AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 12, 2002
REGISTRATION NO. 333-63102
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
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 LLP
4200 One Liberty Place
Philadelphia, PA 19103-7396
(215) 979-1000
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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. [ ]
THIS POST-EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(C)
OF THE SECURITIES ACT OF 1933, MAY DETERMINE.
PROSPECTUS
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DONEGAL GROUP INC.
2001 AGENCY STOCK PURCHASE PLAN
300,000 SHARES OF CLASS A COMMON STOCK
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Donegal Group is offering 300,000 shares of Class A common stock to
eligible insurance agencies under its 2001 Agency Stock Purchase Plan. Our Class
A common stock is listed for trading on the Nasdaq Stock Market under the symbol
"DGICA." On April 10, 2002, the last reported sale price of our Class A common
stock on the Nasdaq National Market System was $10.05 per share.
We will offer the shares of Class A 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 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 under the plan.
Donegal Group's principal executive offices are located at 1195 River Road,
Marietta, Pennsylvania 17547; telephone (888) 877-0600. A copy of our 2001
Annual Report to Stockholders accompanies this prospectus. You should retain
this prospectus for future reference.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR CLASS A 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 April 12, 2002.
TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY..................................................................1
RISK FACTORS........................................................................2
DESCRIPTION OF THE 2001 AGENCY STOCK PURCHASE PLAN..................................9
Purpose and Advantages of the Plan...............................................9
Administration...................................................................9
Participation...................................................................10
Costs and Expenses..............................................................12
Purchases.......................................................................12
Shares; Certificates for Shares.................................................14
Withdrawal from the Plan........................................................14
Other Information...............................................................15
DESCRIPTION OF CAPITAL STOCK.......................................................17
General.........................................................................17
Certain Charter and By-law Provisions; Delaware Anti-Takeover Provisions........18
Limitation of Liability; Indemnification........................................20
PLAN OF DISTRIBUTION...............................................................20
USE OF PROCEEDS....................................................................20
EXPERTS............................................................................20
LEGAL OPINION......................................................................21
AVAILABLE INFORMATION..............................................................21
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................21
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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 64.1% of our
Class A common stock and 62.1%% of our Class B common stock.
The Class A common stock and the Class B common stock are identical, except
with respect to voting rights and the payment of dividends. 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, and the holders of shares of Class B common stock are entitled
to one vote per share. Except as otherwise required under the Delaware General
Corporation Law 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.
Our certificate of incorporation also 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 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 each share of Class B common stock are 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.
We are offering 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
adopted the plan to foster the common interests of us and our agencies in
achieving long-term profitable growth for the Donegal Group of companies.
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We have reserved 300,000 shares of Class A common stock for sale to
eligible agencies under the plan for the five-year period ending March 31, 2007.
The purchase price for shares of Class A common stock purchased from us under
the plan will be 90% of the average closing prices of the Class A common stock
on the Nasdaq National Market System on the last ten trading days of each
applicable subscription period.
We will offer shares 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 sale of shares of Class A 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.
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.
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
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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.
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 14 Middle Atlantic and Southern states. In 2001, the majority
of our direct premiums written, including those of the Mutual Company and our
insurance subsidiaries, were geographically dispersed as follows: 63.0% in
Pennsylvania, 14.3% in Virginia and 5.9% in
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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.
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
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insurance companies from a variety of federal regulatory requirements, possible
rate rollback regulation and legislation to control premiums, policy
terminations and other policy terms.
THE MUTUAL COMPANY IS OUR LARGEST SHAREHOLDER AND PROVIDES US WITH OUR
FACILITIES AND SERVICES.
The Mutual Company currently owns approximately 64.1% of our outstanding
Class A common stock and 62.1% 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. Under our By-laws and those of the Mutual Company, any new agreement
between us and the Mutual Company and any proposed change in any existing
agreement between us and the Mutual Company must first be submitted for approval
by the respective Boards of Directors of the two companies 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 our Coordinating Committee members conclude the new agreement or
change in an existing agreement is fair to us and our stockholders and if both
of the Mutual Company's members conclude the agreement is fair and equitable to
the Mutual Company and its policyholders. The decisions of the Coordinating
Committee are binding on both companies. The purpose of this provision is to
protect the interests of our stockholders and the interests of the policyholders
of the Mutual Company.
