SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/_/ Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to ss. 240.14a-12
DONEGAL GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee Required.
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
5) Total fee paid:
_____________________________________________________________________________
/_/ Fee paid previously with preliminary materials.
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
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3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
<PAGE>
DONEGAL GROUP INC.
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 20, 2000
---------------------------
To the Stockholders of
DONEGAL GROUP INC.:
The annual meeting of stockholders of Donegal Group Inc. will be held at
10:00 a.m., local time, on April 20, 2000, at the Company's offices, 1195 River
Road, Marietta, Pennsylvania 17547. At the annual meeting, the stockholders will
act on the following matters:
1. The election of two Class B directors, to serve until the
expiration of their three-year terms and until their successors are
elected;
2. The election of KPMG LLP as independent public accountants for the
Company for 2000; and
3. The transaction of any other business that is properly raised at
the meeting.
All stockholders of record as of the close of business on February 18, 2000
are entitled to vote at the annual meeting.
The Company's 1999 Annual Report, which is not part of the proxy soliciting
material, is enclosed.
It is important that your shares be represented and voted at the annual
meeting. Please complete, sign and return the enclosed proxy card in the
envelope provided whether or not you expect to attend the annual meeting in
person.
By Order of the Board of Directors,
/s/ Donald H. Nikolaus
-------------------------------------
Donald H. Nikolaus,
President and Chief Executive Officer
March 24, 2000
Marietta, Pennsylvania
<PAGE>
TABLE OF CONTENTS
PAGE
----
ABOUT THE ANNUAL MEETING.................................... 1
What is the purpose of the annual meeting?............. 1
Who is entitled to vote at the meeting?................ 1
What constitutes a quorum?............................. 1
What are the voting rights of the stockholders?........ 1
Who can attend the meeting?............................ 2
How do I vote?......................................... 2
Can I change my vote after I return my proxy card?..... 2
How do I vote my 401(k) plan shares?................... 2
What are the Board's recommendations?.................. 2
What vote is required to approve each item?............ 3
Who will pay the costs of soliciting proxies on behalf
of the Board of Directors?............................ 3
STOCK OWNERSHIP............................................. 3
Who are the largest owners of the Company's stock?..... 3
How much stock do the Company's directors and executive
officers own?......................................... 4
Section 16(a) Beneficial Ownership Reporting
Compliance............................................ 5
Relationship with the Mutual Company................... 5
ITEM 1 -- ELECTION OF DIRECTORS............................. 8
Directors Standing for Election........................ 8
Directors Continuing in Office......................... 8
The Board of Directors and Its Committees.............. 9
Compensation of Directors.............................. 10
Executive Compensation................................. 11
Summary Compensation Table............................. 11
Option Grants in Last Fiscal Year...................... 12
Options Exercised and Values for Fiscal Year 1999...... 12
Report of the Compensation Committee................... 12
Comparison of Total Return on the Company's Common
Stock with Certain Averages........................... 15
Certain Transactions................................... 16
ITEM 2 -- ELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS........ 16
STOCKHOLDER PROPOSALS....................................... 16
OTHER MATTERS............................................... 17
<PAGE>
DONEGAL GROUP INC.
---------------------------
PROXY STATEMENT
---------------------------
This proxy statement contains information relating to the annual meeting of
stockholders of Donegal Group Inc. to be held on Thursday, April 20, 2000,
beginning at 10:00 a.m., at the offices of the Company, 1195 River Road,
Marietta, Pennsylvania 17547, and at any postponement, adjournment or
continuation of the meeting. This proxy statement and the accompanying proxy are
first being sent to stockholders on March 24, 2000.
ABOUT THE ANNUAL MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Company's annual meeting, stockholders will act upon the matters
outlined in the notice of meeting on the cover page of this proxy statement,
including the election of directors and the election of the Company's
independent public accountants. In addition, the Company's management will
report on the performance of the Company during 1999 and respond to questions
from stockholders.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Only stockholders of record at the close of business on the record date,
February 18, 2000, are entitled to receive notice of the annual meeting and to
vote the shares of common stock that they held on that date at the meeting, or
any postponement, adjournment or continuation of the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 8,618,558 shares of common stock of the Company were outstanding.
Proxies received but marked as abstentions and broker non-votes will be included
in the calculation of the number of shares considered to be present at the
meeting.
WHAT ARE THE VOTING RIGHTS OF THE STOCKHOLDERS?
Each outstanding share of common stock will be entitled to one vote on each
matter to be voted upon at the meeting.
As of the record date, Donegal Mutual Insurance Company (the "Mutual
Company") owned 5,322,575 shares of the Company's outstanding common stock, or
approximately 61.8% of the Company's outstanding common stock. The Mutual
Company has advised the Company that the Mutual Company will vote its shares for
the election of C. Edwin Ireland and Donald H. Nikolaus as Class B directors and
for the election of KPMG LLP as the Company's independent public accountants for
2000. Therefore, Messrs. Ireland and Nikolaus will be elected as Class B
directors and KPMG LLP will be elected as the Company's independent public
accountants for 2000, irrespective of the votes cast by the stockholders of the
Company other than the Mutual Company.
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<PAGE>
WHO CAN ATTEND THE MEETING?
All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting.
Please note that if you hold your shares in "street name" (that is, through
a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date and check in at
the registration desk at the meeting.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return it
to the Company, it will be voted as you direct. If you are a registered
stockholder and attend the meeting, you may deliver your completed proxy card in
person. "Street name" stockholders who wish to vote at the meeting will need to
obtain a proxy form from the institution that holds their shares.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of the
Company either a notice of revocation or a duly executed proxy bearing a later
date. The powers of the proxy holders will be revoked if you attend the meeting
in person and request that your proxy be revoked, although attendance at the
meeting will not by itself revoke a previously granted proxy.
HOW DO I VOTE MY 401(K) PLAN SHARES?
