PROSPECTUS 424(b)(3)
Registration No. 333-06787
DONEGAL GROUP INC.
AGENCY STOCK PURCHASE PLAN
300,000 shares of Common Stock,
par value $1.00
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The Agency Stock Purchase Plan (the "Plan") of Donegal Group Inc. (the
"Company") described herein offers eligible independent insurance agencies of
the Company, Donegal Mutual Insurance Company (the "Mutual Company") and the
Company's subsidiary and affiliated insurance companies (as defined below) an
opportunity to acquire a proprietary interest in the Company and foster the
common interests of the Company and its agencies in achieving long-term
profitable growth for the Company.
The total number of shares of the Company's Common Stock, $1.00 par
value, (the "Common Stock") that will be made available by the Company under the
Plan is 300,000 shares. The purchase price for shares of Common Stock purchased
from the Company will be 90% of the average closing prices of the Common Stock
on the Nasdaq Stock Market on the last ten trading days of the applicable
Subscription Period (as defined below). Prices for the Common Stock are listed
on the Nasdaq National Market under the symbol "DGIC".
There will be no brokerage commissions or service charges upon the
purchase of shares under the Plan. The Company will bear all other costs of
administering the Plan.
It is recommended that this Prospectus be retained for future
reference. This Prospectus is accompanied by a copy of the Company's 1995 Annual
Report to Stockholders.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Underwriting,
Price to Discounts and Proceeds to
Public Commissions Company(2)
-------- ------------- -----------
Per Share.............. See Footnote(1) None 100%
Total.................. See Footnote(1) None 100%
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(1) The Common Stock is traded on the Nasdaq National Market. The Common Stock
is offered to participants in the Plan at a discount of 10% from the
average of the closing prices of the Common Stock quoted on the Nasdaq
National Market on the last ten trading days of the applicable Subscription
Period (as described below). The closing price of Common Stock quoted on
the Nasdaq Stock Market on August 20, 1996 was $17.75.
(2) Before deducting expenses payable by the Company estimated at $6,000.
The date of this Prospectus is August 22, 1996.
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TABLE OF CONTENTS
Page
AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
DESCRIPTION OF THE AGENCY STOCK PURCHASE PLAN............................. 4
Purpose and Advantages of the Plan............................... 4
Administration................................................... 4
Participation.................................................... 5
Costs and Expenses............................................... 6
Purchases........................................................ 7
Shares; Certificates for Shares.................................. 9
Withdrawal from the Plan......................................... 9
Other Information................................................ 10
DESCRIPTION OF CAPITAL STOCK.............................................. 11
USE OF PROCEEDS........................................................... 13
EXPERTS................................................................... 13
LEGAL OPINION............................................................. 13
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at its regional offices located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained from the Public Reference
Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004 at prescribed rates. The Company's Common Stock is
listed on the Nasdaq National Market. Reports, proxy statements and other
information concerning the Company can be inspected at the offices of the Nasdaq
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006-1506.
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The Company has filed with the Commission in Washington, D.C. a
registration statement on Form S-2 (the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") with respect to the securities
covered by this Prospectus. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement. For further information with respect to the Company
and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits filed or incorporated as a part thereof.
Statements contained herein concerning the provisions of documents filed with,
or incorporated by reference in, the Registration Statement as exhibits are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable documents filed with the
Commission. Copies of the Registration Statement and the exhibits thereto are on
file at the offices of the Commission and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the Commission described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission are incorporated herein by reference:
a. Annual Report on Form 10-K for the year ended December 31,
1995 filed by the Company pursuant to Section 13(a) of the
Exchange Act.
b. Quarterly Report on Form 10-Q for the quarter ended March 31,
1996 filed by the Company pursuant to Section 13(a) of the
Exchange Act.
c. Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 filed by the Company pursuant to Section 13(a) of the
Exchange Act.
