e424b3
Filed pursuant to Rule 424(b)(3)
Registration No. 333-167774
AMENDED
MERGER PROPOSAL YOUR VOTE IS VERY
IMPORTANT
To the Shareholders of Union National Financial Corporation:
On April 19, 2010, we agreed to merge with Donegal
Financial Services Corporation, or DFSC, an affiliate of Donegal
Group Inc., or DGI. The merger agreement provided that you would
receive 0.2134 share of Class A common stock of DGI
and $5.05 in cash for each share of common stock of Union
National Financial Corporation, or UNNF. On April 19, 2010,
the last trading day before we announced the signing of the
merger agreement, 0.2134 share of Class A common stock
of DGI and $5.05 in cash had a value of approximately $8.18 per
UNNF share.
The market for the stock of financial institutions in general
has been the subject of significant declines in recent months,
and individual stock prices for many financial institutions have
become depressed by historical standards. DGI Class A
common stock has declined from a price of $14.68 on
April 19, 2010 to $10.82 on August 30, 2010. The
April 19, 2010 merger agreement established a fixed merger
consideration that was not subject to any adjustment in the
event of increases or decreases in the price of DGI Class A
common stock subsequent to April 19, 2010. As a result of
the decline in the price of DGI Class A common stock, the
value of the merger consideration also declined from the value
we anticipated when we and the Donegal parties entered into the
merger agreement.
DFSC approached us in late August 2010 with an offer to amend
the merger agreement to provide for an increase in the cash
portion of the merger consideration so that UNNFs
shareholders would receive merger consideration consisting of
DGI Class A common stock and cash with a current value that
is more closely representative of the value of the merger
consideration we originally anticipated. We have agreed to amend
the merger agreement to reflect this adjustment.
Pursuant to the terms of the amended merger agreement, DFSC has
agreed to increase the cash portion of the merger consideration
from $5.05 per UNNF share to an amount that will not be less
than $5.05 per UNNF share nor more than $5.90 per UNNF
share depending on the average closing price of DGI Class A
common stock for the five trading days preceding the effective
date of the merger. In practical terms, you will receive merger
consideration with a value of approximately $8.25 per share of
UNNF common stock if DGI Class A common stock closes within
a price range of $11.00 to $15.00 for the five trading days
prior to the effective date of the merger. On a pro forma basis
as of August 30, 2010, the last trading date before we
printed and mailed this letter, and the accompanying prospectus
supplement and proxy card, the pro forma value of
0.2134 share of DGI Class A common stock and the
amount in cash as computed pursuant to the terms of the amended
merger agreement was $8.24 per share of UNNF common stock.
We are pleased that DFSC has agreed to increase the merger
consideration and believe this price increase demonstrates the
commitment of the Donegal parties to the merger and to our
long-term success. We also remind you that DGI Class A
common stock currently pays an annual dividend of $0.46 per
share.
We enclose a proxy card with this mailing. If you have not yet
voted, our entire board of directors asks you to vote to adopt
the merger agreement, as amended. You may vote by mail,
telephone or via the Internet by following the instructions
printed on the proxy card. IF YOU HAVE ALREADY VOTED, YOU
NEED NOT RETURN THE PROXY CARD.
If you have any questions, please contact me at
(717) 519-8630.
On behalf of our board of directors, I thank you for your prompt
attention to this important matter.
Sincerely,
Mark D. Gainer, Chairman,
President and Chief Executive Officer
September 1, 2010
Neither the Securities and Exchange Commission, or the SEC,
nor any state securities regulator has approved or disapproved
the merger described in this prospectus supplement and the
definitive proxy statement/prospectus, or the securities our
shareholders will receive in connection with such merger, or
determined if this prospectus supplement and the definitive
proxy statement/prospectus are accurate or adequate. Any
representation to the contrary is a criminal offense.
This prospectus supplement is dated September 1, 2010
and we are first mailing it to our shareholders on or about
September 2, 2010.
SUPPLEMENT
DATED SEPTEMBER 1, 2010
(To Proxy Statement/Prospectus dated July 29, 2010)
ADDITIONAL CASH CONSIDERATION OF UP TO $0.85 PER SHARE
AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
YOUR VOTE
IS VERY IMPORTANT
On August 5, 2010, we mailed to the shareholders of Union
National Financial Corporation, or UNNF, we, our or us, a
definitive proxy statement/prospectus relating to a special
meeting of our shareholders for the for the purpose of
considering and voting upon a proposal to adopt the agreement
and plan of merger dated as of April 19, 2010, as amended
May 20, 2010, or the merger agreement, among Donegal
Acquisition Inc., Donegal Financial Services Corporation, or
DFSC, Donegal Mutual Insurance Company, or DMIC, Donegal Group
Inc., or DGI, and, collectively, the Donegal parties, and us, as
well as the adjournment of the special meeting, if necessary, to
solicit additional proxies.
