AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 2001
REGISTRATION NO. 333-68748
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DONEGAL GROUP INC.
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(Exact name of registrant as specified in its charter)
Delaware 23-2424711
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1195 River Road
Marietta, Pennsylvania 17547
(888) 877-0600
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Donald H. Nikolaus, President
Donegal Group Inc.
1195 River Road
Marietta, Pennsylvania 17547
(888) 877-0600
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Kathleen M. Shay, Esquire
Duane Morris
4200 One Liberty Place
Philadelphia, PA 19103-7396
(215) 979-1000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Section 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Section 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
EXPLANATORY NOTE
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This Registration Statement is being filed in connection with the recent
changes to Donegal Group Inc.'s capital structure and to reflect the effects of
those changes on the Donegal Group Inc. Agency Stock Purchase Plan.
Pursuant to a Form S-2 Registration Statement (File No. 333-06787)
filed with the SEC on June 25, 1996, Donegal Group registered 300,000 shares of
its previously authorized common stock in connection with its Agency Stock
Purchase Plan. On April 19, 2001, Donegal Group (1) reclassified its previously
authorized common stock into Class B common stock, (2) effected a reverse stock
split, as the result of which each three shares of previously authorized common
stock were converted into one share of Class B common stock, (3) authorized
30,000,000 shares of a new class of common stock with one-tenth of a vote per
share designated as Class A common stock and (4) declared a dividend of two
shares of Class A common stock to be paid on each share of Class B common stock
outstanding at the close of business on April 19, 2001. The Class A common stock
and the Class B common stock are identical, except with respect to voting rights
and the payment of dividends.
In connection with the reverse stock split and the stock dividend, the
committee appointed by the board of directors to administer the plan adjusted
the shares of common stock that remained available for purchase under the plan
for the subscription period ending September 30, 2001 so that the same total
number of shares of Donegal Group capital stock is purchasable under the plan,
but that two-thirds of those shares will be Class A common stock and one-third
of those shares will be Class B common stock. Nevertheless, because the dividend
rate we are permitted to pay on shares of Class A common stock outstanding when
we declare a cash dividend or other distribution is greater than the dividend
rate we are permitted to pay on shares of our Class B common stock, the
committee also determined that each participant may elect, for the subscription
period ending September 30, 2001, to purchase only shares of Class A common
stock, in lieu of purchasing two-thirds of Class A common stock and one-third of
Class B common stock.
Upon effectiveness of this Registration Statement, the Company intends to
degregister the 173,000 shares of previously authorized common stock registered
under Registration Statement No. 333-06787 that remain unsold as of April 19,
2001.
PROSPECTUS
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DONEGAL GROUP INC.
AGENCY STOCK PURCHASE PLAN
120,000 SHARES OF CLASS A COMMON STOCK
115,710 SHARES OF CLASS B COMMON STOCK
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Donegal Group is offering 120,000 shares of Class A common stock and
115,710 shares of Class B common stock to eligible insurance agencies under its
Agency Stock Purchase Plan. Our Class A common stock is listed for trading on
the Nasdaq Stock Market under the symbol "DGICA" and our Class B common stock is
listed for trading on the Nasdaq Stock Market under the symbol "DGICB." On
, 2001, the last reported sale price of our Class A common stock
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on the Nasdaq National Market System was $ per share. On , 2001,
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the last reported sale price of our Class B common stock on the Nasdaq National
Market System was $ per share.
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We will offer the shares of Class A common stock and Class B common stock
under the plan directly to eligible agencies through our officers and will not
use a broker or a dealer. In addition, we will not pay commissions, discounts or
any other payments to any person for services in connection with the offer or
sale of shares of Class A common stock or Class B common stock under the plan.
We will pay all costs of administering the plan. Participants will not incur
brokerage commissions or service charges for the purchase of shares under the
plan. Donegal Group will retain all proceeds from the sale of shares of Class A
common stock and Class B common stock under the plan.
Donegal Group's principal executive offices are located at 1195 River Road,
Marietta, PA 17547; telephone (888) 877-0600. A copy of our 2000 Annual Report
to Stockholders accompanies this prospectus. You should retain this prospectus
for future reference.
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN
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FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR CLASS A COMMON STOCK
AND CLASS B COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2001
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TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY.............................................................
RISK FACTORS...................................................................
DESCRIPTION OF THE AGENCY STOCK PURCHASE PLAN..................................
Purpose and Advantages of the Plan..........................................
The Recapitalization and Adjustment.........................................
Administration..............................................................
Participation...............................................................
Costs and Expenses..........................................................
Purchases...................................................................
Shares; Certificates for Shares.............................................
Withdrawal from the Plan....................................................
Other Information...........................................................
DESCRIPTION OF CAPITAL STOCK...................................................
General.....................................................................
Certain Charter and By-law Provisions; Delaware Anti-Takeover Provisions....
Limitation of Liability; Indemnification....................................
PLAN OF DISTRIBUTION...........................................................
USE OF PROCEEDS................................................................
EXPERTS........................................................................
LEGAL OPINION..................................................................
AVAILABLE INFORMATION..........................................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................
1
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It
may not contain all of the information that is important to you. To understand
this offering fully, you should read the entire prospectus carefully, including
the risk factors.
We are an insurance holding company that offers property and casualty
insurance through our wholly owned subsidiaries and participates in a pooling
agreement with our affiliate, Donegal Mutual Insurance Company, known as the
Mutual Company. Our operations are interrelated with the operations of the
Mutual Company, and various reinsurance arrangements exist between our insurance
subsidiaries and the Mutual Company. In addition, the Mutual Company provides us
and some of our insurance subsidiaries with all of our personnel.
Donegal Group is authorized to issue 30,000,000 shares of Class A common
stock, 10,000,000 shares of Class B common stock and 2,000,000 shares of
preferred stock. The Mutual Company currently owns approximately 62.2% of our
Class A common stock and 62.2% of our Class B common stock.
We adopted the Agency Stock Purchase Plan on July 20, 1995 to foster the
common interests of us and our agencies in achieving long-term profitable growth
for the Donegal Group of companies. We offered to eligible independent insurance
agencies of our subsidiaries and affiliated insurance companies, including the
Mutual Company, an opportunity to acquire a proprietary interest in us through
the plan.
We originally reserved 300,000 shares of our common stock to be offered and
sold under the plan for the five-year period ending September 30, 2001. On April
19, 2001, we changed our capital structure by amending our certificate of
incorporation to effect a one-for-three stock split of our then existing common
stock and to reclassify the common stock as Class B common stock. The amendment
also authorized the issuance of a new class of common stock, the Class A common
stock. In connection with the amendment, we declared a dividend of two shares of
Class A common stock for each share of Class B common stock held of record as of
the close of business on April 19, 2001. The Class A common stock and the Class
B common stock are identical, except with respect to voting rights and the
payment of dividends.
As part of the change in our capital structure, the committee appointed by
our board of directors to administer the plan adjusted each share of common
stock that remained available for purchase under the plan for the subscription
period ending September 30, 2001, known as the current subscription period. The
result of this adjustment is that the total number of shares of our capital
stock purchasable under the plan during the current subscription period remains
the same, but two-thirds of those shares are shares of Class A common stock and
one-third of those shares are shares of Class B common stock. Nevertheless,
because the dividend rate we are permitted to pay on shares of Class A common
stock outstanding when we declare a cash dividend or other distribution is
greater than the dividend rate we are permitted to pay on shares of our Class B
common stock, each eligible agency may elect, for the current subscription
period, to purchase only shares of Class A common stock, in lieu of purchasing
two-thirds of Class A common stock and one-third of Class B common stock.
2
The purchase price for shares of Class A common stock purchased under the
plan for the current subscription period will be 90% of the average of the
closing prices of the Class A common stock on the Nasdaq National Market System
on the last ten trading days of the current subscription period. The purchase
price for shares of Class B common stock purchased under the plan for the
current subscription period will be 90% of the average of the closing prices of
the Class B common stock on the Nasdaq National Market System on the last ten
trading days of the current subscription period.
We are offering the shares of Class A common stock and Class B common stock
under the plan directly to eligible agencies through our officers and will not
use a broker or a dealer. In addition, we will not pay commissions, discounts or
any other payments to any person for services in connection with the offer or
sale of shares of Class A common stock or Class B common stock under the plan.
We will pay all costs of administering the plan. Participants will not incur
brokerage commissions or service charges for the purchase of shares under the
plan.
The plan will terminate at the end of the current subscription period. The
plan will be replaced by our 2001 Agency Stock Purchase Plan, which will
continue to provide current and future selected independent insurance agencies
an opportunity to acquire a long-term proprietary interest in Donegal Group
through the purchase of our Class A common stock.
3
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS ALL
OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
BEFORE YOU DECIDE TO PURCHASE SHARES OF CLASS A COMMON STOCK AND CLASS B COMMON
STOCK.
THE CYCLICAL NATURE OF THE PROPERTY AND CASUALTY INSURANCE INDUSTRY MAY REDUCE
OUR REVENUES AND PROFIT MARGINS.