If you participate in the Donegal Mutual Insurance Company 401(k) Plan, you
may vote the number of shares of common stock equivalent to the interest in
common stock credited to your account as of the record date. You may vote by
instructing Reliance Trust, the trustee of the plan, pursuant to the instruction
card being mailed with this proxy statement to plan participants. The trustee
will vote your shares in accordance with your duly executed instructions
received by April 10, 2000.
If you do not send instructions, the share equivalents credited to your
account will be voted by the trustee in the same proportion that it votes share
equivalents for which it did receive timely instructions.
You may also revoke previously given voting instructions by April 10, 2000
by filing with the trustee either a written notice or revocation or a properly
completed and signed voting instruction card bearing a later date.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Directors. The Board recommends a vote:
o for election of the nominated Class B directors (see page 8); and
o for election of KPMG LLP as the Company's independent public accountants
for 2000 (see page 16);
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WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. A properly
executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one
or more directors will not be voted with respect to the director or directors
indicated, although it will be counted for purposes of determining whether there
is a quorum.
OTHER ITEMS. The affirmative vote of the holders of a majority of the
shares represented in person or by proxy and entitled to vote will be required
for approval of the election of independent public accountants. A properly
executed proxy marked "ABSTAIN" with respect to any such matter will not be
voted, although it will be counted for purposes of determining whether there is
a quorum. Therefore, an abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of shares necessary
for approval. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.
WHO WILL PAY THE COSTS OF SOLICITING PROXIES ON BEHALF OF THE BOARD OF
DIRECTORS?
The cost of soliciting proxies on behalf of the Board of Directors will be
paid by the Company, including expenses of preparing and mailing this proxy
statement. This solicitation will be made by mail and may also be made in person
or by telephone or telegram by the Company's regular officers and employees,
none of whom will receive special compensation for such services. The Company,
upon request, will also reimburse brokers, nominees, fiduciaries and custodians
and persons holding shares in their names or in the names of nominees for their
reasonable expenses in sending proxies and proxy material to beneficial owners.
STOCK OWNERSHIP
WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?
The following table sets forth the amount and percentage of the Company's
outstanding common stock beneficially owned by each person who is known by the
Company to beneficially own more than 5% of its outstanding common stock. All
information is as of February 18, 2000 unless otherwise noted.
<TABLE>
<CAPTION>
SHARES PERCENT OF
NAME OF INDIVIDUAL BENEFICIALLY OUTSTANDING
OR IDENTITY OF GROUP OWNED COMMON STOCK
-------------------- ------------ ------------
<S> <C> <C>
5% HOLDERS:
Donegal Mutual Insurance Company.................. 5,322,575 61.8%
1195 River Road
Marietta, PA 17547
Wellington Management Company, LLP................ 497,966(1) 5.8%
75 State Street
Boston, MA 02109
</TABLE>
- ------------------
(1) As reported by Wellington Management Company, LLP as of December 31, 1999 in
a filing made with the Securities and Exchange Commission (the "SEC").
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HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS OWN?
The following table sets forth as of February 18, 2000 the amount and
percentage of the Company's outstanding common stock beneficially owned by each
director and nominee for director, each executive officer named in the Summary
Compensation Table and all executive officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
SHARES PERCENT OF
NAME OF INDIVIDUAL BENEFICIALLY OUTSTANDING
OR IDENTITY OF GROUP OWNED(1) COMMON STOCK(2)
-------------------- ------------ ---------------
<S> <C> <C>
DIRECTORS:
C. Edwin Ireland............................................... 20,263(3) --
Donald H. Nikolaus............................................. 397,204(4) 4.5%
Patricia A. Gilmartin.......................................... 11,728(3) --
Philip H. Glatfelter, II....................................... 14,156(3) --
R. Richard Sherbahn............................................ 9,775(3) --
Robert S. Bolinger............................................. 11,164(3) --
Thomas J. Finley, Jr........................................... 10,397(3) --
EXECUTIVE OFFICERS (5):
Ralph G. Spontak............................................... 139,440(6) 1.6%
William H. Shupert............................................. 82,225(7) --
Robert G. Shenk................................................ 49,961(8) --
Frank J. Wood.................................................. 44,672(9) --
All directors and executive officers as a group (13 persons)... 875,567(10) 9.5%
</TABLE>
- ------------------
(1) Information furnished by each individual named. This table includes shares
that are owned jointly, in whole or in part, with the person's spouse, or
individually by his or her spouse.
(2) Less than 1% unless otherwise indicated.
(3) Includes 8,889 shares of common stock the director has the option to
purchase under the Company's Amended and Restated 1996 Equity Incentive
Plan for Directors (the "Director Plan") that are currently exercisable or
that become exercisable within 60 days after the date of this Proxy
Statement.
(4) Includes 222,222 shares of common stock Mr. Nikolaus has the option to
purchase under the Company's Equity Incentive Plan that are currently
exercisable or that become exercisable within 60 days after the date of
this Proxy Statement.
(5) Excludes Executive Officers listed under "Directors."
(6) Includes 106,666 shares of common stock Mr. Spontak has the option to
purchase under the Company's Equity Incentive Plan that are currently
exercisable or that become exercisable within 60 days after the date of
this Proxy Statement.
(7) Includes 50,666 shares of common stock Mr. Shupert has the option to
purchase under the Company's Equity Incentive Plan that are currently
exercisable or that become exercisable within 60 days after the date of
this Proxy Statement.
(8) Includes 44,445 shares of common stock Mr. Shenk has the option to purchase
under the Company's Equity Incentive Plan that are currently exercisable or
that become exercisable within 60 days after the date of this Proxy
Statement.
(9) Includes 40,889 shares of common stock Mr. Wood has the option to purchase
under the Company's Equity Incentive Plan that are currently exercisable or
that become exercisable within 60 days after the date of this Proxy
Statement.
