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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under 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.:
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4) Date Filed:
[LOGO OMITTED]
April 12, 2004
Dear Shareholder:
With great pleasure, I have enclosed Penn-America's 2003 Annual Report to
Shareholders. It details the most successful year in the company's history, by
every measure, including gross written premiums, GAAP underwriting income,
operating income, net income and net cash provided by operations. As you know,
we shared this success with shareholders by increasing our cash dividend on our
common stock two times during 2003, and in February 2004, we increased the
dividend another 12% to the current annual rate of $.24 per share.
The enclosed report continues our tradition of featuring some of the general
agents and employees who are at the foundation of our success. It also reflects
our continuing effort to improve our efficiency in every aspect of the business:
you'll see that we have adopted the "10-K wrap" format to reduce the time and
costs associated with preparing this report.
I also have enclosed our Proxy Statement. It reflects changes we propose to
conform with the New York Stock Exchange regulation that requires us to have a
majority of independent directors on our board. To accomplish this, two Saltzman
family members, my sister, Jami Saltzman-Levy and my brother, Tony Saltzman will
not stand for re-election at the May 13 annual meeting. Both have served you
well and all of us are grateful for the many contributions they have made to our
success. We also have invited Martin Sheffield, CPCU, an independent financial
consultant, to stand for election to the board at the annual meeting. (Mr.
Sheffield served previously on our board, from May 2001 to January 2003, and we
would welcome his return.) As the result of these changes, and with the tragic
loss of our board member Paul Simon, we expect to reduce the total size of our
board from nine to seven members.
Paul Simon's unexpected death was a great loss to our company and to our nation.
Mr. Simon was best known for his distinguished service as a two-term United
States Senator, a presidential aspirant, the author of 13 books and his
reputation for honesty. During his tenure on our board, he served all of us
shareholders with great skill and humor. Many of us were very close with Paul
and we have been deeply saddened by his loss.
I thank you for your continued support as a shareholder. All of us at
Penn-America will continue to work diligently to earn it, year after year.
Sincerely,
/s/ Jon S. Saltzman
-------------------------------------
Jon S. Saltzman
President and Chief Executive Officer
[LOGO OMITTED]
PENN-AMERICA GROUP, INC.
420 S. York Road
Hatboro, Pennsylvania 19040
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 13, 2004
The Annual Meeting of Shareholders (the "Meeting") of Penn-America
Group, Inc., a Pennsylvania corporation (the "Company"), will be held on May 13,
2004 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 2005 and until their respective successors are duly
elected and qualified;
2. To approve an amendment to the Company's Certificate of Incorporation
to increase the Company's authorized Common Stock from 20,000,000
shares to 30,000,000 shares; and
3. To transact such other business as may properly come before the Meeting
and any and all adjournments and postponements thereof.
The Board of Directors has fixed the close of business on March 31,
2004 as the record date for the Meeting. Only shareholders of record at that
time are entitled to notice of and to vote at the Meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the
Company. The cost of soliciting proxies will be borne by the Company. Reference
is made to the accompanying Proxy Statement for further information with respect
to the business to be transacted at the Meeting.
All shareholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, you are urged to date,
sign and return the enclosed proxy promptly. Any shareholder attending the
Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
Garland P. Pezzuolo
Secretary
April 12, 2004
Annual Reports to Shareholders, including financial statements, are
being mailed to shareholders together with these proxy materials, commencing on
or about April 12, 2004.
1
[LOGO OMITTED]
PENN-AMERICA GROUP, INC.
420 S. York Road
Hatboro, Pennsylvania 19040
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 2004
-----------------------
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 13, 2004, at 420 S. York Road, Hatboro, Pennsylvania for the
purposes set forth in the foregoing notice of the Meeting. This Proxy Statement,
the foregoing notice and the enclosed proxy are being sent to shareholders on or
about April 12, 2004.
The Board of Directors knows of no matters that 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 and
"FOR" an increase in the number of shares of authorized Common Stock.
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
Each shareholder of record at the close of business on March 31, 2004
is entitled to one vote for each share held. At the close of business on March
15, 2004, there were outstanding 14,765,052 shares of the Company's Common
Stock, $.01 par value ("Common Stock"). 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. Relative to the proposal to increase
the number of shares of authorized Common Stock, and in approval of all other
matters to be submitted to the shareholders, an affirmative vote of a majority
of the votes cast at the Meeting is required. For purposes of determining the
number of votes cast with respect to any voting matter, only those cast "FOR" or
"AGAINST" are included. Abstentions and broker non-votes are counted only for
purposes of determining whether a quorum is present at the Meeting.
2
Security Ownership of Management and Principal Shareholders
The table below sets forth certain information as of March 15, 2004
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 President and CEO and the executive officers listed
in the Compensation Table on page 9, and (iv) all directors and executive
officers as a group. On March 15, 2004, there were 14,765,052 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.
Amount Beneficially Percent
Name of Beneficial Owner Owned (1)(2)(3) of Class**
------------------------ --------------------- ----------
Penn Independent Corporation............................. 4,631,250 30.4%
420 S. York Road
Hatboro, PA 19040
Irvin Saltzman........................................... 4,743,750 (4) 31.2%
420 S. York Road
Hatboro, PA 19040
Jon S. Saltzman.......................................... 4,815,525 (5) 31.6%
Jami Saltzman-Levy....................................... 4,632,635 (6) (7) 30.4%
E. Anthony Saltzman...................................... 4,631,250 (8) 30.4%
Richard L. Duszak........................................ 7,500 *
Charles Ellman........................................... 108,750 (9) *
Robert A. Lear........................................... 76,500 *
M. Moshe Porat, Ph.D., CPCU.............................. 70,300 (10) *
Martin Sheffield......................................... 5,000 *
Joseph F. Morris......................................... 52,496 *
J. Ransley Lennon........................................ 44,703 *
Garland P. Pezzuolo...................................... 13,533 (11) *
John D. Curry............................................ 15,340 *
Morgan Stanley........................................... 1,104,379 7.3%
FMR Corporation.......................................... 1,255,350 8.2%
All executive officers and directors
as a group (13 persons)............................ 5,323,532 35.0%
-----------
* Less than 1%
** Includes shares outstanding as of March 15, 2004, and stock options
exercisable within sixty (60) days of the mailing of this Proxy. (1) Includes
shares of restricted stock awarded to certain officers of the
Company under the Company's 2002 Stock Incentive Plan, which have not
yet vested but which vest immediately in the event of a "change in
control" (as that term is defined in the relevant agreements), and over
which such persons maintain voting power, as follows: 6,000 shares for
Mr. Morris and 9,000 shares for Mr. Curry.
(2) Includes stock options exercisable within sixty (60) days of the date
of the mailing of this Proxy, as follows: 112,500 for Mr. Irvin
Saltzman; 95,025 for Mr. Jon Saltzman; 58,500 for Mr. Lear; 59,750 for
Dr. Moshe Porat; 46,250 for Mr. Ellman; 5,000 for Mr. Duszak; 25,908
for Mr. Lennon; 28,496 shares for Mr. Morris; and, 6,783 shares for Ms.
Pezzuolo.
(3) Includes shares acquired by certain executives under a
Company-sponsored executive loan program approved by the Board of
Directors between 2000 and 2001 (see "Certain Transactions"), as
follows: Jon S. Saltzman,
3
71,250 shares; Joseph F. Morris, 9,000 shares; J.Ransley Lennon,
16,500 shares; and, Garland P. Pezzuolo, 6,000 shares.
(4) Of these shares, 4,631,250 are owned of record by Penn Independent
Corporation. Mr. Irvin Saltzman, Chairman of the Board of Directors,
owns 45.94% of the outstanding voting securities of Penn Independent.
(5) Of these shares, 4,631,250 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 48.17% of the outstanding voting securities of Penn Independent.
Additionally, Mr. Jon Saltzman serves individually as trustee of two
trusts that collectively own 1.02% of the outstanding voting securities
of Penn Independent. Mr. Jon Saltzman also owns .11% of the outstanding
voting securities of Penn Independent in his own name. The total number
of shares of Company common stock owned by Mr. Jon Saltzman includes
71,250 shares that are owned jointly with his spouse, and excludes
12,225 shares held by Mr. Jon Saltzman's spouse to which he disclaims
beneficial ownership.
(6) Of these shares, 4,631,250 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
48.17% of the outstanding voting securities of Penn Independent.
Additionally, Ms. Jami Saltzman-Levy serves individually as trustee of
nine trusts that collectively own 4.31% of the outstanding voting
securities of Penn Independent. Ms. Jami Saltzman-Levy also owns .11%
of the outstanding voting securities of Penn Independent in her own
name.
(7) 1,385 of such shares are owned jointly with her spouse. (8) 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 48.17%
of the outstanding voting securities of Penn Independent. Mr. E.