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.
BECAUSE WE PARTICIPATE IN AN INSURANCE POOLING ARRANGEMENT WITH THE MUTUAL
COMPANY, OUR RESULTS OF OPERATIONS ARE DEPENDENT UPON THE FINANCIAL SUCCESS OF
THE MUTUAL COMPANY.
Our insurance subsidiary, Atlantic States Insurance Company, participates
in an intercompany pooling arrangement with the Mutual Company, under which the
parties share the premiums earned and underwriting results on substantially all
of the property and casualty insurance business written by both companies. Under
the terms of the intercompany pooling agreement, Atlantic States cedes all of
its insurance business to the Mutual Company and assumes from the Mutual Company
70% of the total pooled insurance business of the Mutual Company and Atlantic
States. 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 our ability to raise capital for Atlantic States.
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Because of the pooled business we assume, our insurance operations are
interrelated with the insurance operations of the Mutual Company and our results
of operations are dependent upon the financial success of the Mutual Company.
Although the underwriting pool is intended to produce a more uniform and stable
underwriting result from year to year for the participants in the pool than they
would experience individually and to spread the risk of loss among all the
participants, if the Mutual Company experiences unusually severe or frequent
losses or does not adequately price its premiums, our results of operations
could suffer. Our results of operations also may suffer if the Mutual Company
did not participate in the pooling arrangement because the pool participants
would then be limited to policy exposures of a size commensurate with their own
capital and surplus instead of having at their disposal the capacity of the
entire pool.
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.
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
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unpaid claims and product mix, as well as court decisions, economic conditions
and public attitudes.
WE DEPEND ON DIVIDENDS FROM OUR SUBSIDIARIES FOR THE PAYMENT OF OPERATING
EXPENSES, DEBT SERVICE AND DIVIDENDS TO OUR STOCKHOLDERS.
As a holding company, the Company relies primarily on its subsidiaries for
dividends and other permitted payments to meet its obligations for corporate
expenses. Payment of dividends by the Company's subsidiaries is subject to
regulatory restrictions and depends on the surplus of the 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
64.1% of our Class A common stock and 62.1% 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.
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. 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
7
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 have a
depressive effect on the market price of the Class A 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."
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DESCRIPTION OF THE 2001 AGENCY 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 March 8, 2001 and was amended and
restated on September 17, 2001 and December 20, 2001.
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
6, an opportunity to acquire a long-term proprietary interest in us through the
purchase of our Class A common 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 Class A common 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 6 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, an eligible agency can utilize three convenient payment
methods for the purchase of our Class A common 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.
ADMINISTRATION
3. 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.
Our board of directors appointed Donald H. Nikolaus, Ralph G. Spontak and
Daniel J. Wagner to serve on the committee. We do not compensate members of the
committee for administering the plan. 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
9
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.
4. 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.
5. What is the term of the plan?
The plan will be in effect from March 15, 2002 through March 31, 2007
unless our board of directors terminates the plan earlier. The board of
directors has the right to terminate the plan at any time without notice
provided that no participant's existing rights are adversely affected by the
termination. During the term of the plan there will be ten consecutive
semi-annual subscription periods. Each subscription period extends from April 1
through September 30 and from October 1 through March 31, respectively,
beginning with April 1, 2002 and ending on March 31, 2007.
PARTICIPATION
6. 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
two weeks 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 24 and 25 below.
10
7. How may an eligible agency participate in the plan?
An eligible agency may enroll in the plan by completing and filing a
subscription agreement, as described in Question and Answer 8, with us. We will
send to each eligible agency a subscription agreement, a copy of this 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.
8. What does a subscription agreement provide?
A subscription agreement allows each eligible agency to decide and identify
the date on which the agency desires to become enrolled in the plan, the amounts
of contribution and the payment method(s) selected for purchases under the plan.
Eligible agencies that participated in our former Agency Stock Purchase Plan may
participate in the plan by checking the appropriate box on the subscription
agreement. Prior contribution amounts and payment method(s) will be carried over
from the former Agency Stock Purchase Plan unless new instructions are given in
the subscription agreement.