We are pleased to report that the Donegal parties and we have
entered into a second amendment to the merger agreement, which,
together with the merger agreement, we refer to as the amended
merger agreement. The primary purpose of the second amendment to
the merger agreement is to provide our shareholders with
additional cash merger consideration for each UNNF share held.
As a result, pursuant to the amended merger agreement, each
share of our common stock, other than the shares DMIC holds and
shares as to which the holder perfects dissenters rights,
will, upon the merger, convert into the right to receive
0.2134 share of Class A common stock of DGI, or the
stock consideration, and that amount of cash, or the cash
consideration, as equals $8.25 less the value of
0.2134 share of DGI Class A common stock, based on the
average closing price of DGI Class A common stock for the
five trading days immediately preceding the effective date of
the merger, but in no event less than $5.05 per share in cash
nor more than $5.90 per share in cash. DGI will pay cash in lieu
of any fractional interest in DGI Class A common stock.
The Donegal parties agreed to this additional merger
consideration in recognition of the fact that the price of DGI
Class A common stock on the NASDAQ Global Select Market, or
NASDAQ, has declined from approximately $15.00 per share in
early April 2010 to $10.82 per share on August 30, 2010,
the last trading date before printing and mailing this
prospectus supplement. In connection with the amended merger
agreement, DFSC also announced that the additional merger
consideration constitutes the maximum merger consideration DFSC
would provide to UNNFs shareholders.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
INTRODUCTION
|
|
|
S-1
|
|
UPDATE TO QUESTIONS AND ANSWERS ABOUT THE MERGER AND OUR SPECIAL
MEETING
|
|
|
S-1
|
|
UPDATE TO SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
OF DGI
|
|
|
S-3
|
|
UPDATE TO SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
OF UNNF
|
|
|
S-4
|
|
UNAUDITED PRO FORMA SELECTED CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
|
|
|
S-5
|
|
UPDATE TO PROPOSAL NO. 1 PROPOSAL TO
ADOPT THE MERGER AGREEMENT
|
|
|
S-5
|
|
UPDATE TO LITIGATION RELATED TO THE MERGER
|
|
|
S-7
|
|
REFERENCES TO ADDITIONAL INFORMATION
|
|
|
S-7
|
|
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
|
|
|
S-8
|
|
ABOUT THIS PROSPECTUS SUPPLEMENT TO THE DEFINITIVE PROXY
STATEMENT/PROSPECTUS
|
|
|
S-8
|
|
APPENDIX S-A
AMENDMENT DATED SEPTEMBER 1, 2010 TO AGREEMENT AND PLAN OF MERGER
|
|
|
S-A-1
|
|
S-i
INTRODUCTION
We incorporate by reference in this prospectus supplement the
information we included in the definitive proxy
statement/prospectus dated July 29, 2010 we mailed on or
about August 5, 2010 to shareholders of record as of the
close of business on July 29, 2010. To the extent the
information in this prospectus supplement differs from or
updates the information contained in the definitive proxy
statement/prospectus, the information in this prospectus
supplement governs.
UPDATE TO
QUESTIONS AND ANSWERS ABOUT THE MERGER
AND OUR SPECIAL MEETING
The following sections provide brief answers to some of the
more likely questions you may have in connection with the
amended merger agreement, our special meeting of shareholders
and the merger. This section does not contain all of the
information that is important to you. We urge you to read both
this prospectus supplement and the definitive proxy
statement/prospectus carefully, including the information we
incorporated by reference in this prospectus supplement and the
definitive proxy statement/prospectus.