(10) Includes 532,443 shares of common stock purchasable upon the exercise of
options granted under the Equity Incentive Plan that are currently
exercisable or that become exercisable within 60 days after the date
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<PAGE>
of this Proxy Statement, and 53,334 shares of common stock purchasable upon
the exercise of options granted under the Director Plan that are currently
exercisable or that become exercisable within 60 days after the date of
this Proxy Statement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the officers and directors of the Company, as well as persons who
own more than 10% of a class of equity securities of the Company, file reports
of their ownership of the Company's securities, as well as monthly statements of
changes in such ownership, with the Company, the SEC and the Nasdaq Stock
Market. Based upon written representations received by the Company from its
officers, directors and more than 10% stockholders, and the Company's review of
the monthly statements of ownership changes filed with the Company by its
officers, directors and more than 10% stockholders during 1999, the Company
believes that all such filings required during 1999 were made on a timely basis.
RELATIONSHIP WITH THE MUTUAL COMPANY
The Company was formed by the Mutual Company in August 1986 and was a
wholly owned subsidiary of the Mutual Company until November 1986, when the
Company sold 600,000 shares of common stock in a public offering, thereby
reducing the Mutual Company's ownership of the Company's outstanding common
stock from 100% to approximately 79.5%, which subsequently increased to
approximately 84%. In September 1993, the Company sold 1,150,000 shares of
common stock in a public offering. At the same time, the Mutual Company sold
200,000 shares of the Company's common stock, reducing the Mutual Company's
ownership of the Company's outstanding common stock to approximately 57%. From
that date through February 18, 2000, the Mutual Company has at various times
purchased an aggregate of 591,100 shares of the Company's common stock in the
open market in exempt transactions under SEC Rule 10b-18 and in private
transactions. In addition, since the adoption of the Company's Dividend
Reinvestment Plan in July 1997, the Mutual Company has purchased 345,354 shares
of the Company's common stock through the reinvestment of dividends. The Mutual
Company owned 5,322,575 shares or approximately 61.8% of the Company's common
stock as of February 18, 2000.
The Company's operations are interrelated with the operations of the Mutual
Company, and various reinsurance arrangements exist between the Company and the
Mutual Company. The Company believes that its various transactions with the
Mutual Company have been on terms no less favorable to the Company than the
terms that could have been negotiated with an independent third party.
The Mutual Company provides all personnel for the Company and certain of
its insurance subsidiaries, including Atlantic States Insurance Company
("Atlantic States"), Delaware Atlantic Insurance Company ("Delaware Atlantic"),
Southern Insurance Company of Virginia ("Southern") and Pioneer Insurance
Company ("Pioneer"). Expenses are allocated to the Company, Delaware Atlantic,
Southern and Pioneer according to a time allocation and estimated usage
agreement, and to Atlantic States in relation to the relative participation of
the Mutual Company and Atlantic States in the pooling agreement described
herein. Expenses allocated to the Company under such agreement were $27,466,898
in 1999.
The Mutual Company leases office equipment and automobiles from the
Company, under a lease dated January 1, 1990. The Mutual Company made lease
payments to the Company of $819,474 in 1999.
The Mutual Company is currently a party to retrocessional reinsurance
contracts with each of the Company's insurance company subsidiaries, Southern,
Delaware Atlantic, Pioneer and Southern Heritage Insurance Company ("Southern
Heritage"), whereby the Mutual Company reinsures each such company in
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<PAGE>
respect of 100% of the net liability that may accrue to such company from its
insurance operations and retrocedes 100% of the net liability back to such
company, which such company assumes.
The Mutual Company and Atlantic States participate in an underwriting pool,
whereby Atlantic States cedes premiums, losses and loss adjustment expenses on
all of its business to the Mutual Company and assumes from the Mutual Company a
specified portion of the premiums, losses and loss adjustment expenses of the
Mutual Company and Atlantic States. Substantially all of the Mutual Company's
property and casualty insurance business written or in force on or after October
1, 1986 is included in the pooled business. Pursuant to amendments to the
pooling agreement subsequent to October 1, 1986, the Mutual Company, which is
solely responsible for any losses in the pooled business with dates of loss on
or before the close of business on September 30, 1986, has increased the
percentage of retrocessions of the pooled business to Atlantic States. As most
recently amended, effective as of January 1, 1996, 65% of the pooled business
has been retroceded to Atlantic States. All premiums, losses, loss adjustment
expenses and other underwriting expenses are prorated among the parties on the
basis of their participation in the pool. The pooling agreement may be amended
or terminated at the end of any calendar year by agreement of the parties. The
allocations of pool participation percentages between the Mutual Company and
Atlantic States are based on the pool participants' relative amounts of capital
and surplus, expectations of future relative amounts of capital and surplus and
the ability of the Company to raise capital for Atlantic States. The Company
does not currently anticipate a further increase in Atlantic States' percentage
of participation in the pool, nor does the Company intend to terminate the
participation of Atlantic States in the pooling agreement. Additional
information describing the pooling agreement is contained in the Company's 1999
Annual Report to Stockholders, a copy of which is enclosed with this Proxy
Statement.
Atlantic States and the Mutual Company are also currently parties to a
property catastrophe excess of loss reinsurance agreement whereby the Mutual
Company reinsures Atlantic States for catastrophe losses in excess of $400,000
per event.
The Mutual Company and Southern are parties to a reinsurance agreement,
whereby the Mutual Company has reinsured 50% of Southern's business. Because the
Mutual Company places substantially all of the business assumed from Southern in
the pool, from which the Company has an allocation of 65%, the Company's
operations include approximately 80% of the business written by Southern.
Southern and the Mutual Company settle balances resulting from this reinsurance
arrangement on a monthly basis. The Mutual Company and Southern are also parties
to a property catastrophe excess of loss reinsurance agreement, whereby the
Mutual Company reinsures Southern for catastrophe losses in excess of $300,000
and an excess of loss reinsurance agreement whereby the Mutual Company reinsures
Southern for individual losses in excess of $100,000 up to a limit of $25,000.
The Mutual Company and Delaware Atlantic are parties to an excess of loss
reinsurance agreement, whereby the Mutual Company reinsures Delaware Atlantic
for individual losses in excess of $50,000 up to a limit of $200,000. The Mutual
Company and Delaware Atlantic are also parties to a property catastrophe excess
of loss reinsurance agreement, whereby the Mutual Company reinsures Delaware
Atlantic for catastrophe losses in excess of $300,000, and a quota share
reinsurance agreement, whereby the Mutual Company reinsures Delaware Atlantic
for 70% of its workers' compensation business.