9. When may an eligible agency enroll in the plan?
If an eligible agency chooses the direct bill commission payment method, as
explained in Question and Answer 15, enrollment in the plan may occur only
during the enrollment period preceding each subscription period, which is from
the 15th through the 31st day of March and from the 15th through the 30th day of
September of each year commencing with March 15, 2002. An eligible agency that
desires to subscribe for the purchase of Class A common stock through
withholding from direct bill commissions must return a duly executed and
completed subscription agreement during the applicable enrollment period. Once
enrolled in the direct bill commission payment method, an eligible agency's
participation in the plan continues for each succeeding subscription period
until the agency ceases to be an eligible agency or withdraws from enrollment in
the plan.
If an eligible agency chooses the lump-sum payment method, as explained in
Question and Answer 17, an eligible agency may enroll by submitting a
supplemental subscription agreement to us and making a lump-sum payment by the
last day of the applicable subscription period, September 30 or March 31.
If an eligible agency chooses the contingent commission payment method, as
explained in Question and Answer 18, an eligible agency may enroll by submitting
a subscription agreement during the enrollment period immediately preceding each
October 1 through March 31 subscription period.
10. 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 such attempted assignment is void,
except for permitted designations as described in Question and Answer 23.
11
COSTS AND EXPENSES
11. 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 under the
plan.
PURCHASES
12. How many shares are available to be purchased under the plan?
Our board of directors reserved 300,000 shares of our Class A common stock
for sale under the plan.
13. What is the price of shares of Class A common stock purchased under the
plan?
The subscription price for each share of Class A common stock purchased
under the plan is 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
applicable subscription period.
14. How may an eligible agency pay for shares purchased 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.
15. What is the direct bill commission payment method?
Under the direct bill commission payment method, an eligible agency may
elect to purchase Class A common stock 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 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.
16. May an eligible agency that chooses the direct bill commission payment
method change the method or amount of contribution made or withheld under
the plan?
Yes. An eligible agency choosing the direct bill commission payment method
may change the rate of contribution by filing a new subscription agreement with
us during the enrollment period for the next subscription period. This change
will become effective during the next subscription period.
12
17. What is the lump-sum payment method?
Under the lump-sum payment method, an eligible agency may, by September 30
and March 31 of each subscription period, elect to make lump-sum cash payments
for the purchase of Class A common stock under the plan. Lump-sum cash payments
may not be less than $1,000 per subscription period and are subject to the total
subscription limit under all methods of $12,000 per subscription period.
18. What is the contingent commission payment method?
An eligible agency may designate a percentage of the contingent commission
payable to it under the terms of the applicable agency contingency plan (or its
equivalent) to be withheld for the purchase of Class A common stock under the
plan during the enrollment period immediately preceding the October 1 through
March 31 subscription period. Contingent commission payments are subject to the
total subscription limit under all payment methods of $12,000 per subscription
period.
19. 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 15, 17 and 18 above) may not
exceed $12,000 during each subscription period. At the close of each
subscription period, we will total each agency's contributions from all payment
methods. If at any time throughout a subscription period, an eligible agency's
total payments exceed the $12,000 maximum amount and the agency so requests, we
will return the excess amount without interest to the agency within a reasonable
period. Any amount not returned will be applied to the purchase of Class A
common stock during the next subscription period without reducing the $12,000
limitation applicable to that subscription period.
20. How are purchases made under the plan?
We will 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 a subscription period, up to $12,000,
are held in a separate bank account maintained by us until the shares purchased
under the plan are issued to the eligible agency. At the end of each
subscription period, the amount credited to each eligible agency's plan account
will be divided by the subscription price for the subscription period, and the
eligible agency's plan account will be credited with the number of whole shares
that results. Any amount remaining in the plan account will be carried forward
to the next subscription period without reducing the $12,000 limitation
applicable to that subscription period or, if requested by the eligible agency,
returned to the eligible agency. If the number of shares subscribed for during
any subscription period exceeds the number of shares available for sale under
the plan, the remaining available shares will be allocated among the
participating eligible agencies in proportion to their total plan account
balances, without regard to any amount carried forward from a previous
subscription period.
13
SHARES; CERTIFICATES FOR SHARES
21. 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 23.
