def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___ )
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Filed by the Registrant þ
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Filed by a Party other than the Registrant o |
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Donegal Group Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Per unit price or other underlying value of the 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
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Fee paid previously with preliminary materials. |
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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. |
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NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Be Held April 15, 2010
To the Stockholders of
DONEGAL GROUP INC.:
We will hold our annual meeting of stockholders at
10:00 a.m., local time, on Thursday, April 15, 2010,
at our offices, 1195 River Road, Marietta, Pennsylvania 17547.
At our annual meeting, our stockholders will act on the
following matters:
1. Election of the three nominees for Class C
directors named in our accompanying proxy statement, each for a
term of three years, and until the election of his or her
respective successor;
2. Ratification of the selection of KPMG LLP as our
independent registered public accounting firm for 2010; and
3. Any other matter presented at our annual meeting in
compliance with our by-laws.
The close of business on February 26, 2010 is the record
date for the determination of our stockholders entitled to
notice of, and to vote at, our annual meeting.
We have included our 2009 annual report to stockholders with
this notice and the accompanying proxy statement.
Please submit your proxy, whether or not you expect to attend
our annual meeting in person, by mail, telephone or the internet
as described in the accompanying proxy materials.
By order of our board of directors,
Donald H. Nikolaus,
President and Chief Executive Officer
March 15, 2010
Marietta, Pennsylvania
Important
Notice Regarding the Availability of Proxy Materials for Our
Stockholders Meeting to Be Held on April 15, 2010
This proxy statement for our 2010 annual meeting and our 2009
annual report to stockholders may be viewed on our website at
www.donegalgroup.com.
DONEGAL
GROUP INC.
PROXY STATEMENT
Our proxy statement contains information relating to our annual
meeting of stockholders on Thursday, April 15, 2010,
beginning at 10:00 a.m., local time, at our offices, 1195
River Road, Marietta, Pennsylvania 17547. This proxy statement
also relates to any adjournment or postponement of our annual
meeting. We commenced the mailing of our proxy statement and the
accompanying proxy card to our stockholders of record on
March 15, 2010. We will bear all of the costs of preparing
and mailing our proxy materials to our stockholders. We will,
upon request, reimburse brokers, nominees, fiduciaries,
custodians and other record holders for their reasonable
expenses in forwarding our proxy materials to beneficial owners.
We use the following terms in this proxy statement:
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We, us, our, DGI
or the Company mean Donegal Group Inc.
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Donegal Mutual means Donegal Mutual Insurance
Company;
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Atlantic States means Atlantic States Insurance
Company;
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Southern means Southern Insurance Company of
Virginia;
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Le Mars means Le Mars Insurance Company;
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Peninsula means the Peninsula Insurance
Group; and
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Sheboygan means Sheboygan Falls Insurance Company.
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CONTENTS
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ii
OUR
ANNUAL MEETING
What
is the agenda for our annual meeting?
At our 2010 annual meeting, our stockholders will act upon the
election of the three nominees for Class C directors named
in this proxy statement, the ratification of the selection of
KPMG LLP as our independent registered public accounting firm
for 2010 and any other business that comes before our annual
meeting in compliance with the advance notice and other
applicable provisions of our by-laws. In addition, Donald H.
Nikolaus, our president and chief executive officer, will report
on our performance during 2009. Following that report,
Mr. Nikolaus will then open the floor for questions from
stockholders during the
question-and-answer
portion of our annual meeting.
The Delaware General Corporation Law, or the DGCL, our
certificate of incorporation and our by-laws govern our annual
meeting, our relationships with our stockholders and the rights,
powers, duties and obligations of our stockholders, directors,
officers and employees.
The DGCL expressly authorizes advance notice by-laws. We have
advance notice provisions in our by-laws so that our proxy
statement can disclose to all of our stockholders the matters
that our stockholders will consider at our annual meeting. We
did not receive any advance notices of matters for stockholder
action at our 2010 annual meeting of stockholders. Accordingly,
no matter other than the election of three Class C
directors and the ratification of the selection of KPMG LLP as
our independent registered public accounting firm for
2010 may be properly presented at our 2010 annual meeting.
See Stockholder Proposals.
How
will we conduct the business of our annual
meeting?
Our by-laws also govern the organization and conduct of business
at our stockholders meetings. Our board of directors has
designated Mr. Nikolaus to call our annual meeting to order
and serve as chairman of our annual meeting. As chairman of our
annual meeting, Mr. Nikolaus will determine the order of
the business and the procedure of our annual meeting.
Mr. Nikolaus will announce the opening and closing of the
polls for each matter upon which our stockholders will vote at
our annual meeting.
Who
can attend our annual meeting?
All stockholders of record as of the close of business on
February 26, 2010, or their duly appointed proxies, may
attend our annual meeting. We reserve the right to request
photographic identification, such as a drivers license,
before we admit you to our annual meeting. Even if you currently
plan to attend our annual meeting, we recommend that you submit
your proxy using one of the methods described below under
How do I vote my shares? so that we can include your
vote if you later decide not to attend, or are unable to attend,
our annual meeting.
You are a stockholder of record if your name appears on the list
of stockholders our transfer agent has prepared for our annual
meeting. During the ten days that precede our annual meeting,
you may inspect an alphabetical list of the holders of record of
our Class A common stock and our Class B common stock
during normal business hours for any purpose germane to our
annual meeting. Generally, you are a stockholder of record if
you receive dividend checks and proxy materials directly from us.
If your shares are registered in street name, which means that a
broker or other nominee is the holder of record of your shares
and you generally do not receive dividend checks and proxy
materials directly from us, you must provide proof of your
beneficial ownership as of February 26, 2010 to our
corporate secretary, such as your most recent account statement
prior to that date, a copy of the voting instruction card
provided by your broker, bank, trustee or nominee or other
evidence of ownership as well as photographic identification.
If you have any questions about our annual meeting or voting
your shares, please call Jeffrey D. Miller at
(800) 877-0600
or e-mail
him at jeffmiller@donegalgroup.com.
1
What
vote is required?
Election of Class C Directors. The three
persons nominated for election as Class C directors in
accordance with our by-laws who receive the highest number of
FOR votes cast by the holders of our Class A
common stock and our Class B common stock, voting together
as a single class, will be elected as Class C directors for
a term of three years and until our stockholders elect their
successors. If you properly submit your proxy and mark
Withhold Authority, the proxies will not vote your
shares with respect to the nominee or nominees as to which you
so indicate but we will count your shares as present at our
annual meeting in determining whether a quorum exists. Our
certificate of incorporation and by-laws do not authorize
cumulative voting in the election of our directors.
Ratification of the Selection of KPMG
LLP. Ratification of the selection of KPMG LLP as
our independent registered public accounting firm for 2010
requires the affirmative vote of a majority of the votes
entitled to be cast by the holders of our Class A common
stock and our Class B common stock present at our annual
meeting.
Although we consider abstentions and broker non-votes as
outstanding shares entitled to vote at our annual meeting and
count those shares in determining the number of votes necessary
for a majority, the share ownership of Donegal Mutual assures
the presence of a quorum at our annual meeting. Broker non-votes
are shares held by brokers or nominees for which we have not
received voting instructions from the beneficial owner of, or
person otherwise entitled to vote the shares, and as to which
the broker or nominee does not have discretionary voting power.
Who
may vote at our annual meeting?
Record and beneficial holders of our Class A common stock
and our Class B common stock as of the close of business on
February 26, 2010 will receive notice of, and are entitled
to vote, at our annual meeting and any adjournment or
postponement of our annual meeting by following the procedures
we describe in our proxy statement.
What
voting rights do our stockholders have?
As of February 26, 2010 we had outstanding:
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19,924,944 shares of our Class A common stock, each of
which may cast one-tenth of a vote with respect to each matter
presented for a vote at our annual meeting in accordance with
our by-laws; and
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5,576,775 shares of our Class B common stock, each of
which may cast one vote with respect to each matter presented
for a vote at our annual meeting in accordance with our by-laws.
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Therefore, the holders of all of our outstanding Class A
common stock may in the aggregate cast a total of 1,992,494
votes at our annual meeting, and the holders of all of our
outstanding Class B common stock may cast in the aggregate
a total of 5,576,775 votes at our annual meeting.
As of February 26, 2010, Donegal Mutual owned
8,355,184 shares, or 41.9%, of our outstanding Class A
common stock and 4,180,234 shares, or 75.0%, of our
outstanding Class B common stock. Donegal Mutual therefore
has the right to cast approximately two-thirds of the total
number of votes that may be cast at our annual meeting on any
matter presented for a vote of our stockholders in accordance
with our by-laws.
Donegal Mutual has advised us that it will vote all of its
shares for the election of John J. Lyons, S. Trezevant
Moore, Jr. and R. Richard Sherbahn as Class C
directors and all of its shares for the ratification of the
selection of KPMG LLP as our independent registered public
accounting firm for 2010. Therefore, based on the votes Donegal
Mutual will cast at our 2010 annual meeting, our stockholders
will elect John J. Lyons, S. Trezevant Moore, Jr. and R.
Richard Sherbahn as Class C directors and our stockholders
will ratify the selection of KPMG LLP as our independent
registered public accounting firm for 2010.
2
How do
I vote my shares?
If your name is listed in our stockholder records, you are a
registered stockholder and you may attend our annual meeting and
vote in person or vote by proxy. The proxies will vote your
shares as you direct. If you prefer, you may vote your proxy by
telephone, using the internet or by mail by following the
instructions on your proxy card. The deadline for stockholders
of record to vote telephonically or using the internet is
12:00 a.m., local time, on April 15, 2010.
You may vote by proxy in one of three ways:
Vote by telephone use any touch-tone telephone to
vote your proxy 24 hours a day, 7 days a week. Have
your proxy card available when you call. When requested, enter
your control numbers listed on your proxy card and then follow
the prompts. The telephone number is
1-800-652-VOTE
(8683).
Vote through the internet use the internet to vote
your proxy 24 hours a day, 7 days a week. Have your
proxy card available when you access the web site. When
requested, enter your control numbers listed on your proxy card,
and then create and submit your ballot over the internet. The
website address is www.investorvote.com/DGIC.
Vote by mail mark, sign and date your proxy card and
return it in the postage-paid envelope we have provided you.
If a broker, bank, nominee or other holder of record holds your
shares, see How do I vote my shares held in street
name? below.
What
is a quorum at our annual meeting?
Our by-laws state that a quorum at our annual meeting consists
of the presence in person or by proxy of the holders of a
majority of the total votes entitled to be cast by the holders
of our Class A common stock and our Class B common
stock outstanding on the record date. Because Donegal Mutual
owns approximately two-thirds of the voting power of our
outstanding Class A common stock and Class B common
stock, the presence of Donegal Mutual at our annual meeting will
assure the presence of a quorum and that our stockholders will
be able to conduct the business of our annual meeting.
What
does our board of directors recommend?
Our board of directors unanimously recommends that you vote:
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FOR the election of the three nominees for Class C
directors named in this proxy statement; and
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FOR the ratification of the selection of KPMG LLP as our
independent registered public accounting firm for 2010.
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Unless you mark your proxy card to the contrary, our proxies
will vote your shares for the election of the three Class C
nominees for director named in this proxy statement and for the
ratification of the selection of KPMG LLP.
How do
I vote my shares held in street name?
If you are not a stockholder of record, but you are a
beneficial owner as of February 26, 2010, which
means that your name is not included in our stockholder records,
you must either direct the holder of record of your shares how
to vote your shares on the matters our stockholders will
consider at our annual meeting or you must first obtain a form
of proxy from your holder of record that you may then vote as if
you were a record holder.
How do
I vote my 401(k) plan shares?
If you participate in Donegal Mutuals 401(k) plan, you may
vote your shares of Class A common stock and Class B
common stock credited to your 401(k) plan account as of
February 26, 2010. You may vote by completing, signing and
returning the proxy card that accompanies this proxy statement.
3
May I
change my vote?
You may revoke your proxy at any time prior to the closing of
voting at our annual meeting. If you are a stockholder of
record, you may revoke your proxy by:
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submitting written notice of revocation to our corporate
secretary;
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submitting a later dated proxy by telephone, internet or
mail; or
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voting in person at our annual meeting if you properly identify
yourself to our judges of election.