|
|
|
Q: |
|
Why are you sending me this prospectus supplement and a new
proxy card? |
|
A: |
|
We are sending you this prospectus supplement and a new proxy
card because we and the Donegal parties entered into an
amendment, dated September 1, 2010, to the merger agreement
we and the Donegal parties entered into on April 19, 2010
and previously amended and restated on May 20, 2010. This
prospectus supplement describes the amendment to the merger
agreement and provides important updates to the definitive proxy
statement/prospectus. We have included a complete copy of the
amendment to the merger agreement as
Appendix S-A
to this prospectus supplement. We and DGI encourage you to read
the amendment to the merger agreement in its entirety, and, if
you have not done so already, to read the definitive proxy
statement/prospectus in its entirety. |
|
Q: |
|
What are the significant changes in the amended merger
agreement? |
|
A: |
|
The amendment to the merger agreement makes only one change. It
provides you with additional cash merger consideration depending
on the average closing price of DGI Class A common stock
for the five trading days preceding the effective date of the
merger. Before the amendment, the merger agreement provided that
each share of our common stock would automatically convert upon
the merger into $5.05 in cash and 0.2134 share of DGI
Class A common stock. As amended, the cash consideration
for each share of our common stock will be that amount of cash
as equals $8.25 less the value of 0.2134 share of DGI
Class A common stock based on the average closing price of
DGI Class A common stock for the five trading days
immediately preceding the effective date of the merger, but in
no event less than $5.05 per share in cash nor more than $5.90
per share in cash. |
|
|
|
|
|
The table below demonstrates the application of the adjustment
in the cash portion of the merger consideration at various price
levels. |
|
|
|
|
|
|
|
Five-Day Average
|
|
Value of 0.2134 Share of
|
|
|
|
|
Closing Price of
|
|
DGI Common Stock
|
|
Cash Amount
|
|
Total Consideration
|
DGI Class A
|
|
Per Share of UNNF
|
|
Per Share of UNNF
|
|
Per Share of UNNF
|
Common Stock
|
|
Common Stock
|
|
Common Stock
|
|
Common Stock
|
|
$15.00
|
|
$3.20
|
|
$5.05
|
|
$8.25
|
14.50
|
|
3.09
|
|
5.16
|
|
8.25
|
14.00
|
|
2.99
|
|
5.26
|
|
8.25
|
13.50
|
|
2.88
|
|
5.37
|
|
8.25
|
13.00
|
|
2.77
|
|
5.48
|
|
8.25
|
12.50
|
|
2.67
|
|
5.58
|
|
8.25
|
12.00
|
|
2.56
|
|
5.69
|
|
8.25
|
11.50
|
|
2.45
|
|
5.80
|
|
8.25
|
11.00
|
|
2.35
|
|
5.90
|
|
8.25
|
S-1
|
|
|
Q: |
|
What will UNNF shareholders now receive in the merger? |
|
A: |
|
Upon completion of the merger, a UNNF shareholder will now have
the right to receive for each UNNF share a combination of
(A) stock consideration of 0.2134 share of DGI
Class A common stock and (B) cash merger consideration
of not less than $5.05 per UNNF share and not more than $5.90
per UNNF share. |
|
Q: |
|
Has the UNNF board of directors approved the amended merger
agreement? |
|
A: |
|
Yes. Our board of directors met on September 1, 2010 and
approved the amendment to the merger agreement and recommends
that our shareholders vote FOR
adoption of the merger agreement, as amended. |
|
Q: |
|
What do I do if I have already submitted my proxy vote? |
|
A: |
|
If you have already submitted your proxy card and you do not
want to change the way you previously voted, you need not do
anything further and we will count your proxy vote at our
special meeting of shareholders. If you have not previously
voted or if you wish to revoke or change the proxy you have
already submitted, we urge you to complete, sign, date and
promptly mail your enclosed proxy card in the enclosed envelope
or cast your vote in person at our special meeting or deliver
your proxy via the Internet or telephone by following the
instructions printed on your proxy card and in the manner
described in the definitive proxy statement/prospectus. You may
revoke your proxy in writing at any time before the proxies vote
your shares at our special meeting in the manner we describe in
the definitive proxy statement/prospectus. |
|
Q: |
|
Whom should I call with questions? |
|
A: |
|
If you have any questions about the merger or about the
information contained in this prospectus supplement, please call
Mark D. Gainer, our Chairman, President and Chief Executive
Officer, at
(717) 519-8630,
or Georgeson, Inc., the proxy soliciting firm we have engaged,
at
(866) 821-2614. |
S-2
UPDATE TO
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF DGI
We derived the selected historical consolidated financial data
in the table below as of and for the six months ended
June 30, 2010 and 2009 from DGIs unaudited
consolidated financial statements, which we incorporate by
reference in this prospectus supplement. DGIs results of
operations for the six months ended June 30, 2010 are not
necessarily indicative of DGIs results of operations for
the full year of 2010. DGI management prepared the unaudited
