SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to "240.14a-12
DONEGAL GROUP INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by the
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
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DONEGAL GROUP INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 18, 2002
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To the Stockholders of
DONEGAL GROUP INC.:
The annual meeting of stockholders of Donegal Group Inc. will be held at
10:00 a.m., local time, on April 18, 2002, at the Company's offices, 1195 River
Road, Marietta, Pennsylvania 17547. At the annual meeting, the stockholders will
act on the following matters:
1. Election of three Class A directors, to serve until the expiration of
their three-year terms and until their successors are elected;
2. Election of KPMG LLP as independent public accountants for the Company
for 2002; and
3. Any other matters that properly come before the meeting.
All stockholders of record as of the close of business on February 22, 2002
are entitled to vote at the annual meeting.
The Company's 2001 Annual Report, which is not part of the proxy soliciting
material, is enclosed.
It is important that your shares be represented and voted at the annual
meeting. Please complete, sign and return the enclosed proxy card in the
envelope provided whether or not you expect to attend the annual meeting in
person.
By Order of the Board of Directors,
/s/ Donald H. Nikolaus
-----------------------------------------------
Donald H. Nikolaus,
President and Chief Executive Officer
March 22, 2002
Marietta, Pennsylvania
DONEGAL GROUP INC.
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PROXY STATEMENT
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This proxy statement contains information relating to the annual meeting of
stockholders of Donegal Group Inc. to be held on Thursday, April 18, 2002,
beginning at 10:00 a.m., at the offices of the Company, 1195 River Road,
Marietta, Pennsylvania 17547, and at any postponement, adjournment or
continuation of the meeting. This proxy statement and accompanying proxy are
first being mailed to stockholders on March 22, 2002.
Effective as of the close of business on April 19, 2001, the Company: (a)
effected a one-for-three reverse stock split of its previously authorized common
stock and redesignated that common stock as Class B common stock; and (b)
declared a dividend of two shares of Class A common stock payable on each share
of Class B common stock outstanding at the time. As a result of the reverse
stock split and stock dividend, each person who held shares of the Company's
previously authorized common stock as of the close of business on April 19, 2001
thereafter continued to hold, exclusive of any fractional interest in a share of
Class B common stock, the same number of shares of the Company's capital stock,
two-thirds of which were shares of Class A common stock and one-third of which
were shares of Class B common stock. All share information set forth in this
proxy statement for periods after April 19, 2001 reflects these transactions.
Additional information regarding these transactions is contained in the
Company's 2001 Annual Report to Stockholders.
ABOUT THE ANNUAL MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Company's annual meeting, stockholders will act upon the matters
outlined in the notice of meeting on the cover page of this proxy statement,
including
o the election of directors, and
o the election of the Company's independent public accountants.
In addition, the Company's management will report on the performance of the
Company during 2001 and respond to appropriate questions from stockholders.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Holders of Class A common stock and Class B common stock of record at the
close of business on the record date, February 22, 2002, are entitled to receive
notice of and to vote at the annual meeting, and any postponement, adjournment
or continuation of the meeting.
WHAT ARE THE VOTING RIGHTS OF THE STOCKHOLDERS?
The Company has two classes of stock outstanding, the Class A common stock
and the Class B common stock. As of the record date, 6,031,892 shares of Class A
common stock were outstanding, each of which is entitled to one-tenth of a vote
with respect to each matter to be voted on at the annual meeting, and 2,981,870
shares of Class B common stock were outstanding, each of which is entitled to
one vote with respect to each matter to be voted on at the annual meeting.
Therefore, the holders of Class A common stock will be entitled to cast a total
of 603,189 votes and the holders of Class B common stock will be entitled to
cast a total of 2,981,870 votes, resulting in a total of 3,585,059 votes
entitled to be cast at the annual meeting.
As of the record date, Donegal Mutual Insurance Company (the "Mutual
Company") owned 3,833,090 shares, or 63.5%, of the outstanding Class A common
stock and 1,852,088 shares, or 62.1%, of the outstanding Class B common stock,
and therefore will have the right to cast 62.4% of the votes entitled to be cast
at the annual meeting. The Mutual Company has advised the Company that the
Mutual Company will vote its shares for the election of Robert S. Bolinger,
Patricia A. Gilmartin and Philip H. Glatfelter, II as Class A directors and for
the election of
1
KPMG LLP as the Company's independent public accountants for 2002. Therefore,
Messrs. Bolinger and Glatfelter and Mrs. Gilmartin will be elected as Class A
directors and KPMG LLP will be elected as the Company's independent public
accountants for 2002, irrespective of the votes cast by the stockholders of the
Company other than the Mutual Company.
WHO CAN ATTEND THE ANNUAL MEETING?
All stockholders as of the record date, or their duly appointed proxies,
may attend the annual meeting. Even if you currently plan to attend the meeting,
we recommend that you also submit your proxy as described below so that your
vote will be counted if you later decide not to attend the meeting.
If you hold your shares in "street name" (that is, through a broker or
other nominee), you will need to bring a copy of a brokerage statement
reflecting your stock ownership as of the record date and check in at the
registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the total votes entitled to be cast by the holders of the Class A
common stock and Class B common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. Proxies
received but marked as abstentions and broker non-votes will be included in the
calculation of the number of shares considered to be present at the meeting.
HOW DO I VOTE?
If you complete, properly sign and return the accompanying proxy card to
the Company, it will be voted as you direct. If you are a registered stockholder
and attend the meeting, you may deliver your completed proxy card in person.
"Street name" stockholders who wish to vote at the meeting will need to obtain a
signed proxy from the institution that holds their shares.
MAY I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of the
Company either a notice of revocation or a duly executed proxy bearing a later
date. The powers of the proxy holders will be revoked if you attend the meeting
in person and request that your proxy be revoked, although attendance at the
meeting will not by itself revoke a previously granted proxy.
HOW DO I VOTE MY 401(K) PLAN SHARES?
If you participate in the Donegal Mutual Insurance Company 401(k) Plan, you
may vote the number of shares of Class A common stock and Class B common stock
equivalent to the interests in Class A common stock and Class B common stock
credited to your account as of the record date. You may vote by instructing
Putnam Fiduciary Trust Company, the trustee of the plan, pursuant to the
instruction card being mailed with this proxy statement to plan participants.
The trustee will vote your shares in accordance with your duly executed
instructions received by April 8, 2002.
If you do not send instructions, the share equivalents credited to your
account will be voted by the trustee in the same proportion that it votes share
equivalents for which it did receive timely instructions.