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However, if you attend our annual meeting and do not submit a
ballot, we will count the proxy you most recently submitted.
If your shares are not registered in your name and are
registered in the name of a bank, broker, nominee or other
holder of record, you should follow the instructions of the
bank, broker, nominee or other holder of record regarding the
revocation of your proxy.
STOCK
OWNERSHIP
Our
Principal Stockholders
The table below lists each person whom we believe owns
beneficially 5% or more of the outstanding shares of our
Class A common stock and our Class B common stock as
of February 26, 2010.
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Class A
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Percent of
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Class B
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Percent of
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Shares
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Class A
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Shares
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Class B
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Name of Individual or
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Beneficially
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Common
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Beneficially
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Common
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Identity of Group
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Owned
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Stock
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Owned
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Stock
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Donegal Mutual Insurance Company
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8,355,184
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41.9
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4,180,234
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75.0
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%
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1195 River Road
Marietta, PA 17547
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Dimensional Fund Advisors LP(1)
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1,497,368
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7.5
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1299 Ocean Avenue
Santa Monica, CA 90401
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Gregory M. Shepard(2)
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1,674,750
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8.4
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325,250
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5.8
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5055 Gulf of Mexico Drive
Longboat Key, FL 34228
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As reported in a Schedule 13G Dimensional
Fund Advisors, LP filed with the Securities and Exchange
Commission, or the SEC. Dimensional Fund Advisors, LP
serves as an investment advisor to four investment companies and
as investment manager to certain other commingled group trusts
and commingled accounts. Dimensional Fund Advisors LP
disclaims beneficial ownership of these shares. |
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As reported in a Schedule 13G Mr. Shepard filed with
the SEC. |
Our
Directors and Executive Officers
The following table shows the amount and percentage of our
outstanding Class A common stock and our outstanding
Class B common stock that each of our directors, each of
our executive officers named in the Summary Compensation Table
and all of our executive officers and directors as a group
beneficially owned as of February 26, 2010. The total shown
for each person includes shares that the person owned jointly,
in whole or in part, with the persons spouse, or
individually by the persons spouse and shares purchasable
upon the
4
exercise of stock options that are currently exercisable or are
exercisable within 60 days of February 26, 2010.
Ownership is less than 1% unless otherwise indicated.
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Percent of
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Class B
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Percent of
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Class A Shares
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Class A
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Shares
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Class B
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Beneficially
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Common
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Beneficially
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Common
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Name of Individual or Identity of Group
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Owned
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Stock
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Owned
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Stock
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Directors:
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Donald H. Nikolaus(1)
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946,049
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4.7
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%
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186,375
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3.3
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%
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Robert S. Bolinger
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28,199
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1,450
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Philip A. Garcia
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311
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Patricia A. Gilmartin
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17,818
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Philip H. Glatfelter, II
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32,395
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3,276
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Kevin M. Kraft, Sr.
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25,175
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John J. Lyons
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65,595
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1,776
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Jon M. Mahan
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15,077
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S. Trezevant Moore, Jr.
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6,244
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1,000
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R. Richard Sherbahn
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27,044
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677
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|
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|
Richard D. Wampler, II
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25,808
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Executive Officers:
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Cyril J. Greenya
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93,559
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|
|
|
|
|
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|
820
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|
Jeffrey D. Miller
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101,473
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582
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Robert G. Shenk
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112,628
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5,450
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|
Daniel J. Wagner
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90,627
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166
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|
All directors and executive officers as a group (15 persons)
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1,588,002
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8.0
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%
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201,572
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4.3
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(1) |
|
Includes 150,154 shares of Class A common stock and
3,938 shares of Class B common stock owned as of
February 26, 2010 by a family foundation of which
Mr. Nikolaus is trustee. |
Beneficial
Ownership Reporting Compliance
The Securities Exchange Act of 1934, or the Exchange Act,
requires that each of our executive officers, each of our
directors and each holder of 10% or more of our Class A
common stock or our Class B common stock, report his or her
ownership of our Class A common stock and our Class B
common stock. Such persons also must file monthly statements of
changes in such ownership. Our executive officers, directors and
10% or greater stockholders have advised us that each of them
made all required filings on a timely basis during 2009.
5
OUR
RELATIONSHIP WITH DONEGAL MUTUAL
Introduction
A group of local residents and business owners formed Donegal
Mutual in Lancaster County, Pennsylvania in 1889 to provide
property and casualty insurance.
Since 1986, Donegal Mutual and the insurance companies
subsidiaries of DGI have conducted business together as the
Donegal Insurance Group. During 2009, A.M. Best Company
reported that the Donegal Insurance Group was ranked 118th among
property and casualty insurance companies in the United States
based on 2008 net premiums written and assigned the Donegal
Insurance Group an A.M. Best rating of A (Excellent). The
Donegal Insurance Group has also received the Wards Top 50
award for each of the last five years.
The
Formation of DGI
In the mid-1980s, Donegal Mutual recognized the need to develop
additional sources of capital and surplus to remain competitive
and to have the capacity to expand its business and assure its
long-term viability. Donegal Mutual determined to implement a
downstream holding company structure as a strategic response.
Thus, in 1986, Donegal Mutual formed us as a downstream holding
company, then wholly owned by Donegal Mutual. We in turn formed
Atlantic States as our wholly owned subsidiary. We then effected
a public offering to provide the surplus necessary to support
the business we began to receive on October 1, 1986
pursuant to a proportional reinsurance agreement, or pooling
agreement, between Donegal Mutual and Atlantic States that
became effective on that date.
Under this pooling agreement, Donegal Mutual and Atlantic States
pool substantially all of their respective premiums, losses and
loss expenses. Donegal Mutual then cedes 80% of the pooled
business to Atlantic States.
As the capital of Atlantic States has increased, its
underwriting capacity has increased proportionately. Therefore,
as we originally planned in the mid-1980s, Atlantic States has
successfully raised the capital necessary to support the growth
of its direct business as well as accept increases in its
allocation of business from the underwriting pool, which has
increased from an initial allocation of 35% in 1986 to an 80%
allocation since March 1, 2008. The size of the
underwriting pool has increased substantially. We do not
anticipate any further changes in the pooling agreement between
Atlantic States and Donegal Mutual in the foreseeable future,
including any change in the participation of Atlantic States in
the underwriting pool.
Since we established our downstream holding company structure in
1986, Donegal Mutual and our insurance subsidiaries have
conducted business together while maintaining their separate
legal and corporate existence. As such, Donegal Mutual and our
insurance subsidiaries share the same business philosophies, the
same management, the same employees, the same facilities and we
offer the same types of insurance products.
In addition, as the Donegal Insurance Group, Donegal Mutual and
our insurance subsidiaries share a combined business plan to
achieve market penetration and underwriting profitability
objectives. The products Donegal Mutual and our insurance
subsidiaries offer are generally complementary, thereby allowing
the Donegal Insurance Group to offer a broad range of products
to a given market and to expand the Donegal Insurance
Groups ability to service an entire personal lines or
commercial lines account. Distinctions within the products
Donegal Mutual and our insurance subsidiaries offer generally
relate to specific risk profiles targeted within similar classes
of business, such as preferred tier products versus standard
tier products, but we and Donegal Mutual do not allocate all of
the standard risk gradients to one company. Therefore, the
underwriting profitability of the business the individual
companies write directly will vary. However, since the
underwriting pool homogenizes the risk characteristics of all
business Donegal Mutual and Atlantic States write directly,
Donegal Mutual and Atlantic States share the underwriting
results in proportion to their respective participation in the
underwriting pool. We realize 80% of the results of the
underwriting pool because Atlantic States has an 80%
participation in the pool. The business Atlantic States derives
from the pool represents the predominant percentage of our total
revenues.
6
In April 2001, we recapitalized. We effected a
one-for-three
reverse stock split of our Class B common stock, which has
one vote per share, and issued two shares of our Class A
common stock, which has one-tenth of a vote per share, as a
stock dividend for each post-reverse stock split share of our
Class B common stock. As a result of the reverse split and
the stock dividend, each of our stockholders as of
April 19, 2001 continued to own the same number of shares
of our common stock, with one-third of the shares being shares
of our Class B common stock and two-thirds of the shares
being shares of our Class A common stock. As a result, the
relative voting power and equity interest of our then
stockholders remained constant and Donegal Mutuals
continued ownership of more than a majority of the voting power
of our outstanding common stock better enabled us to maintain
our long-term relationship with Donegal Mutual.
We completed this recapitalization because we believed a capital
structure that has more than one class of publicly traded
securities offered us a number of benefits. The principal
benefit from the recapitalization is our ability to issue our
Class A common stock or securities convertible into or
exchangeable for our Class A common stock for financing,
acquisition and compensation purposes without materially
adversely affecting the relative voting power of any
stockholder, including Donegal Mutual. At the time of the
recapitalization, our board of directors recognized that the
recapitalization was likely to favor longer-term investors,
including Donegal Mutual, and could discourage attempts to
acquire us, which our board of directors believed to be remote
in any event because Donegal Mutual controls more than a
majority of the voting power of our common stock.
We believe our relationships with Donegal Mutual since 1986 have
substantially benefited us and our stockholders and provide us
and our insurance subsidiaries with many advantages. We believe
these advantages include the following:
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facilitating our stable management, the consistent underwriting
discipline of our insurance subsidiaries, external growth and
long-term profitability;
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creating operational and expense synergies from the combination
of resources and integrated operations of Donegal Mutual and our
insurance subsidiaries;
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enhancing our opportunities to expand by acquisition because of
the ability of Donegal Mutual to affiliate with and acquire
control of other mutual insurance companies and, thereafter,
demutualize them and sell them to us;
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producing more stable and uniform underwriting results for our
insurance subsidiaries over extended periods of time than we
could achieve without our relationship with Donegal
Mutual; and
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providing Atlantic States with a significantly larger
underwriting capacity because of the underwriting pool Donegal
Mutual and Atlantic States have maintained since 1986.
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The
Coordinating Committee
We and Donegal Mutual have maintained a coordinating committee
since our formation in 1986. The coordinating committee consists
of two members of our board of directors, neither of whom is a
member of Donegal Mutuals board of directors, and two
members of Donegal Mutuals board of directors, neither of
whom is a member of our board of directors. The purpose of the
coordinating committee is to establish and maintain a process
whereby the transactions between Donegal Mutual and our
insurance subsidiaries can be the subject of an annual
evaluation process, in which both parties have separate approval
rights, that considers the fairness of each intercompany
transaction to Donegal Mutual and its policyholders and to us
and our stockholders.
7
The coordinating committee approval process for a new agreement
between Donegal Mutual and us or one of our insurance
subsidiaries or a change in such an agreement is as follows:
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a new agreement and any change to a previously approved
agreement must receive coordinating committee approval. The
coordinating committee will only approve a new agreement or a
change in an existing agreement if:
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both of our members on the coordinating committee determine that
the new agreement or the change in an existing agreement is fair
and equitable to us and in the best interests of our
stockholders; and
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both of Donegal Mutuals members on the coordinating
committee determine that the new agreement or the change in an
existing agreement is fair and equitable to Donegal Mutual and
its policyholders;
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the new agreement or the change in an existing agreement must be
approved by our board of directors; and
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the new agreement or the change in an existing agreement must be
approved by the Donegal Mutual board of directors.
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The coordinating committee also meets annually to review each
existing agreement between Donegal Mutual and us or our
insurance subsidiaries, including a number of reinsurance
agreements between Donegal Mutual and our insurance
subsidiaries. The purpose of the review is to examine the
results of the reinsurance agreements over the past five years
and to determine if the terms of the existing agreements remain
fair and equitable to us and our stockholders and fair and
equitable to Donegal Mutual and its policyholders or if Donegal
Mutual and we should mutually agree to certain adjustments. In
the case of these reinsurance agreements, the adjustments
typically relate to the reinsurance premiums, losses and
reinstatement premiums. These agreements are ongoing in nature
and will continue in effect throughout 2010 in the ordinary
course of business.