The property and casualty insurance industry is highly cyclical, and
individual lines of business experience their own cycles within the overall
industry cycle. Premium rate levels are related to the availability of insurance
coverage, which varies according to the level of surplus in the industry. The
level of surplus in the industry varies with returns on invested capital and
regulatory barriers to withdrawal of surplus. Increases in surplus have
generally been accompanied by increased price competition among property and
casualty insurers. If we find it necessary to reduce premiums or limit premium
increases due to these competitive pressures on pricing, it may cause a
reduction in our profit margins and revenues, increase our ratios of claims and
expenses to premiums and result in lower profitability for us.
Volatile and unpredictable developments also offset significantly the
cyclical trends in the industry and the industry's profitability. These
developments include natural disasters (such as storms, earthquakes, hurricanes,
floods and fires), fluctuations in interest rates and other changes in the
investment environment that affect the market prices of our investments and the
income from those investments, inflationary pressures that affect the size of
losses and judicial decisions that affect our liabilities. The occurrence of
these developments may adversely affect our business and financial condition.
THE NATURE OF THE INSURANCE INDUSTRY LIMITS OUR ABILITY TO CHANGE PRICES TO
REFLECT RISKS AND TO ESTIMATE OUR RESERVES ACCURATELY.
One of the distinguishing features of the property and casualty industry is
that its products generally are priced before its costs are known. Our products
are priced in this manner because premium rates usually are determined at the
time the policy is issued and before losses are reported. Changes in statutory
and case law can also dramatically affect the liabilities associated with known
risks after the insurance policy is issued. The number of competitors and the
similarity of products offered, as well as regulatory constraints, limit our
ability to increase prices in response to declines in profitability. Our
reported profits and losses are also determined, in part, by the establishment
and adjustment of reserves reflecting estimates made by management as to the
amount of losses and loss adjustment expenses that will ultimately be incurred
in the settlement of claims. Our ultimate liability for all losses and loss
adjustment expenses reserved at any given time will likely be greater or less
than these estimates, and material shortfalls in the estimates may have a
material adverse effect on us in future periods.
4
WE COMPETE WITH MANY INSURERS THAT ARE FINANCIALLY STRONGER THAN WE ARE.
The property and casualty insurance industry is intensely competitive.
Competition is based on many factors, including the perceived financial strength
of the insurer, premiums charged, policy terms and conditions, policyholder
service, reputation and experience. We compete with many regional and national
property and casualty insurance companies, including direct sellers of insurance
products, insurers having their own agency organizations and other insurers
represented by independent agents. Many of these insurers are better capitalized
than we are, have substantially greater financial, technical and operating
resources and have equal or higher ratings from A.M. Best Company, Inc.
The superior capitalization of many of our competitors enables them to
withstand lower profit margins and, therefore, to market their products more
aggressively, to take advantage more quickly of new marketing opportunities and
offer lower premium rates. Moreover, if our competitors price their premiums
more aggressively and we meet their pricing, our profit margins and revenues may
be reduced and our ratios of claims and expenses to premiums may increase.
Our competition may become increasingly better capitalized in the future as
the traditional barriers between insurance companies and banks and other
financial institutions erode and as the property and casualty industry continues
to consolidate. Our ability to compete against our larger, better capitalized
competitors depends largely on our ability to provide superior policyholder
service and to maintain our historically strong relationships with independent
insurance agents, on whom we are entirely dependent to generate premium volume.
We cannot assure you that we will maintain our current competitive position
in the markets in which we operate, or that we will be able to expand our
operations into new markets. If we fail to do so, our business could be
materially adversely affected.
WE ARE A REGIONAL INSURANCE COMPANY THAT OFFERS INSURANCE PRODUCTS IN A LIMITED
NUMBER OF STATES.
We are headquartered in Pennsylvania and engage in the insurance business
in approximately 15 Middle Atlantic and Southern states. In 2000, the majority
of our direct premiums written, including those of the Mutual Company and our
insurance subsidiaries, were geographically dispersed as follows: 63% in
Pennsylvania, 15% in Virginia and 6% in Maryland. Any single catastrophic
occurrence, destructive weather pattern, general economic trend or other
condition disproportionately affecting losses or business conditions in these
states could adversely affect our results of operations, although we and the
Mutual Company maintain reinsurance against catastrophic losses in excess of
$3,000,000 per occurrence and our insurance subsidiaries maintain various
catastrophe reinsurance agreements with the Mutual Company that limit the
maximum liability under any one catastrophe.
5
THE REINSURANCE AGREEMENTS ON WHICH WE RELY ON DO NOT RELIEVE US FROM LIABILITY
TO OUR POLICYHOLDERS.
We rely on reinsurance agreements to limit our maximum net loss from large
single risks or risks in concentrated areas, and to increase our capacity to
write insurance. Each reinsurance agreement satisfies all applicable regulatory
requirements. Reinsurance, however, does not relieve us from liability to our
policyholders. To the extent that a reinsurer may be unable to pay losses for
which it is liable under the terms of its reinsurance agreement with us, we
remain liable for such losses. However, in an effort to reduce the risk of
non-payment, we require all of our reinsurers to have an A.M. Best rating of A
or better or, with respect to foreign reinsurers, to have a financial condition
that, in the opinion of our management, is equivalent to a company with at least
an A rating. If our reinsurers incur losses from their reinsurance arrangements
with us, it is probable that the reinsurance premiums payable by us in the
future could increase.
WE ARE SUBJECT TO EXTENSIVE STATE INSURANCE REGULATION.
We are subject to the laws and regulations of the states in which we
conduct business. These laws and regulations address many aspects of our
business and financial condition, including licensure, the payment of dividends,
the establishment of premium rates, the settlement of claims, the transfer of
control and the requirement that we participate in assigned risk pools. Certain
of the following laws and regulations could have a material adverse effect on
our results of operations:
o state insurance regulations that require us to file proposed premium
rates in advance of premium rate increases;
o state insurance regulations that mandate required levels of statutory
surplus;
o private rating organization review of our levels of statutory surplus
and claims-paying ability; and
o National Association of Insurance Commissioners, known as the NAIC,
and state insurance department review of our risk-based capital
levels.
Changes in the level of regulation of the insurance industry and laws or
regulations themselves or interpretations by regulatory authorities could also
have a material adverse effect on our operations. Specific regulatory
developments that could have a material adverse effect on our operations include
the potential repeal of the McCarran-Ferguson Act, which exempts insurance
companies from a variety of federal regulatory requirements, possible rate
rollback regulation and legislation to control premiums, policy terminations and
other policy terms.
6
THE MUTUAL COMPANY IS OUR LARGEST SHAREHOLDER AND PROVIDES US WITH OUR
FACILITIES AND SERVICES.
The Mutual Company currently owns approximately 62.2% of our outstanding
Class A common stock and 62.2% of our outstanding Class B common stock and will
continue to own approximately the same percentages of these classes of stock
after completion of this offering. Accordingly, the Mutual Company will continue
to control the election of members of our board of directors. Although the
Mutual Company could exercise its control in ways that are contrary to the
interests of our stockholders other than the Mutual Company, we and the Mutual
Company have established a coordinating committee consisting of two outside
directors from each company who do not also serve as directors of the other
company. Subsequent to approval of a matter by the separate boards of directors
of Donegal Group and the Mutual Company, this committee is responsible for
reviewing and approving all matters involving actual or potential conflicts of
interest, including any changes to the pooling and other agreements between us
and the Mutual Company, and this committee's decisions are binding on both us
and the Mutual Company. In order for an intercompany transaction to be approved,
our representatives on the committee must conclude that the transaction is fair
and equitable to us.
We are dependent upon the Mutual Company for the retention of agents and
the underwriting of insurance, the servicing of policyholder claims and all
other aspects of our operations. All of our officers are officers and employees
of the Mutual Company. The Mutual Company also provides all of the facilities
and data processing and administrative services required to conduct our
business, for which we pay a pro rata portion of the cost.
OUR BUSINESS DEPENDS IN PART ON THE MARKETING EFFORTS OF INDEPENDENT INSURANCE
AGENTS, AND IT IS POSSIBLE THAT THESE AGENTS MAY NOT MARKET OUR PRODUCTS
SUCCESSFULLY OR SELL OUR PRODUCTS WITHIN THE GUIDELINES WE SPECIFY.
We market and sell almost all of our insurance products through
independent, non-exclusive insurance agents. These agents are not obligated to
promote our insurance products exclusively and they also sell our competitors'
insurance products. Our business depends in part on the marketing efforts of
these agents and we must offer insurance products and services that meet the
requirements of these independent agencies. If these agencies do not market our
products successfully or give priority to other insurers, our business may be
adversely impacted.
We also grant certain agents the authority to bind insurance without our
prior approval within underwriting and pricing limits that we specify. However,
we generally review all coverages placed by our agents and may cancel the
coverage if it is inconsistent with our guidelines and permissible to cancel
under applicable insurance regulations. If we are unable to cancel the coverage
placed by an agent prior to a claim being placed by the insured, our risk may be
increased and our profitability may suffer.