The Mutual Company and Pioneer are parties to an underlying excess of loss
reinsurance agreement, whereby the Mutual Company reinsures Pioneer for losses
in excess of $50,000 up to a limit of $200,000. The Mutual Company and Pioneer
are also parties to a property catastrophe excess of loss agreement whereby the
Mutual Company reinsures Pioneer for catastrophe losses in excess of $200,000.
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Effective January 1, 2000, the Mutual Company and Southern Heritage entered
into a catastrophe agreement whereby the Mutual Company reinsures Southern
Heritage for catastrophe claims in excess of $400,000 per event.
On March 19, 1999, the Mutual Company, the Company and Donegal Financial
Services Corporation, a Delaware corporation formed by the Mutual Company and
the Company in 1999 ("Donegal Financial" and together with the Mutual Company
and the Company, the "Applicants") filed an Application for Permission to
Organize a Federal Stock Savings Bank and related holding company application
with the Office of Thrift Supervision (the "OTS") pursuant to Section 10(e) of
the Home Owners' Loan Act to organize a proposed de novo federal savings bank,
to be known as Donegal Federal Savings Bank (the "Savings Bank"), the deposits
of which will be insured by the Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation (the "FDIC"). An Application for Federal
Deposit Insurance was filed on behalf of the Savings Bank with the FDIC on April
9, 1999. These applications currently remain under review by the OTS and the
FDIC.
The Savings Bank will be capitalized at an initial level of approximately
$6.5 million in cash by the Mutual Company and the Company. It is currently
anticipated that the Mutual Company will contribute 55.0% of the capital to
Donegal Financial in exchange for 55.0% of Donegal Financial's outstanding
common stock, and that the Company will contribute 45.0% of the capital in
exchange for 45.0% of Donegal Financial's outstanding common stock. The Mutual
Company contemplates entering into a Lease Agreement and an Administrative
Services Agreement with the Savings Bank. Under the terms of the proposed Lease
Agreement, the Savings Bank will lease 1,800 square feet of space from the
Mutual Company for an annual rent based on an independent appraisal obtained by
the Mutual Company.
Under the terms of the proposed Administrative Services Agreement, the
Mutual Company will be obligated to provide various human resource services,
principally payroll and employee benefit administration, and administrative
support, principally facility and equipment maintenance services and purchasing,
to the Savings Bank as and when requested by the management of the Savings Bank,
subject to the overall limitation that the costs to be charged by the Mutual
Company may not exceed the costs of independent vendors for similar services and
further subject to annual maximum cost limitations specified in the
Administrative Services Agreement.
All of the Company's officers are officers of the Mutual Company, five of
the Company's seven directors are directors of the Mutual Company and three of
the Company's executive officers are directors of the Mutual Company. The
Company and the Mutual Company maintain a Coordinating Committee, which consists
of two outside directors from each of the Company and the Mutual Company, none
of whom holds seats on both Boards, to review and evaluate the pooling agreement
between the Company and the Mutual Company and to be responsible for matters
involving actual or potential conflicts of interest between the Company and the
Mutual Company. The decisions of the Coordinating Committee are binding on the
Company and the Mutual Company. The Company's Coordinating Committee members
must conclude that intercompany transactions are fair and equitable to the
Company. The purpose of this provision is to protect the interests of the
stockholders of the Company other than the Mutual Company. The Coordinating
Committee meets on an as-needed basis. The Company's members on the Coordinating
Committee are Messrs. Bolinger and Finley. See "Election of Directors." The
Mutual Company's members on the Coordinating Committee are John E. Hiestand and
Frederick W. Dreher.
Mr. Hiestand, age 61, has been a director of the Mutual Company since 1983
and has been President of Hiestand Memorials, Inc., a manufacturer of cemetery
monuments, since 1977.
Mr. Dreher, age 59, has been a director of the Mutual Company since 1996.
He is a partner in the law firm of Duane, Morris & Heckscher LLP, where he has
practiced since 1965. See "Item 1 -- Election of Directors -- Certain
Transactions."
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ITEM 1 -- ELECTION OF DIRECTORS
The Company's Board of Directors consists of seven members. Each director
is elected for a three-year term and until his successor has been duly elected.
The current three-year terms of the Company's directors expire in the years
2000, 2001 and 2002, respectively.
Two Class B directors are to be elected at the annual meeting. Unless
otherwise instructed, the proxies solicited by the Board of Directors will be
voted for the election of the nominees named below, all of whom are currently
directors of the Company. If a nominee becomes unavailable for any reason, it is
intended that the proxies will be voted for a substitute nominee designated by
the Board of Directors. The Board of Directors has no reason to believe the
nominees named will be unable to serve if elected. Any vacancy occurring on the
Board of Directors for any reason may be filled by a majority of the directors
then in office until the expiration of the term of the class of directors in
which the vacancy exists.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
NAMED BELOW.
The names of the nominees for Class B director and the Class A directors
and Class C directors who will continue in office after the annual meeting until
the expiration of their respective terms, together with certain information
regarding them, are as follows:
DIRECTORS STANDING FOR ELECTION
CLASS B DIRECTORS
DIRECTOR YEAR TERM
NAME AGE SINCE WILL EXPIRE*
- ---- --- -------- ------------
C. Edwin Ireland................................ 90 1986 2003
Donald H. Nikolaus.............................. 57 1986 2003
- ------------------
*If elected at the annual meeting
DIRECTORS CONTINUING IN OFFICE
CLASS A DIRECTORS
DIRECTOR YEAR TERM
NAME AGE SINCE WILL EXPIRE
- ---- --- -------- ------------
Robert S. Bolinger.............................. 63 1986 2002
Patricia A. Gilmartin........................... 60 1986 2002
Philip H. Glatfelter, II........................ 70 1986 2002
CLASS C DIRECTORS
DIRECTOR YEAR TERM
NAME AGE SINCE WILL EXPIRE
- ---- --- -------- ------------
Thomas J. Finley, Jr............................ 79 1986 2001
R. Richard Sherbahn............................. 71 1986 2001
Mr. Bolinger has been President and Chief Executive Officer of Susquehanna
Bancshares, Inc. since 1982 and of Farmers First Bank since 1976. Mr. Bolinger
is also a director of Susquehanna Bancshares, Inc.