d. 1995 Annual Report to Stockholders (only those portions
consisting of the following are incorporated by reference in
this Registration Statement: (i) the description of the
business of the Company included as part of the Management's
Discussion and Analysis of Results of Operation and Financial
Condition on page 7 of thereof; (ii) the consolidated
financial statements, notes thereto and independent auditors'
report thereon on pages 10 through 23 thereof; (iii) the
information set forth under "Market Information" on the
inside back cover thereof; (iv) the selected financial data
set forth under "Financial Highlights" on the inside front
cover thereof; and (iv) the "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on
pages 7 through 9 thereof). The remaining portions of the
1995 Annual Report to Stockholders are not incorporated by
reference herein, consisting of pages 1, 2, 3, 4, 5, 6 and
24, inclusive, the information on the inside back cover other
than the information under "Market Information" and the front
and back outside cover pages of the 1995 Annual Report to
Stockholders, and are not part of this Registration
Statement.
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Any statement contained in a document incorporated by reference or
deemed to be incorporated by reference shall be deemed to be modified or
superseded for the purposes of this Registration Statement to the extent that a
statement contained herein or in any other subsequently filed document, which
also is or is deemed to be incorporated by reference, modifies or supersedes
such document. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Registration
Statement.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all documents incorporated herein by reference, other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
therein. Written requests should be directed to:
Donegal Group Inc.
Attention: Ralph G. Spontak, Senior Vice President,
Chief Financial Officer and Secretary
1195 River Road
Marietta, PA 17547
Telephone requests may be directed to the Company at (717) 426-1931.
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DESCRIPTION OF THE
AGENCY STOCK PURCHASE PLAN
The following is a description in question and answer form of the
provisions of the Plan offered to selected independent insurance agencies of the
Company, the Mutual Company and the Company's subsidiary and affiliated
insurance companies (collectively, the "Companies"). "Subsidiary and affiliated
insurance companies" are those insurance companies 50% or more of whose stock
are owned by the Company or the Mutual Company or with which the Mutual Company
has a management agreement. The Plan was approved by the Company's Board of
Directors on July 20, 1995.
Purpose and Advantages of the Plan
1. What is the purpose of the Plan?
The Plan provides an Eligible Agency, as described in Question and
Answer 6, an opportunity to acquire a long-term proprietary interest in the
Company through the purchase of the Company's Common Stock at a discount from
current market prices. In offering the Plan, the Company seeks to foster the
common interests of the Company and its independent agencies in achieving
long-term profitable growth for the Company. Accordingly, the Company has
created the Plan for the purpose of facilitating the purchase of and long-term
investment in shares of its Common Stock by an Eligible Agency. It is expected
that an Eligible Agency that purchases shares under the Plan will hold such
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 and, as
discussed in Question and Answer 6 below regarding eligibility, such a pattern
of conduct will be a factor in the Company's 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 the Company's Common Stock at a 10% discount from
the current market price of such shares. Purchases will also be made without
paying any brokerage commissions or service charges.
Administration
3. Who administers the Plan for participants?
The Plan is administered by a committee (the "Committee") consisting of
three persons appointed from time to time by the Company's Board of Directors.
The Committee may from time to time adopt rules and regulations for carrying out
the Plan. Any interpretation or construction
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of any provision of the Plan by the Committee is final and conclusive on all
persons absent contrary action by the Board of Directors. On July 20, 1995, the
Company's Board of Directors appointed Donald H. Nikolaus, Ralph G. Spontak and
Frank J. Wood to serve on the Committee. The address for each member of the
Committee is c/o Donegal Group Inc., 1195 River Road, Marietta, PA 17547.
4. Where can I obtain additional information about the Plan and its
administrators?
Additional information about the Plan and its administrators may be
obtained by contacting Ralph G. Spontak, Senior Vice President, Chief Financial
Officer and Secretary of the Company, at (717) 426-1931.
5. What is the term of the Plan?
The Plan will be in effect from September 15, 1996 through September
30, 2001 unless earlier terminated by the Board of Directors. 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 thereby.
There will be ten semi-annual "Subscription Periods." Each Subscription Period
will extend from October 1 through March 31 or from April 1 through September
30, respectively, beginning with October 1, 1996 and ending on September 30,
2001.