7
OUR ESTABLISHED RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES ARE BASED ON
ESTIMATES, AND IT IS POSSIBLE THAT OUR ULTIMATE LIABILITY WILL EXCEED THESE
ESTIMATES.
We establish reserves for losses and loss adjustment expenses based on
estimates of amounts needed to pay reported and unreported claims and related
loss adjustment expenses. These estimates are based on facts and circumstances
then known to us. Reserves are based on estimates of future trends and claims
severity, judicial theories of liability and other factors.
The establishment of appropriate reserves is an inherently uncertain
process, and there can be no assurance that the ultimate liability will not
exceed our loss and loss adjustment expense reserves and have an adverse effect
on our results of operations and financial condition. As is the case for most
property and casualty insurance companies, we have found it necessary in the
past to revise estimated liabilities as reflected in our loss and loss
adjustment expense reserves, and further adjustments could be required in the
future. However, our management believes that adequate provision has been made
for our loss and loss adjustment expense reserves. This belief is based on our
internal procedures, which analyze our experience with similar cases and
historical trends such as reserving patterns, loss payments, pending levels of
unpaid claims and product mix, as well as court decisions, economic conditions
and public attitudes.
OUR SUBSIDIARIES ARE RESTRICTED IN PAYING US DIVIDENDS, ON WHICH WE DEPEND FOR
THE PAYMENT OF CORPORATE EXPENSES.
As a holding company, we rely primarily on our subsidiaries for dividends
and other permitted payments to meet our obligations for corporate expenses.
Payment of dividends to us by our subsidiaries is subject to regulatory
restrictions and depends on the surplus of our subsidiaries. From time to time,
the NAIC and various state insurance regulators consider modifying the method of
determining the amount of dividends that may be paid by an insurance company
without prior regulatory approval.
OUR CHARTER DOCUMENTS, DELAWARE CORPORATE LAW AND PENNSYLVANIA INSURANCE LAW MAY
INHIBIT A TAKEOVER.
Certain provisions of our certificate of incorporation and by-laws and
Delaware and Pennsylvania law may discourage a future unsolicited takeover of
Donegal Group. These provisions could have the effect of discouraging certain
attempts to acquire us or remove current management, including current members
of our board of directors, even if some of our stockholders deemed these
attempts to be in their best interests.
Our certificate of incorporation authorizes us to issue two classes of
common stock, Class A common stock and Class B common stock. The holders of the
Class A common stock are entitled to one-tenth of one vote per share, while the
holders of the Class B common stock are entitled to one vote per share, on all
matters submitted to a vote of our stockholders. In addition, our certificate of
incorporation does not grant any holder of our stock the right to cumulate votes
in the election of directors. The Mutual Company currently owns approximately
62.2% of our Class A common stock and 62.2% of our Class B common stock and has
effective voting control
8
over us. This ownership by the Mutual Company could avert or prevent a change in
control of us unless the Mutual Company, after consideration of all relevant
factors including the interests of our stockholders other than the Mutual
Company, is in favor of such a change.
Our board of directors, without stockholder approval, has the authority to
issue preferred stock with voting and conversion rights that could adversely
affect the voting power of the Class A common stock and the Class B common
stock. The issuance of preferred stock could have the effect of delaying,
averting or preventing a change in control of us. No preferred stock has been
issued, and our board of directors does not intend to issue any preferred stock
at the present time.
Our by-laws provide for a classified board of directors, consisting of
three classes as nearly equal in size as possible. The classification of our
board of directors could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, control of
us.
As a Delaware corporation we are subject to certain anti-takeover
provisions of Delaware law, including certain business combination transaction
prohibitions. In addition, we are subject to Pennsylvania insurance laws and
regulations that prohibit any person from acquiring a greater than 10% interest
in us without the prior approval of the Insurance Commissioner of the
Commonwealth of Pennsylvania. These provisions could make it more difficult for
a third party to gain control of us, deny stockholders the receipt of a premium
on their Class A common stock and Class B common stock and have a depressive
effect on the market price of the Class A common stock and the Class B common
stock.
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in, or incorporated by reference in, this
prospectus are forward-looking in nature. These statements can be identified by
the use of forward-looking words such as "believes," "expects," "may," "will,"
"should," "intends," "plans" or "anticipates," or the negative thereof or
comparable terminology, or by discussions of strategy. You are cautioned that
our business and operations are subject to a variety of risks and uncertainties
and, consequently, our actual results may materially differ from those projected
by any forward-looking statements. Certain of these risks and uncertainties are
discussed under the heading "Risk Factors."
9
DESCRIPTION OF THE AGENCY STOCK PURCHASE PLANAGENCY STOCK PURCHASE PLAN
We describe the provisions of the plan below, in question and answer form.
As used in the plan, the term "subsidiary and affiliated insurance companies"
means insurance companies that are our subsidiaries and the Mutual Company. The
plan was approved by our board of directors on July 20, 1995.
PURPOSE AND ADVANTAGES OF THE PLAN
1. What is the purpose of the plan?
The plan provides an eligible agency, as described in Question and Answer
7, an opportunity to acquire a long-term proprietary interest in us through the
purchase of our capital stock at a discount from current market prices. In
offering the plan, we seek to foster the common interests of Donegal Group and
the eligible agencies in achieving long-term profitable growth for us.
Accordingly, we have created the plan for the purpose of facilitating the
purchase of and long-term investment in shares of our capital stock by an
eligible agency. We expect that an eligible agency that purchases shares under
the plan will hold these shares on a long-term basis, as the plan is not
intended to benefit an agency that demonstrates a pattern of immediate resale of
shares acquired. As discussed in Question and Answer 7 below regarding
eligibility, immediate resale of shares will be a factor in our determination
whether an otherwise eligible agency should remain eligible for continued
participation in the plan.
2. What are the advantages of the plan?
Under the plan, each eligible agency can utilize three convenient payment
methods for the purchase of our capital stock at a 10% discount from the current
market price. You will not pay any brokerage commissions or service charges in
connection with your purchase.
Each eligible agency previously chose a payment method by completing and
filing a subscription agreement, as described in Question and Answer 9, with us.
The committee's adjustment to the plan will not effect the payment method
previously chosen by an eligible agency to purchase shares of our capital stock
under the plan.
THE RECAPITALIZATION AND ADJUSTMENT
3. What are the effects of the recapitalization and the adjustment on an
eligible agency that participates in the plan?
Prior to the recapitalization and the adjustment, participants could
purchase only shares of our previously authorized common stock under the plan.
As a result of the recapitalization the previously authorized common stock no
longer exists, and an eligible agency will no longer be able to purchase shares
of common stock under the plan. Instead, participants can purchase our Class A
common stock and Class B common stock under the plan during the current
subscription period.
10
In general, two-thirds of each participant's total purchase will be shares
of Class A common stock and one-third will be shares of Class B common stock.
The Class A common stock and the Class B common stock are identical, except with
respect to voting rights and payment of dividends. See "Description of Capital
Stock" below. Nevertheless, because the dividend rate we are permitted to pay on
shares of Class A common stock outstanding when we declare a cash dividend or
other distribution is greater than the dividend rate we are permitted to pay on
shares of our Class B common stock, each eligible agency may elect, for the
current subscription period, to have its total share purchase consist only of
shares of Class A common stock, in lieu of its total share purchase consisting
two-thirds of Class A common stock and one-third of Class B common stock. In
order to make this election, each eligible agency must complete and file an
election form with us, as described in Question and Answer 11, to designate the
class or classes of shares the eligible agency intends to purchase for the
current subscription period.
ADMINISTRATION
4. Who administers the plan for participants?
A committee consisting of three persons appointed from time to time by our
board of directors administers the plan. The committee may adopt rules and
regulations for carrying out the plan. The committee's interpretations or
constructions of the provisions of the plan are final and conclusive unless our
board of directors takes contrary action. We do not compensate members of the
committee for administering the plan.
Our board of directors appointed Donald H. Nikolaus, Ralph G. Spontak and
Frank J. Wood to serve on the committee. Upon the retirement of Frank J. Wood,
our board of directors appointed Daniel J. Wagner to serve on the committee.
Donald H. Nikolaus is President, Chief Executive Officer and a director of
Donegal Group and the Mutual Company. Ralph G. Spontak is Senior Vice President,
Chief Financial Officer and Secretary of Donegal Group and the Mutual Company.
Mr. Spontak is also a director of the Mutual Company. Daniel J. Wagner is
Treasurer of Donegal Group and the Mutual Company. The address and telephone
number of each member of the committee is c/o Donegal Group Inc., 1195 River
Road, Marietta, PA 17547; telephone (888) 877-0600.
5. Where can I obtain additional information about the plan and its
administrators?