Anthony Saltzman also owns .11% of the outstanding voting securities of
Penn Independent in his own name. The total number of shares of Company
Common Stock owned by Mr. E. Anthony Saltzman excludes 18 shares held
by his wife to which he disclaims beneficial ownership.
(9) Excludes 45,000 shares held by Mr. Ellman's wife to which Mr. Ellman
disclaims beneficial ownership.
(10) 10,550 of such shares are owned jointly with his spouse.
(11) 750 of such shares are owned jointly with her spouse.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees for Election
At the Meeting, the shareholders will elect 7 directors to hold office
until the Annual Meeting of Shareholders in 2005 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, Richard
L. Duszak, Charles Ellman, Robert A. Lear, M. Moshe Porat, and Martin Sheffield.
But for Mr. Sheffield, all of the nominees are presently members of the Board of
Directors of the Company.1
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.
-------------------------
1 Mr. Sheffield was a member of the Board of Directors of the Company
from May 2001 until January 17, 2003, when he resigned due to insurance
regulatory commitments associated with his affiliation with the Ward Group,
which affiliation has since terminated. See Mr. Sheffield's biography below.
4
Set forth below is certain information concerning the nominees for election
as directors:
Director
Name Age Since Position with the Company
---- --- --------- -------------------------
Irvin Saltzman............. 81 1993 Chairman, Director
Jon S. Saltzman............ 46 1993 President and CEO, Director
Richard L. Duszak.......... 63 2003 Director
Charles Ellman............. 75 1994 Director
Robert A. Lear............. 58 1993 Director
Dr. M. Moshe Porat......... 57 1994 Director
Martin Sheffield........... 53 -- Nominee Director
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
31.4% of the outstanding shares of the Company as of December 31, 2003. 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. See "Certain Transactions."
Jon S. Saltzman has been President and Chief Executive Officer ("CEO")
of the Company since its formation in July 1993, is a director of Penn
Independent since 1987 and was an officer of Penn Independent from 1985 to May
of 2003. He has been President, CEO and Director of Penn-America since July
1993. Mr. Saltzman was President and Chief Operating Officer of Penn-America
from June 1989 until July 1993, and was Vice President, Marketing of
Penn-America from January 1986 until June 1989. Prior to that time, he was an
underwriter and a broker with Delaware Valley Underwriting Agency, Inc.
("DVUA"), a wholly owned subsidiary of Penn Independent. Mr. Saltzman is Mr.
Irvin Saltzman's son.
Richard L. Duszak, CPA, retired from full-time employment as an audit
partner in January of 2000 after more than 36 years with the public accounting
firm of KPMG LLP. He currently chairs The CEO Group, an organization of chief
executive officers that functions as an advisory board. In March of 2004, Mr.
Duszak assumed the role of Chief Financial Officer of Pine Environmental
Services, Inc., a privately-owned company offering environmental monitoring,
sampling and safety equipment. Mr. Duszak is a member of the Compensation and
Audit Committees and has been designated the "audit committee financial expert",
as that term is defined by the Securities and Exchange Commission. Mr. Duszak is
also the Chairman of the Nominating and Corporate Governance Committee.
Charles Ellman has been a Director of the Company since 1994 and was a
Director of Penn-America from May 1976 until May 1995. Prior to 1994, Mr. Ellman
was Vice Chairman and a Director of Penn Independent. Mr. Ellman is a member of
the Compensation and the Nominating and Corporate Governance Committees and is
the Chairman of the Audit Committee.
Robert A. Lear has been President and CEO 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 was a
Director of Dynasil Corporation of America from February 1998 to June of 2003;
and was a Director of Mountainview Indemnity, a Bermuda-based, privately held
captive affiliated with the Chubb Group, from 2001 to May of 2003. 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.
Dr. M. Moshe 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, Dr. Porat was
the Deputy General Manager of IHUD Insurance Agencies Ltd., an international
insurance brokerage firm. Dr. Porat serves on the boards of the Penn Economy
League, the Philadelphia Workforce Investment Board, the America-Israel Chamber
of Commerce and the Master High Charter
5
School, all privately-owned and/or not-for-profit organizations. Dr. Porat is a
member of the Audit and Nominating and Corporate Governance Committees and is
the Chairman of the Compensation Committee.
Martin Sheffield is a principal with Sheffield Consulting, a consulting
firm specializing in the insurance industry. Prior to forming Sheffield
Consulting in 2003, Mr. Sheffield was Chief Operating Officer and Director of
the Ward Group, an insurance consulting firm in Cincinnati. Prior to this, Mr.
Sheffield was a Vice President at A.M. Best Company, the leading rating agency
for the insurance industry from 1995 to 2000. From 1971 to 1994, Mr. Sheffield
served as President of Co-Operative Insurance Company of Western New York, a
regional New York mutual company that was eventually de-mutualized (under his
guidance) and sold to Erie Insurance Group. Mr. Sheffield has a total of over
thirty-two (32) years' experience in the insurance industry. Mr. Sheffield was a
member of the Board of Directors of the Company from 2001 until January 17,
2003, when he resigned due to insurance regulatory commitments associated with
his affiliation with the Ward Group.
Executive Officers Who Are Not Directors or Nominees
The executive officers of the Company include:
Irvin Saltzman Chairman
Jon S. Saltzman President and CEO
Joseph F. Morris Sr. Vice President, Chief Financial Officer
and Treasurer
Garland P. Pezzuolo Vice President, Secretary and General Counsel
Biographical information concerning Irvin Saltzman and Jon S. Saltzman is set
forth above. Biographical information for Joseph F. Morris and Garland P.
Pezzuolo is as follows:
Joseph F. Morris, 49, has been Senior Vice President, Chief Financial
Officer and Treasurer for the Company and its wholly-owned subsidiary,
Penn-America Insurance Company and that company's wholly-owned subsidiary,
Penn-Star Insurance Company, since September of 2000. In this role, he is
responsible for all financial management and reporting activities for the
Company. Prior to September of 2000, Mr. Morris was employed for 21 years with
Reliance Insurance Company where he served in several positions for that
company's commercial and specialty insurance businesses, most recently as
Regional Vice President, Commercial Accounts Division. From 1976 to 1979, he was
a senior auditor with Touche Ross & Co. Mr. Morris holds a B.S. degree in
Accounting from The Pennsylvania State University and an M.B.A. degree in
Financial Management from Drexel University. Mr. Morris earned a Certified
Public Accounting (CPA) designation in 1978. He is currently on the Board of
Directors of the Insurance Society of Philadelphia and has previously held the
positions of Chairman, Vice-Chairman and Treasurer.
Garland P. Pezzuolo, J.D., 39, is Vice President, Secretary and General
Counsel for the Company and its wholly-owned subsidiary, Penn-America Insurance
Company and that company's wholly-owned subsidiary, Penn-Star Insurance Company.
Ms. Pezzuolo oversees all legal matters for these companies, including general
corporate and legal, insurance and securities regulatory compliance, licensing,
contracts, and employment matters. She also assists with management of the daily
operations of these companies. Prior to joining Penn-America in March of 1997,
she held positions in Philadelphia as judicial clerk to the Honorable Frank J.
Montemurro, Jr., then of the Pennsylvania Superior Court, and for six years was
associated with the Insurance Coverage Litigation Department of Cozen O'Connor,
attaining the status of junior partner. Ms. Pezzuolo holds a B.S. degree in
International Business from Grove City College in Grove City, Pennsylvania
(1986), and a J.D. degree from the Duquesne University School of Law in
Pittsburgh, Pennsylvania (1990). She is admitted to practice law in
Pennsylvania.
6
Meetings and Committees of the Board of Directors
The Board of Directors ("Board") held 6 meetings in 2003. The Board has
established a Compensation Committee, an Audit Committee and a Nominating and
Corporate Governance Committee. All members of each of these Committees are
non-employee and "independent" directors as required by and determined in
accordance with the New York Stock Exchange Listing Standards. Each of the
members' compensation is based solely on that of an outside director serving on
the Board and at least one committee of the Board.
The Compensation Committee met 2 times in 2003 and met 1 time in
February of 2004. Prior to the untimely death of former Senator and Director
Paul Simon on December 9, 2003, this Committee consisted of Dr. Porat (Chairman)
and Messrs. Ellman and Simon. The Committee was re-organized by the Board on
January 26, 2004 to include members Dr. Porat (Chairman) and Messrs. Ellman and
Duszak. Information regarding the functions performed by this Committee is
provided in the "Report of Compensation Committee", set forth below.
The Audit Committee met 13 times in 2003. Members of this Committee are
Messrs. Ellman and Duszak and Dr. Porat, with Mr. Ellman serving as Chairman. As
previously indicated, these directors are all "independent" as required by and
determined in accordance with New York Stock Exchange Listing Standards. The
Board of Directors has determined that no one has a relationship to the Company
that may interfere with their independence from the Company and its management.