Participation
6. What agencies are eligible to participate?
Independent insurance agencies that bring value to the Companies,
directly or indirectly, as determined by the Company in its discretion, and with
which the Companies seek a long-term relationship are eligible (an "Eligible
Agency") to participate in the Plan. The eligibility criteria the Company will
consider will include the agency's premium volume, the potential growth of such
premium volume, the profitability of the agency's business and whether the
agency has been placed on rehabilitation by the Company or had its binding
authority revoked. The Company, in its discretion, may base eligibility on
agency segmentation class or any other factors that indicate value to the
Companies, directly or indirectly. Continued eligibility will be subject to the
Company's periodic review. A pattern of immediate resale of shares acquired
under the Plan by an Eligible Agency will be a factor in the Company's
determination whether an agency should remain eligible for continued
participation in the Plan because immediate resales would tend to indicate that
an agency is not seeking to share in the long-term profitable growth of the
Companies. A decision by the Company, in its 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.
7. How may an Eligible Agency participate in the Plan?
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An Eligible Agency may enroll in the Plan by completing and filing a
Subscription Agreement, as described in Question and Answer 8, with the
Company. Subscription Agreements will be sent to each Eligible Agency prior to
the beginning of the first Enrollment Period following such 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.
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 or from the 15th through the 30th
day of September of each year commencing on September 15, 1996. An Eligible
Agency that desires to subscribe for the purchase of Common Stock through
withholding from direct bill commissions must return a duly executed and
completed Subscription Agreement during the first 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 the Company 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 the 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 shall
be void, except for permitted designations as described in Question and Answer
23.
Costs and Expenses
11. Are there any expenses to participants in connection with purchases
under the Plan?
No. Eligible Agencies will not be obligated to pay any brokerage
commissions or other charges with respect to the purchase of Common Stock under
the Plan.
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Purchases
12. What is the number of shares available to be purchased under the Plan?
The Board of Directors of the Company has reserved 300,000 shares of
the Company's Common Stock for issuance under the Plan.
13. What is the price of shares of Common Stock purchased under the Plan?
The Subscription Price for each share of Common Stock purchased under
the Plan will be 90% of the average of the closing prices of the Common Stock on
the Nasdaq National Market on the last ten trading days of the applicable
Subscription Period; provided, however, the Subscription Price shall never be
less than the $1.00 par value per share of Common Stock.
14. How may an Eligible Agency pay for shares purchased under the Plan?
The Subscription Price for shares purchased under the Plan is payable
by participants 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 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,
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 the
Company's 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 the Company during the Enrollment Period for the next
Subscription Period. Such change will become effective during the next
Subscription Period.
17. What is the lump-sum payment method?
Under the lump-sum payment method, an Eligible Agency may, by September
30 or March 31 of the applicable Subscription Period, elect to make lump-sum
cash payments for the purchase
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of 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?
During the Enrollment Period immediately preceding the October 1
through March 31 Subscription Period, an Eligible Agency may designate a
percentage of the contingent commission payable to the participant under the
terms of the applicable agency contingency plan (or its equivalent) to be
withheld for the purchase of Common Stock under the Plan, 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. During any one Subscription Period, the total allowable
contributions for purchases from all payment methods (described in Question and
Answer 15, 17 and 18 above) for each Eligible Agency may not exceed $12,000. At
the close of each Subscription Period, each agency's contributions from all
payment methods will be totaled. 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, the Company 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 Common Stock during the next Subscription Period
without reducing the $12,000 limitation applicable to such Subscription Period.
20. How are purchases made under the Plan?
The Company will maintain on its books an account (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, will be credited to the Eligible Agency's Plan Account.
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 such
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 such Subscription Period or, at the option
of 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
aggregate Plan Accounts balances, exclusive of any amount carried forward from a
previous Subscription Period.
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Shares; Certificates for Shares
21. May an Eligible Agency transfer, pledge, hypothecate or assign shares
credited to the agency's Plan Account?
Neither an Eligible Agency's subscription rights under the Plan nor
shares credited to the Eligible Agency's Plan Account may be transferred,
pledged, hypothecated or assigned, subject except for permitted designations as
described in Question and Answer 23.
