.50% 15.00% Earned Premium = $300,000 $4,875
Liability - $66,000 commission paid
$234,000 x 12.5% = $29,250
$29,250 / 2 = $14,625
Monoline General 20.0% 12.5% Earned Premium = $500,000 $4,875
Liability - $110,000 commission paid
$390,000 x 7.5% = $29,250
$29,295 / 2 = $14,625
Commercial Auto 40.0% 30.0% Earned Premium = $100,000 $1,300
- $22,000 commission paid
$78,000 x 10.0% = $7,800
$7,800 / 2 = $3,900
Property 50.0% 55.0% Earned Premium = $500,000 $(3,250)
- $110,000 commission paid
$390,000 x -5.0% = $(19,500)
$(19,500) / 2 = $(9,750)
1999 First Payout $7,800
------
</TABLE>
*Note: First Year loss ratios below the Floor will be evaluated at the
Floor percentage above. First Year loss ratios above the Ceiling
will be evaluated at the Ceiling percentage above.
4
<PAGE>
EXAMPLE (Cont.):
<TABLE>
<CAPTION>
Profit Calculation:
(Subtract commission paid from Per Year
earned premium; multiply by Pay Out Value
1999 difference between Companies (1/3 of 1/2
Policy Year Company Agency Desired Loss Ratio and Agency agency
Valued Class of Desired Actual Actual Loss Ratio; divide by half to portion) of
As Of Business Loss Ratio Loss Ratio establish value of Agency portion) expected profit
- ----- -------- ---------- ---------- --------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
3/31/02* CMP and Garage 37.5% 20.0% Earned Premium = $300,000 $6,825
Liability - $66,000 commission paid
$234,000 x 17.5% = $40,950
$40,950 / 2 = $20,475
Monoline General 25.0% 17.5% Earned Premium = $500,000 $4,875
Liability - $110,000 commission paid
$390,000 x 7.5% = $29,250
$29,250 / 2 = $14,625
Commercial Auto 47.5% 35.0% Earned Premium = $100,000 $1,625
Liability - $22,000 commission paid
$78,000 x 12.5% = $9,750
$9,750 / 2 = $4,875
Property 55.0% 40.0% Earned Premium = $500,000 $9,750
- $110,000 commission paid
$390,000 x 15% = $58,500
$58,500 / 2 = $29,250
1999 Second Payout $23,075
-------
*Note: Second Year loss ratios below the Floor will be evaluated at the
Floor percentage above. Second Year loss ratios above the Ceiling
will be evaluated at the Ceiling percentage above.
3/31/03* CMP and Garage 47.5% 30.0% Earned Premium = $300,000 $6,825
Liability - $66,000 commission paid
$234,000 x 17.5% = $40,950
$40,950 / 2 = $20,475
Monoline General 35.0% 25.0% Earned Premium = $500,000 $6,500
Liability - $110,000 commission paid
$390,000 x 10.0% = $39,000
$39,000 / 2 = $19,500
Commercial Auto 50.0% 40.0% Earned Premium = $100,000 $1,300
Liability - $220,000 commission paid
$78,000 x 10.0% = $7,800
$7,800 / 2 = $3,900
Property 55.0% 40.0% Earned Premium = $500,000 $9,750
- $110,000 commission paid
$390,000 x 15.0% = $58,500
$58,500 / 2 = $29,250
1999 Third Payout $24,375
-------
*Note: Third Year loss ratios below the Floor will be evaluated at the
Floor percentage above. Third Year loss ratios above the Ceiling
will be evaluated at the Ceiling percentage above.
Total three-year Value of Pay Out for Policy Year 1999: $55,250
=======
</TABLE>
5
<PAGE>
The above examples only reflect calculations and payments for the 1999
policy year. It is possible that you may be paid on more than one
policy-year statement in a given year as calculations for subsequent
policy-year statements are made assuming you maintain eligibility each
year.
Example: In 2003 you could be paid profit sharing payments based upon
property experience from policy years 1999, 2000, and 2001.
H. In addition to the amount to which you are entitled for your profit
sharing in a given year, you are entitled to receive stock options
based on the following formula: Your profit sharing for the policy
years 1999 and later times 10% divided by the stock price on the date
of grant. The options will vest as of the date of grant and will be
exercisable for a period of five (5) years from the date of grant.
For example, if your payments for the 1999 policy year in 2001, 2002,
and 2003 are $7,800, $23,075, and $24,375 and the stock price on March
31, 2001, 2002, and 2003 is $12, $14, and $16, your options would be
calculated as follows:
<TABLE>
<CAPTION>
Stock
Profit Price # of
Policy Pmt Sharing Formula Divided 3/31 of Options Vesting Exercisable
Year Year Amount % by Pmt Year Granted Date Through
---------- -------- ---------- --- ---------- ---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 2001 $7,800 X 10% / $12 65 3/31/01 3/31/06
1999 2002 $23,075 X 10% / $14 165 3/31/02 3/31/07
1999 2003 $24,375 X 10% / $16 152 3/31/03 3/31/08
---
Total three-year options granted for policy year 1999 382
===
</TABLE>
IV. PAYMENTS TO YOU UNDER THE PLAN
A. Allocation of Profit Sharing between stock and cash:
1) You may, at your option, exercisable by written notice to the
Companies received by us on or before March 15, take either 25%,
50%, 75%, or 100% of your Profit Sharing in shares of PAGI stock.