You may also revoke previously given voting instructions by April 8, 2002
by filing with the trustee either a written notice or revocation or a properly
completed and signed voting instruction card bearing a later date.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Directors. The Board of Directors recommends a vote:
o for election of the nominated Class A directors (see pages 7 through
9), and
o for election of KPMG LLP as the Company's independent public
accountants for 2002 (see page 15).
2
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
Election of Directors. The three persons receiving the highest number of
"FOR" votes cast by the holders of Class A common stock and Class B common
stock, voting together without regard to class, will be elected. A properly
executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one
or more directors will not be voted with respect to the director or directors
indicated, although it will be counted for purposes of determining whether there
is a quorum. Cumulative voting is not permitted in the election of directors.
Other Items. The affirmative vote of a majority of the votes entitled to
be cast by the holders of Class A common stock and Class B common stock whose
shares are represented at the annual meeting in person or by proxy, voting
together without regard to class, will be required for the election of
independent public accountants. Abstentions and shares held by brokers or
nominees as to which voting instructions have not been received from the
beneficial owner of or person otherwise entitled to vote the shares and as to
which the broker or nominee does not have discretionary voting power, i.e.,
broker non-votes, are considered shares of stock outstanding and entitled to
vote and are counted in determining the number of votes necessary for a
majority. An abstention or broker non-vote will therefore have the practical
effect of voting against approval of a proposal because each abstention and
broker non-vote will represent one fewer vote for approval of the proposal.
If you sign your proxy card or broker voting instruction card with no
further instructions, your shares will be voted in accordance with the
recommendation of the Board, i.e., for the election of the Company's nominees
for Class A director and for the election of KPMG LLP as the Company's
independent public accountants.
WHO WILL PAY THE COSTS OF SOLICITING PROXIES ON BEHALF OF THE BOARD OF
DIRECTORS?
The Company is making this solicitation and will pay the cost of soliciting
proxies on behalf of the Board of Directors, including expenses of preparing and
mailing this proxy statement. In addition to mailing these proxy materials, the
solicitation of proxies or votes may be made in person or by telephone or
telegram by the Company's regular officers and employees, none of whom will
receive special compensation for such services. Upon request, the Company will
also reimburse brokers, nominees, fiduciaries and custodians and persons holding
shares in their names or in the names of nominees for their reasonable expenses
in sending proxies and proxy material to beneficial owners.
STOCK OWNERSHIP
WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?
The following table identifies each person who is known by the Company to
beneficially own more than 5% of the Company's outstanding Class A common stock
or Class B common stock and states the percentage of total votes entitled to be
cast by each. All information is as of February 22, 2002 unless otherwise noted.
CLASS A SHARES PERCENT OF CLASS B SHARES PERCENT OF
NAME OF INDIVIDUAL OR BENEFICIALLY CLASS A BENEFICIALLY CLASS B PERCENT OF
IDENTITY OF GROUP OWNED COMMON STOCK OWNED COMMON STOCK TOTAL VOTES
--------------------- -------------- ------------ -------------- ------------ -----------
Donegal Mutual
Insurance Company.............. 3,833,090 63.5% 1,852,088 62.1% 62.4%
1195 River Road
Marietta, PA 17547
Wellington Management
Company, LLP(1)................ 318,930 5.3 159,465 5.3 5.3
75 State Street
Boston, MA 02109
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(1) As reported by Wellington Management Company, LLP as of December 31, 2001
in a filing made with the Securities and Exchange Commission (the "SEC").
3
HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS OWN?
The following table shows the amount and percentage of the Company's
outstanding Class A common stock and Class B common stock beneficially owned by
each director, each executive officer named in the Summary Compensation Table
and all executive officers and directors of the Company as a group as of
February 22, 2002 as well as the percentage of total votes entitled to be cast
by reason of that beneficial ownership.
CLASS A SHARES PERCENT OF CLASS B SHARES PERCENT OF
NAME OF INDIVIDUAL OR BENEFICIALLY CLASS A BENEFICIALLY CLASS B PERCENT OF
IDENTITY OF GROUP OWNED(1) COMMON STOCK(2) OWNED(1) COMMON STOCK(2) TOTAL VOTES
--------------------- -------------- --------------- -------------- --------------- -----------
DIRECTORS:
C. Edwin Ireland ............. 7,875 -- 3,850 -- --
Donald H. Nikolaus ........... 300,450(3) 4.8% 131,431(3) 4.3% 4.4%
Patricia A. Gilmartin ........ 2,183 -- 1,004 -- --
Philip H. Glatfelter, II ..... 3,880 -- 1,843 -- --
R. Richard Sherbahn .......... 940 -- 381 -- --
Robert S. Bolinger ........... 1,807 -- 816 -- --
Thomas J. Finley, Jr. ........ 1,297 -- 561 -- --
John J. Lyons ................ 6,666(4) -- 500 -- --
EXECUTIVE OFFICERS (5):
Ralph G. Spontak ............. 87,817(6) 1.4% 30,859(6) 1.0% 1.1%
Robert G. Shenk .............. 44,291(7) -- 17,540(7) -- --
Cyril J. Greenya ............. 27,286(8) -- 11,128(8) -- --
Daniel J. Wagner ............. 17,021(9) -- 10,093(9) -- --
All directors and executive
officers as a group
(12 persons) ............... 501,513(10) 8.3% 210,006(10) 7.1% 7.3%
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(1) Information furnished by each individual named. This table includes shares
that are owned jointly, in whole or in part, with the person's spouse, or
individually by his or her spouse.
(2) Less than 1% unless otherwise indicated.
(3) Includes 166,667 shares of Class A common stock and 66,666 shares of Class
B common stock Mr. Nikolaus has the option to purchase under stock options
granted by the Company that are currently exercisable or that become
exercisable within 60 days after the date of this proxy statement.
(4) Includes 1,666 shares of Class A common stock Mr. Lyons has the option to
purchase under stock options granted by the Company that are currently
exercisable or that become exercisable within 60 days after the date of
this proxy statement.
(5) Excludes executive officers listed under "Directors."
(6) Includes 71,111 shares of Class A common stock and 22,634 shares of Class B
common stock Mr. Spontak has the option to purchase under stock options
granted by the Company that are currently exercisable or that become
exercisable within 60 days after the date of this proxy statement.
(7) Includes 37,222 shares of Class A common stock and 14,444 shares of Class B
common stock Mr. Shenk has the option to purchase under stock options
granted by the Company that are currently exercisable or that become
exercisable within 60 days after the date of this proxy statement.
(8) Includes 26,333 shares of Class A common stock and 10,666 shares of Class B
common stock Mr. Greenya has the option to purchase under stock options
granted by the Company that are currently exercisable or that become
exercisable within 60 days after the date of this proxy statement.