Robert S. Bolinger and John J. Lyons serve as our members of the
coordinating committee. See Item 1
Election of Directors for certain information about
Messrs. Bolinger and Lyons. John E. Hiestand and Frederick
W. Dreher serve as Donegal Mutuals members of the
coordinating committee. Certain information about
Mr. Hiestand and Mr. Dreher is as follows:
Mr. Hiestand, age 71, has been a director of Donegal
Mutual since 1983 and has been a self-employed provider of
insurance administrative services for more than the past five
years. Mr. Hiestand beneficially owns 5,575 shares of
our Class A common stock and 157 shares of our
Class B common stock. In 2009, Donegal Mutual paid
directors fees of $31,000 in cash to Mr. Hiestand and
granted him a restricted stock award of 311 shares as
director compensation.
Mr. Dreher, age 69, has been a director of Donegal
Mutual since 1996 and has been a partner in the law firm of
Duane Morris LLP since 1971. Mr. Drehers primary
practice area is the representation of financial institutions,
including banks and insurance companies. Mr. Dreher served
as chairman of the corporate department of Duane Morris LLP for
approximately 20 years. Mr. Dreher also served as a
Commissioner of Lower Merion Township for eight years.
Mr. Dreher also served as a member of the board of
directors of Bay View Capital Corporation, a bank holding
company located in San Mateo, California from 2002 to 2006.
Mr. Dreher beneficially owns 90,901 shares of our
Class A common stock and 33,022 shares of our
Class B common stock. In 2009, Donegal Mutual paid director
fees of $31,250 in cash to Mr. Dreher and granted him a
restricted stock award of 311 shares as director
compensation.
The
Risk Management Committee
We and Donegal Mutual have had an enterprise risk management
program for the past several years. In order to provide a formal
corporate governance structure for this program, we and Donegal
Mutual formed a risk management committee in December 2009. Our
risk management committee consists of 14 officers of either us
or Donegal Mutual, including all of our executive officers. The
purpose of our risk management committee is to assess and
monitor the major strategic, operational, regulatory,
informational and external risks
8
in the business of Donegal Mutual and us and the control
processes with respect to the risks that might impact the
operations of Donegal Mutual and us.
Our risk management committee is responsible for:
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assessing the effectiveness of our identification and management
of risks;
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developing and recommending policies and procedures relating to
risk assessment, risk management and risk reporting;
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assessing our risk management, compliance and control activities
and the adequacy of such activities in identifying our
risks; and
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reporting periodically to our board of directors.
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The risk management committee will meet quarterly and annually
evaluate its performance of its responsibilities.
Agreements
With Donegal Mutual
Donegal Mutual provides facilities, personnel and other services
to us and our insurance subsidiaries. Donegal Mutual allocates
certain related expenses to Atlantic States in relation to the
relative participation of Donegal Mutual and Atlantic States in
the pooling agreement. Our insurance subsidiaries other than
Atlantic States reimburse Donegal Mutual for their respective
personnel costs and bear their proportionate share of
information services costs based on their respective percentage
of the total written premiums of the Donegal Insurance Group.
Charges for these services totaled $60.2 million for 2009.
We lease office equipment and automobiles to Donegal Mutual and
Southern. Donegal Mutual and Southern made total lease payments
to us of $921,583 in 2009.
Donegal Mutual and Atlantic States participate in an
underwriting pool, whereby both companies pool substantially all
of their respective premiums, losses and loss expenses and
receive an allocated percentage of their combined underwriting
results. The underwriting pool excludes certain intercompany
reinsurance assumed by Donegal Mutual from our insurance
subsidiaries. Since March 1, 2008, Atlantic States has had
an 80% share of the results of the pool and Donegal Mutual has
had a 20% share of the results of the pool.
Donegal Mutual and Atlantic States may amend or terminate the
pooling agreement at the end of any calendar year by agreement
of the parties, subject to approval by the boards of directors
of Donegal Mutual and Atlantic States and by the coordinating
committee. Our 2009 annual report to stockholders contains
additional information describing the underwriting pool.
In addition to the underwriting pool and third-party
reinsurance, our insurance subsidiaries have various ongoing
reinsurance agreements with Donegal Mutual. These agreements
include:
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catastrophe reinsurance agreements with Atlantic States, Le Mars
and Southern;
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an excess of loss reinsurance agreement with Southern;
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a quota-share reinsurance agreement with Le Mars;
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a quota-share reinsurance agreement with Peninsula; and
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a quota-share reinsurance agreement with Southern.
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We refer you to footnote 3 in the notes to our financial
statements included in our annual report to stockholders for
further information about the reinsurance agreements between
Donegal Mutual and our insurance subsidiaries. The intent of
these catastrophe and excess of loss reinsurance agreements is
to lessen the effects of a single large loss, or an accumulation
of smaller losses arising from one event, to levels that are
appropriate given each insurance subsidiarys size,
underwriting profile and surplus position.
Donegal Mutual and Peninsula have a quota-share reinsurance
agreement that transfers to Donegal Mutual 100% of the premiums
and losses related to the workers compensation product
line of Peninsula in certain
9
states. Peninsula offers workers compensation insurance in
certain states in order to provide Donegal Mutual with an
additional pricing tier where an insurance company may only
offer a single pricing tier.
Donegal Mutual and Southern maintain a quota-share reinsurance
agreement that transfers to Southern 100% of the premiums and
losses related to certain personal lines products Donegal Mutual
offers in Virginia through the use of Donegal Mutuals
automated policy quoting and issuance system.
Donegal Mutual and Le Mars have a quota-share agreement that
transfers to Le Mars 100% of the premiums and losses related to
certain products Donegal Mutual offers in certain Midwest
states, which provide the availability of additional
complementary products to Le Mars commercial accounts.
Donegal Mutual also maintains 100% retrocessional reinsurance
agreements with Southern and Le Mars that were initially put
into place in order that Southern and Le Mars could share
Donegal Mutuals A.M. Best rating of A (Excellent).
The retrocessional reinsurance agreements do not otherwise
provide for pooling or reinsurance with or by Donegal Mutual and
do not transfer insurance risk to Donegal Mutual for accounting
purposes. In addition, Donegal Mutual and we entered into a
capital support agreement with Sheboygan that permits Sheboygan
to share Donegal Mutuals A.M. Best rating of A
(Excellent).
We own 48.2% and Donegal Mutual owns 51.8% of Donegal Financial
Services Corporation, or DFSC. DFSC owns 100% of Province Bank
FSB, or Province Bank, a federal savings bank with offices in
Marietta, Columbia and Lancaster, Pennsylvania. We and Donegal
Mutual conduct banking operations in the ordinary course of
business with Province Bank.
Donegal Mutual leases 3,600 square feet in a Donegal
Mutual-owned building in Marietta, Pennsylvania to Province
Bank. In addition, Province Bank leases 3,000 square feet
of space in a building in Lancaster, Pennsylvania from DFSC.
Both leases provide for an annual rent based on an independent
appraisal. Donegal Mutual and Province Bank are also parties to
an administrative services agreement whereby Donegal Mutual
provides various human resources services, principally payroll
and employee benefits administration, administrative support,
facility and equipment maintenance services and purchasing, to
Province Bank, subject to the overall limitation that the costs
Donegal Mutual charges to Province Bank 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.
The coordinating committee annually reviews each of the
agreements and transactions described above and in January 2010
approved the terms of such agreements and transactions for 2010.
RELATED
PERSON TRANSACTIONS
We have a related persons policy. This policy applies to related
party transactions other than those that require the approval of
our coordinating committee. This policy establishes procedures
for the approval of transactions between us and related persons
because we recognize that related person transactions present a
heightened risk of a conflict of interest and can create the
appearance of impropriety. Our policy requires that all proposed
related person transactions must receive the approval of our
audit committee before we can enter into the transaction. In
addition, if the transaction continues for more than one year,
our audit committee must annually approve the continuation of
the transaction. Our transactions with Donegal Mutual require
the prior approval of the coordinating committee. See Our
Relationship with Donegal Mutual The Coordinating
Committee.
Donald H. Nikolaus, our President and one of our directors and
the President and a director of Donegal Mutual, is also a
partner in the law firm of Nikolaus & Hohenadel. Such
firm has served as general counsel to Donegal Mutual since 1970
and as our general counsel since 1986, principally in connection
with the defense of claims litigation arising in Lancaster,
Dauphin and York counties of Pennsylvania. We pay such firm its
customary fees for such services. Those fees were $369,372 in
2008 and $445,231 in 2009.
Patricia A. Gilmartin, one of our directors and a director of
Donegal Mutual, is an employee of Associated Donegal Insurance
Brokers. That firm has no affiliation with us except that it
receives insurance
10
commissions in the ordinary course of business from our
insurance subsidiaries and Donegal Mutual in accordance with
their standard commission schedules and agency contracts.
Frederick W. Dreher, a director of Donegal Mutual, is a partner
in the law firm of Duane Morris LLP, which represents us, our
insurance subsidiaries and Donegal Mutual in certain legal
matters. We pay such firm its customary fees for such services.
Those fees were $1,226,249 in 2008 and $1,611,823 in 2009.
HOUSEHOLDING
We may, unless we receive contrary instructions from you, send a
single copy of our annual report, proxy statement and notice of
annual or special meeting to any household at which two or more
stockholders reside if we believe the stockholders are members
of the same family.
If you would like to receive our annual disclosure documents
directly in future years rather than from your broker or other
nominee holder, or if you and another stockholder share an
address and you and the other stockholder would like to receive
only one copy of our annual disclosure documents, follow these
instructions:
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If your shares are registered in your own name, please contact
our transfer agent and inform it of your request to revoke or
institute householding by calling Computershare
Trust Company at
(800) 317-4445
or writing to Computershare Trust Company, N.A., at
P.O. Box 43069, Providence, Rhode Island
02940-3078,
who will respond to your request within 30 days.
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If a bank, broker, nominee or other holder of record holds your
shares, please contact your bank, broker, nominee or other
holder of record directly.
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ITEM 1
ELECTION OF DIRECTORS
Introduction
The DGCL, the Pennsylvania Insurance Holding Companies Act, or
the Holding Companies Act, and our by-laws govern the election
of our directors by our stockholders. Because Donegal Mutual has
owned more than a majority of the voting power of our common
stock since our inception, Donegal Mutual has always had the
ability to elect all of our directors.
The following discussion summarizes these provisions and
describes the process our nominating committee follows in
connection with the nomination of candidates for election as
directors by our stockholders.
Nominations
The Holding Companies Act requires that the board of directors
of a Pennsylvania-domiciled insurance company insurer or a
company that controls a Pennsylvania-domiciled insurance
company, such as DGI, maintain a committee or committees
comprised solely of directors who are not officers or employees
of the Pennsylvania-domiciled insurance company or its holding
company and who do not own beneficially a 10% or greater
interest in the voting stock of such insurance company or its
holding company and annually perform the following actions:
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recommend the selection of such insurance companys
independent registered public accounting firm;
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review the financial condition of such insurance company;
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review the scope and results of such insurance companys
independent audit and any internal audit;
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nominate candidates for election as directors by
stockholders; and
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evaluate the performance of such insurance companys
principal officers of such insurance company and recommend to
such insurance companys board of directors the selection
and compensation of the insurers principal officers.
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11
Our by-laws provide that:
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our board of directors shall annually appoint a nominating
committee that consists of not less than two directors who are
not officers or employees of Donegal Mutual or us and who do not
own beneficially 10% or more of our Class A or Class B
common Stock; and
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the nominating committee shall, prior to each annual meeting of
stockholders, determine and nominate candidates for election as
directors by our stockholders.
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In accordance with these by-law provisions, on April 16,
2009, our board of directors appointed a nominating committee
consisting of R. Richard Sherbahn and Philip H.
Glatfelter, II. Neither Mr. Sherbahn nor
Mr. Glatfelter is an officer or employee of Donegal Mutual
or us or a beneficial owner of a 10% or greater interest in our
Class A common stock or our Class B common stock.
Our
Nominating Procedures
Our stockholders may nominate candidates for election as
directors at any annual meeting of our stockholders provided
they comply with the advance notice provisions of our by-laws.
We describe those procedures under Stockholder
Proposals in this proxy statement. Our nominating
committee may also consider candidates our management proposes.
We do not use executive search firms to identify director
candidates.