You can obtain additional information about the plan and its administrators
by contacting Ralph G. Spontak, our Senior Vice President, Chief Financial
Officer and Secretary, at (888) 877-0600.
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6. What is the term of the plan?
The plan will be in effect until September 30, 2001, at which time the plan
will terminate and be replaced with our 2001 Agency Stock Purchase Plan. During
the term of the plan there were ten consecutive semi-annual subscription
periods, nine of which have been completed. The last subscription period ends on
September 30, 2001.
PARTICIPATION
7. What agencies are eligible to participate?
An eligible agency is an independent insurance agency that brings value to
Donegal Group, the Mutual Company and our subsidiary and affiliated insurance
companies, directly or indirectly, as determined by us in our discretion, and
with which we seek a long-term relationship. Only eligible agencies may
participate in the plan. The eligibility criteria we will consider includes the
agency's volume of direct premiums written, the ability of the agency to
increase sales and grow the volume of direct premiums written, the historic loss
ratio of the agency's direct premiums written and whether the agency has been
placed on rehabilitation by us, meaning that we notify the agency of operational
deficiencies, or had its binding authority revoked. We may base eligibility on
agency segmentation class or any other factors that indicate value to the
companies, directly or indirectly, in our discretion.
We will periodically review an eligible agency's continued eligibility. A
pattern of immediate resale of shares acquired under the plan by an eligible
agency will be a factor in our determination whether an agency should remain
eligible for continued participation in the plan. Immediate resales would tend
to indicate that an agency is not seeking to share in the long-term profitable
growth of the companies. If Donegal Group determines to discontinue an agency's
participation in the plan, the agency will receive written notice from us that
its eligibility to participate in the plan has been discontinued. This notice
will be sent to the agency as promptly as possible, but in no event later than
30 days after the end of the subscription period during which the decision was
made. A decision by us, in our discretion, to discontinue the eligibility of an
agency under the plan will be treated as an automatic withdrawal from the plan.
See Questions and Answers 25 and 26 below.
8. How did an eligible agency enroll in the plan?
An eligible agency enrolled in the plan by completing and filing a
subscription agreement, as described in Question and Answer 9, with us. We sent
to each eligible agency a subscription agreement, a copy of a prospectus and any
prospectus supplements and a copy of our most recent Annual Report to
Stockholders prior to the beginning of the first enrollment period following the
agency's designation as an eligible agency. Eligible agencies that are current
participants in the plan will not receive a new subscription agreement relating
to the committee's adjustment to the plan. However, eligible agencies that are
current participants in the plan will receive an election form, as described in
Question and Answer 11, relating to the committee's adjustment to the plan.
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9. What does a subscription agreement provide?
A subscription agreement allowed each eligible agency to decide and
identify the date on which the agency desired to become enrolled in the plan,
the amounts of contribution and the payment method(s) selected for purchases
under the plan. A participant's completion and filing of an election form with
us, as described in Question and Answer 11, will not alter or change the date of
enrollment, the amounts of contribution or the payment method(s) selected for
purchases under the plan, as designated by the participant in a subscription
agreement or any supplemental subscription agreement previously filed with us.
10. When did eligible agencies enroll in the plan?
If an eligible agency chose the direct bill commission payment method, as
explained in Question and Answer 17, enrollment in the plan occurred only during
the enrollment period preceding each subscription period. An eligible agency
that desired to subscribe for the purchase of shares through withholding from
direct bill commissions returned a duly executed and completed subscription
agreement during the applicable enrollment period.
If an eligible agency chose the lump-sum payment method, as explained in
Question and Answer 18, an eligible agency enrolled by submitting a supplemental
subscription agreement to us and making a lump-sum payment by the last day of
the applicable subscription period, or in the case of the current subscription
period, by October 31, 2001. An eligible agency that chose the lump-sum payment
method and intends to purchase shares under the plan for the current
subscription period using the lump-sum payment method, may submit a supplemental
subscription agreement and make a lump-sum payment to us by October 31, 2001.
If an eligible agency chose the contingent commission payment method, as
explained in Question and Answer 19, an eligible agency enrolled by submitting a
subscription agreement during the enrollment period immediately preceding the
applicable subscription period.
11. What does an election form provide?
An election form allows each eligible agency that participates in the plan
to designate the class or classes of shares the agency intends to purchase under
the plan for the current subscription period. The election form provides each
eligible agency with two alternatives for the purchase of shares during the
current subscription period. An eligible agency may elect to have its total
purchase of shares for the current subscription period consist two-thirds of
Class A common stock and one-third of Class B common stock. In the alternative,
an eligible agency may elect to have its total purchase of shares for the
current subscription period consist only of Class A common stock.
Any eligible agency that fails to make an election by completing and filing
an election form with us by October 31, 2001 will be deemed to have made an
election to have its total purchase of shares under the plan for the current
subscription period consist two-thirds of Class A common stock and one-third of
Class B common stock.
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12. May an eligible agency transfer its subscription rights to another person
or agency?
No. An eligible agency may not assign its subscription payments or rights
to subscribe to any other person, and any attempted assignment is void, except
for permitted designations as described in Question and Answer 24.
COSTS AND EXPENSES
13. Are there any expenses to participants in connection with purchases under
the plan?
No. Eligible agencies are not obligated to pay any brokerage commissions or
other charges with respect to the purchase of Class A common stock or Class B
common stock under the plan for the current subscription period.
PURCHASES
14. How many shares are available to be purchased under the plan for the
current subscription period?
Our board of directors reserved 120,000 shares of Class A common stock and
115,710 shares of Class B common stock for sale under the plan for the current
subscription period.
15. What is the price of shares of Class A common stock and Class B common
stock purchased under the plan?
The subscription price for each share of Class A common stock purchased
under the plan will be 90% of the average of the closing prices of the Class A
common stock on the Nasdaq National Market System on the last ten trading days
of the current subscription period. The subscription price for each share of
Class B common stock purchased under the plan will be 90% of the average of the
closing prices of the Class B common stock on the Nasdaq National Market System
on the last ten trading days of the current subscription period.
16. How may an eligible agency pay for shares purchased under the plan?
As with past purchases of common stock under the plan, an eligible agency
can pay for shares purchased under the plan by means of three payment methods:
Direct bill commission deduction, lump-sum payment or contingent commission
deduction. The committee's adjustment to the plan will not effect the payment
method previously chosen by an eligible agency to purchase shares of capital
stock under the plan.
17. What is the direct bill commission payment method?
Under the direct bill commission payment method, an eligible agency elected
to purchase shares under the plan through deductions from its monthly direct
bill commission payment by designating that a minimum of 1% and up to a maximum
of 10% of the eligible agency's
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monthly direct bill commission payments be withheld from the eligible agency's
direct bill commission payments. Direct bill commission payments are subject to
the total subscription limit under all payment methods of $12,000 per
subscription period. "Direct bill commission payments" means those commissions
that are earned and actually available for payment in a monthly period to an
eligible agency for personal and commercial direct bill policies after all
offsetting debits and credits are applied, as determined solely from our
records.
18. What is the lump-sum payment method?
Under the lump-sum payment method, an eligible agency may elect to make
lump-sum cash payments for the purchase of shares under the plan by October 31
of the current subscription period. Lump-sum cash payments may not be less than
$1,000 for the current subscription period and are subject to the total
subscription limit under all methods of $12,000 for the current subscription
period.
19. What is the contingent commission payment method?
An eligible agency designated a percentage of the contingent commission
payable to the participant under the terms of the applicable agency contingency
plan (or its equivalent) to be withheld for the purchase of shares under the
plan. Contingent commission payments are subject to the total subscription limit
under all payment methods of $12,000 per subscription period.
20. Are there limitations on the amount of contributions or purchases that can
be made?
Yes. Each eligible agency's total contributions for purchases from all
payment methods (described in Questions and Answers 17, 18 and 19 above) may not
exceed $12,000 during the current subscription period. At the close of the
current subscription period, we will total each agency's contributions from all
payment methods. If at any time throughout the current subscription period, an
eligible agency's total payments exceed the $12,000 maximum amount, we will
return the excess amount without interest to the Eligible Agency within a
reasonable period.
21. How are purchases made under the plan?
We maintain on our books a plan account for each enrolled eligible agency.
All contributions made by an eligible agency through deductions from an eligible
agency's direct bill commission payments and contingent commission withholding
and lump-sum payments during the current subscription period, up to $12,000, are
credited to the eligible agency's plan account. At the end of the current
subscription period, the amount credited to each eligible agency's plan account
will be divided by the subscription prices for the current subscription period,
and the eligible agency's plan account will be credited, consistent with the
agency's election form, with the number of whole shares of Class A common stock
and Class B common stock that results, or in the alternative, the number of
whole shares of Class A common stock that results. Any amount remaining in the
plan account at the end of the current subscription period will be returned
without interest to the eligible agency. If the number of shares of Class A
common stock and Class B common stock subscribed for during the current
subscription period exceeds the
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number of shares available for sale under the plan, the remaining available
shares will be allocated, consistent with the election form, among the
participating eligible agencies in proportion to their aggregate plan account
balances, exclusive of any amount carried forward from a previous subscription
period.