22. Are stock certificates issued for shares of Class A common stock purchased?
We will issue and deliver to each eligible agency stock certificates for
the shares it has purchased under the plan within a reasonable time after
purchase, but in no event later than two weeks after the end of the subscription
period during which the shares were purchased.
23. In whose name are accounts maintained and certificates registered when
issued?
Accounts in the plan will be maintained in the name of the eligible agency.
Consequently, certificates when issued for full shares will be 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 Class A common stock.
WITHDRAWAL FROM THE PLAN
24. 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 a termination of agency status for any
reason as an automatic withdrawal. If an agency withdraws from the plan, that
agency may not resubscribe until after the next full subscription period has
elapsed, and then only if we have redesignated the agency an eligible agency.
25. 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 termination of an agency's
eligibility, but in no event later than two weeks 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
14
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
26. What happens if Donegal Group declares a stock split or stock dividend or
changes or exchanges its Class A common stock for shares of stock or other
securities of its own or another corporation?
Our committee will make appropriate adjustments in the total number and
kind of shares that are reserved for sale under the plan if our outstanding
shares of Class A common stock are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of
Donegal Group, or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend (either in shares of our Class A common stock or of another class of
our stock), spin-off or combination of shares.
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 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 acquired. At the end of each 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 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 purchased under
the plan, any amount received in excess of the value of the shares of Class A
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 day 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.
15
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.
16
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized Class A common stock consists of 30,000,000 shares. As of
March 28, 2002, 6,065,462 shares of our Class A common stock were outstanding.
We also have authorized 10,000,000 shares of Class B common stock, of which
2,981,870 shares were outstanding on March 1, 2002, and 2,000,000 shares of
preferred stock issuable from time to time in separate 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, and 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
17
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 each share of Class B common stock
are 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 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 our 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 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
64.1% of our Class A common stock and 62.1% 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.
18
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. 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 have a depressive effect
on the market price of the Class A common stock.
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
19
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 have a depressive effect
on the market price of the Class A 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 (1) for any breach of the director's duty of loyalty to us
or our stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the DGCL, relating to prohibited dividends, distributions and repurchases or
redemptions of stock or (4) 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 300,000 shares of Class A common stock for sale to
eligible agencies under the plan for the five-year period ending March 31, 2007.
We will offer the shares of Class A 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 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 the
shares of Class A 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.
EXPERTS
The consolidated financial statements and schedules of Donegal Group as of
December 31, 2001 and 2000, and for each of the years in the three-year period
ended December 31, 2001, have been incorporated by reference in this prospectus
and in the registration statement in reliance upon the reports of KPMG LLP,
independent accountants, incorporated by reference in this prospectus, and upon
the authority of said firm as experts in accounting and auditing.
20
LEGAL OPINION
The validity of the issuance of the shares of Class A common stock offered
with this prospectus will be passed upon for us by Duane Morris LLP,
Philadelphia, Pennsylvania. As of March 28, 2002, attorneys of Duane Morris LLP
who have recently provided substantive legal services beneficially owned 18,861
shares of our outstanding Class A common stock, and 8,817 shares of our
outstanding Class B common stock, of which 5,854 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 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 64.1% of our Class A common stock and 62.1% 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 room at 450 Fifth Street,
N.W., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference room. 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 its 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 room of the SEC described above or at the worldwide web site
maintained by the SEC described above.
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, 2001,
as filed with the SEC on March 28, 2002;
(b) Certain portions of our 2001 Annual Report to Stockholders, consisting
of pages 8 through 31 and the information under the caption "Market
Information" on page
21
32, included as an exhibit to our Annual Report on Form 10-K for the
year ended December 31, 2001, which was filed with the SEC on March
28, 2002. The remaining portions of our 2001 Annual Report to
Stockholders are not incorporated by reference and are not part of
this registration statement.
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.
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.
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 by reference in this prospectus, other than exhibits to
those documents unless the exhibits are specifically incorporated by reference.
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
22
DONEGAL GROUP INC.
2001 AGENCY STOCK PURCHASE PLAN
300,000
SHARES OF
CLASS A COMMON STOCK
----------
PROSPECTUS
----------
DATED APRIL 12, 2002
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.
23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14.