22. Are stock certificates issued for shares of Common Stock purchased?
Stock certificates will be issued and delivered to each Eligible Agency
with respect to the shares it has purchased under the Plan within a reasonable
time thereafter.
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 the
Company, (a) designate that shares be issued to a shareholder, partner, other
principal or other licensed employee of such Eligible Agency or (b) designate
that any retirement plan maintained by or for the benefit of such Eligible
Agency or a shareholder, partner, other principal or other licensed employee of
such Eligible Agency may purchase shares in lieu of such Eligible Agency through
lump-sum payments made by the designee, subject to the maximum amount limitation
of $12,000, compliance with applicable laws, including the Employee Retirement
Income Security Act of 1974, as amended, payment by the Eligible Agency or its
designee of any applicable transfer taxes and satisfaction of the Company's
usual requirements for recognition of a transfer of the Company's 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
giving written notice to the Company of the agency's desire to do so, signed on
behalf of the Eligible Agency by an authorized representative. Termination of
agency status for any reason will be treated as an automatic withdrawal. If an
agency withdraws from the Plan, such agency may not resubscribe until after the
next full Subscription Period has elapsed, and then only if it has been
redesignated by the Company as 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?
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Promptly after the time of withdrawal or discontinuance of an Eligible
Agency's eligibility, certificates representing the whole shares held under the
Plan will be issued in the name of the agency, and any amount credited to an
Eligible Agency's Plan Account at the time of withdrawal will be refunded to the
participant in cash without interest.
Other Information
26. What happens if the Company declares a stock split or stock dividend or
changes or exchanges its Common Stock for shares of stock or other
securities of its own or another corporation?
In the event that the outstanding shares of Common Stock of the Company
are hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company, or of
another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend (either in
shares of the Company's Common Stock or of another class of the Company's
stock), spin-off or combination of shares, appropriate adjustments shall be
made by the Committee in the aggregate number and kind of shares that are
reserved for sale under the Plan.
27. What are the federal income tax consequences of participation by an
Eligible Agency in the Plan?
At the time of purchase, and where an Eligible Agency will be
purchasing shares of 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 Common
Stock acquired. At the end of each calendar year, the Company will mail to each
participating agency a Form 1099 reflecting the amount of ordinary income earned
under the Plan. The Company is entitled to a deduction at the same time in a
corresponding amount. The participating agency's basis in the Common Stock
acquired is equal to the purchase price plus the amount of ordinary income
recognized. When an agency disposes of shares of Common Stock acquired under the
Plan, any amount received in excess of the value of the shares Common Stock on
which the agency was previously taxed will be treated as a long-term or
short-term capital gain, depending upon the holding period of the shares. If the
amount received is less than that value, the loss will be treated as a
long-term, or short-term capital loss, depending upon the holding period of the
shares (which begins on the date after each share is acquired).
Each participating agency is strongly advised to consult with a tax
advisor to determine the tax consequences of a given transaction, particularly
if a taxpayer other than an Eligible Agency has been designated by the Eligible
Agency to become a participant in the Plan.
28. May the Plan be changed or discontinued?
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Yes. The Company's Board of Directors has the right to amend, modify or
terminate the Plan at any time without notice as long as no participating
agency's existing rights are adversely affected as a result of such amendment,
modification or termination.
DESCRIPTION OF CAPITAL STOCK
The authorized Common Stock of the Company consists of 10,000,000
shares, $1.00 par value per share. As of June 1, 1996, 4,412,944 shares of
Common Stock were issued and outstanding. Each share of Common Stock is entitled
to one vote. The shares of Common Stock do not have cumulative voting rights
and, therefore, holders of more than 50% of the voting power of the Company are
able to elect all directors entitled to be elected by the stockholders. The
absence of cumulative voting and the Company's staggered board of directors,
together with the ownership of more than a majority of the Company's Common
Stock by the Mutual Company and insurance laws and regulations applicable to the
acquisition of insurance holding companies could be expected to have the effect
of delaying, averting or preventing a change in control of the Company and would
probably prevent any change in control of the Company unless the Mutual Company
was in favor of such a change. All the shares of Common Stock offered by the
Company hereby, when issued, will, upon payment therefor, be fully paid and
non-assessable. In the event of any liquidation, dissolution or winding-up of
the Company, holders of Common Stock will be entitled to share ratably in the
assets available for distribution, subject to the rights of any Preferred Stock
which may be outstanding at the time. No holder of Common Stock has any
preemptive rights. Holders of Common Stock have equal rights share for share, to
receive dividends when and if declared by the Board of Directors. There can be
no assurance that dividends will be declared in the future.