financial information on the same basis as it prepared
DGIs audited consolidated financial statements. In the
opinion of DGIs management, this information reflects all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of this data for these
periods. You should read this information in conjunction with
DGIs consolidated financial statements and related notes
contained in the annual, quarterly and other reports DGI filed
with the SEC that we have incorporated by reference into this
prospectus supplement. See the section entitled References
to Additional Information beginning on
page S-7
of this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
|
(Dollars in thousands, except per share amounts)
|
|
Income Statement Data
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
184,374
|
|
|
$
|
175,890
|
|
Investment income, net
|
|
|
9,899
|
|
|
|
10,624
|
|
Realized investment gains
|
|
|
1,987
|
|
|
|
704
|
|
Total revenues
|
|
|
199,376
|
|
|
|
190,325
|
|
Income before income tax expense
|
|
|
2,146
|
|
|
|
5,346
|
|
Income tax expense
|
|
|
172
|
|
|
|
789
|
|
Net income
|
|
|
1,974
|
|
|
|
4,557
|
|
Basic earnings per share Class A
|
|
|
0.08
|
|
|
|
0.18
|
|
Diluted earnings per share Class A
|
|
|
0.08
|
|
|
|
0.18
|
|
Cash dividends per share Class A
|
|
|
0.115
|
|
|
|
0.1050
|
|
Basic earnings per share Class B
|
|
|
0.07
|
|
|
|
0.16
|
|
Diluted earnings per share Class B
|
|
|
0.07
|
|
|
|
0.16
|
|
Cash dividends per share Class B
|
|
|
0.1025
|
|
|
|
0.0925
|
|
Balance Sheet Data at End of Period
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
672,089
|
|
|
|
630,680
|
|
Total assets
|
|
|
963,817
|
|
|
|
893,824
|
|
Debt obligations
|
|
|
15,465
|
|
|
|
15,465
|
|
Total stockholders equity
|
|
|
387,878
|
|
|
|
371,327
|
|
Book value per common share
|
|
|
15.19
|
|
|
|
14.58
|
|
S-3
UPDATE TO
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF
UNNF
We derived the selected historical consolidated financial data
in the table below as of and for the six months ended
June 30, 2010 and 2009 from UNNFs unaudited
consolidated financial statements. UNNFs results of
operations for the six months ended June 30, 2010 are not
necessarily indicative of UNNFs results of operations for
the full year of 2010. UNNF management prepared the unaudited
financial information on the same basis as it prepared
UNNFs audited consolidated financial statements. In the
opinion of UNNFs management, this information reflects all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of this data for these
periods. You should read this information in conjunction with
UNNFs consolidated financial statements and related notes
contained in the annual, quarterly and other reports UNNF filed
with the SEC. See the section entitled References to
Additional Information beginning on page S-7 of this
prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
|
(Dollars in thousands, except per share amounts)
|
|
Summary of Operations Data:
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
11,002
|
|
|
$
|
12,046
|
|
Interest expense
|
|
|
4,340
|
|
|
|
6,123
|
|
Net interest income
|
|
|
6,662
|
|
|
|
5,923
|
|
Provision for credit losses
|
|
|
1,124
|
|
|
|
924
|
|
Net interest income after provision for credit losses
|
|
|
5,538
|
|
|
|
4,999
|
|
Non-interest income
|
|
|
1,075
|
|
|
|
2,657
|
|
Non-interest expense
|
|
|
8,306
|
|
|
|
8,494
|
|
Loss before income tax benefit
|
|
|
(1,693
|
)
|
|
|
(838
|
)
|
Benefit from income taxes
|
|
|
(692
|
)
|
|
|
(434
|
)
|
Net loss
|
|
|
(1,001
|
)
|
|
|
(404
|
)
|
Preferred stock dividends
|
|
|
35
|
|
|
|
|
|
Net loss to common shareholders
|
|
|
(1,036
|
)
|
|
|
(404
|
)
|
Per Share Data:
|
|
|
|
|
|
|
|
|
Loss per common share
|
|
|
(0.38
|
)
|
|
|
(0.15
|
)
|
Dividends paid
|
|
|
|
|
|
|
|
|
Book value per share at period end
|
|
|
10.66
|
|
|
|
11.19
|
|
Average number of shares outstanding basic and diluted (in
thousands)
|
|
|
2,742
|
|
|
|
2,721
|
|
Statement of Condition Data (at end of period):
|
|
|
|
|
|
|
|
|
Assets
|
|
|
501,880
|
|
|
|
515,737
|
|
Net loans and leases
|
|
|
326,746
|
|
|
|
345,594
|
|
Deposits
|
|
|
413,685
|
|
|
|
425,668
|
|
Long-term debt
|
|
|
30,834
|
|
|
|
38,334
|
|
Junior subordinated debentures
|
|
|
17,341
|
|
|
|
17,341
|
|
Total stockholders equity
|
|
|
30,521
|
|
|
|
30,602
|
|
|
|
|
|
|
|
|
|
|
Financial Ratios (annualized):
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
(0.40
|
)%
|
|
|
(0.16
|
)%
|
Return on average equity
|
|
|
(6.19
|
)
|
|
|
(2.57
|
)
|
Ratio of average equity to average assets
|
|
|
6.53
|
|
|
|
6.23
|
|
S-4
UNAUDITED
PRO FORMA SELECTED CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
We make reference to the unaudited pro forma selected condensed
consolidated financial information included in the definitive
proxy statement prospectus. The amended merger agreement does
not result in any material change in the unaudited pro forma
selected condensed consolidated financial information presented
in the definitive proxy statement/prospectus.