The Board of Directors has also designated Audit Committee member Richard L.
Duszak as an "audit committee financial expert", as that term is defined by the
Securities and Exchange Commission. Each Audit Committee member's compensation
is based solely on that of an outside director serving on the Board and at least
one committee of the Board. Information regarding the functions performed by the
Audit Committee is provided in the "Report of the Audit Committee", set forth
below. The Audit Committee is governed by a written charter approved by the
Board of Directors, attached to this proxy statement as Appendix 1.
The Nominating and Corporate Governance Committee met 1 time in 2003.
In February 2004, the Nominating and Corporate Governance Committee met and
recommended the nominees for election to the Board of Directors. Prior to the
untimely death of former Senator and Director Paul Simon on December 9, 2003,
the members of this Committee consisted of Messrs. Simon (Chairman) and Duszak
and Dr. Porat. The Committee was re-organized by the Board on January 26, 2004
to include Messrs. Duszak (Chairman) and Ellman and Dr. Porat. Information
regarding the functions performed by this Committee is provided in the "Report
of Nominating and Corporate Governance Committee", set forth below.
Anyone who has a question or concern they wish to raise with a
non-management director of the Company may do so by contacting the Company's
General Counsel at 420 S. York Road, Hatboro, PA 19040, or by contacting either
Charles Ellman (a non-management director and Chairman of the Audit Committee)
or Richard L. Duszak (a non-management director and Chairman of the Nominating
and Corporate Governance Committee). Their contact information can be found on
the Company's web site at http://www.penn-america.com/CorpGovernance/
Non-ManagementDirectorProcedures.pdf.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED COMMON STOCK
On March 17, 2004, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation, as amended ("the Certificate"), to
increase the aggregate number of authorized shares of Common Stock from
20,000,000 to 30,000,000 and directed that this amendment be submitted to
shareholders for their approval at the annual meeting.
The Certificate originally authorized 10,000,000 shares of Common
Stock. As approved by shareholders on May 12, 1997, the Certificate was amended
June 12, 1997 to reflect authorization of 20,000,000 shares of Common Stock. As
of March 15, 2004, 14,765,052 of the 20,000,000 shares were issued and
outstanding; 241,365 were reserved for issuance under the Company's General
Agent Contingent Commission Plan; 553,795 were reserved for issuance under the
Company's 2002 Stock Incentive Plan; and, 622,042 were reserved pursuant to
outstanding option grants. Thus, only 3,817,746 additional shares are authorized
and available for issuance. The Board of
7
Directors is concerned that there is not presently authorized a sufficient
number of shares of Common Stock to give the Company the flexibility it needs in
today's competitive, fast changing environment.
Although there are no such present agreements, understandings and/or
plans for the issuance of any of the additional shares that would be authorized
by the Amendment, the Board considers it desirable that the Company have a
reasonable amount of Common Stock available for issuance for possible stock
offerings, stock dividends, stock splits, employee benefit plans, corporate
mergers, acquisitions of property, or other corporate purposes. Having
additional shares available for issuance, without the expense and delay of
obtaining the approval of shareholders at a special meeting, will afford the
Company greater flexibility. The issuance of shares authorized by the Amendment
may, among other things, have a dilutive effect on earnings per share and on the
equity and voting power of existing holders of Common Stock.
There are no preemptive rights with respect to the Common Stock. The
additional authorized shares of Common Stock would have the identical powers,
preferences and rights as the shares now authorized. If the Amendment is
approved by the shareholders, it will become effective upon executing,
acknowledging, filing and recording a Certificate of Amendment required by the
General Corporation Law of Pennsylvania.
If approved, the text of the first paragraph of Article 3 of the
Certificate would read in its entirety as follows:
3: The total number of shares of stock which the corporation shall have
the authority to issue is thirty million (30,000,000) shares of Common Stock,
having a par value of $0.01 per share.
8
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding
compensation earned during each of the last three fiscal years by the Company's
President and CEO and by the four next most highly compensated executive
officers as of December 31, 2003 (hereinafter collectively referred to as the
"named executive officers").
Long-Term Compensation
Annual Compensation Awards
------------------- -----
Name and Other Annual Restricted Securities All Other
Principal Bonus Compensation Stock Underlying Compensation
Position Year Salary($) ($)(1) ($)(2)(3) Award(s)($)(4) Options(#)(5) ($)(6)
-------- ---- --------- ------------------------- -------------- ------------- ------------
Jon S. Saltzman 2003 395,877 225,000 --- --- --- 6,000
President and Chief 2002 361,262 174,800 17,461 --- --- 5,500
Executive Officer 2001 310,969 100,000 14,944 --- 68,813 ---
Joseph F. Morris 2003 225,231 144,375 26,133 --- --- 8,009
Sr. Vice President, 2002 206,250 100,000 12,924 --- --- 6,700
Chief Financial 2001 192,923 75,000 11,931 --- 29,490 7,064
Officer and Treasurer
John D. Curry (7) 2003 166,000 70,000 23,674 --- --- 7,800
Vice President, 2002 108,573 41,400 --- 155,000 --- 3,002
Underwriting and
Marketing
J. Ransley Lennon 2003 144,846 67,500 --- --- --- 6,846
Vice President, 2002 136,385 50,000 --- --- --- 4,994
Information 2001 117,346 34,500 --- --- 16,958 4,539
Technology
Garland P. Pezzuolo 2003 132,538 58,750 --- --- --- 7,370
Vice President, 2002 121,000 50,000 --- --- --- 6,040
Secretary and 2001 109,039 34,500 --- --- 16,958 3,121
General Counsel
------------
(1) Any bonus awarded represents a bonus for that calendar year, paid in
January of the following year.
(2) Excludes certain perquisites and other amounts that, for any executive
officer, did not exceed in the aggregate 10% of the total annual salary
and bonus for such executive officer.
(3) Includes amounts reimbursed for the payment of taxes on vesting
restricted common stock.
(4) Represents restricted common stock awarded to Mr. Curry (15,000 shares)
on April 4, 2002, which vests ratably over 5 years (unless there is a
"change in control" in which event the shares vest immediately), and on
which dividends are paid. Additionally, Mr. Morris owns 6,000 shares
($29,520) of restricted stock awarded prior to 2001, which vest over
the next two years (or immediately in the event of a "change in
control"). Dividends are paid on these shares.
(5) Represents the number of shares underlying non-qualified stock options
awarded for 2001, 2002 and 2003, respectively, which vest ratably over
5 years.
(6) "All Other Compensation" for 2003 represents: (a) employer
contributions to the Company's 401(k) Savings Plan, as follows: $6,000
for Mr. Saltzman, $6,000 for Mr. Morris, $5,700 for Mr. Lennon, $4,500
for Ms. Pezzuolo, and $5,680 for Mr. Curry; and (b) the Company's
payment of premiums towards life insurance for the benefit of a
personal, named beneficiary of the named executive officer, as follows:
$2,009 for Mr. Morris, $1,146 for Mr. Lennon, $2,870 for Ms. Pezzuolo,
and $2,120 for Mr. Curry.
(7) Mr. Curry joined the Company on April 4, 2002.
9
Option/SAR Grants in the Latest Fiscal Year
No individual grants of non-qualified stock options were made to any
named executive officer in 2003. The Company does not currently have (and has
not previously had) any plan pursuant to which any stock appreciation rights
("SARs") may be granted.
Aggregated Option Exercises in the Latest Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information relating to options
exercised during 2003 by the Company's President and CEO and those named
executive officers in possession of options, as well as the number and value of
such options held on December 31, 2003.
Aggregated Option Exercises in 2003
-----------------------------------
And Option Values at December 31, 2003
--------------------------------------
Number of Securities
Underlying
Shares Unexercised Value of Unexercised
Acquired Options at In-the-Money Options at
on Value Dec. 31, 2003(#) Dec. 31, 2003($)(1)
---------------------------- -----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Jon S. Saltzman --- --- 81,263 55,050 707,888 328,651
Joseph F. Morris 5,800 59,574 22,598 38,592 174,656 266,094
J. Ransley Lennon --- --- 22,517 13,566 197,537 80,991
Garland P. Pezzuolo --- --- 3,392 13,566 20,248 80,991
John D. Curry --- --- --- --- --- ---
------------
(1) 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, 2003 and the exercise price of the options,
multiplied by the number of unexercised options.