SHARES; CERTIFICATES FOR SHARES
22. May an eligible agency transfer, pledge, hypothecate or assign shares
credited to the agency's plan account?
An eligible agency may not transfer, pledge, hypothecate or assign its
subscription rights under the plan or shares credited to its plan account,
except for permitted designations as described in Question and Answer 24.
23. Are stock certificates issued for shares of Class A common stock and Class
B common stock purchased?
We will issue and deliver to each eligible agency stock certificates for
the shares of Class A common stock and Class B common stock it has purchased
under the plan for the current subscription period within a reasonable time
after purchase, but in no event later than 30 days after the end of the
subscription period during which the shares were purchased.
24. In whose name are accounts maintained and certificates registered when
issued?
Accounts in the plan are maintained in the name of the eligible agency.
Consequently, certificates when issued for full shares are registered in the
same name. An eligible agency may, upon written request to us, (a) designate
that shares be issued to a shareholder, partner, other principal or other
licensed employee of an eligible agency or (b) designate that any retirement
plan maintained by or for the benefit of an eligible agency or a shareholder,
partner, other principal or other licensed employee of the eligible agency may
purchase shares instead of the eligible agency through lump-sum payments made by
the designee. These permitted designations are subject to the maximum amount
limitation of $12,000, compliance with all laws that apply, including the
Employee Retirement Income Security Act of 1974, payment by the eligible agency
or its designee of any required transfer taxes and satisfaction of our usual
requirements for recognition of a transfer of our capital stock.
WITHDRAWAL FROM THE PLAN
25. How and when may an eligible agency withdraw from the plan?
An enrolled eligible agency may withdraw from the plan at any time by
notifying us in writing, signed on behalf of the eligible agency by an
authorized representative. We will treat the termination of agency status for
any reason as an automatic withdrawal.
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26. What happens to any shares held in and amounts credited to an eligible
agency's plan account at the time of withdrawal?
Promptly after the time of withdrawal or discontinuance of an agency's
eligibility, but in no event later than 30 days after the end of the
subscription period during which the withdrawal or termination occurred, we will
issue certificates representing the whole shares held under the plan in the name
of the agency, and will refund any amount credited to an eligible agency's plan
account at the time of withdrawal to the participant in cash without interest.
OTHER INFORMATION
27. What are the federal income tax consequences of an eligible agency's
participation in the plan?
At the time of purchase, and where an eligible agency purchases shares of
Class A common stock and Class B common stock in its own name, the eligible
agency will be treated as having received ordinary income in an amount equal to
the difference between the subscription price paid and the then fair market
value of the Class A common stock or Class B common stock acquired, as the case
may be. At the end of the calendar year, we will mail to each participating
agency a Form 1099 reflecting the amount of ordinary income earned under the
plan. We will be entitled to a tax deduction at the same time in a corresponding
amount. The participating agency's basis in the Class A common stock or Class B
common stock purchased under the plan will be equal to the purchase price plus
the amount of ordinary income recognized.
When an agency disposes of shares of Class A common stock or Class B common
stock purchased under the plan, any amount received in excess of the value of
the shares of Class A common stock or Class B common stock on which the agency
was previously taxed will be treated as a long-term or short-term capital gain,
depending upon the holding period of the shares. If the amount received is less
than that value, the loss will be treated as a long-term or short-term capital
loss, depending upon the holding period of the shares (which begins on the date
after each share is acquired).
You are strongly advised to consult with a tax advisor to determine the tax
consequences of a given transaction, particularly if a taxpayer other than you
has been designated by you to become a participant in the plan.
28. May the plan be changed or discontinued?
Yes. Our board of directors has the right to amend, modify or terminate the
plan at any time without notice if your existing rights are not adversely
affected as a result of the amendment, modification or termination. Our board of
directors has determined that the plan will be terminated at the end of the
current subscription period and replaced with the new 2001 Agency Stock Purchase
Plan. Each eligible agency will receive a new prospectus and subscription form
relating to the 2001 Agency Stock Purchase Plan.
17
29. How may eligible agencies sell shares of Class A common stock purchased
under the plan?
As discussed in Question and Answer 22, we will issue and deliver to
eligible agencies the stock certificates for the shares purchased under the plan
after the end of the subscription period during which the shares were purchased.
Participants will have the sole discretion as to whether or when to sell their
shares and may transfer or dispose of them at any time without restriction after
receipt of their stock certificates. An agency may choose to sell shares through
the broker of his or her choice.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized Class A common stock consists of 30,000,000 shares. As of
July 31, 2001, 5,973,804 shares of our Class A common stock were issued and
outstanding. Our authorized Class B common stock consists of 10,000,000 shares.
As of July 31, 2001, 2,978,759 shares of our Class B common stock was issued and
outstanding. We also have authorized 2,000,000 shares of preferred stock,
issuable in series upon resolution of our board of directors, none of which are
outstanding. Except as otherwise required by the Delaware General Corporation
Law, known as the DGCL, or as otherwise provided in our certificate of
incorporation with respect to dividends and voting rights, each share of Class A
common stock and each share of Class B common stock have identical powers,
preferences and limitations.
Our certificate of incorporation provides that the holders of shares of
Class A common stock are entitled to one-tenth of one vote per share held on any
matter to be voted on by our stockholders, while the holders of shares of Class
B common stock are entitled to one vote per share. Except as otherwise required
under the DGCL or our certificate of incorporation, the holders of Class A
common stock and the holders of Class B common stock vote together as a single
class on all matters presented to our stockholders for a vote.
At any election of directors, the nominees receiving the highest number of
votes cast by the holders of the Class A common stock and the Class B common
stock for the number of directors to be elected will be elected as directors.
Under the DGCL and our certificate of incorporation, the affirmative vote
of the holders of a majority of the Class A common stock and the Class B common
stock, voting as a single class, is sufficient to amend our certificate of
incorporation, to authorize additional shares of capital stock of any class, to
approve any merger or consolidation of us with or into any other entity or the
sale of all or substantially all of our assets or to approve our dissolution.
Under the DGCL, the holders of shares of Class A common stock are entitled
to vote as a separate class on any proposal to change the par value of the Class
A common stock or to alter or change the rights, preferences and limitations of
the Class A common stock in a way that would affect the holders of shares of
Class A common stock adversely. Similarly, the holders of shares of Class B
common stock are entitled to vote as a separate class on any proposal to change
the par value of the Class B common stock or to alter or change the rights,
preferences and limitations of the Class B common stock in a way that would
affect the holders of shares of Class B common stock adversely. In addition,
under the DGCL, the number of authorized shares of Class A common stock or Class
B common stock may be increased or decreased, but not below the number of shares
then outstanding, by the affirmative vote of the holders of a majority of the
respective class of common stock voting as a separate class.
Our certificate of incorporation provides that each share of Class A common
stock outstanding at the time of the declaration of any cash dividend or other
distribution payable upon the shares of Class B common stock is entitled to a
cash dividend or distribution payable at the
19
same time and to stockholders of record on the same date in an amount at least
10% greater than any cash dividend declared upon each share of Class B common
stock. Each share of Class A common stock and Class B common stock is equal in
respect to dividends or other distributions payable in shares of capital stock
except that the dividends or distributions may be made (1) in shares of Class A
common stock to the holders of Class A common stock and in shares of Class B
common stock to the holders of Class B common stock, (2) in shares of Class A
common stock to the holders of Class A common stock and to the holders of Class
B common stock or (3) in any other authorized class or series of capital stock
to the holders of Class A common stock and to the holders of Class B common
stock.
There are no redemption or sinking fund provisions applicable to the Class
A common stock or to the Class B common stock. All the shares of Class A common
stock and Class B common stock offered by us pursuant to this prospectus, when
issued and paid for, will be fully paid and non-assessable.
Each holder of Class A common stock and each holder of Class B common stock
is entitled to receive the same per share consideration in a merger or
consolidation of us into another entity except that, if the consideration paid
to our stockholders consists in whole or in part of shares of another entity,
the shares of the other entity issued to the holders of our Class B common stock
may have greater voting rights than the shares of the other entity issued to the
holders of the Class A common stock.
Neither the Class A common stock nor the Class B common stock is
convertible into another class of common stock or any other security of Donegal
Group.
The transfer agent and registrar for our Class A common stock and Class
B common stock is EquiServe.
CERTAIN CHARTER AND BY-LAW PROVISIONS; DELAWARE ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation, by-laws and the DGCL contain certain
provisions that may enhance the likelihood of continuity and stability in the
composition of our board of directors and may discourage a future unsolicited
takeover of Donegal Group. These provisions could have the effect of
discouraging certain attempts to acquire us or remove current management,
including current members of our board of directors, even if some of our
stockholders deemed these attempts to be in their best interests.