UPDATE TO
PROPOSAL 1
PROPOSAL TO ADOPT THE MERGER AGREEMENT
Background
of the Merger
The definitive proxy statement/prospectus describes the
background of the merger up to and including July 29, 2010,
the date of the definitive proxy statement/prospectus. The
discussion below supplements that description up to and
including the date of this prospectus supplement.
On or about August 5, 2010, we mailed to each of our
shareholders as of the July 29, 2010 record date the
definitive proxy statement/prospectus dated July 29, 2010,
in connection with our special meeting of shareholders that will
take place on September 16, 2010. Following the mailing of
the definitive proxy statement/prospectus, our officers and
representatives of Georgeson & Co., Inc., our proxy
soliciting firm, began to contact various of our shareholders to
solicit proxies from them in favor of the merger proposal and
the adjournment proposal.
The market for the stock of financial institutions in general
has been the subject of significant declines in recent months,
and individual stock prices for many financial intuitions have
become depressed by historical standards. DGI Class A
common stock has declined from a price of $14.68 on
April 19, 2010, the date we approved the merger agreement,
to $10.82 at the close of business on August 30, 2010. The
merger agreement established a fixed merger consideration that
was not subject to any adjustment in the event of increases or
decreases in the price of DGI Class A common stock
subsequent to April 19, 2010. As a result of the decline in
the price of DGI Class A common stock, the value of the
merger consideration our shareholders would have been entitled
to receive upon the merger had also declined from the value we
and DFSC anticipated when we and the Donegal parties executed
the merger agreement.
On August 27, 2010, DFSC approached us with an offer to
amend the merger agreement to provide for an increase in the
cash portion of the merger consideration so that our
shareholders will receive merger consideration consisting of DGI
Class A common stock and cash that is more closely
representative of the value of the merger consideration we and
DFSC originally anticipated.
On August 27, 2010, Duane Morris LLP, counsel to the
Donegal parties, presented us and our counsel, Kilpatrick
Stockton LLP, with a draft amendment to the merger agreement.
The draft provided for an increase in the merger consideration
payable to our shareholders upon the consummation of the merger.
Between August 27, 2010 and August 31, 2010, the
parties discussed the terms of the amendment. On
September 1, 2010, Mr. Gainer updated our board of
directors on the proposal DFSC has made to increase the
merger consideration because of the decrease in the value of DGI
Class A common stock. Our board of directors reviewed the
terms of the proposed amendment, and the factors it had
considered when our board of directors approved the original
merger agreement. Our board of directors concluded that nothing
had come to their attention that would cause them to change
their April 19, 2010 opinion as to the fairness, from a
financial point of view, of the original merger consideration.
DFSC also advised our board of directors that the additional
cash consideration that the amendment to the merger agreement
contemplates and 0.2134 share of DGI Class A common
stock represented the maximum amount of merger consideration
DFSC would provide to UNNF shareholders. Following extensive
discussion, our board of directors voted unanimously to approve
the amendment to the merger agreement.
On September 1, 2010, the parties signed the amendment to
the merger agreement. The parties issued a joint press release
after the close of the market on September 1, 2010 that
publicly announced the amendment to the merger agreement. The
joint press release indicated that the additional cash
consideration payable by
S-5
DFSC pursuant to the amendment to the merger amendment
represented the maximum amount of merger consideration DFSC
would provide to UNNF shareholders.