Equity Compensation Plan Information
------------------------------------
As of December 31, 2003
-----------------------
Number of Securities
Number Of Remaining Available
Securities To Be for Future Issuance
Issued Upon Weighted-Average Under Equity
Exercise of Exercise Price of Compensation Plans
Outstanding Outstanding (Excluding
Options, Warrants Options, Warrants Outstanding Options,
and Rights and Rights Warrants and Rights)
-------------------- --------------------- -----------------------
Equity compensation plan approved
by security holders (1) 630,060 $ 5.93 553,795
Equity compensation plan not approved
by security holders (2) --- --- 254,701
-------------------- --------------------- -----------------------
630,060 --- 808,496
==================== ===================== =======================
(1) These securities may be in the form of grants of non-qualified stock
options or awards of restricted common stock of the Company pursuant to
the Company's 2002 Stock Incentive Plan, as approved by shareholders in
May of 2003.
(2) The Agent's Contingent Profit Commission Plan was adopted without
shareholder approval on May 7, 2002, and provides for the issuance of
shares of restricted common stock to the Company's general agents based
on the achievement of predetermined underwriting performance
objectives.
10
REPORT OF THE COMPENSATION COMMITTEE
I. Introduction
------------
The Compensation Committee (2) and the Board of Directors of the
Company adopted a written charter setting out the specific responsibilities of
this Committee. The Compensation Committee's charter can be found on the
Company's web site at http://www.penn-america.com/CorpGovernance/CorpGov.asp.
The Compensation Committee is charged generally with reviewing,
developing, implementing and recommending the appropriate base salary of the
President and CEO and with recommending appropriate short-term cash compensation
and long-term equity compensation for all other executives and employees. The
Compensation Committee bases its compensation recommendations upon information
derived from multiple sources including company personnel, recommendations of
management, outside compensation consultants and industry surveys. The
Compensation Committee believes that consideration of these diverse sources of
information helps to create a balanced and appropriate compensation program.
The Compensation Committee has established an overall compensation
program to attract, retain and motivate employees and to enhance their incentive
to perform at the highest levels and contribute significantly to the Company's
success. In establishing compensation, the Compensation Committee considers
various factors including the personal performance of the employees, the
attainment of certain financial goals and the need to attract, retain and
motivate employees. In August of 2003, the Company retained the services of
Watson Wyatt Worldwide ("Watson Wyatt"), an outside compensation consultant, to
review the Company's longer-term equity compensation.
II. Base Salaries
-------------
The Compensation Committee does not actively participate in setting
employee salaries. In determining appropriate compensation levels for the
Company's President and CEO, however, the Compensation Committee reviewed
compensation data provided by outside compensation consultants of companies in a
peer group deemed appropriate by the Compensation 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.
Consistent with advice received from outside compensation consultants,
the Compensation Committee generally sets its competitive salaries in the range
between the median level and the 75th percentile of those companies it surveys.
The base salary of the President and CEO was 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.
Mr. Jon Saltzman's compensation was determined by the Compensation
Committee in light of the factors set forth above. His total compensation was
compared with compensation packages within the industry. In determining Mr.
Saltzman's base salary in 2004, the Compensation Committee evaluated his
personal and Company performance on both a qualitative and quantitative level.
Based on the financial results of the Company in 2003, as well as the
Committee's position to maintain salaries between the median level and the 75th
percentile, Mr. Saltzman's base salary was increased to $450,000 effective
January 1, 2004.
--------------------
2 Formerly known as the "Compensation and Stock Option Committee", this
Committee was renamed the "Compensation Committee" on February 26, 2004
in order to more accurately reflect the broader range of compensation
with which this Committee deals.
11
III. Short-Term and Long-Term Equity Compensation
--------------------------------------------
In order to attract, retain and motivate employees, the Compensation
Committee has established a combination of short-term and long-term
compensation. Generally, short-term compensation, in the form of annual cash
bonuses, and long-term compensation, in the form of restricted stock grants or
non-qualified stock options, are awarded and determined pursuant to three
compensation plans.
A. Key Employee Incentive Plan
---------------------------
The Company's Key Employee Incentive Compensation Plan currently
applies to approximately twenty-five (25) executive officers and key employees
and is designed as an incentive to encourage these individuals to excel in their
performance individually and collectively to the benefit of shareholders and the
Company. The Plan is simple and predictable, yet provides significant overall
monetary incentives. Under this Plan, short-term cash compensation may be
awarded if the Company achieves a pre-determined level of GAAP underwriting
income, before taxes.
In January of 2004, the executive officers and key employees received
annual cash bonuses ranging from 18% to 50% of their annualized salary as of
December 31, 2003, based upon the achievement of predetermined GAAP underwriting
income, before taxes, for the year ended December 31, 2003. In addition, the
Compensation Committee authorized a discretionary cash bonus pool of $120,000 to
be used by the President and CEO to provide additional cash bonus awards to
selected executive officers and key employees. For 2004 (payable 2005), the
Compensation Committee has approved continuance of the Key Employee Incentive
Plan to each eligible executive officer and key employee, assuming the Company's
achievement of a pre-determined Company GAAP underwriting income, before taxes,
for the year ended December 31, 2004.
B. Employee Bonus Plan
-------------------
While the Compensation Committee is not charged with establishing
salaries and cash bonuses awarded to employees, the Compensation Committee is
responsible for establishing employee bonuses to the extent that any such bonus
includes non-qualified stock options or restricted stock awards. While previous
annual employee bonus plans provided for the award of both cash and
non-qualified stock options as a bonus to employees, effective January 1, 2002,
non-qualified stock options were removed from the Employee Bonus Plan. Thus,
cash bonuses for Company performance in 2003 were awarded and paid in January of
2004, and the Company plans on providing for cash bonuses in 2004 (payable
2005).
C. 2002 Stock Incentive Plan
-------------------------
Under the Company's 2002 Stock Incentive Plan, non-qualified stock
options and restricted shares of common stock may be granted to executive
officers, employees (including employees who are members of the Board of
Directors), consultants, advisors and/or independent, outside directors. The
size of any stock option or restricted stock award can be based on Company
and/or individual performance and the individual's responsibilities and position
with the Company. Awards of restricted stock are not discounted and options are
generally to be granted with exercise prices equal to the fair market value of
the Company's common stock on the date of grant. The vesting of either
restricted common stock or non-qualified stock options is subject to the
discretion of the Compensation Committee; but generally such vesting occurs over
a period of one to five years, unless there is a "change in control" in which
event the vesting and exercise periods accelerate. See Section IV, below.
In 2003, the Committee recommended and the Board authorized an award of
5,000 shares of restricted stock to Richard W. Slomiany, Vice President, Claims,
and an award of 2,000 shares of restricted stock to Bridget A. Carducci,
Assistant Vice President, Underwriting Administration, as incentives for them to
join the Company. These shares vest annually over five (5) years. The
Compensation Committee did not grant any other restricted stock or non-qualified
stock options to executive officers and key employees in 2003. The Compensation
Committee is currently reviewing alternatives suggested by Watson Wyatt, but has
not yet concluded its analysis of appropriate longer-term equity compensation
for the Company's executive officers and key employees.
12
In May of 2003, the Board authorized a grant of 5,000 non-qualified
stock options to the independent directors as part of their annual compensation
for serving on the Board and at least one committee. In August of 2003, the
Compensation Committee retained the services of Watson Wyatt to conduct a review
of appropriate forms and levels of longer-term equity compensation for key
employees and independent directors. In January of 2004, Watson Wyatt issued its
reports. As set forth in "Compensation of Directors" below, on February 26, 2004
the Compensation Committee recommended and the Board approved certain
compensation payable in May of each calendar year (commencing May 2004) to each
of the Company's independent directors, in the form of cash compensation and an
award of 2,000 shares of restricted common stock. The restricted stock will vest
over two years; and each independent director is required to own in any one
calendar year not less than 2,000 shares of the Company's Common Stock.
IV. Executive Change-In-Control/Employment Continuation Agreements
--------------------------------------------------------------
In 2002, as an incentive to certain executive officers to remain in the
employ of the Company in the event of a change in control, the Compensation
Committee authorized the issuance of executive change in control/employment
continuation agreements (hereinafter referred to as "employment continuation
agreements"). Effective January 1, 2003, the Company maintains employment
continuation agreements with Messrs. Jon S. Saltzman, Joseph F. Morris, J.
Ransley Lennon, John D. Curry, and Brian J. Riley, and Ms. Garland P. Pezzuolo.
Effective May 1, 2003, the date on which he commenced employment with the
Company, the Company maintains an employment continuation agreement with Richard
W. Slomiany. Under the agreements, the Company provides a multiple of between
one to two times the employee's then current annualized base salary as "stay"
pay, to be distributed in full at the time of the change in control or proposed
change in control (as defined below); and the executives agree to remain in the
employ of the Company following the date of the announcement of such change of
control or proposed change in control.