8
<PAGE>
Mr. Finley retired in 1985 as President and Chief Executive Officer of the
Insurance Federation of Pennsylvania, a position he held for 18 years prior to
his retirement.
Mrs. Gilmartin has been an employee since 1969 of Donegal Insurance Agency,
which has no affiliation with the Company, except that Donegal Insurance Agency
receives insurance commissions in the ordinary course of business from the
Company's subsidiaries and affiliates in accordance with such subsidiaries' and
affiliates' standard commission schedules and agency contracts. Mrs. Gilmartin
has been a director of the Mutual Company since 1979.
Mr. Glatfelter retired in 1989 as a Vice President of Meridian Bank, a
position he held for more than five years prior to his retirement. Mr.
Glatfelter has been a director of the Mutual Company since 1981 and has been
Vice Chairman of the Mutual Company since 1991.
Mr. Ireland is former Chairman of the Lancaster Industrial Development
Authority. He retired from Hamilton Watch Company in 1970. Prior thereto, he was
Vice President, Secretary and Treasurer of Hamilton Watch Company. Mr. Ireland
has been a director of the Mutual Company since 1972 and Chairman of its Board
of Directors since 1985. He has been Chairman of the Company's Board of
Directors since 1986.
Mr. Nikolaus has been President of the Mutual Company since 1981 and a
director of the Mutual Company since 1972. He has been President of the Company
since 1986. Mr. Nikolaus has been a partner in the law firm of Nikolaus &
Hohenadel since 1972.
Mr. Sherbahn has owned and operated Sherbahn Associates, Inc., a life
insurance and financial planning firm, since 1974. Mr. Sherbahn has been a
director of the Mutual Company since 1967.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met five times in 1999. The Board of Directors has
an Executive Committee, an Audit Committee, a Nominating Committee, a
Compensation Committee and, together with the Mutual Company, a four-member
Coordinating Committee.
The Company's Executive Committee met 20 times in 1999. Messrs. Nikolaus,
Ireland and Glatfelter are the members of the Executive Committee. The Executive
Committee has the authority to take all action that can be taken by the full
Board of Directors, consistent with Delaware law, between meetings of the Board
of Directors.
The Audit Committee of the Company consists of Messrs. Bolinger, Glatfelter
and Ireland. The Audit Committee, which met one time in 1999, reviews audit
reports and management recommendations made by the Company's independent public
accountants.
The Nominating Committee of the Company consists of Messrs. Finley, Ireland
and Glatfelter. The Nominating Committee, which met one time in 1999, is
responsible for the nomination of candidates to stand for election to the Board
of Directors at the annual meeting and the nomination of candidates to fill
vacancies on the Board of Directors between meetings of stockholders. The
Nominating Committee will consider written nominations for directors from
stockholders to the extent such nominations are made in accordance with the
Company's By-laws. See "Stockholder Proposals."
The Compensation Committee of the Company consists of Messrs. Ireland,
Sherbahn and Glatfelter. The Compensation Committee met three times in 1999 to
review and recommend compensation plans, approve certain compensation changes
and grant options under and determine participants in the Company's Equity
Incentive Plan.
9
<PAGE>
COMPENSATION OF DIRECTORS
Directors of the Company were paid an annual retainer of $17,000 in 1999
and were paid $500 for each meeting attended in excess of five per year.
Directors who are members of committees of the Board of Directors received $250
for each committee meeting attended. If a director serves on the Board of
Directors of both the Mutual Company and the Company, the director receives only
one annual retainer. If the Boards of Directors of both companies meet on the
same day, directors receive only one meeting fee. In such event, the retainer
and meeting fees are allocated 35% to the Mutual Company and 65% to the Company.
Pursuant to the Director Plan, each director of the Company and the Mutual
Company receives an annual restricted stock award ("Restricted Stock Award") of
177 shares of the Company's common stock, provided that the director served as a
member of the Board of Directors of the Company or the Mutual Company during any
portion of the preceding calendar year. Pursuant to the Director Plan, each
outside director of the Company and the Mutual Company is also eligible to
receive non-qualified options to purchase shares of common stock in an amount
determined by the Company's Board of Directors from time to time.
10
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company and the
Mutual Company during each of the three fiscal years ended December 31, 1999 for
services rendered in all capacities to the chief executive officer of the
Company and the four other most highly compensated executive officers of the
Company whose compensation exceeded $100,000 in the fiscal year ended
December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION (1) ------------------------
------------------------------------------------ RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARDS ($) OPTIONS (#) COMPENSATION ($)
- ------------------ ---- ---------- --------- ---------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald H. Nikolaus, 1999 377,931 1,972 10,356 2,766 100,000 103,173(2)
President and Chief 1998 368,000 108,100 14,594 2,943 133,333 112,958
Executive Officer 1997 356,000 137,807 7,725 2,050 133,334 95,010
Ralph G. Spontak, 1999 249,123 1,478 4,235 2,766 40,000 53,979(2)
Senior Vice President, 1998 242,000 55,594 5,558 2,943 60,000 57,747
Chief Financial 1997 235,000 78,444 2,943 2,050 66,666 50,636
Officer and Secretary
William H. Shupert, 1999 98,827 1,478 -- 2,766 10,000 33,831(2)
Senior Vice President, 1998 100,000 27,797 -- -- 20,000 46,144
Underwriting 1997 160,000 65,723 -- -- 37,333 49,075
Robert G. Shenk 1999 154,738 4,642 -- -- 25,000 17,866(2)
Senior Vice President, 1998 138,000 27,797 -- -- 26,667 17,799
Claims 1997 130,000 19,417 -- -- 26,667 15,153
Frank J. Wood 1999 123,385 3,701 -- -- 10,000 22,746(2)
Senior Vice President, 1998 116,000 27,797 -- -- 21,333 24,060
Marketing 1997 110,500 25,441 -- -- 26,667 21,064
</TABLE>
- ------------------
(1) All compensation of officers of the Company is paid by the Mutual Company.