Reasons
for the Merger; Recommendation of Our Board of
Directors
The definitive proxy statement/prospectus describes our
reasons for the merger up to and including July 29, 2010.
The discussion below supplements that description up to and
including the date of this prospectus supplement.
In reaching its decision to recommend that our shareholders vote
to adopt the merger agreement as amended, our board of directors
was mindful of the matters described in the section entitled
Proposal No. 1 Proposal to Adopt the
Merger Agreement Our Board of Directors Reasons for
the Merger beginning on page 83 of the definitive
proxy statement/prospectus. At a meeting held September 1,
2010, our board of directors expressed its view that those
matters were still applicable. In addition, our board of
directors considered, among other things, the following
additional factors:
|
|
|
|
|
the fact that we have not received any other acquisition
proposal since we announced the merger;
|
|
|
|
the belief of our board of directors that the increased merger
consideration is more closely representative of the value of the
merger consideration we and the Donegal parties originally
anticipated;
|
|
|
|
our recent financial results, and our continuing need to raise
significant additional capital; and
|
|
|
|
DFSCs statement to us that the additional cash
consideration represented the maximum amount of merger
consideration DFSC would provide.
|
The preceding discussion of the factors our board of directors
considered is illustrative and not exhaustive. In light of the
variety of factors our board of directors considered in
connection with the evaluation of the amendment to the merger
agreement and the complexity of those factors, our board of
directors did not, and did not find it practicable to, quantify
or otherwise assign relative weights to the various factors it
considered, and individual directors may have given different
weights to different factors. We also make reference to the
discussion under Proposal No. 1
Proposal to Adopt the Merger Agreement Our Board of
Directors Reasons for the Merger beginning on
page 83 of the definitive proxy statement/prospectus.
Pursuant to the terms of the amended merger agreement, the stock
consideration ratio of 0.2134 shares of DGI Class A
common stock is fixed and DFSC will not adjust it for changes in
the market price of either UNNF common stock or DGI Class A
common stock. DFSC has agreed to adjust the amount of merger
consideration to reduce the risk of variation in the amount of
the total merger consideration based on recent changes in the
market value of DGI Class A common stock. However, the
dollar value of the merger consideration that a UNNF shareholder
will receive upon the completion of the merger will depend upon
the average closing price of DGI Class A common stock for
the five trading days immediately preceding the effective date
of the merger, and such dollar value may be higher or lower than
the dollar value of the merger value calculated as of the date
of this prospectus supplement. Accordingly, you should obtain
current stock prices for DGI Class A common stock. DGI
Class A common stock trades on the NASDAQ under the symbol
DGICA. On August 30, 2010, the last trading date before the
date we printed and mailed this prospectus supplement, the
closing price of DGI Class A common stock as quoted on
NASDAQ was $10.82.
We cannot complete the merger unless the holders of 80% of our
issued and outstanding common stock vote to adopt the merger
agreement. Whether or not you plan to attend our special meeting
of shareholders, please vote, if you have not already voted, by
completing the enclosed proxy card. You may also vote by
telephone or via the Internet by following the instructions
printed on the enclosed proxy card.
We will hold our special meeting at Encks Banquet and
Conference Center, 1461 Lancaster Road, Manheim, Pennsylvania,
on Thursday, September 16, 2010, at 10:00 a.m.
prevailing time. Your vote is very important. Regardless of
whether you plan to attend our special meeting, and if you have
not already submitted a proxy, please take the time to submit a
proxy in accordance with the instructions contained in the
definitive proxy statement/prospectus dated July 29, 2010
to vote your shares at our special meeting. Failing to vote on
the merger proposal will have the same effect as voting against
the merger proposal.
S-6
For your convenience, we have enclosed a new proxy card with
this prospectus supplement. If you have already delivered
a properly executed proxy and you do not wish to change your
vote, you do not need to do anything at this time. If
you have not previously voted or if you wish to revoke or change
your vote, please complete, date, sign and return the enclosed
proxy card or submit a proxy by telephone or via the Internet by
following the instructions on the enclosed proxy card. If you
hold your stock in street name through a bank,
broker or other nominee, please direct your bank, broker or
other nominee to vote in accordance with the instructions you
had received from your bank, broker or other nominee. We greatly
appreciate your cooperation in voting your shares.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE MERGER PROPOSAL AND
FOR THE ADJOURNMENT PROPOSAL.