(9) Includes 16,667 shares of Class A common stock and 6,666 shares of Class B
common stock Mr. Wagner has the option to purchase under stock options
granted by the Company that are currently exercisable or that become
exercisable within 60 days after the date of this proxy statement.
(10) Includes 319,666 shares of Class A common stock and 121,076 shares of Class
B common stock purchasable upon the exercise of options granted under stock
options granted by the Company that are currently exercisable or that
become exercisable within 60 days after the date of this proxy statement.
4
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the officers and directors of the Company, as well as persons who
own 10% or more of a class of equity securities of the Company, file reports of
their ownership of the Company's securities, as well as monthly statements of
changes in such ownership, with the Company, the SEC and the Nasdaq Stock
Market. Based upon written representations received by the Company from its
officers, directors and 10% or more stockholders, and the Company's review of
the monthly statements of ownership changes filed with the Company by its
officers, directors and 10% or more stockholders during 2001, the Company
believes that all such filings required during 2001 were made on a timely basis.
RELATIONSHIP WITH THE MUTUAL COMPANY
The Company was formed by the Mutual Company in August 1986 and was a
wholly owned subsidiary of the Mutual Company until November 1986, when the
Company sold shares of its previously authorized common stock in a public
offering. In September 1993, the Company sold additional shares of its common
stock in a public offering and, at the same time, the Mutual Company sold shares
of the Company's common stock. Since that date, the Mutual Company has at
various times purchased shares of the Company's previously authorized common
stock in the open market in exempt transactions under SEC Rule 10b-18 and in
private transactions and at all times has owned between 57% and 64% of the
Company's common stock. The Mutual Company owned 3,833,090 shares, or
approximately 63.5%, of the Company's Class A common stock and 1,852,088 shares,
or approximately 62.4%, of the Company's Class B common stock as of February 22,
2002.
The Company's operations are interrelated with the operations of the Mutual
Company, and various reinsurance arrangements exist between the Company and the
Mutual Company. The Company believes that its various transactions with the
Mutual Company have been on terms no less favorable to the Company than the
terms that could have been negotiated with an independent third party.
All of the Company's officers are officers of the Mutual Company, five of
the Company's seven directors are directors of the Mutual Company and two of the
Company's executive officers are directors of the Mutual Company. The Company
and the Mutual Company maintain a Coordinating Committee, which consists of two
outside directors from each of the Company and the Mutual Company, none of whom
holds seats on both Boards. Under the Company's and the Mutual Company's
By-laws, any new agreement between the Company and the Mutual Company and any
proposed change in any existing agreement between the Company and the Mutual
Company must first be submitted for approval by the respective Boards of
Directors of the Company and the Mutual Company and, if approved, submitted to
the Coordinating Committee for approval. The proposed new agreement or change in
an existing agreement will receive Coordinating Committee approval only if both
of the Company's Coordinating Committee members conclude the new agreement or
change in an existing agreement is fair to the Company and its stockholders and
if both of the Mutual Company's members conclude the new agreement is fair and
equitable to the Mutual Company and its policyholders. The purpose of this
provision is to protect the interests of the stockholders of the Company and the
interests of the policyholders of the Mutual Company. The Coordinating Committee
meets on an as-needed basis. The Company's members on the Coordinating Committee
are Robert S. Bolinger and Thomas J. Finley, Jr. See "Item 1 -- Election of
Directors." The Mutual Company's members on the Coordinating Committee are John
E. Hiestand and Frederick W. Dreher. Mr. Hiestand, age 63, has been a director
of the Mutual Company since 1983 and currently is a self-employed provider of
insurance administrative services. He was President of Hiestand Memorials, Inc.,
a manufacturer of cemetery monuments, from 1977 to 1997. Mr. Dreher, age 61, has
been a director of the Mutual Company since 1996. He is a partner in the law
firm of Duane Morris LLP, where he has practiced since 1965. See "Item 1 --
Election of Directors -- Certain Transactions."
The Mutual Company provides all personnel for the Company and certain of
its insurance subsidiaries, including Atlantic States Insurance Company
("Atlantic States"), Southern Insurance Company of Virginia ("Southern"),
Pioneer Insurance Company ("Pioneer") and Southern Heritage Insurance Company
("Southern Heritage"). Expenses are allocated to the Company, Southern, Pioneer
and Southern Heritage according to a time allocation and estimated usage
agreement, and to Atlantic States in relation to the relative participation of
the Mutual Company and Atlantic States in the pooling agreement described
herein. Expenses allocated to the Company under such agreement were $29,298,569
in 2001.
The Mutual Company leases office equipment and automobiles from the
Company. The Mutual Company made lease payments to the Company of $801,083 in
2001.
5
The Mutual Company is currently a party to retrocessional agreements with
each of the Company's insurance subsidiaries whereby the Mutual Company assumes
100% of the net liability that may accrue to such company from its insurance
operations and retrocedes 100% of the net liability back to such company.
The Mutual Company and Atlantic States participate in an underwriting pool,
whereby Atlantic States cedes premiums, losses and loss adjustment expenses on
all of its business to the Mutual Company and assumes from the Mutual Company a
specified portion of the premiums, losses and loss adjustment expenses of the
Mutual Company and Atlantic States. Substantially all of the Mutual Company's
property and casualty insurance business is included in the pooled business. All
premiums, losses, loss adjustment expenses and other underwriting expenses are
prorated among the parties on the basis of their participation in the pool. The
pooling agreement may be amended or terminated at the end of any calendar year
by agreement of the parties, subject to approval by the Coordinating Committee.
The allocations of pool participation percentages between the Mutual Company and
Atlantic States are based on the pool participants' relative amounts of capital
and surplus, expectations of future relative amounts of capital and surplus and
the ability of the Company to raise capital for Atlantic States. Atlantic
States' participation in 2001 was 70%. Additional information describing the
pooling agreement is contained in the Company's 2001 Annual Report to
Stockholders.
Atlantic States and the Mutual Company are also currently parties to a
property catastrophe excess of loss reinsurance agreement whereby the Mutual
Company reinsures Atlantic States for catastrophe losses in excess of $400,000
per event.
The Mutual Company and Southern are parties to a reinsurance agreement,
whereby the Mutual Company reinsures 50% of Southern's business. Because the
Mutual Company places substantially all of the business assumed from Southern in
the pool, from which the Company, through Atlantic States, has an allocation of
70%, the Company's operations include approximately 85% of the business written
by Southern. Southern and the Mutual Company settle balances resulting from this
reinsurance arrangement on a monthly basis. The Mutual Company and Southern are
also parties to a property catastrophe excess of loss reinsurance agreement,
whereby the Mutual Company reinsures Southern for catastrophe losses in excess
of $300,000 and an excess of loss reinsurance agreement whereby the Mutual
Company reinsures Southern for individual losses in excess of $100,000, up to a
limit of $50,000.