2) For purposes of the calculation, any portion of your payment in
PAGI Stock will be valued as of the median between the bid and
asked price for the Stock as of the March 31 profit sharing
calculation date. If the stock markets are closed on that date,
the valuation will be made on the same basis as of the nearest
previous business day.
6
<PAGE>
3) Notwithstanding the above, if the value of your Profit Sharing is
less than $2,500, payment of the Profit Sharing will be made
entirely in cash.
B. Payment Due Date:
1) Your Profit Sharing will be distributed to you by June 1.
2) Shares of stock distributed to you will be delivered free of all
commissions and transaction costs.
C. Your Profit Sharing will be subject to income tax in accordance with
applicable IRS laws and regulations. Stock distributed to you under
the Plan may not be sold until after August 1 of the same year and
will be legended accordingly.
V. TERMINATION
A. If your General Agency Agreement is terminated by either party, the
program also terminates, with the final calculation and pro-rata
payment made at June 1 of the following year.
B. The plan may be terminated or amended by us at any time without cause,
but existing obligations will be honored.
C. Profit Sharing Upon Termination. Upon termination of this Addendum for
any reason:
1) Before the end of a full calendar year, its terms and conditions
shall apply to all prior calendar years in which this Addendum
was in effect, without proration and without allowance for the
portion of the year in which this Addendum was terminated; and
2) The Agency's right to Profit Sharing shall cease on December 31
of the year preceding the year in which termination is effective,
notwithstanding the continuance in force and effect of any
unexpired policies or binders after such calendar year.
3) In the event of termination of the General Agency Agreement by
either party, this Addendum shall terminate simultaneously and
the Agency shall not be eligible for Profit Sharing in the
termination or succeeding years.
D. If the General Agency Agreement is terminated by us because of a
breach of its terms by you and/or in accordance with any of the terms
of paragraphs 9 (iii) or (iv) of the General Agency Agreement, there
shall be no further calculations made, nor profit sharing payments
made.
7
<PAGE>
VI. GENERAL
This Profit Sharing Program constitutes the entire and exclusive agreement
between Companies and Agency on the subjects of profit sharing (contingent
commissions), and supersedes any and all prior or contemporaneous
agreements, representations, and understandings, written and oral, on these
subjects. The undersigned signatories hereby warrant that they have full
power and authority to execute this Addendum on behalf of the respective
parties thereto.
IN WITNESS WHEREOF, this Addendum has been executed in duplicate by the parties
hereto.
DATE: *
----------
PENN-AMERICA INSURANCE COMPANY
PENN-STAR INSURANCE COMPANY [[agency]]
By: By:
-------------------------------- ------------------------------
John M. DiBiasi, CPCU [[attention]]
Executive Vice President [[title2]]
8
Exhibit 5
and 23(A)
LETTERHEAD OF REED SMITH SHAW & MCCLAY LLP
(215) 851-8100
March 28, 2000
Penn-America Group, Inc.
420 S. York Road
Hatboro, PA 19040
Re: Penn-America Group, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Penn-America Group, Inc., a Pennsylvania
corporation (the "Company"), in connection with the Company's Registration
Statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission on the date hereof pursuant to the Securities Act of
1933, as amended (the "Act"), for the registration of 175,000 shares of the
Company's Common Stock (the "Shares").
In connection with our opinion, we have reviewed and relied upon the
Registration Statement; the Prospectus included in the Registration Statement;
the Articles of Incorporation and the Bylaws of the Company; certified copies of
resolutions of the board of directors of the Company authorizing the issuance of
the Shares, and the filing of, and the transactions described in, the
Registration Statement; and such other records, documents, instruments and
certificates of public officials and of the Company as we have deemed necessary
for the purposes of rendering the opinion herein set forth. In making such
examination, we have assumed the genuineness of all signatures and the
authenticity of all items submitted to us as originals and the conformity with
originals of all items submitted to us as copies.
Based upon and subject to the foregoing, and subject to the qualifications
set forth herein, we are of the opinion that the Shares have been duly
authorized and, after being duly issued and sold in accordance with the terms
set forth in the Registration Statement, will be validly issued, fully paid and
non-assessable.
Our opinions expressed herein are limited to the laws of the Commonwealth
of Pennsylvania and the federal laws of the United States.
We hereby consent to the use of this opinion for filing with the
Registration Statement as an exhibit to the Registration Statement and to the
references to this firm under the caption "Legal Matters" in the Registration
Statement.
Very truly yours,
/s/ REED SMITH SHAW & McCLAY LLP
MBP/SCR/CEE
Exhibit 23(B)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Form S-3 and related Prospectus of the Penn-America
Group, Inc. for the registration of 175,000 shares of its common stock and to
the incorporation by reference therein of our report dated January 21, 2000 with
respect to the 1999 consolidated financial statements of the Penn-America Group,
Inc. incorporated by reference in its Annual Report on Form 10-K for the year
ended December 31, 1999 and the related 1999 financial statement schedules
included therein, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 27, 2000
<PAGE>
Exhibit 23(B)
Independent Auditors' Consent
The Board of Directors
Penn-America Group, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
XX-XXXXX) on Form S-3 of Penn-America Group, Inc. of our reports dated January
22, 1999, relating to the consolidated balance sheet of Penn-America Group, Inc.
and subsidiaries as of December 31, 1998, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1998, and all related schedules,
which reports appear in the December 31, 1999 annual report on Form 10-K of
Penn-America Group, Inc.
/s/KPMG LLP
Philadelphia, Pennsylvania
March 27, 2000