The employment continuation agreements further provide that if the key
executive's employment is terminated for reasons other than death, disability,
voluntary termination (except for voluntary termination for good reason as
defined in the agreements), or other than for cause (as defined in the
Agreements), upon or within the twelve (12) month period immediately following a
change in control, or after a potential change in control and prior to the
occurrence of a change in control if a change in control occurs within twelve
(12) months of such termination of employment, then the Company will pay the key
executives (i) a severance amount equal to a multiple of between one and two
times the key executive's then current annualized base salary, to be paid eighty
(80%) percent upon the occurrence of the change in control or proposed change in
control and twenty (20%) percent upon the one-year anniversary of the date of
the change in control, and (ii) medical and dental benefits for twelve (12)
months following the date of termination.
As defined in the employment continuation agreements, "change of control"
means:
"... a transaction or series of transactions (including any cash
tender or securities exchange offer, merger or other business
combination, or contested election of directors, or any combination
thereof) as the result of which:
(i) any Person (other than Penn Independent or any of its
shareholders as of the date of this Agreement, the Corporation, any
Subsidiary of the Corporation, any employee benefit plan of Penn
Independent, the Corporation or of any Subsidiary of the Corporation,
any Person or entity organized, appointed or established by the
Corporation for or pursuant to the terms of any such employee benefit
plan or Employee or any Affiliate or Associate of Employee or any group
of which Employee is a member and in which he participates in his
capacity as a shareholder of the Corporation) together with all
Affiliates and Associates of such Person, shall become the Beneficial
Owner of a percentage ownership in the aggregate combined voting power
of all Voting Securities of the Corporation then outstanding that is
greater than the then current percentage ownership of Penn Independent
in the aggregate combined voting powers of all Voting Securities of the
Corporation then outstanding; or
(ii) any Person (other than Penn Independent or any of its
shareholders as of the date of this Agreement, the Corporation, any
Subsidiary of the Corporation, any employee benefit plan of Penn
Independent, the Corporation or of any Subsidiary of the Corporation,
any Person or entity organized, appointed or established by the
Corporation for or pursuant to the terms of any such
13
employee benefit plan or Employee or any Affiliate or Associate of
Employee or any group of which Employee is a member and in which he
participates in his capacity as a shareholder of the Corporation)
together with all Affiliates and Associates of such Person, shall
become the Beneficial Owner of 30% or more of the aggregate combined
voting power of all Voting Securities of the Corporation then
outstanding, irrespective of Penn Independent's then current percentage
ownership in such Voting Securities; provided that during any period of
two consecutive calendar years there is a change of 25% or more in the
composition of the Board in office at the beginning of such period,
except for changes approved by at least two-thirds of the directors
then in office who were directors at the beginning of the period; or
(iii) any Person (other than Penn Independent or any of its
shareholders as of the date of this Agreement, the Corporation, any
Subsidiary of the Corporation, any employee benefit plan of Penn
Independent, the Corporation or of any Subsidiary of the Corporation,
any Person or entity organized, appointed or established by the
Corporation for or pursuant to the terms of any such employee benefit
plan or Employee or any Affiliate or Associate of Employee or any group
of which Employee is a member and in which he participates in his
capacity as a shareholder of the Corporation) together with all
Affiliates and Associates of such Person, shall become the Beneficial
Owner of greater than 50% of the aggregate combined voting power of all
Voting Securities of Penn Independent; or
(iv) during any period of two consecutive calendar years there is
a change of 25% or more in the composition of the Board in office at
the beginning of such period except for changes approved by at least
two-thirds of the directors then in office who were directors at the
beginning of the period; or
(v) 80% or more of the assets of the Corporation and its
Subsidiaries shall be sold or transferred to any Person (other than an
Affiliate of the Corporation); or
(vi) the Board makes a determination that such transaction or
transactions constitute a Change of Control for purposes of this
individual Agreement; provided, however, that the Board shall make such
determination in its sole and absolute discretion and need not make its
determination in a uniform manner with respect to the Employee as may
be accorded to other employees with similar agreements.
For purposes of this Agreement, a Change of Control shall be
deemed to have occurred on the date upon which any of the foregoing is
consummated or becomes effective."
Under Section 280G of the Internal Revenue Code, if total compensation
to any individual as a result of a change in control exceeds three times the
average taxable wages over the last five years, the employee is subject to an
additional 20% excise tax for the amount of compensation that exceeds the
average taxable wages over the last five years. The employment continuation
agreements include a provision to "gross up" the excise tax for each qualified
individual in the event payments trigger a 280G penalty. The Company does not
believe that a 280G will be incurred by any qualified individual.
14
V. Conclusion
----------
The Internal Revenue Code provides that publicly held corporations may
not deduct, for federal income tax purposes, non-performance based compensation
for its CEO and certain other executive officers to the extent that such
compensation exceeds $1 million for the executive. The Compensation 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 below the $1 million
limitation in the foreseeable future. Awards of restricted stock under the
Company's 2002 Stock Incentive Plan are designed to constitute performance-based
compensation, which would not be included in calculating compensation for
purposes of the $1 million limitation.
Compensation Committee
M. Moshe Porat (Chairman)
Charles Ellman
Richard L. Duszak
Compensation Committee Interlocks and Insider Participation
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
In May of 2003, the Company paid to each of its non-employee,
independent directors an annual retainer of $25,000 for serving on the Board of
Directors and at least one committee. The Company also paid all out-of-pocket
expenses incurred by the Directors for attending meetings; and, pursuant to the
Company's 2002 Stock Incentive Plan, granted non-qualified options to purchase
5,000 shares of the Company's Common Stock. Such options were issued at an
exercise price equal to fair market value on the date of grant, become
exercisable on the first anniversary of the date of grant, and are exercisable
for five years from the first anniversary of the date of grant.
In August of 2003, the Compensation Committee retained the services of
Watson Wyatt, an outside compensation consultant, to recommend as to the
Company's independent directors appropriate levels of base and longer-term
equity compensation. In February of 2004, after analyzing the report prepared by
Watson Wyatt relative to independent director compensation, the Compensation
Committee recommended and the Board authorized for payment annually commencing
in May of 2004:
(a) an annual retainer of $30,000 for serving on the Board of Directors and
at least one committee; and,
(b) an award of 2,000 shares of restricted common stock, which vest over
two years.
Each independent director is required to own in any one calendar year
not less than 2,000 shares of the Company's Common Stock.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee and Board of Directors of the Company have adopted
a written charter setting out the specific responsibilities of the Audit
Committee. A copy of the current charter is attached to this proxy statement at
Appendix 1, and can be found on the Company's website at
http://www.penn-america.com/CorpGovernance/CorpGov.asp.
Generally, the Audit Committee assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and reporting practices of the Company. The Audit Committee's role
includes focus on the qualitative aspects of financial reporting to
shareholders, the Company's processes to manage business and financial risk, and
compliance with significant applicable legal, ethical and regulatory
requirements. The Audit Committee is also responsible for appointing and
overseeing the independent auditors, approving all audit and non-audit related
services, and for establishing compensation for the auditors.
15
The Directors who serve on the Audit Committee are all "independent" as
prescribed by New York Stock Exchange listing standards. In addition, the Board
of Directors has determined that no member of the Audit Committee has a
relationship to the Company that may interfere with their independence from the
Company and its management. The Board of Directors has designated Audit
Committee member Richard L. Duszak as an "audit committee financial expert", as
that term is defined by the Securities and Exchange Commission. Each Audit
Committee member's compensation is based solely on that of an outside director
serving on the Board and at least one committee of the Board.
Generally, the Audit Committee meets prior to each quarterly earnings
release, prior to the filing of the Company's periodic public reports, and
otherwise at the time of the quarterly meetings of the Board of Directors. In
fiscal year 2003, the Audit Committee held a total of 13 meetings.
On February 20, 2003, the Audit Committee authorized management to
create a Disclosure Reporting Committee, comprised of the executive officers of
the Company, which Committee provides information on a quarterly basis to assist
the President and CEO and the Chief Financial Officer with the disclosures and
certifications each are required to make in periodic public reports.
On May 1, 2003, the Audit Committee appointed PricewaterhouseCoopers
LLC as the Company's independent auditors. See "Information Concerning
Independent Auditors", set forth below. The Audit Committee discussed with the
independent auditors the overall scope and plans for their audit. The Audit
Committee periodically met with the independent auditors, at least quarterly,
with and without management present, to discuss the results of their
examination, the critical accounting policies of the Company, and the overall
quality of the Company's accounting principles, accounting estimates and
financial reporting.
On August 28, 2003, the Audit Committee adopted accounting inquiry
procedures for use by employees and others desiring to communicate to the Audit
Committee, anonymously or otherwise, accounting, internal accounting control
and/or auditing concerns. A copy of the Accounting Inquiry Procedures may be
found on the Company's web site at
http://www.penn-america.com/CorpGovernance/CorpGov.asp.