The Mutual Company and Pioneer are parties to an underlying excess of loss
reinsurance agreement, whereby the Mutual Company reinsures Pioneer for losses
in excess of $50,000, up to a limit of $250,000. The Mutual Company and Pioneer
are also parties to a property catastrophe excess of loss agreement whereby the
Mutual Company reinsures Pioneer for catastrophe losses in excess of $200,000.
The Mutual Company and Southern Heritage are parties to a catastrophe
agreement whereby the Mutual Company reinsures Southern Heritage for catastrophe
claims in excess of $400,000 per event. The Mutual Company and Southern Heritage
are also parties to an underlying excess of loss reinsurance agreement, whereby
the Mutual Company reinsures Southern Heritage for losses in excess of $150,000,
up to a limit of $150,000.
The Company and the Mutual Company jointly own Donegal Financial Services
Corporation, the holding company for Province Bank FSB ("Province Bank"), a
federal savings bank headquartered in Marietta, Pennsylvania, the deposits of
which are insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation. In connection with the initial capitalization of
Province Bank, which opened for business in September 2000, the Mutual Company
purchased 55%, for $3,575,000, and the Company purchased 45%, for $2,925,000, of
the capital stock of Donegal Financial Services Corporation.
The Mutual Company and Province Bank are parties to a lease whereby
Province Bank leases 3,600 square feet in one of the Mutual Company's buildings
located in Marietta, Pennsylvania from the Mutual Company for an annual rent
based on an independent appraisal. The Mutual Company and Province Bank are also
parties to an Administrative Services Agreement whereby the Mutual Company is
obligated to provide various human resource services, principally payroll and
employee benefits administration, administrative support, facility and equipment
maintenance services and purchasing, to Province Bank, subject to the overall
limitation that the costs to be charged by the Mutual Company may not exceed the
costs of independent vendors for similar services and further subject to annual
maximum cost limitations specified in the Administrative Services Agreement.
6
ITEM 1 -- ELECTION OF DIRECTORS
NOMINEES AND DIRECTORS CONTINUING IN OFFICE
The Company's Board of Directors currently consists of eight members. Each
director is elected for a three-year term and until his successor has been duly
elected. The current three-year terms of the Company's directors expire in the
years 2002, 2003 and 2004, respectively.
Three Class A directors are to be elected at the annual meeting. Unless
otherwise instructed, the proxies solicited by the Board of Directors will be
voted for the election of the nominees named below. All of the nominees are
currently directors of the Company.
If a nominee becomes unavailable for any reason, the proxies intend to vote
for a substitute nominee designated by the Board of Directors. The Board of
Directors has no reason to believe the nominees named will be unable to serve if
elected. Any vacancy occurring on the Board of Directors for any reason may be
filled by a majority of the directors then in office until the expiration of the
term of the class of directors in which the vacancy exists.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
NAMED BELOW.
The names of the nominees for Class A director and the Class B directors
and Class C directors who will continue in office after the annual meeting until
the expiration of their respective terms, together with certain information
regarding them, are as follows:
DIRECTORS STANDING FOR ELECTION
CLASS A DIRECTORS
DIRECTOR YEAR TERM
NAME AGE SINCE WILL EXPIRE*
---- --- -------- ------------
Robert S. Bolinger .......................... 65 1986 2005
Patricia A. Gilmartin ....................... 62 1986 2005
Philip H. Glatfelter, II .................... 72 1986 2005
------------
* If elected at the annual meeting
DIRECTORS CONTINUING IN OFFICE
CLASS B DIRECTORS
DIRECTOR YEAR TERM
NAME AGE SINCE WILL EXPIRE
---- --- -------- ------------
C. Edwin Ireland............................. 92 1986 2003
Donald H. Nikolaus........................... 59 1986 2003
CLASS C DIRECTORS
DIRECTOR YEAR TERM
NAME AGE SINCE WILL EXPIRE
---- --- -------- ------------
Thomas J. Finley, Jr......................... 81 1986 2004
R. Richard Sherbahn.......................... 73 1986 2004
John J. Lyons................................ 62 2001 2004
Mr. Bolinger retired in 2001 as Chairman and Chief Executive Officer of
Susquehanna Bancshares, Inc, a position he held since 1982. Mr. Bolinger is a
director of Susquehanna Bancshares, Inc.
Mr. Finley retired in 1985 as President and Chief Executive Officer of the
Insurance Federation of Pennsylvania, a position he held for 18 years prior to
his retirement.
Mrs. Gilmartin has been an employee since 1969 of Donegal Insurance Agency,
which has no affiliation with the Company, except that Donegal Insurance Agency
receives insurance commissions in the ordinary course of business from the
Company's subsidiaries and affiliates in accordance with such subsidiaries' and
affiliates' standard commission schedules and agency contracts. Mrs. Gilmartin
has been a director of the Mutual Company since 1979.
7
Mr. Glatfelter retired in 1989 as a Vice President of Meridian Bank, a
position he held for more than five years prior to his retirement. Mr.
Glatfelter has been a director of the Mutual Company since 1981, was Vice
Chairman of the Mutual Company from 1991 to 2001 and has been Chairman of the
Board of the Company and the Mutual Company since 2001.
Mr. Ireland is former Chairman of the Lancaster Industrial Development
Authority. He retired from Hamilton Watch Company in 1970. Prior thereto, he was
Vice President, Secretary and Treasurer of Hamilton Watch Company. Mr. Ireland
has been a director of the Mutual Company since 1972 and was Chairman of its
Board of Directors from 1985 to 2001. He served as Chairman of the Company's
Board of Directors from 1986 to 2001.
Mr. Lyons has been President and Chief Operating Officer of Keefe Managers,
Inc., a manager of private investment funds, since February 1999. In his
capacity as a professional bank consultant, Mr. Lyons served (a) from September
1997 to February 1999 as President and Chief Executive Officer of Gateway
American Bank of Florida, Fort Lauderdale, Florida, (b) from August 1996 to
April 1997, as President and Chief Executive Officer of Regent National Bank,
Philadelphia, Pennsylvania, (c) from April 1995 to August 1996, as President and
Chief Executive Officer and a director of Monarch Savings Bank, FSB, Clark, New
Jersey and (d) from December 1993 until April 1995, as President and Chief
Executive Officer of Jupiter Tequesta National Bank, Tequesta, Florida. Mr.