Pursuant to the terms of an intercompany allocation agreement between the
Company and the Mutual Company, the Company is charged for its proportionate
share of all such compensation.
(2) Represents contributions made by the Company under its defined contribution
pension plan of $15,140 for Mr. Nikolaus, $15,140 for Mr. Spontak, $9,023
for Mr. Shupert, $14,614 for Mr. Shenk and $11,478 for Mr. Wood. In the case
of Mr. Nikolaus, the total shown for 1999 also includes premiums paid under
split-dollar life insurance policies of $30,973, premiums paid under a term
life insurance policy of $3,009, directors and committee meeting fees of
$25,400 and contributions made by the Company of $26,151 under the Company's
Executive Restoration Plan, which is designed to restore certain retirement
benefits to those individuals for whom contributions to the Company's
pension and profit-sharing plans are restricted as a result of the
application of Sections 401(a)(17) and 415 of the Internal Revenue Code of
1986, as amended (the "Code"). In the case of Mr. Spontak, the total shown
for 1999 includes premiums paid under a split-dollar life insurance policy
of $5,322, premiums paid under a term life insurance policy of $1,122,
directors and committee meeting fees of $19,200 and contributions made by
the Company of $10,695 under the Company's Executive Restoration Plan. In
the case of Messrs. Shupert, Shenk and Wood, the totals shown for 1999 also
include term life insurance premiums of $5,674, $752 and $4,489,
respectively.
The following tables sets forth information with respect to options granted
during the fiscal year ended December 31, 1999 to the persons named in the
Summary Compensation table above.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATE OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ----------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald H. Nikolaus..................... 100,000(1) 23.1 8.00 12/16/2004 61,000 412,000
Ralph G. Spontak....................... 40,000(1) 9.2 8.00 12/16/2004 24,400 164,800
William H. Shupert..................... 10,000(1) 2.3 8.00 12/16/2004 6,100 41,200
Robert G. Shenk........................ 25,000(1) 5.8 8.00 12/16/2004 15,250 103,000
Frank J. Wood.......................... 10,000(1) 2.3 8.00 12/16/2004 6,100 41,200
</TABLE>
- ------------------
(1) These options vest in three substantially equal cumulative annual
installments on July 1, 2000, July 1, 2001 and July 1, 2002, respectively.
The following table sets forth information with respect to options
exercised during the year ended December 31, 1999 and held on December 31, 1999
by the persons named in the Summary Compensation Table.
OPTIONS EXERCISED AND VALUES FOR FISCAL YEAR 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY
SHARES FISCAL YEAR END OPTIONS AT FISCAL YEAR END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald H. Nikolaus.................. -- -- 222,222 144,445 -- --
Ralph G. Spontak.................... -- -- 106,666 60,000 -- --
William H. Shupert.................. -- -- 50,666 16,667 -- --
Robert G. Shenk..................... -- -- 44,445 33,889 -- --
Frank J. Wood....................... -- -- 40,889 17,111 -- --
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
THE FOLLOWING REPORT OF THE COMPANY'S COMPENSATION COMMITTEE AND THE
PERFORMANCE GRAPH THAT IMMEDIATELY FOLLOWS SUCH REPORT SHALL NOT BE DEEMED PROXY
SOLICITATION MATERIAL, SHALL NOT BE DEEMED FILED WITH THE SEC UNDER THE EXCHANGE
ACT OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED AND SHALL NOT
OTHERWISE BE SUBJECT TO THE LIABILITIES OF SECTION 18 OF THE EXCHANGE ACT.
Under the rules established by the SEC, the Company is required to provide
certain information about the compensation and benefits provided to the
Company's President and Chief Executive Officer and the other executive officers
listed in the Summary Compensation Table. The disclosure requirements as to
these officers include the use of specified tables and a report of the Company's
Compensation Committee reviewing the factors that resulted in compensation
decisions affecting these officers and the Company's other executive officers.
The Compensation Committee of the Board of Directors has furnished the following
report in fulfillment of the SEC's requirements.
12
<PAGE>
The Compensation Committee reviews the general compensation policies of the
Company, including the compensation plans and compensation levels for executive
officers, and administers the Company's Equity Incentive Plan and the cash
incentive compensation program in which the Company's executive officers
participate. No members of the Compensation Committee are former or current
officers of the Company, or have other interlocking relationships as defined by
the SEC.
Compensation of the Company's executive officers has two principal
elements: (i) an annual portion, consisting of a base salary that is reviewed
annually and cash bonuses based on the Company's underwriting results, and (ii)
a long-term portion, consisting of stock options. In general, the executive
compensation program of the Company has been designed to:
(i) Attract and retain executive officers who contribute to the long-term
success of the Company;
(ii) Motivate key senior executive officers to achieve strategic business
objectives and reward them for the achievement of these objectives;
and
(iii) Support a compensation policy that differentiates in compensation
amounts based on corporate and individual performance and
responsibilities.
A major component of the Company's compensation policy, which has been
approved by the Compensation Committee, is that a significant portion of the
aggregate annual compensation of the Company's executive officers should be
based upon the Company's underwriting results as well as the contribution of the
individual officer. For a number of years, the Company has maintained a cash
incentive compensation program for the Company's executive officers. This
program provides a formula pursuant to which a fixed percentage of the Company's
underwriting results for the year is computed, as specified in the program, and
then allocated among the executive officers selected to participate in the
program for the particular year. The identity of the executive officers selected
to participate in the program for the particular year as well as their
participation in the amount determined by application of the fixed formula is
based upon recommendations submitted by the Company's senior executive officers
to the Compensation Committee. The Compensation Committee reviews those
recommendations and fixes the percentage participation of the Company's
executive officers in the program. The portion of the total compensation of the
executive officers named in the Summary Compensation Table arising from the cash
incentive compensation program formula was $13,271 in 1999 compared to $247,085
in 1998. In September 1999, the Company implemented a restructuring program
designed to reduce the Company's expense ratio and to enable the Company to be
more competitive in the difficult environment that has characterized the
property and casualty insurance industry for the past several years. As part of
the restructuring program, the Company recognized a one-time restructuring
charge of $2,044,430, which substantially affected the Company's underwriting
income for 1999 compared to 1998 as did losses incurred in connection with
hurricanes in the fall of 1999. The Compensation Committee therefore believes
that the amount of the incentive payments are tied directly to the Company's
performance.