Our certificate of incorporation authorizes us to issue two classes of
common stock, Class A common stock and Class B common stock. The holders of the
Class A common stock are entitled to one-tenth of one vote per share, while the
holders of the Class B common stock are entitled to one vote per share, on all
matters submitted to a vote of our stockholders. In addition, our certificate of
incorporation does not grant any holder of our stock the right to cumulate votes
in the election of directors. The Mutual Company currently owns approximately
62.2% of our Class A common stock and 62.2% of our Class B common stock and has
effective voting control over us. This ownership by the Mutual Company could
avert or prevent a change in control of us unless the Mutual Company, after
consideration of all relevant factors including the interests of our
stockholders other than the Mutual Company, is in favor of such a change.
20
Our board of directors, without stockholder approval, has the authority to
issue preferred stock with voting and conversion rights that could adversely
affect the voting power of the Class A common stock and the Class B common
stock. The issuance of preferred stock could have the effect of delaying,
averting or preventing a change in control of us. No preferred stock has been
issued, and our board of directors does not intend to issue any preferred stock
at the present time.
Our by-laws provide for a classified board of directors consisting of three
classes as nearly equal in size as possible. The classification of our board of
directors could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of us.
We are a Delaware corporation that is subject to certain anti-takeover
provisions of the DGCL. The business combination provisions contained in Section
203 of the DGCL defines an interested stockholder of a corporation as any person
that (1) owns, directly or indirectly, or has the right to acquire, 15% or more
of the outstanding voting stock of the corporation or (2) is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether the
person is an interested stockholder; and the affiliates and the associates of
the person. Under Section 203, a Delaware corporation may not engage in any
business combination with any interested stockholder for a period of three years
following the date the stockholder became an interested stockholder, unless (1)
prior to that date the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (2) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding, for determining
the number of shares outstanding, (a) shares owned by persons who are directors
and officers and (b) employee stock plans, in certain instances) or (3) on or
after that date the business combination is approved by the board of directors
and authorized at an annual or special meeting of stockholders by at least
66-2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
The restrictions imposed by Section 203 will not apply to a corporation if
the corporation, by the action of its stockholders holding a majority of the
outstanding stock, adopts an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by Section 203. The amendment will
not be effective until 12 months after adoption and will not apply to any
business combination between the corporation and any person who became an
interested stockholder of the corporation on or prior to the adoption of the
amendment.
We have not elected to opt out of Section 203, and the restrictions imposed
by Section 203 apply to us. Section 203 could, under certain circumstances, make
it more difficult for a third party to gain control of us, deny stockholders the
receipt of a premium on their Class A common stock and Class B common stock and
have a depressive effect on the market price of the Class A common stock and the
Class B common stock.
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In addition, we are subject to Pennsylvania insurance laws and
regulations that prohibit any person from acquiring a greater than 10% interest
in us without the prior approval of the Insurance Commissioner of the
Commonwealth of Pennsylvania. These provisions could make it more difficult for
a third party to gain control of us, deny stockholders the receipt of a premium
on their Class A common stock and Class B common stock and have a depressive
effect on the market price of the Class A common stock and the Class B common
stock.
LIMITATION OF LIABILITY; INDEMNIFICATION
As permitted by the DGCL, Article 6 of our certificate of incorporation
provides that our directors will not be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to us
or our stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, relating to prohibited dividends, distributions and repurchases or
redemptions of stock or (iv) for any transaction from which the director derives
an improper personal benefit.
Article 5 of our by-laws includes provisions for indemnification of our
directors and officers to the fullest extent permitted by the DGCL as now in
effect or as in effect at a later date. Insofar as indemnification for
liabilities arising under the federal securities laws may be permitted to
directors, officers and persons controlling us under these provisions, we have
been informed that in the opinion of the SEC this indemnification is against
public policy as expressed in federal securities laws and is unenforceable.
PLAN OF DISTRIBUTION
We have reserved 120,000 shares of Class A common stock and 115,710 shares
of Class B common stock for sale to eligible agencies under the plan for the
current subscription period. We will offer the shares of Class A common stock
and Class B common stock under the plan directly to eligible agencies through
our officers and will not use a broker or a dealer. In addition, we will not pay
commissions, discounts or any other payments to any person for services in
connection with the offer or sale of shares of Class A common stock and Class B
common stock under the plan. We will pay all costs of administering the plan.
Participants will not incur brokerage commissions or service charges for the
purchase of shares under the plan.
USE OF PROCEEDS
No minimum amount of proceeds is required to be received by Donegal Group
in this offering. Donegal Group will retain all proceeds from the sale of shares
of Class A common stock and Class B common stock under the plan. We intend to
use the proceeds from sales of these shares for general corporate purposes,
including making investments in and advances to our subsidiaries.
22
EXPERTS
The consolidated financial statements and schedules of Donegal Group as of
December 31, 2000 and 1999, and for each of the years in the three-year period
ended December 31, 2000, have been incorporated by reference in this prospectus
and in the registration statement in reliance upon the reports of KPMG LLP,
independent certified public accountants, incorporated by reference in this
prospectus, and upon the authority of that firm as experts in accounting and
auditing.
LEGAL OPINION
The validity of the issuance of the shares of Class A common stock and
Class B common stock offered hereby will be passed upon for us by Duane, Morris
& Heckscher LLP, Philadelphia, Pennsylvania. As of April 20, 2001, persons who
are partners of or of counsel to Duane, Morris & Heckscher LLP beneficially
owned 25,594 shares of our outstanding Class A common stock, and 12,797 shares
of our outstanding Class B common stock, of which 5,926 shares represent shares
of Class A common stock purchasable under currently exercisable stock options
and 2,963 shares represent shares of Class B common stock purchasable under
currently exercisable stock options. In addition, Frederick W. Dreher, a partner
of Duane, Morris & Heckscher LLP, is a director of the Mutual Company and is one
of its members on the coordinating committee. The Mutual Company is a holder of
approximately 62.2% of our Class A common stock and 62.2% of our Class B common
stock.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our filings with the SEC are
also available to the public from commercial document retrieval services and at
the worldwide web site maintained by the SEC at "http://www.sec.gov."
We filed with the SEC in Washington, D.C. a registration statement on Form
S-2 under the Securities Act with respect to the securities covered by this
prospectus. As permitted by the rules and regulations of the SEC, this
prospectus does not contain all of the information set forth in the registration
statement. For further information with respect to Donegal Group and the
securities covered by this prospectus, reference is made to the registration
statement, including the exhibits filed or incorporated in the registration
statement. Statements contained in this prospectus concerning the provisions of
documents filed with, or incorporated by reference in, the registration
statement as exhibits are necessarily summaries of those documents and each
statement is qualified in its entirety by reference to the copy of the
applicable documents filed with the SEC. Copies of the registration statement
and the exhibits are on file at the offices of the SEC and may be obtained upon
payment of the prescribed fee or may be examined without charge at the public
reference facilities of the SEC described above or at the worldwide web site
maintained by the SEC described above.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We incorporate the following documents in this prospectus by reference:
(a) Our Annual Report on Form 10-K for the year ended December 31, 2000,
as filed with the SEC on March 29, 2001;
(b) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2001, as filed with the SEC on May 14, 2001;
(c) Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001,
as filed with the SEC on August 14, 2001; and
(d) Our 2000 Annual Report to Stockholders (only those portions consisting
of the following are incorporated by reference in this Registration
Statement: (i) the description of the business of Donegal Group
included as part of the Management's Discussion and Analysis of
Results of Operation and Financial Condition on page 10 thereof; (ii)
the consolidated financial statements, notes thereto and independent
auditors' report thereon on pages 13 through 28 thereof; (iii) the
information set forth under "Market Information" on the inside back
cover thereof; (iv) the selected financial data set forth under
"Financial Highlights" on the inside front cover thereof; and (iv) the
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 10 through 12 thereof) included as an
exhibit to our Annual Report on Form 10-K for the year ended December
31, 2000, as filed with the SEC on March 29, 2001). The remaining
portions of the 2000 Annual Report to Stockholders are not
incorporated by reference herein, consisting of pages 1, 2, 3, 4, 5,
6, 7, 8, 29 and 30, inclusive, the information on the inside back
cover other than the information under "Market Information" and the
front and back outside cover pages of the 2000 Annual Report to
Stockholders, and are not part of this registration statement.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus and prior to the filing of a
post-effective amendment that indicates that all securities offered have been
sold or that deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this prospectus and to be a part hereof from
the date of filing of such documents. Any statement incorporated in this
prospectus shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference in this prospectus modifies or supersedes such statement and any
statement contained in this prospectus shall be deemed to be modified or
superseded for all purposes to the extent that a statement contained in any
subsequently filed document that is deemed to be incorporated by reference
modifies or supersedes such statement.
24
We will provide without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, on request, a copy of any or all
documents incorporated in this prospectus by reference, other than exhibits to
those documents unless the exhibits are specifically incorporated by reference
therein. Requests should be directed to:
Ralph G. Spontak
Senior Vice President and Chief Financial Officer
Donegal Group Inc.