This prospectus supplement contains additional information about
UNNF, the Donegal parties and the amended merger agreement. We
urge you to read carefully and in its entirety this prospectus
supplement, including the amendment to the merger agreement,
which we have attached to this prospectus supplement as
Appendix S-A.
We also urge you, if you have not done so already, to read
carefully and in its entirety the definitive proxy
statement/prospectus, dated July 29, 2010, which includes a
copy of the entire merger agreement as Appendix A to the
proxy statement/prospectus. In particular, you should carefully
consider the matters discussed under Risk Factors,
beginning on page 67 of the definitive proxy
statement/prospectus, which we have included with this mailing.
You also can obtain information about DGI and UNNF from
documents that each has filed with the SEC.
You may obtain an additional copy of the definitive proxy
statement/prospectus or of this prospectus supplement by
contacting Mark D. Gainer, Chairman, President and Chief
Executive Officer, Union National Financial Corporation, 570
Lausch Lane, Suite 300, Lancaster, Pennsylvania 17601,
telephone:
(717) 519-8630.
If you have any questions about the proposed merger, the amended
merger agreement or about how you can vote your shares, please
call Mark D. Gainer, our Chairman, President and Chief Executive
Officer, at
(717) 519-8630
or our proxy soliciting firm, Georgeson, Inc., toll-free at
(866) 821-2614.
UPDATE TO
LITIGATION RELATED TO THE MERGER
The definitive proxy statement/prospectus describes certain
pending litigation relating to the merger agreement up to and
including July 29, 2010, the date of the definitive proxy
statement/prospectus. The discussion below supplements that
description up to and including the date of this prospectus
supplement.
On August 23, 2010, the plaintiff dropped his claims
against the Donegal parties and filed a second amended complaint
against us and our directors. In that second amended complaint,
the plaintiff purports to bring his claims derivatively on
behalf of UNNF. We continue to believe that the second amended
complaint does not properly state a cause of action under
Pennsylvania law.
REFERENCES
TO ADDITIONAL INFORMATION
This prospectus supplement to the definitive proxy
statement/prospectus incorporates important business and
financial information and risk factors about DGI from documents
that DGI has previously filed with the SEC and that we have not
included in or delivered with this prospectus supplement. You
may obtain copies of the documents we have incorporated by
reference in this prospectus supplement, other than certain
exhibits to those documents, or filed as exhibits to DGIs
registration statement, as amended, of which this prospectus
supplement is a part, by requesting them from DGI in writing or
by telephone as follows:
Donegal Group Inc.
1195 River Road
Marietta, Pennsylvania 17547
Attention: Jeffrey D. Miller
Telephone:
(888) 877-0600
DGI will not charge you for any of the documents that you
request. In order to ensure timely delivery of these
materials, you must request the information no later than
September 9, 2010.
S-7
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows the incorporation by reference of
information into this prospectus supplement, which means that
DGI can disclose important information to you by referring to
another document DGI has separately filed with the SEC. The
information DGI has incorporated by reference in this prospectus
supplement is deemed to be part of this prospectus supplement,
except for any such information that information in this
prospectus supplement supersedes. This prospectus supplement
incorporates by reference the documents set forth below that DGI
has previously filed with the SEC:
|
|
|
|
|
DGIs Annual Report on
Form 10-K
for the year ended December 31, 2009.
|
|
|
|
DGIs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010.
|
|
|
|
DGIs Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2010.
|
|
|
|
DGIs Current Reports on
Form 8-K
filed on February 17, 2010, April 15, 2010,
April 16, 2010, April 21, 2010, April 23, 2010,
May 24, 2010, June 16, 2010, July 15, 2010,
July 19, 2010, July 20, 2010 and July 23, 2010,
other than the portions of those documents not deemed to be
filed.
|
|
|
|
The description of the DGI Class A common stock and
Class B common stock set forth in the registration
statement on
Form 8-A
DGI filed pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, or the 1934 Act, including any
amendment or report filed with the SEC, for the purpose of
updating this description.
|
In addition, DGI incorporates by reference any documents it may
file with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the 1934 Act, as amended, after the date of this
prospectus supplement and prior to the date of the special
meeting of our shareholders.
ABOUT
THIS PROSPECTUS SUPPLEMENT TO THE DEFINITIVE PROXY
STATEMENT/PROSPECTUS
This prospectus supplement, which forms a part of the
registration statement on
Form S-4,
DGI filed with the SEC, constitutes a supplement to the DGI
prospectus under Section 5 of the Securities Act of 1933,
as amended, with respect to the shares of DGI Class A
common stock our shareholders will receive in connection with
the proposed merger. This prospectus supplement also constitutes
a supplement to the UNNF proxy statement under Section 14
of the 1934 Act.
