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 17, 2000
The Annual Meeting of Shareholders (the "Meeting") of Penn-America
Group, Inc., a Pennsylvania corporation (the "Company"), will be held on May 17,
2000 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 2001 and until their respective successors are duly elected and
qualified;
2. 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,
2000 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 7, 2000
Annual Reports to Shareholders, including financial statements, are
being mailed to shareholders together with these proxy materials, commencing on
or about April 7, 2000.
<PAGE>
PENN-AMERICA GROUP, INC.
420 S. York Road
Hatboro, Pennsylvania 19040
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 17, 2000
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 17, 2000, 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 7, 2000.
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 to the Board of Directors in the election of directors.
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, 2000, there were outstanding
7,719,161 shares of the Company's Common Stock, $.01 par value ("Common Stock").
Each shareholder of record at the close of business on March 31, 2000 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.
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,
1
<PAGE>
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, 2000
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, 2000, there were 7,719,161 shares of the
Company's Common Stock outstanding. Unless otherwise specified, the named
beneficial owner has sole voting and investment power. The information in the
table below was furnished by the persons listed.
<TABLE>
<CAPTION>
Amount Beneficially Percent
Name of Beneficial Owner Owned(1)(2) of Class
<S> <C> <C>
Penn Independent Corporation............................. 3,087,500 40.0%
420 S. York Road
Hatboro, PA 19040
Irvin Saltzman........................................... 3,184,700 (3) 41.3%
420 S. York Road
Hatboro, PA 19040
Jon S. Saltzman......................................... 3,192,650 (4) 41.4%
Jami Saltzman-Levy....................................... 3,088,400 (5)(6) 40.0%
E. Anthony Saltzman...................................... 3,087,500 (7) 40.0%
Robert A. Lear........................................... 51,000 *
Rosemary R. Ferrero...................................... 21,500 (8) *
James E. Heerin, Jr...................................... 21,250 *
John M. DiBiasi.......................................... 51,033 (9) *
Thomas P. Bowie.......................................... 8,130 *
M. Moshe Porat, Ph.D., CPCU.............................. 43,000 (10) *
Charles Ellman........................................... 114,000 (11) 1.5%
Paul Simon............................................... 11,500 *
Avenir Corporation....................................... 874,422 11.3%
Goldman Sachs Asset Management........................... 688,850 8.9%
Dimensional Fund Advisors, Inc........................... 562,500 7.3%
Kestrel Investment Management
Corporation...................................... 477,900 6.2%
All executive officers and directors.....................
as a group (11 persons)............................ 3,612,163 46.8%
- ------------
* Less than 1%
<FN>
(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: 9,000 shares for Mr. Jon Saltzman, 6,000
shares for Mr. DiBiasi, 4,500 shares for Ms. Ferrero and 8,000 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, 36,000 for Dr. Moshe Porat, 31,500
for Mr. Ellman, and 9,000 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. E. 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 8,150 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. E.
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. E. 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. E. Anthony Saltzman
also owns 0.1% of the outstanding voting securities of Penn Independent in
his own name.
(8) 6,000 of such shares are owned jointly with her spouse
(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.
</FN>
</TABLE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees for Election
At the Meeting, the shareholders will elect seven (7) directors to hold
office until the Annual Meeting of Shareholders in 2001 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, Robert A. Lear, Jami Saltzman-Levy, M. Moshe Porat and
Paul Simon. 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> <C>
Irvin Saltzman............. 77 1993 Chairman, Director
Jon S. Saltzman............ 42 1993 President and Chief Executive Officer, Director
Robert A. Lear............. 54 1993 Director
Charles Ellman............. 71 1994 Director
Jami Saltzman-Levy......... 43 1994 Director
Dr. M. Moshe Porat......... 53 1994 Director
Paul Simon................. 71 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
40.0% 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. Lear has been President and Chief Executive Officer of Penn Independent
since September 1996 and previously served as Executive Vice President-Finance
from 1994 to August 1996. He was Vice President-Finance and Chief Financial
Officer of the Company from its formation in July 1993 until March 1995. Mr.
Lear is a Director of Dynasil Corporation of America since February 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.
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.
Ms. Saltzman-Levy has been Vice President-Human Resources of Penn
Independent from 1985 to the present and a Director of Penn-America since 1991.
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 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.
4
<PAGE>
Meetings and Committees of the Board of Directors
The Board of Directors ("Board") held six meetings in 1999. The Board has
established a Compensation and Stock Option Committee, an Audit Committee and a
Nomination Committee.
The Compensation and Stock Option Committee met four times in 1999. 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 three times in 1999. Messrs. Ellman and Simon and
Dr. Porat are the current members of the Committee with Mr. Ellman serving as
Chairman. Mr. Simon joined the Committee on May 19, 1999, succeeding Thomas M.