Lyons was Vice Chairman of Advest, Inc. during 1993 and from 1989 through 1993
was a member of its Board of Directors. He is a director of Gateway American
Bank of Florida and Bisys Group Inc.
Mr. Nikolaus has been President of the Mutual Company since 1981 and a
director of the Mutual Company since 1972. He has been President of the Company
since 1986. Mr. Nikolaus has been a partner in the law firm of Nikolaus &
Hohenadel since 1972.
Mr. Sherbahn has owned and operated Sherbahn Associates, Inc., a life
insurance and financial planning firm, since 1974. Mr. Sherbahn has been a
director of the Mutual Company since 1967.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met 7 times in 2001. The Board of Directors has an
Executive Committee, an Audit Committee, a Nominating Committee, a Compensation
Committee and, together with the Mutual Company, a four-member Coordinating
Committee.
The Company's Executive Committee met 14 times in 2001. Messrs. Nikolaus,
Sherbahn and Glatfelter are the members of the Executive Committee. The
Executive Committee has the authority to take all action that can be taken by
the full Board of Directors, consistent with Delaware law, between meetings of
the Board of Directors.
The Audit Committee of the Company consists of Messrs. Bolinger, Glatfelter
and Lyons. The Audit Committee, which met one time in 2001, reviews the
Company's financial reporting process, audit reports and management
recommendations made by the Company's independent public accountants.
The Nominating Committee of the Company consists of Messrs. Finley, Ireland
and Glatfelter. The Nominating Committee, which met one time in 2001, is
responsible for the nomination of candidates to stand for election to the Board
of Directors at the annual meeting and the nomination of candidates to fill
vacancies on the Board of Directors between meetings of stockholders. The
Nominating Committee will consider written nominations for directors from
stockholders to the extent such nominations are made in accordance with the
Company's By-laws. See "Stockholder Proposals."
The Compensation Committee of the Company consists of Messrs. Sherbahn and
Glatfelter. The Compensation Committee met two times in 2001 to review and
recommend compensation plans, approve certain compensation changes and determine
employees who participate in and grant options under the Company's employee
stock option plans. Mr. Dreher, in his capacity as a member of the Coordinating
Committee, consults with the Compensation Committee with respect to the
participation of Mutual Company employees in the Company's equity incentive
plans.
COMPENSATION OF DIRECTORS
Directors of the Company were paid an annual retainer of $17,000 in 2001.
Directors who are members of committees of the Board of Directors received $250
for each committee meeting attended. If a director serves on the Board of
Directors of both the Mutual Company and the Company, the director receives only
one annual retainer. In such event, the retainer is allocated 30% to the Mutual
Company and 70% to the Company.
8
Pursuant to the Company's 2001 Equity Incentive Plan for Directors, each
director of the Company and the Mutual Company receives an annual restricted
stock award of 175 shares of the Company's Class A common stock, provided that
the director served as a member of the Board of Directors of the Company or the
Mutual Company during any portion of the preceding calendar year. The Mutual
Company reimburses the Company for the cost of the options granted to directors
of the Mutual Company who are not also directors of the Company. Pursuant to the
2001 Director Plan, each outside director of the Company and the Mutual Company
is also eligible to receive non-qualified options to purchase shares of common
stock in an amount determined by the Company's Board of Directors from time to
time. Prior to April 2001, the directors of the Company participated in the 1996
Equity Incentive Plan for Directors.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company and the
Mutual Company during each of the three fiscal years ended December 31, 2001 for
services rendered in all capacities to the chief executive officer of the
Company and the four other most highly compensated executive officers of the
Company whose compensation exceeded $100,000 in the fiscal year ended December
31, 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION (1) COMPENSATION AWARDS
--------------------------------------------------- --------------------------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARDS ($) OPTIONS (#) COMPENSATION ($)
------------------ ---- ---------- --------- ---------------- ---------- ----------- ----------------
Donald H. Nikolaus, 2001 390,000 -- -- 1,682 100,000 71,547(2)
President and Chief 2000 340,000 85,821 -- 1,480 -- 71,593
Executive Officer 1999 377,931 1,972 10,356 2,766 100,000 103,173
Ralph G. Spontak, 2001 250,601 -- -- 1,682 40,000 26,009(2)
Senior Vice President, 2000 234,385 42,911 -- 1,480 -- 29,510
Chief Financial Officer 1999 249,123 1,478 4,235 2,766 40,000 53,979
and Secretary
Robert G. Shenk, 2001 166,293 -- -- -- 25,000 11,103(2)
Senior Vice President, 2000 165,385 22,585 -- -- -- 11,013
Claims 1999 154,738 4,642 -- -- 25,000 17,866
Cyril J. Greenya, 2001 114,242 -- -- -- 15,000 6,738(2)
Senior Vice President, 2000 114,154 16,938 -- -- -- 6,714
Commercial 1999 109,877 3,296 -- -- 16,000 11,509
Underwriting
Daniel J. Wagner, 2001 107,351 -- -- -- 10,000 10,760(2)
Vice President 2000 111,846 15,357 -- -- -- 10,293
and Treasurer 1999 106,908 3,207 -- -- 10,000 12,347
-------------------
(1) All compensation of officers of the Company is paid by the Mutual Company.
Pursuant to the terms of an intercompany allocation agreement between the
Company and the Mutual Company, the Company is charged for its
proportionate share of all such compensation.
(2) In the case of Mr. Nikolaus, the total shown also includes premiums of
$38,012 paid under split-dollar life insurance policies, premiums of
$3,896 paid under a term life insurance policy and directors and committee
meeting fees of $22,650. In the case of Mr. Spontak, the total shown
includes premiums of $6,690 paid under a split-dollar life insurance
policy, premiums of $869 paid under a term life insurance policy and
directors and committee meeting fees of $18,450. In the case of Messrs.
Shenk, Greenya and Wagner, the totals shown also include term life
insurance premiums of $603, $619 and $260, respectively.
9
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ----------- ------ ---- ------ -------
Donald H. Nikolaus..... 100,000(1) 21.8% 14.00 7/19/06 255,000 689,000
Ralph G. Spontak....... 40,000(1) 8.7 14.00 7/19/06 102,000 275,600
Robert G. Shenk........ 25,000(1) 5.4 14.00 7/19/06 63,750 159,725
Cyril J. Greenya....... 15,000(1) 3.3 14.00 7/19/06 38,250 95,835
Daniel J. Wagner....... 10,000(1) 6.3 14.00 7/19/06 25,500 63,890
----------------
(1) These options vest in three substantially equal cumulative annual
installments on January 1, 2002, January 1, 2003 and January 1, 2004,
respectively.