With the exception of applicable regulations of the SEC, the
listing application standards of the NASDAQ Global Select
Market, or NASDAQ, and the Holding Companies Act, our nominating
committee does not have any specific, minimum qualifications for
the nomination of director candidates. Our nominating committee
may take into account such factors as it deems appropriate, and
include the judgment, skill, diversity and business experience
of the candidate, the interplay of the candidates
experience with the experience of the other members of our board
of directors and the extent to which the candidate would
contribute to the overall effectiveness and experience of our
board of directors.
Our nominating committee and our board of directors considers,
at a minimum, the following factors in identifying and
evaluating potential new board members, including any candidates
nominated by our stockholders, or the continued services of
existing board members:
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A director is nominated based on his or her professional
experience. He or she should be accomplished and have recognized
achievements in his or her respective field.
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Whether the director serves as a member of Donegal Mutuals
board of directors.
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A director should have relevant education, expertise and
experience, and be able to offer advice and guidance to the
Chief Executive Officer based on that expertise and experience.
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A director should possess high personal and professional ethics,
integrity and values.
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A director must be inquisitive and objective, have the ability
to exercise practical and sound business judgment, and have an
independent mind.
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A director must be willing to devote sufficient time and effort
to carrying out his or her duties and responsibilities
effectively.
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A director should have the ability to work effectively with
others.
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We seek qualified individuals who, taken together, represent a
diversity of skills, backgrounds and experience, including
ethnic background, gender and professional experience.
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Our nominating committee assesses which functional skills or
areas of expertise are needed to round out the existing
collective strengths of the board as part of its director
selection process.
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Since our formation in 1986 and because of Donegal Mutuals
voting control of us, our board has always had a meaningful
number of directors who also serve as members of the board of
directors of Donegal Mutual. This membership has ranged from six
of eight directors in 1986 to five of 11 directors in 2010.
It is our intent
12
and the intent of Donegal Mutual to maintain a significant
presence of Donegal Mutual directors on our board as long as
Donegal Mutual owns more than a majority of the voting power of
our common stock.
In nominating director candidates, our nominating committee
takes into account the diversity of our policyholder and
stockholder base. Our nominating committee does not discriminate
against any director candidate on the basis of race, color,
religion, sex, national origin, age, ancestry or disability.
The
Role of Our Nominating Committee
Our nominating committee met on February 5, 2010 to
evaluate the performance and qualifications of the Class C
members of our board of directors whose terms will expire at our
2010 annual meeting. After considering the performance and
qualifications of the Class C members of our board of
directors during 2009, our nominating committee nominated the
candidates named below for election as Class C directors.
On March 10, 2010, our board of directors accepted the
report of our nominating committee and approved the nomination
by our nominating committee of the three persons named below as
candidates for election as Class C directors.
Our
Nominees for Election as Class C Directors
Our board of directors currently has 11 members, and consists of
four Class A directors, four Class B directors and
three Class C directors. We elect each director for a
three-year term and until the election of the directors
successor. The current three-year terms of our directors expire
in 2010 (Class C), 2011 (Class A) and 2012
(Class B), respectively.
We will elect three Class C directors at our annual
meeting. Unless you have marked your proxy card to the contrary,
we have instructed the proxies named on your proxy card to vote
for the election of the three nominees named below. Each nominee
for election as a Class C director is currently a
Class C director.
If any of the named nominees becomes unavailable for any reason,
our board of directors will designate a substitute nominee. Our
board of directors believes each nominee will be able to serve
if elected. A majority of our board of directors may fill any
vacancy that arises in our board of directors until the
expiration of the term of the class of directors in which the
vacancy occurs.
Our
board of directors recommends a vote FOR the election of our
three nominees for Class C directors named
below.
The names of our three nominees for election as Class C
directors, and our Class A directors and our Class B
directors who will continue in office after our annual meeting
until the expiration of their respective terms and the election
of their respective successors, together with certain
information regarding them, are as follows:
Our
Nominees for Election as Class C Directors
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Director
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|
Year Term
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Name
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|
Age
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|
Since
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|
Will Expire*
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|
John J. Lyons
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|
|
70
|
|
|
|
2001
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|
|
|
2013
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|
S. Trezevant Moore, Jr.
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|
|
56
|
|
|
|
2006
|
|
|
|
2013
|
|
R. Richard Sherbahn
|
|
|
80
|
|
|
|
1986
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|
|
|
2013
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|
|
|
|
* |
|
If elected at our annual meeting. |
13
Our
Directors Who Will Continue in Office
Class A
Directors
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Director
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Year Term
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Name
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|
Age
|
|
Since
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Will Expire
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Robert S. Bolinger
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|
|
73
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|
|
|
1986
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|
|
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2011
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Philip A. Garcia
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52
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|
|
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2009
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|
|
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2011
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|
Patricia A. Gilmartin
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70
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|
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1986
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2011
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Philip H. Glatfelter, II
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80
|
|
|
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1986
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2011
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Class B
Directors
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Director
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Year Term
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Name
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Age
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|
Since
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Will Expire
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Kevin M. Kraft, Sr.
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|
57
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|
|
|
2009
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2012
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Jon M. Mahan
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40
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|
|
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2006
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|
|
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2012
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Donald H. Nikolaus
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67
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|
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1986
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2012
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Richard D. Wampler, II
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68
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|
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2004
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2012
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|
Mr. Bolinger retired in 2001 as chief executive officer of
Susquehanna Bancshares, Inc., a position he held from 1982 to
2001. Susquehanna Bancshares, Inc. had approximately
$14 billion in assets at December 31, 2009 and is one
of the major financial institutions in the mid-Atlantic area
where we conduct a majority of our business. From 2000 to 2002,
Mr. Bolinger served as chairman of the board of Susquehanna
Bancshares, Inc. Prior thereto, Mr. Bolinger was president
and chief executive officer of Farmers First Bank from 1976 to
1997.
Mr. Garcia, who has served as a member of our board of
directors since December 2009, served as executive vice
president and chief financial officer of Erie Indemnity Company,
or Erie, from 1981 to 2009 when he elected to take early
retirement. Erie is the 21st largest property and casualty
insurance company in the United States. Mr. Garcia is a
certified public accountant. He has served as a member of the
board of directors of Hamot Medical Center in Erie, Pennsylvania
since 2000 and served as chairman of its board of directors from
2005 to 2008.
Mrs. Gilmartin has been an employee since 1969 of
Associated Donegal Insurance Brokers, which has no affiliation
with us, except that Associated Donegal Insurance Brokers
receives insurance commissions in the ordinary course of
business from our insurance subsidiaries and Donegal Mutual in
accordance with their standard commission schedules and agency
contracts. Mrs. Gilmartin has been a Donegal Mutual
director for 31 years and plays an important role in the
relationship between Donegal Mutual and us. Mrs. Gilmartin,
who has been a registered insurance agent for over
50 years, also helps provide us with insight into the
concerns of agents.
Mr. Glatfelter, who has extensive banking experience,
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 Donegal Mutual for
29 years and has been instrumental in promoting the growth
of Donegal Mutual and us. Mr. Glatfelter was Vice Chairman
of the Board of Donegal Mutual from 1991 to 2001 and has been
our Chairman of the Board and Chairman of the Board of Donegal
Mutual since 2001. He also serves on the board of directors of
Province Bank, our banking affiliate. Mr. Glatfelter is
also a director of a Lancaster County-based water utility and
has served as a director and chairman of several community-based
non-profit entities.
Mr. Kraft has served as one of our directors since December
2009. Mr. Kraft has been the chief executive officer of
Clyde W. Kraft Funeral Home, Columbia, Pennsylvania since 1995.
Mr. Kraft served as a director of Central Savings and Loan
Association in Columbia, Pennsylvania from 1980 to 1992. After
Farmers First Bank acquired Central Savings and Loan
Association, Mr. Kraft served as a member of the regional
board of Farmers First Bank. Mr. Kraft currently serves on
the board of directors of a Lancaster County-based water
14
utility and Conestoga Title Insurance Company.
Mr. Kraft is also registered as an insurance agent with the
Commonwealth of Pennsylvania. Mr. Kraft has been a director
of Donegal Mutual since 2003.
Mr. Lyons has been president of Keefe Ventures, LLC, a
manager of private investment funds since 2002. Mr. Lyons
was also president and portfolio manager for investment funds
affiliated with Keefe Managers, Inc. from 1999 until 2007.
Mr. Lyons has significant experience in the turnaround of
troubled financial institutions, serving as president and chief
executive officer of
Gateway-American
Bank, Ft. Lauderdale, Florida; Regent National Bank,
Philadelphia, Pennsylvania; Monarch Savings Bank, Clark, New
Jersey and Jupiter-Tequesta National Bank, Tequesta, Florida,
for the period from 1990 to 1998. Mr. Lyons was vice
chairman of the investment firm Advest, Inc., Hartford,
Connecticut, subsequent to that firms purchase of his bank
consulting practice in 1989. Mr. Lyons began his banking
career as an examiner for the Federal Deposit Insurance
Corporation in 1961. Mr. Lyons currently manages a private
equity fund called Keefe Ventures Fund, LP which invests in
community banking organizations.
Mr. Mahan has been a managing director in the Investment
Banking Division of Stifel Nicolaus & Company,
Incorporated, or Stifel Nicolaus, and, previously, Legg Mason
Wood Walker, Incorporated, prior to the acquisition of the Legg
Mason Capital Markets Division by Stifel Nicolaus on
December 1, 2005. Mr. Mahan specializes in corporate
finance for banks and insurance companies, and his expertise
benefits our analysis of acquisition opportunities.
Mr. Mahan joined Legg Mason in 1996 and served as a
principal from 2001 to 2004.
Mr. Moore served as a consultant from May 2008 to November
2008 to a medical malpractice insurance company. Mr. Moore
is currently a principal at Huguenot Capital. Prior thereto,
Mr. Moore was president and chief executive officer of
Luminent Mortgage Capital, Inc., or Luminent, from May 2007 to
May 2008 and was president and chief operating officer of
Luminent from March 2005 to May 2007. From 2000 to 2005,
Mr. Moore was executive vice president, Capital Markets, of
Radian Guaranty, Inc. For five years prior to joining Luminent
Mortgage Capital, Inc. in March 2005, Mr. Moore was the
executive vice president of capital markets for Radian Guaranty
Inc. Prior to his service at Radian, Mr. Moore held several
senior level positions in the mortgage industry, including First
Union National Bank from 1997 to 2000, Nationsbanc Capital
Markets from 1994 to 1997, Citicorp Securities from 1989 to 1994
and First Boston from 1984 to 1989.
Mr. Nikolaus has been president and chief executive officer
of Donegal Mutual since 1981 and a director of Donegal Mutual
since 1972. He has been our president and chief executive
officer since 1986. Mr. Nikolaus also serves as the
chairman and chief executive officer of Province Bank and as
chairman or president of each of our insurance subsidiaries.
Prior to the formation of Province Bank, Mr. Nikolaus
served as a director of several regional banks.
Mr. Nikolaus has also served as chairman of the Insurance
Federation of Pennsylvania. Mr. Nikolaus has been a partner
in the law firm of Nikolaus & Hohenadel since 1972.
Mr. Nikolaus also currently serves as an executive officer
and director of several Lancaster County-based water utilities.
Mr. Sherbahn, who was a certified financial planner for
many years, owned and operated Sherbahn Associates, Inc., a life
insurance and financial planning firm, from 1974 to 2007 and has
been a licensed insurance agent since 1956. Mr. Sherbahn
has been a director of Donegal Mutual for 43 years.
Mr. Sherbahn played a principal role in Donegal
Mutuals decision to form us.
Mr. Wampler is a certified public accountant and served as
a principal of the accounting firm of Brown Schultz
Sheridan & Fritz, a position held from 1998 to until
his retirement in 2005. For 28 years prior thereto, he was
a partner in the accounting firm of KPMG LLP where his practice
focused on property and casualty insurance companies.
Mr. Wampler is also a member of the subscribers advisory
committee of the third largest medical professional liability
insurer in Pennsylvania. We believe his background brings
expertise to our board of directors in understanding statutory
accounting principles as well as generally accepted accounting
principles and in analyzing and maintaining internal controls
over financial reporting.