This item is hereby incorporated by reference to Item 14 of Amendment No. 5
to Registrant's Form S-2 Registration Statement No. 333-63102 filed February 5,
2002.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
This item is hereby incorporated by reference to Item 15 of Amendment No. 5
to Registrant's Form S-2 Registration Statement No. 333-63102 filed February 5,
2002.
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION OF EXHIBITS REFERENCE
NUMBER ----------------------- ---------
--------
4.1 Form of Subscription Agreement Under the Donegal Group Inc. 2001
Agency Stock Purchase Plan (a)
5.1 Opinion of Duane Morris LLP (b)
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS OR ARRANGEMENTS
-----------------------------------------------------------
10.1 Donegal Group Inc. Amended and Restated 1996 Equity Incentive Plan (c)
10.2 Donegal Group Inc. 2001 Equity Incentive Plan for Employees (d)
10.3 Donegal Group Inc. Amended and Restated 1996 Equity Incentive Plan for Directors (e)
10.4 Donegal Group Inc. 2001 Equity Incentive Plan for Directors (d)
10.5 Donegal Group Inc. 2001 Employee Stock Purchase Plan, as amended (f)
10.6 Donegal Group Inc. Amended and Restated 2001 Agency Stock Purchase Plan (g)
10.7 Donegal Mutual Insurance Company 401(k) Plan (h)
II-1
EXHIBIT DESCRIPTION OF EXHIBITS REFERENCE
NUMBER ----------------------- ---------
--------
10.8 Amendment No. 1 effective January 1, 2000 to Donegal Mutual Insurance Company
401(k) Plan (h)
10.9 Amendment No. 2 effective January 6, 2000 to Donegal Mutual Insurance Company
401(k) Plan (i)
10.10 Amendment No. 3 effective July 23, 2001 to Donegal Mutual Insurance Company
401(k) Plan (i)
10.11 Amendment No. 4 effective January 1, 2002 to Donegal Mutual Insurance Company
401(k) Plan (i)
10.12 Amendment No. 5 effective December 31, 2001 to Donegal Mutual Insurance Company
401(k) Plan (i)
10.13 Donegal Mutual Insurance Company Executive Restoration Plan (j)
OTHER MATERIAL CONTRACTS
------------------------
10.14 Tax Sharing Agreement dated September 29, 1986 between Donegal Group Inc. and
Atlantic States Insurance Company (k)
10.15 Services Allocation Agreement dated September 29, 1986 between Donegal Mutual
Insurance Company, Donegal Group Inc. and Atlantic States Insurance Company (k)
10.16 Proportional Reinsurance Agreement dated September 29, 1986 between Donegal Mutual
Insurance Company and Atlantic States Insurance Company (k)
10.17 Amendment dated October 1, 1988 to Proportional Reinsurance Agreement between
Donegal Mutual Insurance Company and Atlantic States Insurance Company (l)
10.18 Multi-Line Excess of Loss Reinsurance Agreement effective January 1, 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 (m)
II-2
EXHIBIT DESCRIPTION OF EXHIBITS REFERENCE
NUMBER ----------------------- ---------
--------
10.19 Amendment dated July 16, 1992 to Proportional Reinsurance Agreement between
Donegal Mutual Insurance Company and Atlantic States Insurance Company (n)
10.20 Amendment dated as of December 21, 1995 to Proportional Reinsurance Agreement
between Donegal Mutual Insurance Company and Atlantic States Insurance Company (o)
10.21 Reinsurance and Retrocession Agreement dated May 21, 1996 between Donegal Mutual
Insurance Company and Pioneer Insurance Company (j)
10.22 Reinsurance and Retrocession Agreement dated May 21, 1996 between Donegal Mutual
Insurance Company and Southern Insurance Company of Virginia (j)
10.23 Reinsurance and Retrocession Agreement effective January 1, 2000 between Donegal
Mutual Insurance Company and Southern Heritage Insurance Company (h)
10.24 Property and Catastrophe Excess of Loss Reinsurance Agreement effective January 1,
2000 between Donegal Mutual Insurance Company and Southern Heritage Insurance
Company (h)
10.25 Amended and Restated Credit Agreement dated as of July 27, 1998 among Donegal
Group Inc., the banks and other financial institutions from time to time party
thereto and Fleet National Bank, as agent (p)
10.26 First Amendment and Waiver to the Amended and Restated Credit Agreement dated as
of December 31, 1999 (h)
10.27 Amendment dated as of April 20, 2000 to Proportional Reinsurance Agreement between
Donegal Mutual Insurance Company and Atlantic States Insurance Company (q)
10.28 Lease Agreement dated as of September 1, 2000 between Donegal Mutual Insurance
Company and Province Bank FSB (d)
10.29 Aggregate Excess of Loss Reinsurance Agreement dated as of January 1, 2001 between
Donegal Mutual Insurance Company and Pioneer Insurance Company (d)
II-3
EXHIBIT DESCRIPTION OF EXHIBITS REFERENCE
NUMBER ----------------------- ---------
--------
13 2001 Annual Report to Stockholders (i)
23.1 Consent of Independent Auditors Filed herewith
23.2 Consent of Duane Morris LLP (included in its opinion incorporated by reference in
Exhibit 5)
24 Powers of attorney (b)
----------
(a) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Amendment No. 4 to Registrant's Form S-2 Registration Statement
No. 333-63102 filed December 21, 2001.