The transfer agent and registrar for the Company's Common Stock is
First Chicago Trust Company of New York.
The Company also has authorized 1,000,000 shares of Preferred Stock
issuable in series upon resolution of the Board of Directors. The Board of
Directors is authorized to establish the relative terms, rights and other
provisions of any such series of Preferred Stock. No Preferred Stock has been
issued, and the Board of Directors does not intend to issue any Preferred Stock
at the present time. The Board of Directors, without stockholder approval can
issue Preferred Stock with voting and conversion rights which could adversely
affect the voting power of the Common Stock. The issuance of Preferred Stock
could be expected to, and may have the effect of, delaying, averting or
preventing a change in control of the Company.
Delaware Law and Certain By-Law Provisions
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless
(i) prior to such date the board of directors of the corporation approved
either the business combination or
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the transaction which resulted in the stockholder becoming an interested
stockholder or (ii) 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 or officers and
(b) employee stock plans, in certain instances) or (iii) on or subsequent to
such 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
(i) the corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by Section 203 or (ii) the corporation, by
the action of its stockholders holding a majority of outstanding stock, adopts
an amendment to its certificate of incorporation or by-laws expressly electing
not to be governed by Section 203 (such amendment will not be effective until 12
months after adoption and will not apply to any business combination between
such corporation and any person who became an interested stockholder of such
corporation on or prior to such adoption).
The Company has not elected out of Section 203, and the restrictions
imposed by Section 203 apply to the Company. Section 203 could, under certain
circumstances, make it more difficult for a third party to gain control of the
Company, deny stockholders the receipt of a premium on their Common Stock and
have a depressive effect on the market price of the Common Stock. Section 203
defines a business combination to include: (i) any merger or consolidation
involving the corporation and the interested stockholder, (ii) any sale,
transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder, (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder, (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within the prior three years did own) 15% or more of the
corporation's voting stock.
The Company's By-laws provide for a classified Board of Directors
consisting of three classes as nearly equal in size as possible, with staggered
three-year terms. The classification of the Board of Directors could have the
effect of making it more difficult for a third party to acquire, or discouraging
a third party from acquiring, control of the Company.
Limitation of Liability; Indemnification
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that directors of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation
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of law, (iii) under Section 174 of the Delaware General Corporation Law,
relating to prohibited dividends, distributions and repurchases or redemptions
of stock or (iv) for any transaction from which the director derives an improper
personal benefit. However, such limitation on liability would not apply to
violations of the federal securities laws, nor does it limit the availability of
non-monetary relief in any action or proceeding against a director. The By-laws
include provisions for indemnification of the Company's directors and officers
to the fullest extent permitted by the Delaware General Corporation Law as now
or hereinafter in effect. Insofar as indemnification for liabilities arising
under the federal securities laws may be permitted to directors, officers and
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in such laws and is
therefore unenforceable.
USE OF PROCEEDS
The proceeds to the Company from sales of Common Stock pursuant to the
Plan will be used for general corporate purposes, including investment in and
advances to the Company's subsidiaries.
EXPERTS
The consolidated financial statements and schedules of Donegal Group
Inc. as of December 31, 1995 and 1994 and for each of the years in the
three-year period ended December 31, 1995 have been incorporated herein and in
the Registration Statement in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts accounting and auditing. Such
reports refer to a change in the Company's method of accounting for investment
securities by adopting the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
LEGAL OPINION
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company by Duane, Morris & Heckscher,
Philadelphia, Pennsylvania.
13
<PAGE>
DONEGAL GROUP INC.
AGENCY STOCK PURCHASE PLAN
300,000
Shares of
Common Stock,
par value $1.00
----------
PROSPECTUS
----------
Dated: August 22, 1996
No person has been authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. Neither delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offering in such jurisdiction.
