UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
Date of Report (Date of earliest event reported: October 28, 2003
Donegal Group Inc.
------------------------------------------------------------------------ (Exact
name of registrant as specified in its charter)
Delaware 0-15341 23-02424711
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1195 River Road, Marietta, Pennsylvania 17547
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 717-426-1931
N/A
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(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
On October 28, 2003, Donegal Group Inc. (the "Company")
entered into a Stock Purchase Agreement with Folksamerica Holding Company, Inc.
(the "Seller") pursuant to which the Company will acquire all of the outstanding
common stock of The Peninsula Insurance Company ("Peninsula Insurance") and
Peninsula Indemnity Company ("Peninsula Indemnity") from the Seller. A copy of
the Stock Purchase Agreement is filed as Exhibit 10(AA) to this Form 8-K Current
Report. The purchase price will be a cash payment equal to 107.5% of the
consolidated stockholders' equity of Peninsula Insurance and Peninsula Indemnity
as of the date of closing of the acquisition (the "Closing Date"). The Company
estimates the purchase price will be approximately $23.0 million.
Peninsula Insurance and Peninsula Indemnity are each
Maryland-domiciled insurance companies headquartered in Salisbury, Maryland that
write primarily private passenger automobile coverages, and also write
homeowners, commercial multi-peril, workers' compensation and commercial
automobile coverages. The principal operating area of Peninsula Insurance and
Peninsula Indemnity is Maryland, Delaware and Virginia. For the year ended
December 31, 2002 and the nine months ended September 30, 2003, Peninsula
Insurance and Peninsula Indemnity on a consolidated basis had net premiums
earned of $29.7 million and $24.4 million, respectively. The consolidated
stockholders' equity and consolidated total assets of Peninsula Insurance and
Peninsula Indemnity at September 30, 2003 were $21.8 million and $61.4 million,
respectively. Peninsula Insurance and Peninsula Indemnity each have a rating of
A (Excellent) from A.M. Best & Company, Inc.
The Company's acquisition of Peninsula Insurance and Peninsula
Indemnity is subject to a number of conditions precedent, including the approval
of the acquisition by the Insurance Commissioner of the State of Maryland. The
Company currently expects to complete the acquisition on or about January 1,
2004.
The purchase price for Peninsula Insurance and Peninsula
Indemnity was determined by arms' length negotiations between the Company and
the Seller. There is no material relationship between the Seller and the Company
or any of its affiliates, any director or officer of the Company or any
associate of any such director or officer.
The Company intends to pay the purchase price for Peninsula
Insurance and Peninsula Indemnity with the Company's cash on hand, other
available sources of financing or a portion of the proceeds from a public
offering of the Company's Class A common stock. A Form S-2 registration
statement relating to the public offering was filed with the Securities and
Exchange Commission on October 31, 2003.
As publicly reported on September 4, 2003, the Company has
agreed to acquire all of the outstanding capital stock of an affiliated company,
Le Mars Mutual Insurance Company of Iowa ("Le Mars") following its conversion to
a stock insurance company pursuant to a plan of conversion adopted by Le Mars'
board of directors on August 11, 2003. On October 6, 20003, the policyholders of
Le Mars approved its conversion, and, on October 7, 2003, the Insurance
Commissioner of Iowa held a public hearing on the conversion. The Company
anticipates approval of the conversion in November 2003, and intends to
consummate the acquisition of Le Mars on January 1, 2004. The Company will
acquire the capital stock of Le Mars for $8.2 million, which is the fair
economic value of Le Mars as determined pursuant to the Iowa Insurance Code. In
connection with the conversion of Le Mars, the Company will purchase from
Donegal Mutual Insurance Company ("Donegal Mutual") a $4.0 million surplus note
(the "Surplus Note") Donegal Mutual purchased from Le Mars in June 2002 for the
principal amount thereof plus accrued interest to the date of purchase. Upon the
conversion, the Company will exchange the Surplus Note and the accrued but
unpaid interest thereon for shares of common stock of Le Mars, and the Surplus
Note will be cancelled. The Company also expects to make an additional capital
contribution of approximately $4.0 million to Le Mars.
The Company's total investment of approximately $12.5 million
in connection with the Le Mars acquisition will be funded with the Company's
cash on hand, other available sources of financing or a portion of the proceeds
from the public offering previously referenced.
Le Mars operates as a multiple line carrier in Iowa, Nebraska,
Oklahoma and South Dakota. Personal lines coverages represents a majority of
premiums written, with the balance coming from farmowners and mercantile and
service businesses. Le Mars' largest line of business is private passenger
automobile liability and physical damage; other principal lines include
homeowners and commercial multi-peril. Le Mars had net premiums earned of $20.5
million in 2002 and $13.3 million for the nine months ended September 30, 2003.
The statutory surplus and total admitted assets of Le Mars as of September 30,
2003 were $11.6 million and $37.7 million, respectively.
In June 2002, Donegal Mutual consummated an affiliation with
Le Mars. As part of the affiliation, which included Donegal Mutual's purchase of
the Surplus Note, Donegal Mutual entered into a management agreement with Le
Mars, and acquired control of Le Mars through the appointment of five Donegal
Mutual designees to Le Mars' nine-member board of directors. Except as disclosed
in this Form 8-K Current Report, there is no material relationship between Le
Mars and the Company or any of its affiliates, any director or officer of the
Company or any associate of any such director or officer.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
The following exhibits are field herewith:
Exhibit No. Description
10(AA) Stock Purchase Agreement
dated as of October 28,
2003 between Donegal Group
Inc. and Folksamerica
Holding Company, Inc.
Relating to the Capital
Stock of The Peninsula
Insurance Company and
Peninsula Indemnity
Company.
Exhibit 99.1* Press Release issued by
Donegal Group Inc. dated
October 30, 2003.
Exhibit 99.2* Press Release issued by
Donegal Group Inc. dated
November 3, 2003.
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* These press releases shall not be deemed to be filed for the purposes
of Section 18 of the Securities Exchange Act of 1934 or incorporated
by reference in any filing under the Securities Act of 1933.
Item 12. Results of Operations and Financial Condition.
On November 3, 2003, the Company issued a press release
regarding its October 31, 2003 filing of a Form S-2 registration statement
relating to the Company's public offering of up to 3,450,000 shares of its Class
A common stock. The book-running manager of the offering is SunTrust Robinson
Humphrey and the co-lead manager is Legg Mason Wood Walker, Inc. The co-managers
of the offering are Advest, Inc. and Cochran, Caronia & Co. The proceeds of the
offering will be used to fund the Peninsula and Le Mars acquisitions, to
increase the capital of the Company's insurance subsidiaries and for general
corporate purposes.
On October 10, 2003, the Company received a commitment letter
from Manufacturers and Traders Trust Company ("M&T") relating to a $35.0 million
line of credit. The Company anticipates this financing will be completed by
November 30, 2003, at which time the Company would draw against the line of
credit to repay the Company's outstanding indebtedness of $12.8 million to Fleet
National Bank and terminate the Company's line of credit with Fleet National
Bank. The Company currently has no other plans to draw against the M&T line of
credit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DONEGAL GROUP INC.
By: /s/ Donald H. Nikolaus
Donald H. Nikolaus, President
And Chief Executive Officer
Date: November 3, 2003