1195 River Road
Marietta, PA 17547
(888) 877-0600
25
DONEGAL GROUP INC.
AGENCY STOCK PURCHASE PLAN
120,000
SHARES OF
CLASS A COMMON STOCK
115,710
SHARES OF
CLASS B COMMON STOCK
----------
PROSPECTUS
----------
DATED: , 2001
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS AS OF
ANY DATE OTHER THAN THE DATE STATED ON THE COVER PAGE OF THE PROSPECTUS.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Item Amount
---- ------
Registration Fee ................................................... $ 750
Accounting Fees and Expenses........................................ 1,000*
Legal Fees and Expenses............................................. 4,500*
Printing and Duplicating............................................ 650*
Miscellaneous Expenses.............................................. 500*
-------
Total.......................................................... $7,400*
=======
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon plea of nolo
contendere or its equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was unlawful.
II-1
In the case of an action or suit by or in the right of the corporation to
procure a judgment in its favor, Section 145 empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by reason of the fact that such
person is or was acting in any of the capacities set forth above against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that
indemnification is not permitted in respect of any claim, issue or matter as to
which such person is adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought determines upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court deems proper.
Section 145 further provides that a Delaware corporation is required to
indemnify a director, officer, employee or agent against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with any action, suit or proceeding or in defense of any claim, issue or matter
therein as to which such person has been successful on the merits or otherwise;
that indemnification provided for by Section 145 shall not be deemed exclusive
of any other rights to which the indemnified party may be entitled; that
indemnification provided for by Section 145 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer against any
liability asserted against such person and incurred by such person in any such
capacity or arising out of such person's status as such whether or not the
corporation would have the power to indemnify such person against such liability
under Section 145. A Delaware corporation may provide indemnification only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standard of conduct. Such determination is to be
made (i) by a majority vote of the directors who were not parties to such
action, suit or proceeding, or (ii) by a committee of such directors designated
by the majority vote of such directors, or (iii) if there are no such directors,
or if such directors so direct, by independent legal counsel in a written
opinion or (iv) by the stockholders.
Article 5 of Donegal Group's By-laws provides for indemnification of
directors and officers of Donegal Group to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as presently or hereafter in
effect. The By-laws of the Mutual Company also provide that the Mutual Company
shall indemnify to the full extent authorized by law any director or officer of
the Mutual Company who is made, or threatened to be made, a party to any action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person is or was serving as a director, officer,
employee or agent of Donegal Group, or is or was serving as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise at the request of the Mutual Company.
II-2
Donegal Group provides liability insurance for directors and officers for
certain losses arising from claims or charges made against them while acting in
their capacities as directors or officers of Donegal Group up to an aggregate of
$5,000,000 inclusive of defense costs, expenses and charges.
Additionally, as permitted by the General Corporation Law of the State of
Delaware, Article 6 of Donegal Group's Certificate of Incorporation provides
that no director of Donegal Group shall incur personal liability to Donegal
Group or its stockholders for monetary damages for breach of such person's
fiduciary duty as a director; provided, however, that the provision does not
eliminate or limit the liability of a director for (i) any breach of the
director's duty of loyalty to Donegal Group or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) the unlawful payment of dividends or unlawful purchase
or redemption of stock under Section 174 of the General Corporation Law of the
State of Delaware; or (iv) any transaction from which the director derived an
improper personal benefit.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS REFERENCE
------- ----------------------- ---------
4.1 Form of Subscription Agreement Under the Donegal Group Inc. Agency Stock (a)
Purchase Plan
4.2 Election Form Under the Donegal Group Inc. Agency Stock Purchase Plan Filed herewith
5.1 Opinion of Duane, Morris & Heckscher LLP (q)
10.1 Tax Sharing Agreement dated September 29, 1986 between Donegal Group (b)
Inc. and Atlantic States Insurance Company
10.2 Services Allocation Agreement dated September 29, 1986 between Donegal (b)
Mutual Insurance Company, Donegal Group Inc. and Atlantic States
Insurance Company
10.3 Proportional Reinsurance Agreement dated September 29, 1986 between (b)
Donegal Mutual Insurance Company and Atlantic States Insurance Company
10.4 Amendment dated October 1, 1988 to Proportional Reinsurance Agreement (c)
between Donegal Mutual Insurance Company and Atlantic States Insurance
Company
II-3
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS REFERENCE
------- ----------------------- ---------
10.5 Multi-Line Excess of Loss Reinsurance Agreement effective January 1, (d)
1993 between Donegal Mutual Insurance Company, Southern Insurance
Company of Virginia, Atlantic States Insurance Company and Pioneer
Mutual Insurance Company, and Christiana General Insurance Corporation
of New York, Cologne Reinsurance Company of America, Continental
Casualty Company, Employers Reinsurance Corporation and Munich American
Reinsurance Company
10.6 Amendment dated July 16, 1992 to Proportional Reinsurance Agreement (e)
between Donegal Mutual Insurance Company and Atlantic States Insurance
Company
10.7 Donegal Group Inc. 1996 Employee Stock Purchase Plan (f)
10.8 Donegal Group Inc. Agency Stock Purchase Plan (a)
10.9 Amendment effective September 17, 2001 to Donegal Group Inc. Agency Filed herewith
Stock Purchase Plan
10.10 Donegal Group Inc. Amended and Restated 1996 Equity Incentive Plan (o)
10.11 Donegal Group Inc. Amended and Restated 1996 Equity Incentive Plan for (h)
Directors
10.12 Donegal Mutual Insurance Company Executive Restoration Plan (g)
10.13 Donegal Mutual Insurance Company 401(k) Plan (i)
10.14 Amendment No. 1 effective January 1, 2000 to Donegal Mutual Insurance (i)
Company 401(k) Plan
10.15 Donegal Group Inc. 2001 Equity Incentive Plan for Employees (j)
10.16 Donegal Group Inc. 2001 Equity Incentive Plan for Directors (j)
10.17 Donegal Group Inc. 2001 Employee Stock Purchase Plan, as amended (n)
II-4
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS REFERENCE
------- ----------------------- ---------
10.18 Donegal Group Inc. Amended and Restated 2001 Agency Stock Purchase Plan (p)
10.19 Amendment dated as of December 21, 1995 to Proportional Reinsurance (k)
Agreement between Donegal Mutual Insurance Company and Atlantic States
Insurance Company
10.20 Stock Purchase Agreement dated as of December 21, 1995 between Donegal (k)
Mutual Insurance Company and Donegal Group Inc.
10.21 Reinsurance and Retrocession Agreement dated May 21, 1996 between (g)
Donegal Mutual Insurance Company and Pioneer Insurance Company
10.22 Reinsurance and Retrocession Agreement dated May 21, 1996 between (g)
Donegal Mutual Insurance Company and Delaware American Insurance Company
10.23 Reinsurance and Retrocession Agreement dated May 21, 1996 between (g)
Donegal Mutual Insurance Company and Southern Insurance Company of
Virginia
10.24 Reinsurance and Retrocession Agreement effective January 1, 2000 between (i)
Donegal Mutual Insurance Company and Southern Heritage Insurance Company
10.25 Property Catastrophe Excess of Loss Reinsurance Agreement effective (i)
January 1, 2000 between Donegal Mutual Insurance Company and Southern
Heritage Insurance Company
10.26 Stock Purchase Agreement dated as of May 14, 1998 between Donegal Group (l)
Inc. and Southern Heritage Limited Partnership
10.27 Amendment dated November 17, 1998 to Stock Purchase Agreement dated as (l)
of May 14, 1998 between Donegal Group Inc. and Southern Heritage Limited
Partnership
10.28 Amended and Restated Credit Agreement dated as of July 27, 1998 among (l)
Donegal Group Inc., the banks and other financial institutions from time
to time party thereto and Fleet National Bank, as agent
II-5
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS REFERENCE
------- ----------------------- ---------
10.29 First Amendment and Waiver to the Amended and Restated Credit Agreement (i)
dated as of December 31, 1999
10.30 Stock Purchase Agreement dated as of July 20, 2000 between Donegal (j)
Mutual Insurance Company and Donegal Group Inc.
10.31 Amendment dated as of April 20, 2000 to Proportional Reinsurance (m)
Agreement between Donegal Mutual Insurance Company and Atlantic States
Insurance Company
10.32 Lease Agreement dated as of September 1, 2000 between Donegal Mutual (j)
Insurance Company and Province Bank FSB
10.33 Aggregate Excess of Loss Reinsurance Agreement dated as of January 1, (j)
2001 between Donegal Mutual Insurance Company and Pioneer Insurance
Company
13.1 2000 Annual Report to Stockholders (j)
23.1 Consent of KPMG LLP (q)
23.2 Consent of Duane, Morris & Heckscher LLP (included in its opinion)
24.1 Powers of Attorney (included on Signature Page)
----------
(a) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 333-06787
declared effective August 1, 1996.
(b) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-1 Registration Statement No. 33-8533
declared effective October 29, 1986.
(c) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1988.