Of our 11 directors, six (Messrs. Bolinger, Garcia,
Lyons, Mahan, Moore and Wampler) are independent and have no
affiliation with Donegal Mutual. Five of our 11 directors
(Mrs. Gilmartin and Messrs. Glatfelter, Kraft,
Nikolaus and Sherbahn) are affiliated with Donegal Mutual, our
majority stockholder, with whom we have a variety of
inter-company agreements providing for, among other things, the
pooling of underwriting
15
results, reinsurance and expense-sharing. See Stock
Ownership Our Relationship with Donegal
Mutual. We believe our board membership appropriately
represents our public stockholders, who collectively own about
33.7% of the voting power of our common stock, and Donegal
Mutual, which owns 66.3% of the voting power of our common stock.
Corporate
Governance
Because Donegal Mutual owns more than 50% of the combined voting
power of our Class A common stock and our Class B
common stock, applicable NASDAQ regulations classify us as a
controlled company. Because we are a controlled
company, we are exempt from a number of NASDAQ corporate
governance requirements. However, because we believe those
principles represent sound corporate governance principles, we
voluntarily comply with the NASDAQ requirements that:
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the members of the nominating committee of our board of
directors must be independent;
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the members of the compensation committee of our board of
directors must be independent; and
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|
a majority of the members of our board of directors must be
independent.
|
Our Board
of Directors and Committee Structure
Our board of directors met eight times in 2009. Our board of
directors has an executive committee, an audit committee, a
nominating committee, a compensation committee and, together
with Donegal Mutual, a coordinating committee. Philip H.
Glatfelter, II is the chairman of our board of directors.
Executive
Committee
Our executive committee met seven times in 2009. The members of
our executive committee are Philip H. Glatfelter, II,
Donald H. Nikolaus and R. Richard Sherbahn. Our executive
committee has the authority to take all action that our full
board of directors can take, consistent with the DGCL, between
meetings of our board of directors.
Audit
Committee
Our audit committee met 11 times in 2009. The members of our
audit committee are Robert S. Bolinger, John J. Lyons and
Richard D. Wampler, II. Each member of our audit committee
satisfies the independence requirements of the SEC and is in
compliance with applicable provisions of the Holding Companies
Act and the Sarbanes-Oxley Act of 2002.
Our audit committee is responsible for:
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selecting our independent registered public accounting firm;
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|
reviewing the scope and results of our independent registered
public accounting firms audit of our financial statements;
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|
reviewing all of our periodic filings with the SEC and press
releases;
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|
reviewing related party transactions other than those
transactions subject to review by our coordinating
committee; and
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|
|
reviewing the adequacy of our accounting, financial, internal
and operating controls.
|
Our audit committee has a written charter, which we describe
under Report of Our Audit Committee. The full text
of our audit committees charter may be viewed on our
website at
http://www.donegalgroup.com.
Our audit committee reviews its charter annually.
16
Nominating
Committee
Our nominating committee met twice in 2009. The members of our
nominating committee are Philip H. Glatfelter, II and R.
Richard Sherbahn.
Our nominating committee is responsible for:
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|
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identifying individuals our nominating committee believes are
qualified to serve as members of our board of directors;
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recommending nominees to stand for election as directors to our
board of directors;
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considering candidates nominated by other members for election
as directors to our board of directors;
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evaluating the self-evaluations each of our board committees
prepares; and
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providing our board of directors with an annual performance
evaluation of our nominating committee.
|
Our nominating committee has a written charter. You may view
this charter on our website at
http://www.donegalgroup.com.
Our nominating committee reviews its charter annually.
Compensation
Committee
Our compensation committee met three times in 2009. The members
of our compensation committee are Philip H. Glatfelter, II
and R. Richard Sherbahn. Because the employees who provide
services to us are employees of Donegal Mutual for reasons of
efficiency and cost savings and because our insurance
subsidiaries are members of the Donegal Insurance Group along
with Donegal Mutual, our compensation committee and the
compensation committee of Donegal Mutual conduct joint meetings
from time to time. The members of the Donegal Mutual
compensation committee are Frederick W. Dreher, Philip H.
Glatfelter, II and R. Richard Sherbahn. Following these
joint meetings, our compensation committee meets and makes
compensation determinations with respect to our executive
officers and other employees.
Our compensation committee is responsible for:
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|
|
the annual review of the guidelines for compensation increases
for all of our employees;
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the annual review of the compensation of our executive officers;
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recommendations to our board of directors from time to time as
to grants of stock options to employees; and
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|
the oversight of the employee benefit plans we and Donegal
Mutual maintain.
|
Our compensation committee has a written charter. You may view
the charter of our compensation committee on our website at
http://www.donegalgroup.com.
Our compensation committee reviews its charter annually.
See Executive Compensation Compensation
Discussion and Analysis for further information.
See Our Relationship with Donegal Mutual The
Coordinating Committee for a description of our
coordinating committee.
Compensation
Committee Interlocks and Insider Participation
No member of our compensation committee is a former or current
officer of Donegal Mutual or DGI, nor does any member of our
compensation committee have any other interlocking
relationships, as defined by the SEC.
17
ITEM 2
RATIFICATION OF OUR AUDIT COMMITTEES SELECTION OF KPMG
LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
2010
Our audit committee has appointed KPMG LLP as our independent
registered public accounting firm for our fiscal year ending
December 31, 2010. Although our by-laws do not require that
we submit our audit committees appointment of KPMG LLP to
our stockholders for ratification, we do so as a matter of good
corporate governance.
Representatives of KPMG LLP will attend our annual meeting and
will respond to appropriate questions. The KPMG LLP
representatives will also be able to make a statement if they
determine to do so.
Our
board of directors recommends that you vote FOR the
ratification of the appointment of KPMG LLP as our independent
registered public accounting firm for 2010.
Even if our stockholders ratify the appointment, the audit
committee in its discretion may select a different independent
registered public accounting firm at any time during the year if
it determines that such a change would be in our best interests
and in the best interests of our stockholders.
18
DIRECTOR
STOCKHOLDER COMMUNICATIONS
Stockholders who wish to communicate with our board of directors
or with one or more individual members of our board may do so by
sending their communication in writing addressed to a particular
director or directors, or in the alternative, to
Non-Management Directors as a group. Please send
your communication to our corporate secretary, Sheri O. Smith,
at our principal executive offices at 1195 River Road, Marietta,
Pennsylvania 17547 or by
e-mail to
sherismith@donegalgroup.com. Our corporate secretary will
promptly forward all such communications to the addressee or
addressees set forth in the communication.
We encourage our directors to attend our annual meetings of
stockholders. All of our directors attended our annual meeting
of stockholders in 2009.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Introduction
Our compensation committee oversees our compensation and benefit
plans and policies. Its oversight of our compensation process
includes reviewing and recommending for approval by our board of
directors equity awards to our executive officers and all
compensation decisions relating to our executive officers.
Our compensation committee determined that the primary
objectives of our compensation programs for our executive
officers are to:
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Attract and retain talented and dedicated executive officers who
contribute to our growth, development and profitability and to
encourage their retention.
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We believe we achieved this objective because three of our five
named executive officers have worked with us since our formation
in 1986, and our other two named executive officers have worked
for us for 23 and 17 years, respectively.
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Motivate our executive officers to achieve our strategic
business objectives and to reward them when they achieve those
objectives.
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We believe we achieved this objective through our compound
annual growth rate, which was 4.8% for the five years ended
December 31, 2009, and through our compound rate of growth
in our book value, which was 8.5% for the five years ended
December 31, 2009.
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Provide long-term compensation to our executive officers that
rewards them for sustained financial and operating performance
and leadership excellence.
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We believe we achieved this objective based on our combined
ratio, which has outperformed the combined ratio of the property
and casualty industry as a whole for the five years ended
December 31, 2009 based on data prepared by A.M. Best
Company. Our results demonstrate that our compensation systems
do not reward the undue taking of risk.
To achieve these objectives, we compensate our executive
officers through a combination of base salary, annual cash
bonuses that are principally based on our underwriting income
and long-term equity compensation.
Our compensation committees charter reflects these
responsibilities, and our compensation committee reviews its
charter annually.
Our
Compensation Philosophy and Risk Considerations
Risk
Management Considerations
Our compensation committee believes that our underwriting
profitability-based bonus plan and our performance-based equity
ownership programs create incentives that are designed to result
in long-term
19
stockholder value. We have designed the following elements of
our compensation programs to promote the creation of long-term
value and that we therefore believe discourages behavior that
could lead to excessive risk:
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The financial metrics we use to determine the bonuses of our
executive officers are metrics our compensation committee
believe promote long-term stockholder value. These measures
include underwriting profitability, return on equity and growth
in net written premium. Our compensation committee sets limits
on these bonus payments that encourage success without
encouraging excessive risk-taking that seeks short-term results.
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The stock options we grant vest in three equal annual
installments and remain exercisable for up to five years from
the date of grant, which our compensation committee believes
encourages our executive officers to attain sustained long-term
performance;
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If we become obligated to restate our financial results because
one of our executive officers has violated the financial
reporting requirements under the federal securities laws,
applicable law permits us to recover incentive compensation from
that executive officer, including profits the executive officer
received from the sale of our securities. If such an event were
to arise, our board of directors would exercise its business
judgment to determine the action it believes appropriate at that
time. Such action could include recovery or cancellation of any
incentive payment made to an executive officer on the basis of
meeting or exceeding performance targets if our board of
directors determines that such recovery or cancellation is
appropriate due to intentional misconduct by that executive
officer that resulted in the achievement of performance targets
that would not have been achieved absent such misconduct.
|
Evaluation
of Executive Performance in 2009 and Executive
Compensation
Our compensation committee does not restrict its evaluation of
the performance of our named executive officers to predetermined
formulas or a limited set of criteria. Our compensation
committee considered our progress during 2009 in achieving the
short-term and long-term objectives described below:
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Our continued achievement of underwriting results superior to
the underwriting results of other property and casualty
insurance companies on a long-term basis.
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We believe we achieved this objective in 2009 because, in spite
of increased severe weather events, our statutory combined ratio
for 2009 was 101.1%, compared to approximately 100.6% for the
property and casualty industry combined ratio for 2009 as
projected by A.M. Best Company. We believe our underwriting
results were reasonable in light of a challenging underwriting
environment.
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Our achievement of a compound rate of revenue growth in excess
of 4.0% over a five-year period.
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We believe we achieved this objective for the five years ended
December 31, 2009 because our compound rate of revenue
growth for that period was 4.8%.
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Our status in being named as one of Wards top 50
performing insurance companies over a five-year period.
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We believe we achieved this goal in 2009 because we received
this award for the fifth straight year.
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Our continued geographic expansion.
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One measure of our achievement of this objective in 2009 was
Donegal Mutuals completion of a 100% quota-share
reinsurance of the property and casualty insurance business of
Southern Mutual Insurance Company in Georgia and South Carolina,
which benefits us as a result of Atlantic States
participation in the pooling agreement with Donegal Mutual.
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Our development of automated underwriting and policy issuance
software that enables us to compete with national carriers.
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20
During 2009, we continued to expand the use of this
state-of-the-art
system to all of our subsidiaries. We also received the 2009
Interface Partner Award from Applied Systems, an insurance
technology company, in recognition of our achievements in
agency-carrier communications.
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Our achievement of book value growth over a five-year period.
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We believe we achieved this objective for the five years ended
December 31, 2009 because our compound rate of book value
growth for that period was 8.5%.
On an overall basis, our compensation committee believes that we
made progress in achieving the targets established for these
objectives at the start of 2009. Our performance and book value
growth in 2009 were the basis of the decisions made by our
compensation committee at its meetings in December 2009 and
February 2010 with respect to adjustments to base salary and the
allocation of our annual cash bonuses among our officers,
including our named executive officers.
The specific compensation decisions made for each of our named
executive officers in 2009 appropriately reflect our financial
and operational performance in 2009. Our compensation committee
also evaluates the achievement by our named executive officers
of our other corporate objectives, and the contribution of each
of our named executive officers to those achievements in each
such officers primary area of responsibility. We use our
discretion in making compensation decisions after reviewing our
performance and the objective performance of our named
executives based on financial and operational objectives. We do
not retain compensation consultants. We do not have any form of
employment, severance or
change-of-control
agreements with any of our named executive officers.