The principal factors considered by the Company when it established the
cash incentive compensation program were:
(i) achievement of the Company's long-term underwriting objectives; and
(ii) the Company's long-term underwriting results compared to the
long-term underwriting results of other property and casualty
insurance companies.
13
<PAGE>
Such factors as the Company's continued better-than-industry underwriting
results, continued expense control and the successful implementation of the
restructuring program, as evidenced by the Company's strong results of
operations in the fourth quarter of 1999, enhancement of the skills of the
Company's workforce, expansion of the Company's insurance products offered, the
development of opportunities to expand the geographic reach of the Company's
service area on a profitable basis, the integration of Southern Heritage, which
was acquired in November 1998, and the Company's application to form a federal
savings bank in order to offer a broader range of financial services to its
policyholders and agents, as well as a subjective analysis of Mr. Nikolaus'
leadership and performance, were considered by the Compensation Committee in
approving Mr. Nikolaus' participation percentage under the Company's cash
incentive program for 1999.
The Company's executive officers participate in the Company's Equity
Incentive Plan, under which stock options are granted from time to time at not
less than the fair market value of the Company's common stock on the date of
grant. The options typically vest over three years. The primary purpose of the
Equity Incentive Plan is to provide an incentive for the Company's long-term
performance. Such stock options provide an incentive for the creation of
stockholder value over the long term because the full benefit of the options can
be realized only if the price of the Company's common stock appreciates over
time. Stock options exercisable for the purchase of 100,000 shares and 185,000
shares of the Company's common stock, respectively, were granted to Mr. Nikolaus
and to all of the Company's executive officers as a group under the Equity
Incentive Plan during 1999.
Based upon all of the foregoing factors, the Compensation Committee
believes the compensation of Mr. Nikolaus and the other executive officers of
the Company is reasonable in view of the Company's performance and the
contribution of those officers to that performance in 1999, as well as the
performance of the Company in 1999 compared to the performance of other property
and casualty insurance companies in 1999.
Section 162(m) of the Code generally disallows a tax deduction to publicly
held companies for compensation of more than $1 million paid to a company's
chief executive officer or any executive officer named in its Summary
Compensation Table. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. The policy of the
Compensation Committee is to structure the compensation of the Company's
executive officers, including Mr. Nikolaus, to avoid the loss of the
deductibility of any compensation, although Section 162(m) will not preclude the
Compensation Committee from awarding compensation in excess of $1 million, if it
should be warranted in the future. The Company believes that Section 162(m) will
not have any effect on the deductibility of the compensation of Mr. Nikolaus and
the other executive officers named in the Summary Compensation Table for 1999.
DONEGAL GROUP INC. COMPENSATION COMMITTEE
C. Edwin Ireland
R. Richard Sherbahn
Philip H. Glatfelter, II
14
<PAGE>
COMPARISON OF TOTAL RETURN ON THE COMPANY'S COMMON STOCK WITH CERTAIN AVERAGES
The following graph provides an indicator of cumulative total stockholder
returns on the Company's common stock compared to the Russell 2000 Index and a
peer group of property and casualty insurance companies selected by Value Line,
Inc. The members of the peer group are as follows: 20th Century Industries, ACE
Limited, Allmerica Financial Corporation, Allstate Corporation, American
Financial Group Inc., W.R. Berkley Corporation, Berkshire Hathaway Inc., The
Chubb Corporation, Cincinnati Financial Corporation, CNA Financial Corp.,
Fremont General Corporation, Frontier Insurance Group, Inc., Gainsco Inc.,
Hartford Financial Services Group, HCC Insurance Holdings, Inc., Markel
Corporation, Mercury General Corporation, Old Republic International
Corporation, Ohio Casualty Corporation, PMI Mortgage Group, The Progressive
Corporation, RLI Corporation, Reliance Insurance Group, SAFECO Corporation,
Selective Insurance Group, Inc., The St. Paul Companies, Inc., Transatlantic
Holdings, Inc. and XL Capital Limited.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Donegal Group, Inc., Russell 2000 Index And
Value Line Insurance (Prop/Casualty) Index
(Performance Results Through 12/31/99)
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Donegal Russell Insurance
Group Inc. 2000 Index (Prop/Casualty)
---------- ---------- ---------------
1994 100 100 100
1995 132.56 128.44 140.52
1996 148.41 149.55 179.66
1997 217.98 182.75 277.08
1998 209.15 177.76 281.31
1999 88.32 209.46 234.89
Assumes $100 invested at the close of trading on December 31, 1994 in
Donegal Group Inc. common stock, Russell 2000 Index and Value Line Insurance
(Property/Casualty).
- ------------------
*Cumulative total return assumes reinvestment of dividends.
15
<PAGE>
CERTAIN TRANSACTIONS
Donald H. Nikolaus, President and a director of the Company and the Mutual
Company, is also a partner in the law firm of Nikolaus & Hohenadel. Such firm
has served as general counsel to the Mutual Company since 1970 and to the
Company since 1986, principally in connection with the defense of claims
litigation arising in Lancaster, Dauphin and York counties. Such firm is paid
its customary fees for such services.
Patricia A. Gilmartin, a director of the Company and the Mutual Company, is
an employee of Donegal Insurance Agency, which has no affiliation with the
Company except that Donegal Insurance Agency receives insurance commissions in
the ordinary course of business from the Company's subsidiaries and affiliates
in accordance with such subsidiaries' and affiliates' standard commission
schedules and agency contracts.