In fulfilling its oversight responsibilities relative to the Company's
financial reporting processes, the Audit Committee reviewed the audited
financial statements with management, including a discussion of the quality, not
just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements. The Audit Committee reviewed with the independent auditors all
critical accounting policies used by the Company, as well as their judgments as
to the quality, not just the acceptability, of the Company's accounting
principles and such other matters as are required to be discussed with the Audit
Committee under the Statement on Auditing Standards No. 61 (Communication with
Audit Committee). The Audit Committee also received from and discussed with the
independent auditors the written disclosure required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees) relating
to that firm's independence from the Company and evaluated and concluded that no
officer, director or employee of the Company was at any time in 2003 employed
with the independent auditors prior to working for the Company. Finally, the
Audit Committee discussed with the independent auditors any matters required to
be discussed and considered the compatibility of non-audit services with the
auditors' independence.
Management is responsible for the Company's financial reporting process
including its system of internal controls, and for the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States. The Company's independent auditors are
responsible for auditing those financial statements. The Audit Committee's
responsibility is to oversee these processes. It is not the Audit Committee's
duty or responsibility to conduct auditing or accounting reviews or procedures.
Therefore, the Audit Committee has relied, without independent verification, on
management's representation that the financial statements have been prepared
with integrity and objectivity and in conformity with accounting principles
generally accepted in the United States and on the representations of the
independent auditors included in their report on the Company's financial
statements. Furthermore, the Audit Committee's considerations and discussions
with management and the independent auditors do not assure that the Company's
financial statements are presented in accordance with accounting principles
generally accepted in the United States or that the audit of the Company's
financial statements has been carried out in accordance with generally accepted
auditing standards.
16
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board approved) that
the audited financial statements be included in the Annual Report on Form 10-K
for the year ended December 31, 2003, for filing with the Securities and
Exchange Commission.
Audit Committee
Charles Ellman (Chairman)
M. Moshe Porat
Richard L. Duszak
REPORT OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee and the Board of
Directors of the Company adopted a written charter setting forth the specific
responsibilities of the Nominating and Corporate Governance Committee. The
Nominating and Corporate Governance Committee's charter can be found on the
Company's web site at http://www.penn-america.com/CorpGovernance/CorpGov.asp and
is attached to this proxy statement as Appendix 2.
Generally, the Nominating and Corporate Governance Committee reviews
the size and composition of the Board of Directors, recommends nominees to serve
on the Board of Directors and its committees, oversees the evaluation of the
Board of Directors, its committees (including itself) and management, oversees
the corporate governance of the Company, and advises the Board of Directors and
its committees on effective management and leadership.
In carrying out its responsibilities for nomination of directors, the
Nominating and Corporate Governance Committee considers candidates recommended
by other directors, employees and shareholders. Written suggestions for
candidates to serve as directors, if nominated and elected, should be sent to
the President of the Company at 420 S. York Road, Hatboro, PA 19040. The
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 (1) the name and address of the
shareholder who intends to make the nomination(s) and of the person or persons
to be nominated; (2) 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; (3) 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; (4) 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 (5) the consent of each nominee to serve as a director
of the Company, if so elected.
The Nominating and Corporate Governance Committee has determined that
the requisite skills and characteristics to be found in individuals qualified to
serve as members of the Board of Directors include knowledge of the Company and
the markets in which the Company operates, exemplary leadership skills and
ethics and an ability to lead and develop corporate culture. Nominees to the
Board of Directors must consist of individuals from diverse educational and
professional experiences and backgrounds who, collectively, provide meaningful
counsel to management. The Nominating and Corporate Governance Committee
utilized these criteria in its recommendation to the Board of Mr. Sheffield, the
only new director nominee. Mr. Sheffield was recommended as a potential nominee
by Mr. Richard Duszak. The Nominating and Corporate Governance Committee also
recommended to the Board of Directors that the number of directors be reduced to
seven (from nine) in order to comply with New York Stock Exchange Listing
Standards requiring that a majority of a board of directors of a listed company
be "independent" as defined in such listing standards. Thus, Jami Saltzman-Levy
and E. Anthony Saltzman voluntarily agreed not to stand for re-election for the
Board of Directors so that the Company can be in compliance with such listing
standards.
17
In carrying out its responsibilities for corporate governance, the
Nominating and Corporate Governance Committee and the Board of Directors adopted
formal Corporate Governance Guidelines, a Code of Conduct and Ethics for the
Chief Executive Officer and Senior Financial Personnel, a Code of Conduct and
Ethics for all Officers, Directors and Employees, and charters for the
Compensation and Nominating and Corporate Governance Committees. Copies of these
governance documents may be found either attached hereto or as part of the
Company's web site at http://www.penn-america.com/CorpGovernance/CorpGov.asp.
Nominating and Corporate
Governance Committee
Richard L. Duszak (Chairman)
Charles Ellman
M. Moshe Porat
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 ("NYSE") and the Standard and Poor's Insurance Composite ("S&P
Insurance Composite") for the period December 31, 1998 through December 31,
2003, assuming an initial investment of $100 and that dividends are reinvested
annually.
[OBJECT OMITTED]
------------------------------------------------------------------------------------------------------
Value of each year-end initial investment made on December 31, 1998.
------------------------------------------------------------------------------------------------------
12-31-98 12-31-99 12-31-00 12-31-01 12-31-02 12-31-03
------------------------------------------------------------------------------------------------------
PNG Stock $100.00 $ 87.81 $ 88.76 $125.25 $163.93 $243.72
------------------------------------------------------------------------------------------------------
NYSE 100.00 111.33 114.70 105.05 85.91 113.28
------------------------------------------------------------------------------------------------------
S & P Insurance
Composite 100.00 107.48 145.14 127.39 101.11 122.17
------------------------------------------------------------------------------------------------------
18
CERTAIN TRANSACTIONS
Headquarters Lease
The Company's headquarters in Hatboro, Pennsylvania are occupied
pursuant to a lease, effective July 1, 2000, between Mr. Irvin Saltzman,
Chairman of the Board of Directors, as landlord, and the Company. The lease is
for a term of five years and the Company has one five-year renewal option
thereafter. The current rent is $357,000 per year, based on a price of $15.25
per square foot. Included in the square footage charge is the Company's share of
costs for insurance, real estate taxes, housekeeping, HVAC, energy management,
snow removal/landscaping, utilities, pest control, transformer maintenance,
bathroom maintenance, plant maintenance, phone/voice mail system maintenance and
smoke/fire monitoring. 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, 2004, $97,000 was charged, representing
a pro rata share increase in operational expenses for the 2000 through 2003
annual lease terms. 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 affiliated companies of Penn Independent are insurance agencies
that write business with Penn-America. During the year ended December 31, 2003,
the business written by these agencies for Penn-America represented 3.0%
($8,851,000) of the business of Penn-America. As of December 31, 2003, total
commissions paid to these agencies were $1,875,000 and balances receivable were
$549,000. Mr. E. Anthony Saltzman, Sr. Vice President and Manager of DVUA, is
currently a Director of the Company, but is not standing for re-election.
Penn-America believes that its arrangements with these agencies are on terms no
more favorable than they would otherwise be if these agencies were unaffiliated
third parties.
Executive Loans
In 2000 and 2001, the Board of Directors of Penn-America and the
Company authorized Penn-America to issue to certain executives loans towards the
purchase of the Company's common stock. Under the terms of the loans, the
executives are required to repay principal, brokerage commissions, transaction
costs and interest, calculated semi-annually, within five (5) years from the
date of the loan. On default, the Company has recourse against the defaulting
executive. These loans are forgiven in the event of a change in control, as
defined in the loan agreements. This program was formally terminated by order of
the Board on August 21, 2002. No executive officer has since entered into any
loan(s) with Penn-America.
The Company has entered into loans with the Company's President and CEO and
those named executive officers listed on page 9, as follows:
------------------------ --------------------- --------------------- -----------------------
Total Loan Weighted Average Number of Shares
Name Amount Interest Rate Acquired
------------------------ --------------------- --------------------- -----------------------
Jon S. Saltzman $359,072 6.16% 71,250
------------------------ --------------------- --------------------- -----------------------
Joseph F. Morris 55,845 5.07 9,000
------------------------ --------------------- --------------------- -----------------------
J. Ransley Lennon 97,943 6.20 16,500
------------------------ --------------------- --------------------- -----------------------
Garland P. Pezzuolo 35,511 5.61 6,000
------------------------ --------------------- --------------------- -----------------------
Total: $548,371 6.02% 102,750
------------------------ ===================== ===================== =======================
Agreements with Penn Independent Corporation
Penn-America receives services from executives, staff and
administrative personnel of Penn Independent, including services in connection
with human resource administration and facilities management. In 2003,
Penn-America was charged $220,000 for such services.
19
The Company believes that the terms of those certain transactions
described above are at least as favorable as those that might have been obtained
from unaffiliated third parties.