Our
Cash Incentive Plan
For a number of years, we have had a cash incentive compensation
plan for our officers, including our named executive officers,
that is tied to a formula that is based on the annual
underwriting income and other financial metrics of the Donegal
Insurance Group. The formula operates as follows:
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We first determine the base underwriting income of the Donegal
Insurance Group for the year;
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We then adjust the base underwriting income by adding back our
accrual for bonuses to our officers, and make a formula-based
adjustment to limit the impact of any catastrophe losses and
guaranty fund assessments on our base underwriting income;
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We then adjust the amount so determined as the plan specifies
based on variable percentages of the growth in net written
premium of Donegal Insurance Group for the year;
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We then multiply the amount so determined by a percentage that
is based on our return on equity for the year; and
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We then multiply the amount so determined by a predetermined
factor, and the resulting amount constitutes the executive
incentive compensation pool for the applicable year, which is
allocated by the compensation committee to our officers,
including our named executive officers.
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If the Donegal Insurance Groups surplus for the year is
below an amount the Plan specifies, we reduce the executive
incentive compensation pool by 50%.
The
Compensation of Our Officers
Our officers receive the following compensation:
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Base Salary. We establish the base salaries of
our officers, including our named executive officers, based on
the scope of their responsibilities and the recommendation of
our chief executive officer to our compensation committee for
other than his own compensation. Our compensation committee
reviews the base salaries of our named executive officers
annually, including our chief executive officer, and recommends
adjustments to base salaries annually after taking into account
individual
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21
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responsibilities, performance, length of service, current
salary, experience and compensation history as well as our
results of operations.
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Annual Cash Bonus. Our officers, including our
named executive officers, receive annual cash bonuses based
primarily on the underwriting results of the Donegal Insurance
Group. We determine the maximum aggregate amount available
annually for our officers by formula as described above. Our
compensation committee then recommends to our board of directors
the percentage of the maximum amount we should allocate among
our officers, including our named executive officers, on a
discretionary basis. Our chief executive officer recommends the
allocation of any earned bonuses for our officers, including our
named executive officers other than himself, to our compensation
committee. Our compensation committee reviews our chief
executive officers recommendations and then recommends the
annual bonuses for all of our executive officers, including our
chief executive officer, to our board of directors. We pay the
cash bonuses in a single payment.
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Long-Term Equity Incentives. We believe that
we can maximize our long-term performance best if we tie the
value of the long-term benefits our executives receive to our
long-term performance. We design our long-term equity
compensation plans to provide all members of our management,
including our named executive officers, with equity incentives
to foster the alignment of their interests with the interests of
our stockholders.
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The primary form of equity compensation that we have
historically awarded to our officers, including our named
executive officers, is stock options. Our compensation committee
receives preliminary recommendations for periodic stock option
grants from our chief executive officer for our officers other
than himself. Our compensation committee then reviews his
recommendations and recommends stock option grants for all of
our officers, including our chief executive officer, to our
board of directors for approval.
Our stock option plans authorize us to grant options to purchase
shares of our Class A common stock to our employees, officers
and directors.
In accordance with NASDAQ rules, we do not grant stock options
that have exercise prices below the fair market value of our
Class A common stock on the date of grant.
We do not reduce the exercise price of stock options because of
the subsequent decline of the price of our Class A common
stock below the exercise price, except in connection with
adjustments to reflect recapitalizations, stock or extraordinary
dividends, stock splits, mergers, spin-offs and similar events
permitted by the applicable stock option plan unless we first
obtain stockholder approval.
Our
Compensation Process
In assessing the performance of our named executive officers in
light of the objectives our board of directors establishes, our
compensation committee reviews specific achievements associated
with attainment of the objectives, the degree of difficulty of
the objectives and the extent to which significant unforeseen
obstacles or favorable circumstances affected their performance.
As part of its oversight of the compensation of our named
executive officers, our compensation committee recommended the
following compensation adjustments for 2009 for our named
executive officers:
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|
increases in base salaries of our named executive officers for
2009 that averaged 1.7%, which our compensation committee
considered reasonable based on publicly available information
from companies we consider to be our informal peer group (EMC
Insurance Group, Harleysville Group Inc., Mercer Insurance
Group, State Auto Financial Corporation and Selective Insurance
Group); and
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due to the decrease in our underwriting profitability in 2009
compared to historical amounts, the individual allocations from
our incentive bonus pool to our named executives decreased. The
decreases were based on factors including a rate of net written
premium growth of less than 5.0%, and reductions in underwriting
profitability and return on equity compared to historical
averages. Our compensation committee regarded the individual
allocations to our executive officers as appropriate recognition
of the underwriting results, our return on equity and growth of
our insurance subsidiaries in 2009.
|
22
Tax
Matters
Section 162(m) of the Internal Revenue Code of 1986, as
amended, generally does not allow us to deduct for federal
income tax purposes annual compensation we pay to any of our
executive officers named in the Summary Compensation Table below
that is in excess of $1 million, unless such compensation
is paid pursuant to a performance-based plan is generally not
subject to the Section 162(m) limitation.
Although our compensation committee is aware of the
Section 162(m) limitation, our compensation committee
believes that it is equally important to maintain flexibility
and the competitive effectiveness of the compensation of our
named executive officers. Our compensation committee may,
therefore, from time to time, authorize compensation that is not
deductible for federal income tax purposes if our compensation
committee believes it is in our best interests and the best
interests of our stockholders to do so.
Summary
Compensation Table
The following table shows the compensation we paid during 2007,
2008 and 2009 for services rendered in all capacities to our
chief executive officer, our chief financial officer and our
three other most highly compensated executive officers. We refer
to these persons, who are named in the table below, as our named
executive officers. We do not have employment agreements with
any of our named executive officers, nor do we provide any of
them with restricted stock awards, with the exception of two of
our executive officers who receive an annual restricted stock
award of 311 shares as part of their compensation as
members of our board of directors and the Donegal Mutual board
of directors, non-equity incentive plan compensation, deferred
compensation or pension benefits.
Based on the compensation paid to our named executive officers
in 2009, their salaries accounted for 76.0% of their total
compensation in 2009 and their performance-based bonuses
accounted for 16.3% of their total compensation in 2009.
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Stock
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Option
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Awards
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Awards
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All
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at
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at
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Other
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Grant Date
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Grant Date
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Compen-
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Fair Value
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Fair Value
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sation
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Total
|
Name and Principal Position
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Year
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Salary($)
|
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Bonus($)(1)
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($)
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($)(2)
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($)(3)
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($)
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Donald H. Nikolaus,
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2009
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555,000
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150,000
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5,215
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48,384
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758,599
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President and Chief
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2008
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555,000
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360,000
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5,340
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360,500
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49,139
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1,329,979
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Executive Officer
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2007
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555,000
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840,000
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6,092
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52,038
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1,453,130
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Cyril J. Greenya,
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2009
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185,000
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34,000
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5,215
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42,658
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266,873
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Senior Vice President and
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2008
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180,000
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58,000
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5,340
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82,400
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42,538
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368,278
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Chief Underwriting Officer
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2007
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174,000
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125,000
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6,092
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42,603
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347,695
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Jeffrey D. Miller,
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2009
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197,000
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38,000
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11,723
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246,723
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Senior Vice President and
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2008
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187,000
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62,000
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92,700
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10,932
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352,632
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Chief Financial Officer
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2007
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177,000
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132,000
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10,098
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319,098
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Robert G. Shenk,
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2009
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232,000
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34,000
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13,265
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279,265
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Senior Vice President,
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2008
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229,000
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58,000
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82,400
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12,887
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382,287
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Claims
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2007
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223,000
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125,000
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11,866
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359,866
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Daniel J. Wagner,
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2009
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185,000
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34,000
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11,642
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230,642
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Senior Vice President
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2008
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180,000
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58,000
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82,400
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11,147
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331,547
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and Treasurer
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2007
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174,000
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125,000
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|
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10,126
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309,126
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(1) |
|
Our executive officers participate in a cash incentive bonus
plan. We refer you to Executive Compensation
Our Cash Incentive Plan. |
|
(2) |
|
Option awards are shown at an estimated grant date fair value,
which we obtained by using an option pricing model. Further, the
options are subject to a vesting schedule, and the estimated
value obtained from the option pricing model does not represent
actual value based upon trading prices of our Class A
common stock at the grant date. See Note 14 to our
consolidated financial statements included in our 2009 annual |
23
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|
report to stockholders for information on the accounting
treatment and calculation of the grant date fair value of these
stock options. |
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(3) |
|
In the case of Mr. Nikolaus, the total shown includes
directors and committee meeting fees of $31,750 and a matching
401(k) plan contribution of $11,452 paid during 2009. In the
case of Messrs. Shenk, Miller and Wagner, the total shown
includes a matching 401(k) plan contribution of $11,000, $11,059
and $11,021, respectively, paid during 2009. In the case of
Mr. Greenya, the total shown includes directors fees of
$30,000 and a matching 401(k) plan contribution of $11,021 paid
during 2009. |
Our
President and Chief Executive Officer
Base Salary. Mr. Nikolaus received a base
salary of $555,000 in 2009, 2008 and 2007. We did not increase
the base salary of Mr. Nikolaus for these years at his
request and also because Mr. Nikolaus prefers that a
substantial portion of his compensation be performance-based.
Annual Cash Bonus. Mr. Nikolaus received
a bonus of $150,000 in respect of 2009 and a bonus of $360,000
in respect of 2008, which represent allocations from our
formula-based bonus plan tied to our underwriting profitability
and a subjective analysis of the performance of
Mr. Nikolaus in 2008 and 2009. The principal subjective
factors in determining the allocations to Mr. Nikolaus were
the leadership he provides us, his achievement of our objectives
in 2008 and 2009 and our overall financial, strategic and
operational performance in 2008 and 2009. Mr. Nikolaus
received a 35% and 39% allocation from the bonus pool in 2009
and 2008, respectively.
Our
Senior Vice President and Chief Underwriting
Officer
Base Salary. Mr. Greenya received a base
salary of $185,000 in 2009 compared to a base salary of $180,000
in 2008. This 2.8% increase reflected a
cost-of-living
adjustment.
Annual Cash Bonus. Mr. Greenya received a
bonus of $34,000 in respect of 2009 and a bonus of $58,000 in
respect of 2008. This 41% decrease in his 2009 bonus was
principally the result of our reduced underwriting
profitability. The bonus reflected Mr. Greenyas
effective oversight of our underwriting operations and
compliance function and his participation in negotiating
cost-effective renewals of our reinsurance.
Our
Senior Vice President and Chief Financial Officer
Base Salary. Mr. Miller received a base
salary of $197,000 in 2009 compared to a base salary of $187,000
in 2008. The 5.3% increase reflected Mr. Millers
successful performance of his responsibilities as our chief
financial offer and a
cost-of-living
adjustment. The principal reason for the increase was
Mr. Millers meeting of objective and subjective
performance criteria we established.
Annual Cash Bonus. Mr. Miller received a
bonus of $38,000 in respect of 2009 and a bonus of $62,000 in
respect of 2008. This 39% decrease in his 2009 bonus was
principally the result of our reduced underwriting
profitability. The bonus reflected Mr. Millers
effective oversight of our financial reporting and our systems
of internal control.
Our
Senior Vice President of Claims
Base Salary. Mr. Shenk received a base
salary of $232,000 in 2009 compared to $229,000 in 2008. The
1.3% increase represented a
cost-of-living
adjustment.
Annual Cash Bonus. Mr. Shenk received a
bonus of $34,000 in respect of 2009 and a bonus of $58,000 in
respect of 2008. This 41% decrease in his 2009 bonus was
principally the result of our reduced underwriting
profitability. The bonus reflected Mr. Shenks
effective leadership of our claims function and the quality and
promptness of our claims service.
24
Our
Senior Vice President and Treasurer
Base Salary. Mr. Wagner received a base
salary of $185,000 in 2009 compared to a base salary of $180,000
in 2008. This 2.8% increase reflected a
cost-of-living
adjustment.