<PAGE>
DONEGAL GROUP INC.
AGENCY STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Instruction: Please indicate the desired payment method(s) by marking the
appropriate block(s) below. (Note: 1, 2 or all 3 payment
methods may be elected up to an aggregate of $12,000 per
Subscription Period.)
On behalf of _________________________________________________ (the
"Agency"), ___________________ (insert agency number), the Agency hereby elects
to enroll in the Donegal Group Inc. Agency Stock Purchase Plan (the "Plan"). The
Agency understands that a maximum total contribution of $12,000 from all payment
methods applies for each Subscription Period. The Agency further understands
that, subject to the terms of the Plan, shares of Common Stock of the Company
will be purchased in accordance with the Prospectus, a copy of which has been
delivered to the Agency.
[ ] Direct Bill Commission Payment Method (By the End of the Applicable
Enrollment Period)
The Agency requests that ______% (not less than 1% and not more than
10% of direct bill commissions subject to a maximum of $12,000 per
Subscription Period) of the Agency's direct bill commission be withheld
from each commission statement during the next six-month Subscription
Period and for future Subscription Periods.
[ ] Lump-Sum Payment Method (By the End of the Applicable Subscription
Period)
The Agency will make a lump-sum payment (not less than $1,000 and not
greater than $12,000 per Subscription Period less amounts paid under
the direct bill commission payment method and/or the contingent
commission payment method). Enclosed is a check in the amount of
$___________ or, if no check is enclosed, a Lump-Sum Contribution
Supplemental Transmittal Statement, in the form provided to the Agency,
will be submitted with the Agency's payment by September 30 or March
31 of the respective Subscription Period.
[ ] Contingent Commission Payment Method (By the End of the Enrollment
Period Applicable to the October 1 through March 31 Subscription
Period)
The Agency requests that ______% (subject to a maximum dollar amount
not greater than $12,000 per Subscription Period less amounts paid
under the direct bill commission payment method and/or the lump-sum
payment method) be deducted from the Agency's contingent commission, if
any, payable to the Agency under the applicable agency contingent plan
for the purchase of stock during the next October 1 to March 31
Subscription Period in which the contingent commission, if any, is
paid.
[complete reverse side also]
<PAGE>
Please check the applicable block:
[ ] New Participant
[ ] Change of Direct Bill Commission Withholding Percentage
[ ] Withdrawal from the Plan at the end of the current
Subscription Period
[ ] Withdrawal from the Plan immediately and receive all funds
withheld for the current Subscription Period
[ ] Addition or deletion of Payment Option for current
Subscription Period
__________________________________________________ Federal ID No.: __________
(Agency Name)
By: ______________________________________________ Date: ____________________
Title: _______________________________________
Note:
Registration of stock will be in the Agency's name, unless written instructions
are received pursuant to the permitted designations set forth in the Plan and
the Prospectus.
This form should be submitted to Donegal Group, Inc., 1195 River Road, Marietta,
Pennsylvania 17547, Attention: Ralph G. Spontak, Senior Vice President, Chief
Financial Officer and Secretary.
<PAGE>
DONEGAL GROUP INC.
AGENCY STOCK PURCHASE PLAN
Lump-Sum Contribution
Supplemental Transmittal Statement
The undersigned Agency has previously submitted, or is concurrently
submitting, to Donegal Group Inc. (the "Company") a Subscription Agreement in
connection with the Agency's participation in the Company's Agency Stock
Purchase Plan (the "Plan"). The Agency hereby elects to make a lump-sum
contribution under the Plan. For the current Subscription Period, enclosed is
$___________ to be used to purchase the Company's Common Stock in accordance
with the terms of the Plan.