INFORMATION CONCERNING INDEPENDENT AUDITORS
As previously disclosed, on May 1, 2003, the Audit Committee of the
Board of Directors met and decided to dismiss Ernst & Young LLP ("E&Y") as the
Company's independent auditors. Simultaneously, the Audit Committee appointed
PricewaterhouseCoopers LLP ("PwC") as the Company's independent auditor for 2003
and retained E&Y as the Company's consulting actuary.
E&Y's report on the Company's consolidated financial statements as of
and for the years ended December 31, 2002 and 2001 did not contain an adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
There have been no disagreements (as that term is defined in Item
304(a) (1) (iv) of Regulation S-K) between the Company and E&Y during the
Company's two (2) fiscal years ended December 31, 2002 and through April 30,
2003 on any matter of accounting principles or practices, financial statement
disclosures, or auditing scope or procedures, which disagreements, if not
resolved to the satisfaction of E&Y, would have caused them to make reference to
the subject matter of the disagreement(s) in connection with their report.
There have been no "reportable events" (as that term is used in Item
304(a) (1) (v) of Regulation S-K) during the Company's two (2) fiscal years
ended December 31, 2002 and through April 30, 2003.
During the two (2) fiscal years ended December 31, 2002 and through
April 30, 2003, the Company did not consult PwC with respect to the application
of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the Company's
consolidated financial statements, or any other matters or reportable events
listed in Items 304(a) (2) (i) and (ii) of Regulation S-K.
The Company provided E&Y with a copy of the foregoing disclosures
required by Item 304(a) of Regulation S-K, as contained in the Company's report
on Form 8-K filed with the Securities and Exchange Commission on May 6, 2003.
E&Y furnished the Company with a letter addressed to the SEC responding to the
Company's disclosures, which was filed as Exhibit 16.1 to the Company's report
on Form 8-K.
On May 1, 2003, management, on behalf of the Audit Committee of the
Board of Directors, notified PwC that the Audit Committee had engaged them as
the Company's independent auditors effective May 1, 2003. The Company authorized
E&Y to respond fully to any inquiries of PwC.
The Audit Committee is currently evaluating the retention of PwC as the
Company's auditors for calendar year 2004. Representatives of PwC, as auditors
for December 31, 2003, 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.
20
Independent Auditor Fee Information
As required by its own policies and procedures, the Audit Committee
approved and authorized for payment, in advance, all services (audit and
non-audit related) provided by our independent auditors. PwC replaced E&Y as the
Company's independent auditors on May 1, 2003. Fees for professional services
provided by the Company's independent auditors in each of the last two fiscal
years were as follows:
--------------------------------------------------------------
Year ended December 31,
--------------------------------------------------------------
2003 2002
--------------------------------------------- ---------------
PwC E&Y Total E&Y
--------------- -------------- -------------- ---------------
Audit fees (1) $ 109,000 $ 29,000 $ 138,000 $ 100,000
--------------- -------------- -------------- ---------------
Audit related fees (2) --- --- --- 144,000
--------------- -------------- -------------- ---------------
Tax fees (3) 16,000 --- 16,000 ---
--------------- -------------- -------------- ---------------
All other fees (4) --- --- --- 53,000
--------------- -------------- -------------- ---------------
Total $ 125,000 $ 29,000 $ 154,000 $ 297,000
=============== ============== ============== ===============
(1) Fees for audit services include fees relate to the annual audit of the
Company's consolidated financial statements, the quarterly reviews of
the Company's reports on Form 10-Q and the annual statutory audits of
the Company's insurance subsidiaries.
(2) Audit related fees relate to the registration statements filed by the
Company in 2002.
(3) Tax fees relate to completing the Company's consolidated federal income
tax return.
(4) All other fees relate to actuarial services. In August of 2003, the
Company's consulting actuary left E&Y for Huggins Actuarial Services
Inc., which the Audit Committee subsequently appointed to serve as the
Company's consulting actuary for the year ended December 31, 2003. In
2003, the Company paid to Huggins Actuarial Services Inc. $51,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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. In November
of 2003, Director M. Moshe Porat filed with the SEC a Form 4 disclosing his sale
of 3,000 shares of Company common stock on August 27, 2003 and 3,000 shares of
Company common stock on September 5, 2003, for which he failed to file timely
reports of change in ownership with the SEC. Based on the reports received by
it, and written representations received from the Reporting Persons, the Company
believes that all other filings required to be made by the Reporting Persons for
the period January 1, 2003 through December 31, 2003 were made on a timely
basis.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Annual
Meeting of Shareholders in 2005 must be received by the Company at its principal
office in Hatboro, Pennsylvania, no later than December 31, 2004, 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. THIS REPORT IS ALSO
AVAILABLE ON THE COMPANY'S WEBSITE AT WWW.PENN-AMERICA.COM.
--------------------
21
Appendix 1
------------
CHARTER OF THE AUDIT COMMITTEE
OF PENN-AMERICA GROUP, INC.
Effective May 19, 1999, as most recently ratified February 26, 2004,
the Audit Committee of the Board of Directors of Penn-America Group, Inc.,
formally adopts the following statement:
I. Structure:
---------
It is hereby agreed that the Audit Committee of the Board of Directors of
Penn-America Group, Inc., shall consist of at least three independent outside
directors:
A. Whose independence shall be determined by the Board of Directors in
accordance with the rules of the Securities and Exchange Commission
and the New York Stock Exchange;
B. Who are financially literate, as interpreted by the Company's Board of
Directors in its business judgment in accordance with applicable rules
and regulations of the Securities and Exchange Commission and New York
Stock Exchange; and,
C. At least one such independent, outside director shall have accounting
or related financial management expertise, as interpreted by the
Company's Board of Directors in its business judgment in accordance
with applicable rules and regulations of the Securities and Exchange
Commission and New York Stock Exchange.
II. Purpose:
--------
The purpose of the Audit Committee is to:
A. Assist the Board with oversight of: (i) the integrity of the Company's
financial statements, (ii) the Company's compliance and legal and
regulatory requirements, (iii) the independent auditor's
qualifications and independence, and, (iv) the performance of the
Company's internal audit function and independent auditors; and,
B. Prepare the report, as required by the Securities and Exchange
Commission, to be included in the Company's Annual Proxy Statement.
III. General Responsibilities:
-------------------------
The Audit Committee hereby agrees to:
A. Periodically:
(1) Instruct the independent auditor that the Audit Committee, as the
Board of Directors' representative, is the auditor's client;
(2) Provide an open avenue of communication between the independent
auditor and the Board of Directors;
(3) Advise financial management and the independent auditor that they
are expected to provide a timely analysis of significant current
financial reporting issues and practices;
(4) Review periodically with general counsel legal and regulatory
matters that may have a material impact on the Company's and
related entities' financial statements, compliance policies and
programs;
(5) Promptly notify the Board of Directors in the event of a change
in circumstance that would change a member of the Audit
Committee's status as "independent;" and
(6) Conduct or authorize investigations into any matters within the
Committee's scope of responsibilities. The Committee shall be
empowered to retain independent counsel and other professionals
to assist in the conduct of any such investigation.
B. Quarterly:
22
(1) Meet quarterly, at least. The Committee may ask members of
management or others to attend meetings and provide pertinent
information as necessary;
(2) Meet separately with management and with the independent
auditors;
(3) Report to the Board of Directors.
C. Annually:
(1) Retain and/or terminate and establish compensation for
independent auditors;
(2) Assure the independence of the independent auditor by, among
other things, having the independent auditor submit on a periodic
basis to the Audit Committee a formal written statement
addressing the auditor's independence. The Audit Committee shall
engage in dialogue with the outside auditor with respect to any
matter that might impact the objectivity or independence of the
outside auditor;
(3) Review with the independent auditor the coordination of audit
efforts to assure completeness of coverage, reduction of
redundant efforts and the effective use of audit resources;
(4) Consider, in consultation with the independent auditor, the audit
scope and plan of the independent auditor;
(5) Review and update this Committee Charter.