(b) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 333-63102 filed
on June 15, 2001.
(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,
1998.
(d) 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.
(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,
1997.
(f) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-8 Registration Statement No. 333-62974 filed
June 14, 2001.
(g) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 333-63102
declared effective February 8, 2002.
(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,
1999.
(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,
2001.
(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,
1996.
II-4
(k) 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.
(l) 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.
(m) 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.
(n) 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.
(o) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated December 21, 1995.
(p) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated November 17, 1998.
(q) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated May 31, 2000.
ITEM 17. UNDERTAKINGS.
This item is hereby incorporated by reference to Item 17 of Amendment No. 5
to Registrant's Form S-2 Registration Statement No. 333-63102 filed February 5,
2002.
II-5
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 Post-Effective
Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Marietta, Pennsylvania, on April 12,
2002.
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 April 12, 2002
------------------------------------------- and a Director
Donald H. Nikolaus (principal executive officer)
s/ Ralph G. Spontak Senior Vice President, Chief April 12, 2002
------------------------------------------- Financial Officer and Secretary
Ralph G. Spontak (principal financial and
accounting officer)
* Director April 12, 2002
-------------------------------------------
C. Edwin Ireland
* Director April 12, 2002
-------------------------------------------
Patricia A. Gilmartin
* Director April 12, 2002
-------------------------------------------
Philip H. Glatfelter, II
II-6
Signature Title Date
--------- ----- ----
* Director April 12, 2002
-------------------------------------------
R. Richard Sherbahn
Director April __, 2002
-------------------------------------------
Thomas J. Finley, Jr.
* Director April 12, 2002
-------------------------------------------
Robert S. Bolinger
Director April __, 2002
-------------------------------------------
John J. Lyons
By: s/ Ralph G. Spontak
---------------------------------------
Ralph G. Spontak, as attorney-in-fact
*Signed pursuant to power of attorney
II-7
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
EXHIBIT DESCRIPTION OF EXHIBITS REFERENCE
NUMBER ----------------------- ---------
------
4.1 Form of Subscription Agreement Under the Donegal Group Inc. 2001 Agency Stock
Purchase Plan (a)
5.1 Opinion of Duane Morris LLP (b)
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS OR ARRANGEMENTS
-----------------------------------------------------------
10.1 Donegal Group Inc. Amended and Restated 1996 Equity Incentive Plan (c)
10.2 Donegal Group Inc. 2001 Equity Incentive Plan for Employees (d)
10.3 Donegal Group Inc. Amended and Restated 1996 Equity Incentive Plan for Directors (e)
10.4 Donegal Group Inc. 2001 Equity Incentive Plan for Directors (d)
10.5 Donegal Group Inc. 2001 Employee Stock Purchase Plan, as amended (f)
10.6 Donegal Group Inc. Amended and Restated 2001 Agency Stock Purchase Plan (g)
10.7 Donegal Mutual Insurance Company 401(k) Plan (h)
10.8 Amendment No. 1 effective January 1, 2000 to Donegal Mutual Insurance Company
401(k) Plan (h)
10.9 Amendment No. 2 effective January 6, 2000 to Donegal Mutual Insurance Company
401(k) Plan (i)
10.10 Amendment No. 3 effective July 23, 2001 to Donegal Mutual Insurance Company
401(k) Plan (i)
10.11 Amendment No. 4 effective January 1, 2002 to Donegal Mutual Insurance Company
401(k) Plan (i)
EXHIBIT DESCRIPTION OF EXHIBITS REFERENCE
NUMBER ----------------------- ---------
------
10.12 Amendment No. 5 effective December 31, 2001 to Donegal Mutual Insurance Company
401(k) Plan (i)