Spiro, who resigned as a Director. 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 1999. In February 2000, the
Nominating Committee met and recommended the nominees for election to the Board
of Directors. Current members of the Committee include Messrs. Simon and Ellman
and Dr. Porat, with Mr. Simon as the Chairman. Mr. Simon succeeded Mr. Spiro as
a member (and Chairman) of the Committee, effective May 19, 1999. 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.
All Directors attended 75% or more of the Board and Committee Meetings in
the aggregate, but for Mr. Simon who attended 46% of the Board and Committee
Meetings.
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 most highly paid executive officers ("named
executive officers") during 1999.
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation Awards
Number of
Name and Other Annual Restricted Securities All Other
Principal Bonus Compensation Stock Underlying Compensation
Position Year Salary($) ($)(2)(3) ($) Award(s)($)(4) Options(#) ($)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
Jon S. Saltzman 1999 300,000 0 0 45,160 0 5,000
President, Chief 1998 310,308 117,000 0 58,006 0 4,999
Executive Officer 1997 259,192 184,950 0 236,250 0 2,505
John M. DiBiasi 1999 190,000 0 0 30,461 0 5,000
Executive Vice 1998 196,800 58,333 0 39,561 0 5,000
President 1997 180,327 86,646 0 157,500 0 3,716
Rosemary R. Ferrero 1999 163,500 0 0 22,845 0 4,963
Vice President, 1998 169,327 50,000 0 29,670 0 5,000
Chief Financial 1997 155,493 50,000 0 118,125 0 3,658
Officer
Thomas P. Bowie 1999 131,181 0 0 8,000 0 0
Sr. Vice President,
Claims
J. Ransley Lennon 1999 100,000 0 0 0 0 3,000
Vice President, 1998 103,539 15,513 0 0 0 3,374
Information 1997 89,231 11,400 0 0 0 2,316
Technology
<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) Any bonus awarded represents a bonus for the prior year's services.
(3) The amounts reflecting bonuses awarded to Messrs. Saltzman and DiBiasi and
Ms. Ferrero in 1997 include amounts that were earned in 1997 but paid in
1998 ($117,000 for Mr. Saltzman, $58,333 for Mr. DiBiasi and $50,000 for
Ms. Ferrero).
(4) Represents restricted stock awards granted to Mr. Saltzman (15,000 shares),
Mr. DiBiasi (10,000 shares), Ms. Ferrero (7,500 shares), and Mr. Bowie
(8,000 shares) which vest ratably over 5 years.
(5) Represents employer contributions to the Company's 401(k) Savings Plan.
</FN>
</TABLE>
Option/SAR Grants
No individual grants of stock options were made during fiscal year 1999 to
the Company's Chief Executive Officer or the named executive officers. The
Company does not currently have (and has not previously had) any plan pursuant
to which any stock appreciation rights ("SARs") may be granted.
6
<PAGE>
Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value Table
The following table sets forth information relating to options exercised
during 1999 by the Company's Chief Executive Officer and those named executive
officers in possession of options, as well as the number and value of such
options held on December 31, 1999. The Company does not currently have (and has
not previously had) any plan pursuant to which any stock appreciation rights
("SARs") may be granted.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1999
and Option Values at December 31, 1999
Number of Securities
Underlying
Shares Unexercised Value of Unexercised
Acquired Options at In-the-Money Options at
on Value Dec. 31, 1999 (#) Dec. 31, 1999($)(2)
---------------------------- -----------------------
Name Exercise (#)(1) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jon S. Saltzman 0 0 45,000 0 75,750 0
John M. DiBiasi 0 0 22,500 0 39,375 0
J. Ransley Lennon 0 0 12,750 0 22,313 0
- ------------
<FN>
(1) No Stock Options were exercised during fiscal year 1999 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, 1999 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 (Chairman) 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 the Company and its
employees, including executive officers. The Compensation Committee bases its
compensation recommendations upon information derived from multiple sources
including company 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 levels 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.
Executive Officers and Key Employees
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.
In 1999, compensation paid to the Company's executive officers could have
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.
But for Thomas P. Bowie who received an award of restricted shares of stock as a
signing
7
<PAGE>
bonus, no bonuses or grants of stock options were awarded to the executive
officers in 1999. Compensation paid to executive officers in 2000 may include
salary, cash, stock options, and/or restricted stock awards.
1993 Stock Incentive Plan
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 employees of the Company. The size of any annual stock option or
restricted share award is based on Company performance, 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
recognize employee performance and to align the interests of employees 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.
Key Employee Incentive Plan
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. No bonuses were awarded to any key employee in 1999.