Frederick W. Dreher, a director of the Mutual Company and one of the Mutual
Company's representatives on the Coordinating Committee, is a partner in the law
firm of Duane, Morris & Heckscher LLP, which represents the Company and the
Mutual Company in certain legal matters. Such firm is paid its customary fees
for such services.
ITEM 2 -- ELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Unless instructed to the contrary, it is intended that votes will be cast
pursuant to the proxies for the election of KPMG LLP as the Company's
independent public accountants for 2000. The Company has been advised by KPMG
LLP that none of its members has any financial interest in the Company. Election
of KPMG LLP will require the affirmative vote of the holders of a majority of
the shares of the Company's common stock present in person or represented by
proxy at the annual meeting.
A representative of KPMG LLP will attend the annual meeting, will have the
opportunity to make a statement, if he desires to do so, and will be available
to respond to any appropriate questions presented by stockholders at the annual
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF KPMG LLP AS
THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR 2000.
STOCKHOLDER PROPOSALS
Any stockholder who, in accordance with and subject to the provisions of
Rule 14a-8 of the proxy rules of the SEC, wishes to submit a proposal for
inclusion in the Company's proxy statement for its 2001 annual meeting of
stockholders must deliver such proposal in writing to the Company's Secretary at
the Company's principal executive offices at 1195 River Road, Marietta,
Pennsylvania 17547, not later than November 24, 2000.
Pursuant to Section 2.3 of the Company's By-Laws, if a stockholder wishes
to present at the Company's 2001 annual meeting of stockholders (i) a proposal
relating to nominations for and election of directors for consideration by the
Nominating Committee of the Company's Board of Directors or (ii) a proposal
relating to a matter other than nominations for and election of directors,
otherwise than pursuant to Rule 14a-8 of the proxy rules of the SEC, the
stockholder must comply with the provisions relating to stockholder proposals
set forth in the Company's By-Laws, which are summarized below. Written notice
of any such proposal containing the information required under the Company's
By-laws, as described herein, must be delivered in person, by first class United
States mail postage prepaid or by reputable overnight delivery service to the
Company's Secretary at the Company's principal executive offices at 1195 River
Road, Marietta, Pennsylvania 17547 during the period commencing on November 24,
2000 and ending on December 24, 2000.
16
<PAGE>
A written proposal of nomination for a director must set forth (A) the name
and address of the stockholder who intends to make the nomination (the
"Nominating Stockholder"), (B) the name, age, business address and, if known,
residence address of each person so proposed, (C) the principal occupation or
employment of each person so proposed for the past five years, (D) the number of
shares of capital stock of the Company beneficially owned within the meaning of
SEC Rule 13d-3 by each person so proposed and the earliest date of acquisition
of any such capital stock, (E) a description of any arrangement or understanding
between each person so proposed and the Nominating Stockholder with respect to
such person's proposal for nomination and election as a director and actions to
be proposed or taken by such person as a director, (F) the written consent of
each person so proposed to serve as a director if nominated and elected as a
director and (G) such other information regarding each such person as would be
required under the proxy solicitation rules of the SEC if proxies were to be
solicited for the election as a director of each person so proposed. Only
candidates nominated by stockholders for election as a member of the Company's
Board of Directors in accordance with the By-law provisions summarized herein
will be eligible to be considered by the Nominating Committee for nomination for
election as a member of the Company's Board of Directors at such meeting of
stockholders, and any candidate not nominated in accordance with such provisions
will not be considered or acted upon for election as a director at such meeting
of stockholders.
A written proposal relating to a matter other than a nomination for
election as a director must set forth information regarding the matter
equivalent to the information that would be required under the proxy
solicitation rules of the SEC if proxies were solicited for stockholder
consideration of the matter at a meeting of stockholders. Only stockholder
proposals submitted in accordance with the By-law provisions summarized above
will be eligible for presentation at the 2001 annual meeting of stockholders,
and any matter not submitted to the Company's Board of Directors in accordance
with such provisions will not be considered or acted upon at the 2001 annual
meeting of stockholders.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration at the annual meeting other than the matters described in the
notice of annual meeting, but if any matters are properly presented, proxies in
the enclosed form returned to the Company will be voted in accordance with the
recommendation of the Board of Directors or, in the absence of such a
recommendation, in accordance with the judgment of the proxy holder.
By Order of the Board of Directors,
/s/ Donald H. Nikolaus
-------------------------------------
Donald H. Nikolaus,
President and Chief Executive Officer
March 24, 2000
17
<PAGE>
DONEGAL GROUP INC.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 20, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Daniel J. Wagner and Ralph G. Spontak, and
each or either of them, proxies of the undersigned, with full power of
substitution, to vote all of the shares of common stock of Donegal Group Inc.
(the "Company") that the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Company's offices, 1195
River Road, Marietta, Pennsylvania 17547, on April 20, 2000 at 10:00 a.m, and at
any adjournment, postponement or continuation thereof, as set forth on the
reverse side of this proxy card.
PROXY
Election of Class B Directors, Nominees:
C. Edwin Ireland
Donald H. Nikolaus
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations.
<PAGE>
/X/ Please mark your votes as in this example.
This proxy will be voted as specified. If a choice is not specified, the proxy
will be voted FOR the nominees for Class B Director and FOR Proposal 2.
The Board of Directors recommends a vote FOR the nominees for Class B Director
and FOR Proposal 2.
FOR WITHHELD
1. Election of Class B Directors / / / /
(see reverse side)
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to elect KPMG LLP as the / / / / / /
independent public accountants for
the Company for 2000.
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment,
postponement or continuation thereof.
This proxy should be dated, signed by the stockholder exactly as his or her name
appears below and returned promptly to First Chicago Trust Company of New York
in the enclosed envelope. Persons signing in a fiduciary capacity should so
indicate.
-----------------------------------
-----------------------------------
Signature(s)
Date: , 2000
--------------------