The following table shows information with respect to options exercised
during the year ended December 31, 2001 and held on December 31, 2001 by the
persons named in the Summary Compensation Table.
OPTIONS EXERCISED AND VALUES FOR FISCAL YEAR 2001
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Donald H. Nikolaus...... -- -- 366,667 100,000 164,888 82,444
Ralph G. Spontak........ -- -- 166,666 40,000 65,954 32,977
Robert G. Shenk......... -- -- 78,334 25,000 41,222 20,611
Cyril J. Greenya........ -- -- 58,666 20,334 26,381 13,191
Daniel J. Wagner........ -- -- 41,110 10,000 16,489 8,244
REPORT OF THE COMPENSATION COMMITTEE
THE FOLLOWING REPORT OF THE COMPANY'S COMPENSATION COMMITTEE AND THE
PERFORMANCE GRAPH THAT IMMEDIATELY FOLLOWS SUCH REPORT SHALL NOT BE DEEMED PROXY
SOLICITATION MATERIAL, SHALL NOT BE DEEMED FILED WITH THE SEC UNDER THE EXCHANGE
ACT OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED AND SHALL NOT
OTHERWISE BE SUBJECT TO THE LIABILITIES OF SECTION 18 OF THE EXCHANGE ACT.
Under the rules established by the SEC, the Company is required to provide
certain information about the compensation and benefits provided to the
Company's Chief Executive Officer and the other executive officers listed in the
Summary Compensation Table. The disclosure requirements as to these officers
include the use of specified tables and a report of the Company's Compensation
Committee reviewing the factors that resulted in compensation decisions
affecting these officers and the Company's other executive officers. The
Compensation Committee of the Board of Directors has furnished the following
report in fulfillment of the SEC's requirements.
The Compensation Committee reviews the general compensation policies of the
Company, including the compensation plans and compensation levels for executive
officers, and administers the Company's equity incentive plans and the cash
incentive compensation program in which the Company's executive officers
participate. No members of the Compensation Committee are former or current
officers of the Company, or have other interlocking relationships, as defined by
the SEC.
10
Compensation of the Company's executive officers has two principal
elements: (i) an annual portion, consisting of a base salary that is reviewed
annually and cash bonuses based on the Company's underwriting results, and (ii)
a long-term portion, consisting of stock options. In general, the executive
compensation program of the Company has been designed to:
(i) attract and retain executive officers who contribute to the long-term
success of the Company;
(ii) motivate key senior executive officers to achieve strategic business
objectives and reward them for the achievement of these objectives;
and
(iii) support a compensation policy that differentiates in compensation
amounts based on corporate and individual performance and
responsibilities.
A major component of the Company's compensation policy, which has been
approved by the Compensation Committee, is that a significant portion of the
aggregate annual compensation of the Company's executive officers should be
based upon the Company's underwriting results and the achievement of other
business and financial objectives and the contribution of the individual
officer. For a number of years, the Company has maintained a cash incentive
compensation program for the Company's executive officers. This program provides
a formula pursuant to which a fixed percentage of the Company's underwriting
results for the year is computed, as specified in the program, and then
allocated among the executive officers selected to participate in the program
for the particular year. The identity of the executive officers selected to
participate in the program for the particular year as well as their
participation in the amount determined by application of the fixed formula is
based upon recommendations submitted by the Company's senior executive officers
to the Compensation Committee. The Compensation Committee reviews those
recommendations and fixes the percentage participation of the Company's
executive officers in the program. None of the executive officers named in the
Summary Compensation Table received any payment under the cash incentive
compensation program for 2001 because the Company had an underwriting loss of
$6,293,939, primarily resulting from an increase in claim frequency and
competitive pressures impacting premium levels. This compares to an allocation
of $182,483 to the named executive officers under the cash compensation plan for
2000, when the Company's underwriting loss was only $2,742,088. Because the
payments under the cash incentive plan reflect the underwriting results of the
Company, the Compensation Committee believes that the amount of the incentive
payments are tied directly to the Company's performance.
The principal factors considered by the Company when it established the
cash incentive compensation program were:
(i) achievement of the Company's long-term underwriting objectives; and
(ii) the Company's long-term underwriting results compared to the
long-term underwriting results of other property and casualty
insurance companies.
Such factors as the Company's continued better-than-industry underwriting
results, continued expense control and the successful maintenance of the
restructuring program initiated in 1999, which resulted in an expense ratio of
32.3% in 2001 compared to 36.6% in 1999, the successful restructuring in April
2001 of the Company's common stock into Class A common stock and Class B common
stock, with both classes trading on the Nasdaq National Market, the
consolidation of several of the Company's insurance subsidiaries commenced
during 2001 to achieve cost savings and enhanced efficiency and the Company's
expansion of its federal savings bank affiliate, Province Bank, as well as a
subjective analysis of Mr. Nikolaus' leadership and performance, were considered
by the Compensation Committee in approving Mr. Nikolaus' compensation, including
his participation percentage under the Company's cash incentive program. Due to
the Company's significant underwriting loss, however, Mr. Nikolaus did not
receive any payment under that program for 2001.
The Company's executive officers participate in the Equity Incentive Plans,
under which stock options are granted from time to time at not less than the
fair market value of the Company's common stock on the date of grant. The
options typically vest over three years. The primary purpose of the Equity
Incentive Plans is to provide an incentive for the Company's long-term
performance. Such stock options provide an incentive for the creation of
stockholder value over the long term because the full benefit of the options can
be realized only if the price of the Company's common stock appreciates over
time. During 2001, 195,334 options were granted to the Company's executive
officers, including 100,000 options granted to Mr. Nikolaus.
11
Based upon all of the foregoing factors, the Compensation Committee
believes the compensation of Mr. Nikolaus and the other executive officers of
the Company was reasonable in view of the Company's performance and the
contribution of those officers to that performance in 2001, as well as the
performance of the Company in 2001 compared to the performance of other property
and casualty insurance companies in 2001.
Section 162(m) of the Code generally disallows a tax deduction to publicly
held companies for compensation of more than $1 million paid to a company's
chief executive officer or any executive officer named in its Summary
Compensation Table. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. The policy of the
Compensation Committee is to structure the compensation of the Company's
executive officers, including Mr. Nikolaus, to avoid the loss of the
deductibility of any compensation, although Section 162(m) will not preclude the
Compensation Committee from awarding compensation in excess of $1 million, if it
should be warranted in the future. The Company believes that Section 162(m) will
not have any effect on the deductibility of the compensation of Mr. Nikolaus and
the other executive officers named in the Summary Compensation Table for 2001.