IV. Specific Duties:
----------------
The Audit Committee further agrees to:
A. Periodically:
(1) Coordinate with the Company's human resource department the
hiring policies with respect to employees and former employees of
independent outside auditors to ensure independence of the
outside auditors and to otherwise comply with Company employment
policies and practices;
B. Quarterly:
(1) Consider and review with the independent auditor their quarterly
and annual report describing:
(a) The adequacy of the Company's and related entities' internal
controls, including computerized information system controls
and security;
(b) Related findings and recommendations of the independent
auditor together with management's responses;
(c) Material issues raised as a result of inquiry by any
government or regulatory body, within the preceding five (5)
years, relative to audits;
(d) All relationships between the independent auditor and the
Company;
(2) Consider and review with management and the independent auditor:
(a) Significant findings, including the Status of Previous Audit
Recommendations;
(b) Any difficulties encountered in the course of audit work,
including any restrictions on the scope of activities or
access to required information. Meet periodically with the
independent auditor and management in separate sessions to
discuss any matters that the Committee or these groups
believe should be discussed privately with the Committee;
(c) Annual and quarterly audited financials, including MD&A ;
(d) Earnings releases and financial information and earnings
guidance to analysts;
(e) Policies with respect to risk assessment and management;
(3) Report to the Board on significant results of the foregoing
analyses;
(4) Inquire of management and the independent auditor about
significant risks or exposures and assess the steps management
has taken to minimize such risk to the Company and related
entities;
(5) Provide that financial management and the independent auditor
discuss with the Audit Committee their qualitative judgments
about the appropriateness, not just the acceptability, of
accounting principles and financial disclosure practices used or
proposed to be adopted by the Company;
(6) Inquire as to the auditor's independent qualitative judgments
about the clarity of the financial disclosure practices used or
proposed to be adopted by the Company;
(7) Discuss on a timely basis with the auditor their review of the
Company's quarterly financial information and results thereof;
(8) Inquire as to the auditor's views about whether management's
choices of accounting principles are common practices or in the
minority;
23
(9) Determine as regards to new transactions or events, management's
reasoning for the appropriateness of the accounting principles
and disclosure practices, and seek the advice of the auditors, if
appropriate;
(10) Assure that the auditor's reasoning is described in determining
the appropriateness of changes in accounting principles and
disclosure practices;
(11) Assure that the auditor's reasoning is described in accepting or
questioning significant estimates by management.
C. Annually:
(1) Review with management and the independent auditor the results of
annual audits and related comments in consultation with committees as
deemed appropriate including:
(a) The independent auditor's audit of Penn-America Group, Inc.'s and
subsidiaries' annual financial statements, accompanying footnotes
and its report thereon.
(b) Any significant changes required in the independent auditor's
audit plans.
(c) Any difficulties or disputes with management encountered during
the course of the audit.
(d) Other matters related to the conduct of the audit, which are to
be communicated to the Audit Committee under Generally Accepted
Auditing Standards.
The Audit Committee is responsible for the duties set forth above, but is not
responsible for either the preparation of the financial statements or the
auditing of the financial statements. Management has the responsibility for
preparing the financial statements and implementing internal controls and the
independent accountants have the responsibility for auditing the financial
statements and monitoring the effectiveness of the internal controls. The review
of the financial statements by the Audit Committee is not of the same quality as
the audit performed by the independent accountants. In carrying out its
responsibilities, the Audit Committee believes its policies and procedures
should remain flexible in order to best react to a changing environment.
Ed. 2/26/2004
24
Appendix 2
----------
PENN-AMERICA GROUP, INC.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER
-----------------------------------------------------
I. Purpose: The Nominating and Corporate Governance Committee (the "Committee")
shall:
A. Identify individuals qualified to become Board of Director members,
B. Recommend to the Board of Directors the director nominees for the next
annual meeting of shareholders,
C. Develop and recommend to the Board of Directors a set of corporate
governance principles, and
D. Lead the Board of Directors in complying with its corporate governance
principles.
This Committee is committed to ensuring that (i) the nominees for membership on
the Board of Directors are of the highest possible caliber and are able to
provide insightful, intelligent and effective guidance to the management of the
Company and (ii) the governance of the Company is in full compliance with law,
reflects best practices in good corporate governance, encourages flexible and
dynamic management without undue burdens and effectively manages the risks of
the business and operations of the Company.
II. Composition: The membership of this Committee shall consist of at least
three (3) directors, all of whom shall be independent and appointed annually by
the Board of Directors. Independence for membership purposes shall be
established in accordance with the SEC and the NYSE rules and guidelines.
The Board of Directors shall appoint the Chairperson of the Committee
at its first meeting after each annual meeting of the shareholders.
III. Responsibilities: This Committee's goals and responsibilities shall be
to:
A. Identify the requisite skills and characteristics to be found in
individuals qualified to serve as members of the Board of Directors
and utilize such criteria in this Committee's recommendation of new
directors. As part of this process, this Committee shall ensure that
the Board of Directors consists of individuals from diverse
educational and professional experiences and backgrounds who,
collectively, provide meaningful counsel to management. In making its
recommendations, this Committee will consider, among other things,
submissions from shareholders. This Committee will conduct appropriate
and necessary inquiries into the background and qualifications of
possible candidates, and shall actively recruit qualified individuals.
B. Oversee the evaluation of the Board of Directors and management. In
this regard the Committee shall, without limitation:
(1) Evaluate, and report to the Board of Directors, the effectiveness
of the Board of Directors (including, without limitation, the
effectiveness of the Committees and the Compensation Committee in
particular in its process of establishing goals and objectives
for, and evaluating the performance of, the Chief Executive
Officer and the other officers of the Company). In this process,
the Committee shall receive comments from all Directors.
(2) Upon request or as required, review performance, qualifications
and other related issues concerning Board members.
(3) Review with the Chief Executive Officer the succession plans
relating to officers of the Company.
C. Recommend to the Board of Directors director nominees for each
Committee and each Committee chair;
D. Oversee the corporate governance of the Company, advising the Board of
Directors and its Committees on effective management and leadership.
In this regard this Committee shall:
(1) Develop and recommend to the Board of Directors a set of
corporate governance guidelines;
25
(2) At least annually review, and recommend to the Board of Directors
appropriate changes to the articles of incorporation, by-laws,
corporate governance guidelines, this charter and the charters of
the other committees of the Board of Directors, the codes of
business conduct and ethics, and all other corporate governance
related matters. Such review shall consider, without limitation:
(a) The structure, duties, size, membership and functions of the
Board of Directors and its Committees.
(b) The format and frequency of meetings of the Board of
Directors and its Committees.
(c) The performance of the Board of Directors (as a whole) and
each Committee of the Board of Directors (as a whole).
(3) Consider and advise the Board of Directors with respect to
questions of actual, apparent and potential violations of the
code of conduct and ethics of directors, officers and employees .
Such activities shall include a review of the outside activities
of Directors and officers. While this Committee intends to be
proactive in this area, this Committee is mindful that it is the
obligation of each Director and officer to bring to the attention
of this Committee any actual, apparent or possible conflict of
interest.
(4) Keep informed as to current requirements and trends in corporate
governance to ensure that the Company is fully compliant with law
and engaging in corporate governance "best practices".
E. Regularly report its activities to the Board.
F. Evaluate the performance of this Committee.
G. Perform such other responsibilities as may be delegated to it by the
Board of Directors.
This Committee shall perform each of its goals and responsibilities at
least annually, but more often if this Committee shall determine
necessary or appropriate.
V. Committee Authority: This Committee shall have the following authorities:
A. The sole power to retain and terminate any search firm to be used to
identify director candidates, including the authority to approve the
search firm's fees and other retention terms. Any such consultant
shall report directly to this Committee.
B. To obtain advice and assistance from internal or external legal,
accounting or other advisors and to have direct access to such
advisors without the presence of any officer of the Company.
C. To interview and meet with any employee of the Company without the
presence of any officer of the Company.
D. To form and delegate authority to subcommittees.
E. Such other powers as may be necessary or appropriate to fulfill its
purposes.
26
VI. Meetings: This Committee shall meet at least annually, or more frequently as
circumstances dictate. A majority of the members of this Committee shall
constitute a quorum for the transaction of business. The agenda of each
Committee meeting shall be established by the Chairperson with the assistance of
appropriate members of management. Each Committee member is free to suggest the
inclusion of items on the agenda. Each Committee member is free to raise at any
Committee meeting subjects that are not on the agenda for that meeting.
Ed. 2/26/04
27
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
Unless otherwise specified, the shares will be voted "FOR" the election of all [X] Please mark your vote
seven nominees for director and "FOR" the other proposal set forth below. as in this example
1. Election of Directors (nominees as listed) Nominees: Irvin Saltzman, Jon S. FOR WITHHELD
Saltzman, Richard L. Duszak, Charles Ellman, Robert A. Lear, M. Moshe Porat [ ] [ ]
and Martin Sheffield
For, except vote withheld from the following nominee(s):________________________
2. To approve an amendment to the Company's Certificate of Incorporation to FOR WITHHELD
increase authorized common stock from 20,000,000 shares to 30,000,000 shares; [ ] [ ]
and,
3. To vote on such other business which may properly come before the meeting.
Dated__________________________________, 2004
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.
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
[LOGO OMITTED]
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
P them acting individually, as the proxy of the undersigned, with full power of
R substitution, for and in the name and stead of the undersigned, to attend the
O Annual Meeting of Shareholders of the Company to be held on Thursday, May 13,
X 2004 at 10:00 a.m. at 420 S. York Road, Hatboro, Pennsylvania, and any
Y 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]