10.13 Donegal Mutual Insurance Company Executive Restoration Plan (j)
OTHER MATERIAL CONTRACTS
------------------------
10.14 Tax Sharing Agreement dated September 29, 1986 between Donegal Group Inc. and
Atlantic States Insurance Company (k)
10.15 Services Allocation Agreement dated September 29, 1986 between Donegal Mutual
Insurance Company, Donegal Group Inc. and Atlantic States Insurance Company (k)
10.16 Proportional Reinsurance Agreement dated September 29, 1986 between Donegal Mutual
Insurance Company and Atlantic States Insurance Company (k)
10.17 Amendment dated October 1, 1988 to Proportional Reinsurance Agreement between
Donegal Mutual Insurance Company and Atlantic States Insurance Company (l)
10.18 Multi-Line Excess of Loss Reinsurance Agreement effective January 1, 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 (m)
10.19 Amendment dated July 16, 1992 to Proportional Reinsurance Agreement between
Donegal Mutual Insurance Company and Atlantic States Insurance Company (n)
10.20 Amendment dated as of December 21, 1995 to Proportional Reinsurance Agreement
between Donegal Mutual Insurance Company and Atlantic States Insurance Company (o)
10.21 Reinsurance and Retrocession Agreement dated May 21, 1996 between Donegal Mutual
Insurance Company and Pioneer Insurance Company (j)
EXHIBIT DESCRIPTION OF EXHIBITS REFERENCE
NUMBER ----------------------- ---------
------
10.22 Reinsurance and Retrocession Agreement dated May 21, 1996 between Donegal Mutual
Insurance Company and Southern Insurance Company of Virginia (j)
10.23 Reinsurance and Retrocession Agreement effective January 1, 2000 between Donegal
Mutual Insurance Company and Southern Heritage Insurance Company (h)
10.24 Property and Catastrophe Excess of Loss Reinsurance Agreement effective January 1,
2000 between Donegal Mutual Insurance Company and Southern Heritage Insurance
Company (h)
10.25 Amended and Restated Credit Agreement dated as of July 27, 1998 among Donegal
Group Inc., the banks and other financial institutions from time to time party
thereto and Fleet National Bank, as agent (p)
10.26 First Amendment and Waiver to the Amended and Restated Credit Agreement dated as
of December 31, 1999 (h)
10.27 Amendment dated as of April 20, 2000 to Proportional Reinsurance Agreement between
Donegal Mutual Insurance Company and Atlantic States Insurance Company (q)
10.28 Lease Agreement dated as of September 1, 2000 between Donegal Mutual Insurance
Company and Province Bank FSB (d)
10.29 Aggregate Excess of Loss Reinsurance Agreement dated as of January 1, 2001 between
Donegal Mutual Insurance Company and Pioneer Insurance Company (d)
13 2001 Annual Report to Stockholders (i)
23.1 Consent of Independent Auditors Filed herewith
23.2 Consent of Duane Morris LLP (included in its opinion incorporated by reference in
Exhibit 5)
24 Powers of attorney (b)
----------
(a) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Amendment No. 4 to Registrant's Form S-2 Registration Statement
No. 333-63102 filed December 21, 2001.
(b) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 333-63102 filed
on June 15, 2001.
(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,
1998.
(d) 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.
(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,
1997.
(f) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-8 Registration Statement No. 333-62974 filed
June 14, 2001.
(g) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form S-2 Registration Statement No. 333-63102
declared effective February 8, 2002.
(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,
1999.
(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,
2001.
(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,
1996.
(k) 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.
(l) 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.
(m) 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.
(n) 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.
(o) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated December 21, 1995.
(p) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated November 17, 1998.
(q) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report dated May 31, 2000.