Submitted by:
January 24, 2002 Compensation Committee
R. Richard Sherbahn
Philip H. Glatfelter, II
12
COMPARISON OF TOTAL RETURN ON THE COMPANY'S COMMON STOCK WITH CERTAIN AVERAGES
The following graph provides an indicator of cumulative total stockholder
returns on the Company's common stock compared to the Russell 2000 Index and a
peer group of property and casualty insurance companies selected by Value Line,
Inc. The members of the peer group are as follows: 21st Century Industries,
Acceptance Insurance Cos. Inc., ACE Limited, ACMAT Corp., Allcity Insurance Co.,
Allmerica Financial Corp., Allstate Corp., American Financial Group Inc.,
American Medical Security Group Inc., Argonaut Group Inc., Baldwin & Lyons Inc.,
W.R. Berkley Corporation, The Chubb Corporation, Cincinnati Financial
Corporation, CNA Financial Corp., EMC Insurance Group Inc., Erie Indemnity
Company, Everest Re Group Ltd., Fairfax Financial Holding, Fremont General
Corporation, Gainsco Inc., Harleysville Group Inc., HCC Insurance Holdings,
Inc., Highlands Insurance Group Inc., Markel Corporation, Meadowbrook Insurance
Group Inc., MEEMIC Holdings Inc., Merchants Group Inc., Mercury General
Corporation, Midland Company, MIIX Group, Inc., Ohio Casualty Corporation, Old
Republic International Corp., PartnerRe Ltd., Philadelphia Consolidated Holding
Corp., PICO Holdings Inc., PMI Mortgage Group, Progressive Corp. Ohio, PXRE
Group Ltd., Renaissancere Holdings Ltd., RLI Corporation, SAFECO Corporation,
Selective Insurance Group, Inc., The St. Paul Companies, Inc., State Auto
Financial Corp., Transatlantic Holdings, Inc., Trenwick Group Ltd., United Fire
and Casualty Company, XL Capital Limited and Zenith National Insurance Company.
[In the printed version of this document, a line graph appears which
depicts the following plot points:]
Comparison of Five-Year Cumulative Total Return*
Donegal Group, Inc.**, Donegal Group, Inc. A**, Donegal Group, Inc. B**,
Russell 2000 Index and Value Line Insurance (Prop/Casualty)
(Performance Results Through 12/31/01)
Year or Period Ending
---------------------
Company Name/Index Base
Period
12/96 12/97 12/98 12/99 12/00 4/19/01 12/01
----- ----- ----- ----- ----- ------- -----
Donegal Group, Inc.** 100 146.88 140.93 59.51 93.05 -- --
Donegal Group, Inc. "A"** 100 -- -- -- -- 35.13 29.73
Donegal Group, Inc. "B"** 100 -- -- -- -- 35.13 35.83
Russell 2000 Index 100 122.20 118.86 140.06 134.60 -- 135.99
Insurance (Prop/Casualty) 100 154.23 156.58 130.74 181.09 -- 188.41
Assumes $100 invested at the close of trading on December 31, 1996 in
Donegal Group Inc.** common stock, Donegal Group Inc. "A"**, Donegal Group Inc.
"B"**, Russell 2000 Index and Value Line Insurance (Property/Casualty).
---------------
*Cumulative total return assumes reinvestment of dividends.
**As of April 19, 2001 SOURCE: VALUE LINE, INC.
13
REPORT OF THE AUDIT COMMITTEE
THE FOLLOWING REPORT OF THE COMPANY'S AUDIT COMMITTEE SHALL NOT BE DEEMED
PROXY SOLICITATION MATERIAL, SHALL NOT BE DEEMED FILED WITH THE SEC UNDER THE
EXCHANGE ACT OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED AND SHALL NOT
OTHERWISE BE SUBJECT TO THE LIABILITIES OF SECTION 18 OF THE EXCHANGE ACT.
The Audit Committee of the Board of Directors reviews the financial
reporting process, including the overview of the financial reports and other
financial information provided by the Company to governmental or regulatory
bodies, the public and others who rely thereon, the Company's systems of
internal accounting and financial controls, the selection, evaluation and
retention of independent public accountants and the annual independent audit of
the Company's financial statements. Each of the Audit Committee members
satisfies the definition of independent director as established in the Audit
Committee Policy of the Nasdaq Stock Market and complies with the financial
literacy requirements thereof. The Board of Directors adopted a written charter
for the Audit Committee on June 13, 2000.
The Audit Committee has reviewed the Company's audited consolidated
financial statements and discussed those statements with management. The Audit
Committee has also discussed with KPMG LLP, the Company's independent public
accountants during 2001, the matters required to be discussed by Statement of
Auditing Standards No. 61 (Communication with Audit Committees, as amended).
The Audit Committee received from KPMG LLP the written disclosures required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees) and discussed with KPMG LLP matters relating to its
independence. The Audit Committee also considered the compatibility of the
provision of non-audit services by KPMG LLP with the maintenance of KPMG LLP's
independence.
The Audit Committee has determined that the provision of the non-audit
services described above is compatible with maintaining KPMG LLP's independence.
On the basis of these reviews and discussions, the Audit Committee
recommended to the Board of Directors that the Company's audited consolidated
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, and be filed with the SEC.
Submitted by:
January 24, 2002 Audit Committee
Robert S. Bolinger
Philip H. Glatfelter, II
John J. Lyons
AUDIT AND NON-AUDIT FEES
Audit Fees. The aggregate fees billed to the Company by KPMG LLP, the
independent public accountants for the Company, in connection with (i) the audit
of Company's annual consolidated financial statements for the fiscal year ended
December 31, 2001 and (ii) the reviews of the consolidated financial statements
included in the Company's Form 10-Q quarterly reports for the fiscal year ended
December 31, 2001 was $168,000.
Financial Design and Implementation Fees. Fees billed by KPMG LLP for
information technology services rendered by KPMG LLP during the fiscal year
ended December 31, 2001 were $14,000.
All Other Fees. The aggregate fees billed by KPMG LLP for non-audit
services other than information technology services during the fiscal year ended
December 31, 2001 were $45,000 for statutory auditing and actuarial reviews and
$49,000 relating to the review of SEC filings and responses to comment letters.
14
CERTAIN TRANSACTIONS
Donald H. Nikolaus, President and a director of the Company and the Mutual
Company, is also a partner in the law firm of Nikolaus & Hohenadel. Such firm
has served as general counsel to the Mutual Company since 1970 and to the
Company since 1986, principally in connection with the defense of claims
litigation arising in Lancaster, Dauphin and York counties. Such firm is paid
its customary fees for such services.