The overall compensation payable under the Key Employee Incentive Compensation
Plan may not exceed 10% of Underwriting Earnings without prior approval of the
Committee, except that for 2000 the Board has waived this limitation and has
authorized a minimum of 50% of the award.
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
1999, the Committee evaluated his personal and company performance on both a
qualitative and quantitative level.
Employee Bonus Plan
While the Committee is not charged with establishing salaries and any cash
bonuses awarded to employees, the Committee is responsible for establishing
employee bonuses to the extent that any such bonus includes stock options or
restricted stock awards. In 1999, the Committee implemented an Employee Bonus
Plan, which is based on the 1993 Stock Incentive Plan, as amended and restated.
Under this Plan, employees may be awarded non-qualified stock options as part of
a bonus for a given year. The Committee is charged with establishing parameters
for employee bonuses, if any, under this Plan. In 1999, the Committee, with
approval of the Board, authorized the award of a designated number of
non-qualified stock options to eligible employees of the Company. The parameters
for any employee bonus in 2000 include the grant of cash and/or non-qualified
stock options, depending on company and individual performance during 2000.
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
8
<PAGE>
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 (Chairman)
Charles Ellman
Paul Simon
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are 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 and $5,000 for serving on committees, including chairing one
committee. An additional $500 is paid for each special meeting. The Company pays
all out-of-pocket expenses incurred by the Directors for attending meetings.
Under the Company's amended and restated 1993 Stock Incentive Plan, an
option grant of 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 December
31, 1994 through December 31, 1999, assuming an initial investment of $100 and
that dividends are reinvested annually.
[OBJECT OMITTED]
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
S&P Insurance Composite
Date PNG NYSE Composite Index Index
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 $100.00 $100.00 $100.00
12/31/95 $194.44 $133.94 $142.64
12/31/96 $222.19 $162.59 $177.26
12/31/97 $426.97 $215.93 $260.88
12/31/98 $192.82 $256.43 $271.82
12/31/99 $169.12 $285.06 $283.84
</TABLE>
9
<PAGE>
CERTAIN TRANSACTIONS
Headquarters Lease
The Company's headquarters in Hatboro, Pennsylvania are occupied pursuant
to a lease, effective June 30, 1995, between Mr. Irvin Saltzman, Chairman of the
Board of Directors, as landlord, and the Company. The lease is for an initial
term of five years and the Company has one five-year renewal option thereafter.
The 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 the Company is required to pay its 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 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, 1999, the business written by the Agencies for Penn-America
represented 1.8% ($1,732,000) of the business of Penn-America. Total commissions
paid to such Agencies were $441,000. Agents' balances receivable from affiliates
was $196,000. 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. Jami 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 1999, Penn-America was charged 33% ($66,500) of the amounts incurred by
Penn Independent for insurance, telecommunications, postage and office supplies.
Additionally, the Company paid to Penn-Independent approximately $133,500 for
the services of Penn Independent personnel for executive, human resource
administration (including Ms. Jami Saltzman-Levy), 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 owns a 3% (approximate) limited partnership interest in CDA. CDA
manages only the equity portfolio and was paid a total of $104,000 for services
rendered in calendar year 1999. 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 0.375%.
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.
10
<PAGE>
INFORMATION CONCERNING INDEPENDENT AUDITORS
The Board of Directors 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 Ernst and Young, the
auditors for December 31, 1999, 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, 1999 through December 31, 1999 were
made on a timely basis.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Annual
Meeting of Shareholders in 2001 must be received by the Company at its principal
office in Hatboro, Pennsylvania, no later than December 31, 2000, in order to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to the Meeting.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED BY THIS
PROXY STATEMENT, ON THE WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES
THERETO, AS FILED WITH THE SEC FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN
REQUEST SHOULD BE DIRECTED TO INVESTOR RELATIONS, AT THE ADDRESS OF THE COMPANY
APPEARING ON THE FIRST PAGE OF THIS PROXY STATEMENT.
11
<PAGE>
o FOLD AND DETACH HERE o
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 17,
2000 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.
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>
o FOLD AND DETACH HERE o
Unless otherwise specified, the shares will be voted "FOR" the election of all
seven nominees for director and "FOR" the other proposal set forth below.
[ x ] Please mark your vote FOR WITHHELD
as in this example. [ ] [ ]
1. Election of Directors (nominees as listed) Nominees: Irvin Saltzman,
Jon S. Saltzman, Charles Ellman, Robert A. Lear, Jami Saltzman-Levy,
M. Moshe Porat, Paul Simon
For, except vote withheld from the following nominee(s): ___________________
2. To vote on such other business which may properly come before the meeting.
Dated _____________________, 2000
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.