S-8
APPENDIX S-A
AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT dated as of September 1, 2010 (this
Amendment) to the Agreement and Plan of Merger dated
as of April 19, 2010, as amended and restated on
May 20, 2010 (the Agreement), among DONEGAL
ACQUISITION INC. (DAI), DONEGAL FINANCIAL SERVICES
CORPORATION (DFSC), DONEGAL MUTUAL INSURANCE COMPANY
(DMIC), DONEGAL GROUP INC. (DGI) and
UNION NATIONAL FINANCIAL CORPORATION (UNNF).
WITNESSETH:
WHEREAS, DAI, DFSC, DMIC, DGI and UNNF, as permitted by
Section 10.3 of the Agreement, desire to amend the
Agreement to the extent specified in this Amendment;
NOW, THEREFORE, DAI, DFSC, DMIC, DGI and UNNF, in consideration
of the agreements and covenants contained in this Amendment and
in the Agreement and intending to be legally bound hereby,
covenant and agree as follows:
1. Amendment of Section 1.4(a) of the
Agreement. Section 1.4(a) of the
Agreement is hereby amended and restated so that, as amended and
restated, said Section 1.4(a) of the Agreement shall read
in its entirety as follows:
1.4 Conversion of UNNF Capital Stock.
(a) Subject to the provisions of this Agreement each share
of common stock, par value $.25 per share, of UNNF (UNNF
Common Stock) issued and outstanding immediately prior to
the Effective Time, other than Treasury Shares as defined in
Section 1.4(b) and shares held by DMIC or DFSC shall, by
virtue of the Parent Merger, no longer be outstanding and shall
as of the Effective Time automatically be converted into and
shall thereafter represent the right to receive as merger
consideration (the Merger Consideration) 0.2134 of a
share (the Exchange Ratio) of Class A Common
Stock, par value $.01 per share, of DGI currently held by DMIC
(DGI Common Stock) and that amount of cash as equals
$8.25 less the value of 0.2134 shares of DGI Class A
common stock, based on the average closing price of DGI
Class A common stock for the five trading days preceding
the Effective Time, but in no event less than $5.05 per share in
cash or more than $5.90 per share in cash, and each share of 5%
non-cumulative non-voting convertible perpetual preferred stock,
Series A, par value $.25 per share, of UNNF (the UNNF
Preferred Stock) issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Parent Merger, no
longer be outstanding and shall as of the Effective Time
automatically be converted into and shall thereafter represent
the right to receive as merger consideration an amount of cash
and DGI Common Stock equal to the number of shares of UNNF
Common Stock into which each share of UNNF Preferred Stock is
convertible, multiplied by the Exchange Ratio, provided,
however, that Donegal Mutual has no obligation under this
Agreement to make available more than 600,000 shares (the
Stock Amount) of DGI Common Stock as Merger
Consideration.
2. Ratification of Remainder of the
Agreement. Except for the amendment to
Section 1.4(a) of the Agreement as set forth in
Section 1 of this Amendment, all of the terms and
provisions of the Agreement are hereby ratified and confirmed
and shall remain in full force and effect.
S-A-1
IN WITNESS WHEREOF, DAI, DFSC, DMIC, DGI and UNNF, by their
officers thereunto duly authorized, have executed this Amendment
as of the day and year first above written.
|
|
|
DONEGAL ACQUISITION INC.
|
|
DONEGAL GROUP INC.
|
|
|
|
By: /s/ Donald
H. Nikolaus
|
|
By: /s/ Donald
H. Nikolaus
|
Donald H. Nikolaus, President
|
|
Donald H. Nikolaus, President
|
|
|
|
DONEGAL FINANCIAL SERVICES CORPORATION
|
|
UNION NATIONAL FINANCIAL CORPORATION
|
|
|
|
By: /s/ Donald
H. Nikolaus
|
|
By: /s/ Mark
D. Gainer
|
Donald H. Nikolaus, President
|
|
Mark D. Gainer, President
|
|
|
|
DONEGAL MUTUAL INSURANCE COMPANY
|
|
|
|
|
|
By: /s/ Donald
H. Nikolaus
|
|
|
Donald H. Nikolaus, President
|
|
|
S-A-2