Patricia A. Gilmartin, a director of the Company and the Mutual Company, is
an employee of Donegal Insurance Agency, which has no affiliation with the
Company except that Donegal Insurance Agency receives insurance commissions in
the ordinary course of business from the Company's subsidiaries and affiliates
in accordance with such subsidiaries' and affiliates' standard commission
schedules and agency contracts.
Frederick W. Dreher, a director of the Mutual Company and one of the Mutual
Company's representatives on the Coordinating Committee, is a partner in the law
firm of Duane Morris LLP, which represents the Company and the Mutual Company in
certain legal matters. Such firm is paid its customary fees for such services.
ITEM 2 -- ELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Unless instructed to the contrary, it is intended that votes will be cast
pursuant to the proxies for the election of KPMG LLP as the Company's
independent public accountants for 2002. The Company has been advised by KPMG
LLP that none of its members has any financial interest in the Company. Election
of KPMG LLP will require the affirmative vote of a majority of the votes
entitled to be cast by the holders of the Class A common stock and Class B
common stock whose shares are represented at the annual meeting in person or by
proxy, voting together without regard to class.
A representative of KPMG LLP will attend the annual meeting, will have the
opportunity to make a statement, if he desires to do so, and will be available
to respond to any appropriate questions presented by stockholders at the annual
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF KPMG LLP AS
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR 2002.
15
STOCKHOLDER PROPOSALS
Any stockholder who, in accordance with and subject to the provisions of
Rule 14a-8 of the proxy rules of the SEC, wishes to submit a proposal for
inclusion in the Company's proxy statement for its 2003 annual meeting of
stockholders must deliver such proposal in writing to the Company's Secretary at
the Company's principal executive offices at 1195 River Road, Marietta,
Pennsylvania 17547, not later than November 22, 2002.
Pursuant to Section 2.3 of the Company's By-laws, if a stockholder wishes
to present at the Company's 2003 annual meeting of stockholders (i) a proposal
relating to nominations for and election of directors for consideration by the
Nominating Committee of the Company's Board of Directors or (ii) a proposal
relating to a matter other than nominations for and election of directors,
otherwise than pursuant to Rule 14a-8 of the proxy rules of the SEC, the
stockholder must comply with the provisions relating to stockholder proposals
set forth in the Company's By-laws, which are summarized below. Written notice
of any such proposal containing the information required under the Company's
By-laws, as described herein, must be delivered in person, by first class United
States mail postage prepaid or by reputable overnight delivery service to the
Company's Secretary at the Company's principal executive offices at 1195 River
Road, Marietta, Pennsylvania 17547 during the period commencing on November 22,
2002 and ending on December 23, 2002.
A written proposal of nomination for a director must set forth (A) the name
and address of the stockholder who intends to make the nomination (the
"Nominating Stockholder"), (B) the name, age, business address and, if known,
residence address of each person so proposed, (C) the principal occupation or
employment of each person so proposed for the past five years, (D) the number of
shares of capital stock of the Company beneficially owned within the meaning of
SEC Rule 13d-3 by each person so proposed and the earliest date of acquisition
of any such capital stock, (E) a description of any arrangement or understanding
between each person so proposed and the Nominating Stockholder with respect to
such person's proposal for nomination and election as a director and actions to
be proposed or taken by such person as a director, (F) the written consent of
each person so proposed to serve as a director if nominated and elected as a
director and (G) such other information regarding each such person as would be
required under the proxy solicitation rules of the SEC if proxies were to be
solicited for the election as a director of each person so proposed. Only
candidates nominated by stockholders for election as a member of the Company's
Board of Directors in accordance with the By-law provisions summarized herein
will be eligible to be considered by the Nominating Committee for nomination for
election as a member of the Company's Board of Directors at the 2003 annual
meeting of stockholders, and any candidate not nominated in accordance with such
provisions will not be considered or acted upon for election as a director at
the 2003 annual meeting of stockholders.
A written proposal relating to a matter other than a nomination for
election as a director must set forth information regarding the matter
equivalent to the information that would be required under the proxy
solicitation rules of the SEC if proxies were solicited for stockholder
consideration of the matter at a meeting of stockholders. Only stockholder
proposals submitted in accordance with the By-law provisions summarized above
will be eligible for presentation at the 2003 annual meeting of stockholders,
and any matter not submitted to the Company's Board of Directors in accordance
with such provisions will not be considered or acted upon at the 2003 annual
meeting of stockholders.
16
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration at the annual meeting other than the matters described in the
notice of annual meeting, but if any matters are properly presented, proxies in
the enclosed form returned to the Company will be voted in accordance with the
recommendation of the Board of Directors or, in the absence of such a
recommendation, in accordance with the judgment of the proxy holder.
By Order of the Board of Directors,
/s/ Donald H. Nikolaus
----------------------------------------------
Donald H. Nikolaus,
President and Chief Executive Officer
March 22, 2002
17
[THIS PAGE INTENTIONALLY LEFT BLANK]
DONEGAL GROUP INC.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 18, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Daniel J. Wagner and Ralph G. Spontak, and each
or either of them, proxies of the undersigned, with full power of substitution,
to vote all of the shares of Class A common stock and Class B common stock of
Donegal Group Inc. (the "Company") that the undersigned may be entitled to vote
at the Annual Meeting of Stockholders of the Company to be held at the Company's
offices, 1195 River Road, Marietta, Pennsylvania 17547, on April 18, 2002 at
10:00 a.m., and at any adjournment, postponement or continuation thereof, as set
forth on the reverse side of this proxy card.
PROXY
Election of Class A Directors, Nominees:
Robert S. Bolinger
Patricia A. Gilmartin
Philip H. Glatfelter, II
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations.
---------------
| SEE REVERSE |
| SIDE |
---------------
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
[ X ] Please mark your votes as in this example.
This proxy will be voted as specified. If a choice is not specified, the proxy
will be voted FOR the nominees for Class A Director and FOR Proposal 2.
The Board of Directors recommends a vote FOR the nominees for Class A Director
and FOR Proposal 2.
FOR WITHHELD
1. Election of Class A Directors [ ] [ ]
(see reverse side)
For, except vote withheld from the
following nominee(s):
----------------------------------
FOR AGAINST ABSTAIN
2. Election of KPMG LLP as [ ] [ ] [ ]
the independent public
accountants for the
Company for 2002
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment,
postponement or continuation thereof.
This proxy should be dated, signed by the stockholder exactly as his or her name
appears below and returned promptly to EquiServe Trust Company NA in the
enclosed envelope. Persons signing in a fiduciary capacity should so indicate.
----------------------------------------
----------------------------------------
SIGNATURE(S) DATE
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FOLD AND DETACH HERE