Annual Cash Bonus. Mr. Wagner received a
bonus of $34,000 in respect of 2009 and a bonus of $58,000 in
respect of 2008. This 41% decrease in his 2009 bonus was
principally the result of our reduced underwriting
profitability. The bonus reflected Mr. Wagners
effective supervision of our billing, cash management and
treasury functions.
Grants
of Plan-Based Awards
We did not grant any stock options to our named executive
officers during 2009.
During 2008, we granted non-qualified options to purchase shares
of our Class A common stock at an exercise price of $17.50
per share, which options vest in three equal installments on
March 1, 2009, March 1, 2010 and March 1, 2011,
respectively, as follows:
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|
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Number of Shares
|
Name
|
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Subject to Option
|
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Donald H. Nikolaus
|
|
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175,000
|
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Cyril J. Greenya
|
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40,000
|
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Jeffrey D. Miller
|
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45,000
|
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Robert G. Shenk
|
|
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40,000
|
|
Daniel J. Wagner
|
|
|
40,000
|
|
Stock
Incentive Plans
We have an equity incentive plan for employees and an equity
incentive plan for our directors. Under these plans, our board
of directors, upon the recommendation of our compensation
committee, may grant options to purchase our Class A common
stock and, in the case of our directors, restricted stock awards
as well as stock options. Grants under the plans can take the
form of incentive stock options, non-qualified stock options,
stock appreciation rights, stock units and other stock-based
awards. With the exception of an annual fixed restricted stock
award to our directors, all of our incentive compensation grants
have been stock options. The purpose of the plans is to provide
long-term incentive awards to our employees and directors as a
means to attract, motivate, retain and reward talented persons.
As of December 31, 2009, we had reserved
2,338,500 shares of our Class A common stock for
grants under our equity incentive plan for employees and
284,170 shares of our Class A common stock for grants
under our equity incentive plan for directors. If shares covered
by an option cease to be issuable for any reason, we may again
grant options to purchase those shares.
Our board of directors may adjust the number and kind of shares
available for grants and options under our plans and the
exercise price of outstanding options in the event of a merger,
consolidation, reorganization, stock split, stock dividend or
other event affecting the number of outstanding shares of our
common stock. Unless otherwise provided in individual option
agreements, unvested options do not automatically accelerate in
the event of a business combination or in the event of the sale
of all or substantially all of our assets.
Our board of directors, upon the recommendation of our
compensation committee, has:
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|
the authority to determine the persons eligible to be granted
options, the number of shares subject to each option, the
exercise price of each option, the vesting schedule, the
circumstances in which the vesting of options is accelerated and
any extension of the period for exercise; and
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|
full discretionary authority to determine any matter relating to
options granted under our plans.
|
Our board of directors has the authority to suspend, amend or
terminate our plans, except as would adversely affect the rights
of persons holding outstanding awards without the consent of
such persons.
25
Outstanding
Equity Awards at Fiscal Year End
The following table summarizes the outstanding equity awards
held by our named executive officers and our directors at
December 31, 2009:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Securities
|
|
|
|
|
|
Number of
|
|
Market Value
|
|
|
Underlying
|
|
|
|
|
|
Shares or
|
|
of Shares or
|
|
|
Unexercised Options
|
|
Option
|
|
Option
|
|
Units of Stock
|
|
Units of Stock
|
|
|
(#)
|
|
(#)
|
|
Exercise
|
|
Expiration
|
|
That Have Not
|
|
That Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price ($)
|
|
Date
|
|
Vested (#)
|
|
Vested ($)
|
|
Donald H. Nikolaus
|
|
|
233,333
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
175,000
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
58,333
|
|
|
|
116,667
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
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|
|
|
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|
Cyril J. Greenya
|
|
|
33,333
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
13,333
|
|
|
|
26,667
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
Jeffrey D. Miller
|
|
|
33,333
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
30,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
Robert G. Shenk
|
|
|
40,000
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
13,333
|
|
|
|
26,667
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
Daniel J. Wagner
|
|
|
33,333
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
13,333
|
|
|
|
26,667
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
26
The following table summarizes the outstanding equity awards
held by our directors as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Securities
|
|
|
|
|
|
Number of
|
|
Market Value
|
|
|
Underlying
|
|
|
|
|
|
Shares or
|
|
of Shares or
|
|
|
Unexercised Options
|
|
Option
|
|
|
|
Units of Stock
|
|
Units of Stock
|
|
|
(#)
|
|
(#)
|
|
Exercise
|
|
Option
|
|
That Have Not
|
|
That Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price ($)
|
|
Expiration Date
|
|
Vested (#)
|
|
Vested ($)
|
|
Robert S. Bolinger
|
|
|
10,000
|
|
|
|
|
|
|
$
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
Patricia A. Gilmartin
|
|
|
7,500
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
Philip H. Glatfelter, II
|
|
|
10,000
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
Kevin M. Kraft, Sr.
|
|
|
10,000
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
John J. Lyons
|
|
|
10,000
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
Jon M. Mahan
|
|
|
7,500
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
S. Trezevant Moore, Jr.
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
311
|
|
|
|
4,833
|
|
R. Richard Sherbahn
|
|
|
10,000
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
Richard D. Wampler, II
|
|
|
10,000
|
|
|
|
|
|
|
|
15.75
|
|
|
|
7/21/2010
|
|
|
|
311
|
|
|
|
4,833
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
21.00
|
|
|
|
10/19/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
17.50
|
|
|
|
7/17/2013
|
|
|
|
|
|
|
|
|
|
Option
Exercises and Stock Vested
The following table summarizes stock options exercised by our
named executive officers and, in the case of our named executive
officers who are also directors, restricted stock awards vested,
during 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Exercises and Stock Vested
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Shares
|
|
Value Realized
|
|
Number of Shares
|
|
Value Realized
|
Name
|
|
Acquired on Exercise (#)
|
|
on Exercise ($)(1)
|
|
Acquired on Vesting (#)
|
|
on Vesting ($)(1)
|
|
Donald H. Nikolaus
|
|
|
|
|
|
|
|
|
|
|
311
|
|
|
|
4,833
|
|
Cyril J. Greenya
|
|
|
|
|
|
|
|
|
|
|
311
|
|
|
|
4,833
|
|
Jeffrey D. Miller
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert G. Shenk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel J. Wagner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Value realized is based upon the closing price of our common
stock on NASDAQ on the date of exercise or vesting minus the
exercise price of the option awards. |
Pension
Benefits
None of our named executive officers participated in or had an
account balance in qualified or non-qualified defined benefit
plans that we sponsored in 2007, 2008 or 2009, and none is
contemplated for 2010.
27
Non-Qualified
Deferred Compensation
None of our named executive officers participated in or had
account balances in non-qualified deferred compensation plans or
other deferred compensation plans that we maintained in 2007,
2008 or 2009, and none is contemplated for 2010.
Director
Compensation
Our directors and the directors of Donegal Mutual received an
annual retainer of $30,000 in 2009. A person who serves both on
our board of directors and the board of directors of Donegal
Mutual receives only one annual retainer. Members of the
committees of our board of directors and of the board of
directors of Donegal Mutual received a fee of $250 for each
committee meeting attended in 2009, with the exception of
meetings of the audit committees. Members of the audit
committees received a fee of $500 for each meeting attended in
2009. Since March 1, 2008, we allocate 20% of director
compensation to Donegal Mutual and 80% to us.
Under our equity incentive plan for directors, each of our
directors and each director of Donegal Mutual who is not also
one of our directors receives an annual restricted stock award
of 311 shares of our Class A common stock as of the
first business day of each year, provided the director served as
a member of our board of directors or the board of directors of
Donegal Mutual during any portion of the preceding year. Each of
our directors and each of the directors of Donegal Mutual is
also eligible to receive non-qualified options to purchase
shares of our Class A common stock in an amount determined
by our board of directors from time to time. Donegal Mutual
reimburses us for the restricted stock awards granted to those
directors of Donegal Mutual who are not also members of our
board of directors.
The following table sets forth a summary of the compensation we
paid to our non-officer directors during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
Stock
|
|
Option
|
|
|
Name
|
|
or Paid in Cash ($)
|
|
Awards ($)
|
|
Awards ($)
|
|
Total ($)
|
|
Robert S. Bolinger
|
|
|
36,000
|
|
|
|
4,833
|
|
|
|
|
|
|
|
40,833
|
|
Philip A. Garcia
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
Patricia A. Gilmartin
|
|
|
30,000
|
|
|
|
4,833
|
|
|
|
|
|
|
|
34,833
|
|
Philip H. Glatfelter, II
|
|
|
81,000
|
|
|
|
4,833
|
|
|
|
|
|
|
|
85,833
|
|
Kevin M. Kraft, Sr.
|
|
|
30,750
|
|
|
|
4,833
|
|
|
|
|
|
|
|
35,583
|
|
John J. Lyons
|
|
|
36,000
|
|
|
|
4,833
|
|
|
|
|
|
|
|
40,833
|
|
John M. Mahan
|
|
|
30,500
|
|
|
|
4,833
|
|
|
|
|
|
|
|
35,333
|
|
S. Trezevant Moore, Jr.
|
|
|
30,000
|
|
|
|
4,833
|
|
|
|
|
|
|
|
34,833
|
|
R. Richard Sherbahn
|
|
|
32,250
|
|
|
|
4,833
|
|
|
|
|
|
|
|
37,083
|
|
Richard D. Wampler, II
|
|
|
35,500
|
|
|
|
4,833
|
|
|
|
|
|
|
|
40,333
|
|
Limitation
of Liability and Indemnification
Our certificate of incorporation includes a provision that
limits, to the maximum extent permitted by Delaware law, the
liability of our directors and officers to us and to our
stockholders for money damages except for liability resulting
from:
|
|
|
|
|
actual receipt of an improper benefit or profit in money,
property or services; or
|
|
|
|
active and deliberate dishonesty established by a final judgment
as being material to the cause of action.
|
This limitation does not, however, apply to violations of the
federal securities laws, nor does it limit the availability of
non-monetary relief in any action or proceeding.
Our certificate of incorporation and by-laws obligate us, to the
maximum extent permitted by Delaware law, to indemnify any
person who is or was a party to, or is threatened to be made a
party to, any threatened
28
or pending action, suit or proceeding by reason of the fact that
such person is or was one of our directors or officers, or,
while one of our directors or officers, is or was serving, at
our request, as a director or officer of another entity. Insofar
as indemnification for liabilities arising under the federal
securities laws may be permitted to our officers and directors
pursuant to the foregoing provisions, we have been informed
that, in the opinion of the SEC, such indemnification is against
public policy as expressed in such laws and is unenforceable.
In addition, our certificate of incorporation and by-laws permit
us, at our expense, to purchase and maintain insurance to
protect us and any director, officer or employee against any
liability of any character asserted against or incurred by us or
any such director, officer or employee, or arising out of any
such persons corporate status, whether or not we would
have the power to indemnify such person against such liability
under Delaware law. We also have and intend to maintain
directors and officers liability insurance.
Report of
Our Compensation Committee
Our compensation committee held a joint meeting with the
compensation committee of the board of directors of Donegal
Mutual. The compensation committees reviewed and discussed the
compensation discussion and analysis that appears under the
caption Executive Compensation with management.
Based on the review and discussion by our compensation committee
with management and the joint meeting with the members of the
compensation committee of Donegal Mutual, the members of our
compensation committee then held a separate meeting at which our
compensation committee reviewed our success in meeting our
corporate objectives for 2009 and the individual performance of
our named executive officers and then recommended to our board
of directors that our board of directors approve the inclusion
of the compensation discussion and analysis set forth in this
proxy statement under the caption Executive
Compensation for filing with the SEC and the incorporation
by reference of such compensation discussion and analysis in our
annual report on
Form 10-K
for the year ended December 31, 2009 for filing with the
SEC.