Please Complete:
__________________________________________ Fed ID No.:______________________
(Agency Name)
By: ______________________________________ Date: ___________________________
Title: _______________________________
Instructions:
This form should be sent to Donegal Group Inc., 1195 River Road, Marietta,
Pennsylvania 17547, Attention: Ralph G. Spontak, Senior Vice President, Chief
Financial Officer and Secretary, along with a Subscription Agreement if not
previously submitted for the Subscription Period and your check and be received
prior to September 30 or March 31 of the respective Subscription Period. The
dollar amount set forth above must be at least $1,000 and may not exceed, when
added to the amounts paid under the direct bill commission payment method and/or
the contingent commission payment method for the current Subscription Period, an
aggregate of $12,000.
<PAGE>
AGENCY STOCK PURCHASE PLAN SUMMARY
DONEGAL GROUP INC.
The items in this brochure are intended to be summaries of some of the major
provisions contained in the Donegal Group Inc. Agency Stock Purchase Plan.
Please refer to the prospectus for a complete discussion of each item. This
brochure is not a solicitation to sell Donegal Group Inc. common stock and must
be accompanied by a prospectus for the plan.
WHAT IS THE PURPOSE OF THE PLAN?
The Company has created the Plan for the purpose of facilitating the purchase
and long-term investment in its shares by eligible Agencies thereby fostering
stable long term relationships between the Company's affiliates and their
Agencies.
WHAT ARE THE ADVANTAGES OF THE PLAN?
Eligible Agencies can purchase the Company's Common Stock at a 10% discount from
current market prices without incurring any brokerage commissions or service
charges.
WHO IS ELIGIBLE TO PARTICIPATE?
All Agencies meeting the eligibility guidelines specified in the prospectus are
permitted to participate.
HOW MAY AN ELIGIBLE AGENCY BUY STOCK UNDER THE PLAN?
There are three ways to buy stock under the plan:
(1) Direct bill commission method
You may have deductions made from your monthly direct bill commission payments
ranging from a minimum of 1 percent to a maximum of 10 percent.
(2) Lump-sum payment method
You may elect to make a lump-sum cash payment of not less than $1,000 per
subscription period.
(3) Contingent commission method
You may designate a percentage of your contingent commission to purchase stock
for the October 1 through March 31 subscription period.
HOW IS THE PRICE OF THE STOCK DETERMINED?
The price for each share will be 90% of the average of the closing prices of the
Common Stock on the Nasdaq National Market on the last ten trading days of the
subscription period.
IN WHOSE NAME CAN CERTIFICATES BE REGISTERED WHEN ISSUED?
Although an eligible Agency may not assign its subscription rights to any other
person, it may designate that the shares be issued to any stockholder, partner,
principal or other licensed employee of such eligible Agency or designate that
the shares be issued to any retirement plan maintained for the benefit of such
eligible Agency stockholder, partner, principal or licensed employee.
IS THERE A LIMIT TO HOW MUCH STOCK AN AGENCY CAN BUY?
An Agency may purchase up to $12,000 of stock in any one subscription period
from all methods combined.
WHEN ARE THE SUBSCRIPTION PERIODS?
There will be two subscription periods each year: From October 1 through March
31, and April 1 through September 30. You must enroll for the Direct Bill Method
between the 15th through the 30th day of September for the subscription period
beginning October 1 and between the 15th through the 31st day of March for the
subscription period beginning April 1. For the Contingent Commission Method you
must enroll between the 15th through the 30th day of September.
MAY AN ELIGIBLE AGENCY WITHDRAW FROM THE PLAN?
An enrolled Agency may withdraw from the Plan at any time by giving written
notice to the Company.
HOW DO I ENROLL MY AGENCY IN THE PLAN?
An eligible Agency may enroll in the Plan by completing a subscription agreement
and returning it to the Company prior to the applicable deadline.
WHERE CAN I GET MORE INFORMATION ABOUT THE PLAN?
For more information contact Ralph G. Spontak, Senior Vice President, Chief
Financial Officer and Secretary of the Company, at (717) 426-1931 or FAX at
(717) 426-7009.
DONEGAL GROUP INC.
1195 River Road o P.O. Box 302
Marietta, Pennsylvania 17547
(717) 426-1931
FAX (717) 426-7009
Affiliated Companies:
Donegal Mutual Insurance Company
Atlantic States Insurance Company
Delaware Atlantic Insurance Company
Pioneer Insurance Company
Southern Insurance Company of Virginia