II-6
(d) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 33-67346
declared effective September 29, 1993.
(e) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1992.
(f) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-8 Registration Statement No. 333-01287 filed
with the SEC on February 28, 1996.
(g) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1996.
(h) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1997.
(i) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1999.
(j) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
2000.
(k) Such exhibit is hereby incorporated by reference to the liked-described
exhibit in Registrant's Form 8-K Report dated December 21, 1995.
(l) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated November 17, 1998.
(m) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated June 19, 2000.
(n) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-8 Registration Statement No. 333-62974 filed
with the SEC on June 14, 2001.
(o) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1998.
(p) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Amendment No. 3 to Form S-2 Registration Statement
No. 333-63102 filed with the SEC on September 26, 2001.
(q) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 333-68748 filed
with the SEC on August 30, 2001.
II-7
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
provided, however, that paragraphs (a)(i) and (a)(ii) of this section do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in the Registration Statement.
(b) For the purpose of determining any liability under the Securities Act,
to treat each post-effective amendment as a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time to be the initial bona fide offering thereof.
(c) To file a post-effective amendment to remove from registration any
of the securities being registered that remain unsold at the termination of the
offering.
(d) That, for the purpose of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-8
The undersigned Registrant hereby further undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered, to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Marietta, Pennsylvania, on September 24, 2001.
DONEGAL GROUP INC.
By: /s/ Donald H. Nikolaus
-------------------------------
Donald H. Nikolaus, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Donald H. Nikolaus
-------------------------------- President, Chief Executive Officer September 24, 2001
Donald H. Nikolaus and a Director
(principal executive officer)
/s/ Ralph G. Spontak
-------------------------------- Senior Vice President, Chief September 24, 2001
Ralph G. Spontak Financial Officer and Secretary
(principal financial and
accounting officer)
------------------------------- Director September , 2001
C. Edwin Ireland ---
* Director September 24, 2001
-------------------------------
Patricia A. Gilmartin
* Director September 24, 2001
-------------------------------
Philip H. Glatfelter, II
II-10
Signature Title Date
--------- ----- ----
* Director September 24, 2001
-------------------------------
R. Richard Sherbahn
------------------------------- Director September , 2001
Thomas J. Finley, Jr. ---
* Director September 24, 2001
-------------------------------
Robert S. Bolinger
------------------------------- Director September , 2001
John J. Lyons ---
By: /s/ Ralph G. Spontak
-------------------------------------
Ralph G. Spontak, as attorney-in-fact
*Signed pursuant to power of attorney
II-11
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS REFERENCE
------- ----------------------- ---------
4.1 Form of Subscription Agreement Under the Donegal Group Inc. Agency Stock (a)
Purchase Plan
4.2 Election Form Under the Donegal Group Inc. Agency Stock Purchase Plan Filed herewith
5.1 Opinion of Duane, Morris & Heckscher LLP (q)
10.1 Tax Sharing Agreement dated September 29, 1986 between Donegal Group (b)
Inc. and Atlantic States Insurance Company
10.2 Services Allocation Agreement dated September 29, 1986 between Donegal (b)
Mutual Insurance Company, Donegal Group Inc. and Atlantic States
Insurance Company
10.3 Proportional Reinsurance Agreement dated September 29, 1986 between (b)
Donegal Mutual Insurance Company and Atlantic States Insurance Company
10.4 Amendment dated October 1, 1988 to Proportional Reinsurance Agreement (c)
between Donegal Mutual Insurance Company and Atlantic States Insurance
Company
10.5 Multi-Line Excess of Loss Reinsurance Agreement effective January 1, (d)
1993 between Donegal Mutual Insurance Company, Southern Insurance
Company of Virginia, Atlantic States Insurance Company and Pioneer
Mutual Insurance Company, and Christiana General Insurance Corporation
of New York, Cologne Reinsurance Company of America, Continental
Casualty Company, Employers Reinsurance Corporation and Munich American
Reinsurance Company
10.6 Amendment dated July 16, 1992 to Proportional Reinsurance Agreement (e)
between Donegal Mutual Insurance Company and Atlantic States Insurance
Company
10.7 Donegal Group Inc. 1996 Employee Stock Purchase Plan (f)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS REFERENCE
------- ----------------------- ---------
10.8 Donegal Group Inc. Agency Stock Purchase Plan (a)
10.9 Amendment effective September 17, 2001 to Donegal Group Inc. Agency Filed herewith
Stock Purchase Plan
10.10 Donegal Group Inc. Amended and Restated 1996 Equity Incentive Plan (o)
10.11 Donegal Group Inc. Amended and Restated 1996 Equity Incentive Plan for (h)
Directors
10.12 Donegal Mutual Insurance Company Executive Restoration Plan (g)
10.13 Donegal Mutual Insurance Company 401(k) Plan (i)
10.14 Amendment No. 1 effective January 1, 2000 to Donegal Mutual Insurance (i)
Company 401(k) Plan
10.15 Donegal Group Inc. 2001 Equity Incentive Plan for Employees (j)
10.16 Donegal Group Inc. 2001 Equity Incentive Plan for Directors (j)
10.17 Donegal Group Inc. 2001 Employee Stock Purchase Plan, as amended (n)
10.18 Donegal Group Inc. Amended and Restated 2001 Agency Stock Purchase Plan (p)
10.19 Amendment dated as of December 21, 1995 to Proportional Reinsurance (k)
Agreement between Donegal Mutual Insurance Company and Atlantic States
Insurance Company
10.20 Stock Purchase Agreement dated as of December 21, 1995 between Donegal (k)
Mutual Insurance Company and Donegal Group Inc.
10.21 Reinsurance and Retrocession Agreement dated May 21, 1996 between (g)
Donegal Mutual Insurance Company and Pioneer Insurance Company
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS REFERENCE
------- ----------------------- ---------
10.22 Reinsurance and Retrocession Agreement dated May 21, 1996 between (g)
Donegal Mutual Insurance Company and Delaware American Insurance Company
10.23 Reinsurance and Retrocession Agreement dated May 21, 1996 between (g)
Donegal Mutual Insurance Company and Southern Insurance Company of
Virginia
10.24 Reinsurance and Retrocession Agreement effective January 1, 2000 between (i)
Donegal Mutual Insurance Company and Southern Heritage Insurance Company
10.25 Property Catastrophe Excess of Loss Reinsurance Agreement effective (i)
January 1, 2000 between Donegal Mutual Insurance Company and Southern
Heritage Insurance Company
10.26 Stock Purchase Agreement dated as of May 14, 1998 between Donegal Group (l)
Inc. and Southern Heritage Limited Partnership
10.27 Amendment dated November 17, 1998 to Stock Purchase Agreement dated as (l)
of May 14, 1998 between Donegal Group Inc. and Southern Heritage Limited
Partnership
10.28 Amended and Restated Credit Agreement dated as of July 27, 1998 among (l)
Donegal Group Inc., the banks and other financial institutions from time
to time party thereto and Fleet National Bank, as agent
10.29 First Amendment and Waiver to the Amended and Restated Credit Agreement (i)
dated as of December 31, 1999
10.30 Stock Purchase Agreement dated as of July 20, 2000 between Donegal (j)
Mutual Insurance Company and Donegal Group Inc.
10.31 Amendment dated as of April 20, 2000 to Proportional Reinsurance (m)
Agreement between Donegal Mutual Insurance Company and Atlantic States
Insurance Company
10.32 Lease Agreement dated as of September 1, 2000 between Donegal Mutual (j)
Insurance Company and Province Bank FSB
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS REFERENCE
------- ----------------------- ---------
10.33 Aggregate Excess of Loss Reinsurance Agreement dated as of January 1, (j)
2001 between Donegal Mutual Insurance Company and Pioneer Insurance
Company
13.1 2000 Annual Report to Stockholders (j)
23.1 Consent of KPMG LLP (q)
23.2 Consent of Duane, Morris & Heckscher LLP (included in its opinion)
24.1 Powers of Attorney (included on Signature Page)
----------
(a) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 333-06787
declared effective August 1, 1996.
(b) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-1 Registration Statement No. 33-8533
declared effective October 29, 1986.
(c) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1988.
(d) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 33-67346
declared effective September 29, 1993.
(e) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1992.
(f) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-8 Registration Statement No. 333-01287 filed
with the SEC on February 28, 1996.
(g) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1996.
(h) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1997.
(i) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1999.
(j) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
2000.
(k) Such exhibit is hereby incorporated by reference to the liked-described
exhibit in Registrant's Form 8-K Report dated December 21, 1995.
(l) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated November 17, 1998.
(m) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated June 19, 2000.
(n) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-8 Registration Statement No. 333-62974 filed
with the SEC on June 14, 2001.
(o) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K Report for the year ended December 31,
1998.
(p) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Amendment No. 3 to Form S-2 Registration Statement
No. 333-63102 filed with the SEC on September 26, 2001.
(q) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 333-68748 filed
with the SEC on August 30, 2001.