MEMBERS OF THE COMPENSATION COMMITTEES
OF DONEGAL GROUP INC. AND DONEGAL
MUTUAL INSURANCE COMPANY
Frederick W. Dreher
Philip H. Glatfelter, II
R. Richard Sherbahn
March 10, 2010
29
Equity
Compensation Plan Information
The following table sets forth information regarding our equity
compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
(by Class) Remaining
|
|
|
Number of Securities
|
|
|
|
Available for Future
|
|
|
(by Class) to be Issued
|
|
Weighted-Average
|
|
Issuance Under Equity
|
|
|
Upon Exercise of
|
|
Exercise Price of
|
|
Compensation Plans
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
(Excluding Securities
|
Plan category
|
|
Warrants and Rights
|
|
Warrants and Rights
|
|
Reflected in Column (a))
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity compensation plans
approved by
|
|
|
3,290,099
|
(Class A)
|
|
$
|
17.98
|
(Class A)
|
|
|
2,622,670
|
(Class A)
|
securityholders
|
|
|
|
(Class B)
|
|
|
|
(Class B)
|
|
|
|
(Class B)
|
Equity compensation plans not approved by securityholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,290,099
|
|
|
$
|
17.98
|
|
|
|
2,622,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
AUDIT AND
NON-AUDIT FEES
Our audit committee approves the fees and other significant
compensation we pay to our independent registered public
accounting firm for the preparation and issuance of an audit
report or related work incidental to the opinion. Our audit
committee also approves all auditing services and permitted
non-audit services, including the fees and terms thereof, to be
performed for us by our independent registered public accounting
firm, subject to the de minimis exceptions for non-audit
services described in the Exchange Act. Our audit committee
delegates to our audit committee chairman pre-approval authority
for non-audit services up to $25,000 subject to subsequent
approval by the full audit committee at its next scheduled
meeting.
Our audit committee reviewed and discussed with KPMG LLP the
following fees for services KPMG LLP rendered to us during 2009
fiscal year and considered the compatibility of non-audit
services with KPMG LLPs independence.
|
|
|
|
|
Audit Fees. The fees of KPMG LLP we incurred
in connection with the audit of our annual consolidated and
statutory financial statements for those fiscal years, the
reviews of our consolidated financial statements included in our
Form 10-Q
quarterly reports and services performed in connection with
filings of registration statements and offerings for our fiscal
years ended December 31, 2008 and 2009 were $715,000 and
$765,000, respectively.
|
|
|
|
Audit-Related Fees. We did not pay any
audit-related fees to KPMG LLP during 2008 and 2009.
|
|
|
|
Tax Fees. We did not pay any tax fees to KPMG
LLP during 2008 or 2009.
|
|
|
|
All Other Fees. We paid KPMG LLP aggregate
fees for other services during our fiscal years ended
December 31, 2008 and 2009 of $63,500 and $-0-,
respectively.
|
Report of
Our Audit Committee
Our audit committee performs its responsibilities in accordance
with the Exchange Act, and each of our audit committee members
satisfies the independence and financial literacy requirements
under applicable Exchange Act rules. Our board of directors has
determined that all three members of our audit committee, Robert
S. Bolinger, John J. Lyons and Richard D. Wampler, II,
satisfy the financial expertise requirements and have the
requisite experience as defined by the SECs rules. Our
audit committee operates pursuant to a written charter, the full
text of which may be viewed on our website at
http://www.donegalgroup.com.
Our audit committee reviews and reassesses the adequacy of its
charter on an annual basis.
Our audit committee undertakes the following primary
responsibilities:
|
|
|
|
|
the selection, appointment, determination of funding for,
compensation, retention and oversight of the work of our
independent registered public accounting firm and the review of
its qualifications and independence;
|
|
|
|
the approval, in advance, of all auditing services and all
non-audit services to be performed by our independent registered
public accounting firm;
|
|
|
|
the oversight of our accounting and financial reporting
processes, including the overview of our financial reports and
our internal audit function;
|
|
|
|
the establishment of procedures for the receipt, retention and
treatment of complaints we receive regarding accounting,
internal accounting controls or auditing matters; and
|
|
|
|
the responsibility for reviewing reports and disclosures of all
related person transactions, subject to the approval of the
audit committee and the process set forth in our by-laws
relating to the coordinating committee.
|
In carrying out these responsibilities, our audit committee,
among other things:
|
|
|
|
|
monitors preparation of quarterly and annual financial reports
by our management;
|
31
|
|
|
|
|
supervises the relationship between us and our independent
registered public accounting firm, including having direct
responsibility for its appointment, compensation and retention,
reviewing the scope of its audit services, approving audit and
non-audit services and confirming the independence of our
independent registered public accounting firm; and
|
|
|
|
oversees managements implementation and maintenance of
effective systems of internal and disclosure controls, including
review of our policies relating to legal and regulatory
compliance, ethics and conflicts of interest and review of our
internal audit program.
|
Our audit committee met 11 times during 2009. Our audit
committee schedules its meetings in order to have sufficient
time to devote appropriate attention to all of its
responsibilities. When it deems it appropriate, our audit
committee holds meetings with our independent registered public
accounting firm and with our internal auditors in executive
sessions at which our management is not present.
As part of its oversight of our financial reporting process, our
audit committee reviews all annual and quarterly financial
statements and discusses them with our independent registered
public accounting firm and with management prior to the issuance
of the statements. During 2009, management and our independent
registered public accounting firm advised our audit committee
that each of these financial statements had been prepared in
accordance with generally accepted accounting principles, and
they reviewed significant accounting and disclosure issues with
our audit committee. These reviews included discussion with our
independent registered public accounting firm as to the matters
required to be discussed pursuant to Statement on Auditing
Standards No. 61 (The Auditors Communication With
Those Charged With Governance) as adopted by the Public Company
Accounting Oversight Board, or PCAOB, in Rule 3200T,
including the accounting principles we employ, the
reasonableness of significant judgments made by management and
the adequacy of the disclosures in our financial statements. Our
audit committee has received the written disclosures and the
letter from the independent registered public accounting firm
required by applicable requirements of the PCAOB regarding the
independent registered public accounting firms
communications with our audit committee concerning independence
and has discussed with the independent registered public
accounting firm its independence.
Our audit committee also reviewed methods of enhancing the
effectiveness of our internal and disclosure control systems.
Our audit committee, as part of this process, analyzed steps
taken to implement recommended improvements in our internal
control procedures.
Based on our audit committees reviews and discussions as
described above, our audit committee recommended to our board of
directors that our board of directors approve the inclusion of
our audited financial statements in our Annual Report on
Form 10-K
for the year ended December 31, 2009 for filing with the
SEC.
Submitted by:
Audit Committee
Robert S. Bolinger
John J. Lyons
Richard D. Wampler, II
March 10, 2010
32
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 our proxy statement for our 2011 annual meeting of
stockholders must deliver such proposal in writing to our
corporate secretary at our principal executive offices at 1195
River Road, Marietta, Pennsylvania 17547, not later than
November 14, 2010.
Pursuant to Section 2.3 of our by-laws, if a stockholder
wishes to present at our 2011 annual meeting of stockholders
(i) nominations of persons for election to our board of
directors or (ii) an item of business to be transacted by
our stockholders 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
our by-laws, which we summarize below. Our corporate secretary
must receive written notice of any such proposal containing the
information our by-laws require, as summarized herein, must be
received by our corporate secretary, at our principal executive
offices at 1195 River Road, Marietta, Pennsylvania 17547, during
the period that begins on November 14, 2010 and that ends
on December 14, 2010.
A written proposal of nomination for a director must set forth:
|
|
|
|
|
the name and address of the stockholder, as the same appears on
our books, who intends to make the nomination (the
Proposing Stockholder);
|
|
|
|
as to each person whom the Proposing Stockholder nominates for
election or reelection as a director, all information relating
to such person as in a solicitation of proxies for election of
such nominees as directors pursuant to the proxy rules under the
Exchange Act would require to be disclosed;
|
|
|
|
the principal occupation or employment for the past five years
of each person whose nomination the Proposing Stockholder
intends to make;
|
|
|
|
a description of any arrangement or understanding between each
person whose nomination the Proposing Stockholder proposes and
the Proposing Stockholder with respect to such persons
nomination for election as a director and actions such person
proposes to take;
|
|
|
|
the written consent of each person so nominated to serve as a
director if elected as a director; and
|
|
|
|
the number of shares of our Class A common stock and
Class B common stock the Proposing Stockholder beneficially
owns within the meaning of SEC
Rule 13d-3
and of record.
|
As to any other business that the Proposing Stockholder intends
to bring before our 2011 annual meeting of stockholders, the
written proposal must set forth:
|
|
|
|
|
a brief description of such business;
|
|
|
|
the Proposing Stockholders reasons for presenting such
business at our 2011 annual meeting of stockholders;
|
|
|
|
any material interest of the Proposing Stockholder in such
business;
|
|
|
|
the name and address of the Proposing Stockholder; and
|
|
|
|
the number of shares of our Class A common stock and our
Class B common stock the Proposing Stockholder beneficially
owns within the meaning of SEC
Rule 13d-3
and of record.
|
Only candidates nominated by stockholders for election as a
member of our board of directors in accordance with our by-law
provisions as summarized herein will be eligible for election as
a member of our board of directors at our 2011 annual meeting of
stockholders. A written proposal relating to a matter other than
a nomination for election as a director must set forth
information regarding the matter equivalent to the information
that would be required under the proxy rules of the SEC if
proxies were solicited for stockholder consideration of the
matter at a meeting of stockholders.
Only such business may be conducted at our 2011 annual meeting
of stockholders as shall have been brought before our annual
meeting in accordance with the procedures set forth in our
by-law provisions as
33
summarized herein. The chairman of our 2011 annual meeting of
stockholders will have the discretion to determine if a
nomination or an item of business has been proposed in
accordance with the procedures set forth in our by-laws as
summarized herein. Only stockholder proposals submitted in
accordance with the by-law provisions summarized above will be
eligible for presentation at our 2011 annual meeting of
stockholders, and any matter not submitted to our board of
directors in accordance with such provisions will not be
considered or acted upon at our 2011 annual meeting of
stockholders.
OTHER
MATTERS
Our board of directors does not know of any matters to be
presented for consideration at our 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 us will be voted in accordance with the
recommendation of our board of directors or, in the absence of
such a recommendation, in accordance with the judgment of the
proxy holder.
By order of our board of directors,
Donald H. Nikolaus,
President and Chief Executive Officer
March 15, 2010
34
Electronic Voting Instructions
You can vote by
Internet or telephone!
Available 24 hours a day, 7
days a week!
Instead of mailing your
proxy, you may choose one of the
two voting methods outlined below
to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN
THE TITLE BAR.
Proxies submitted by the Internet
or telephone must be received by
12:00 a.m., Eastern Time, on April
15, 2010.
Vote by Internet
Log on to the Internet and
go to
www.investorvote.com/DGIC
Follow the steps outlined on
the secured website.
Vote by telephone
Call toll free
1-800-652-VOTE (8683)
within the USA,
US territories & Canada any time on a touch tone
telephone. There is NO CHARGE to you for the call.
Using a black ink pen, mark your votes with an X as shown in Follow the instructions provided by the recorded message.
this example. Please do not write outside the designated areas. X
Annual Meeting Proxy Card
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
A Proposals The Board of Directors recommends a vote FOR each nominee listed in Proposal 1 and FOR Proposal 2.
1. Election of Class C Directors: For Withhold For Withhold For Withhold
01 John J. Lyons 02 S. Trezevant Moore, Jr. 03 R. Richard Sherbahn
For Against Abstain
2. Ratification of KPMG LLP as the Companys independent
registered public accounting firm for 2010.
3. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the Companys annual meeting and any
adjournment or postponement thereof.
B Non-Voting Items
Change of Address Please print new address below.
C Authorized Signatures This section must be completed for your vote to be counted.
Date and Sign Below
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, corporate officer, trustee, guardian, or
custodian, please give
full title.
Date (mm/dd/yyyy) Please print date below. Signature 1 Please keep signature within the box. Signature 2 Please keep signature within the box.
31A V
0158TB
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IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
Proxy DONEGAL GROUP INC.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 15, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Daniel J. Wagner and Jeffrey D. Miller, and each or
either of them, proxies of the undersigned, with full power of substitution, to vote all of
the shares of Class A common stock and Class B common stock of Donegal Group Inc. (the
Company) that the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Companys offices, 1195 River Road, Marietta,
Pennsylvania 17547, on April 15, 2010 at 10:00 a.m., and at any adjournment or postponement
thereof, as set forth on the reverse side of this proxy card.
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 our board of
directors recommendations.
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