PLAN OF CONVERSION
OF
SHEBOYGAN FALLS MUTUAL INSURANCE COMPANY
Under Section 4m of
Chapter 611.76 of the Wisconsin Statutes
As used in this
Plan of Conversion, the following terms have the following
meanings:
“Acquisition”
means the acquisition of all of the capital stock of SFS by
DGI.
“Adoption
Date” means October 14, 2008, the date on which the
Board approved and adopted this Plan.
“Application”
has the meaning specified in Section 3(a) of Chapter 611.76 of
the Wisconsin Statutes.
“Appraisal
Committee” means Randy Blumer, Brian J. Hogan and Richard J.
Kreintz, the three persons appointed by the Commissioner pursuant
to Section 3(c) of Chapter 611.76 of the Wisconsin Statutes to
determine the value of SFM as of the Effective Date of the
Conversion.
“Board”
means the Board of Directors of SFM.
“Certificate
of Authority” means the certificate of authority to engage in
the insurance business to be issued to SFS by OCI pursuant to
Section 9 of Chapter 611.76 of the Wisconsin
Statutes.
“Commissioner”
means the Commissioner of Insurance of the State of
Wisconsin.
“Contract
Rights” means an Owner’s right to receive (i) the
insurance coverage specified in such Owner’s Policy in
accordance with the terms and provisions thereof and
(ii) dividends, if any, as and when declared by the Board in
accordance with the terms and provisions of each Owner’s
Policy and other distributions upon liquidation or
conversion.
“Contribution
Note” means the contribution note in the principal amount of
$3.5 million issued by SFM to DM.
“Conversion”
means the conversion of SFM from a Wisconsin-domiciled mutual
insurance company into SFS, a Wisconsin-domiciled stock insurance
corporation, pursuant to Section 4m of Chapter 611.76 of the
Wisconsin Statutes.
“Conversion
Resolutions” has the meaning specified in
Section 2.1(a).
“Demutualization
Committee” means the committee of the Board formed in
October 2007 that is comprised of the four members of the
Board (Kenneth F. Maurer, James H. Fasse, Thomas A. Scribner and
Lee F. Wilcox) who have no affiliation with DM and DGI.
“DGI”
means Donegal Group Inc., an insurance holding company organized
and existing under the laws of the State of Delaware.
“DM”
means Donegal Mutual Insurance Company, a mutual fire insurance
company organized and existing under the laws of the Commonwealth
of Pennsylvania.
“Effective
Date” means the date on which the Conversion occurs as
provided in Section 9 of Chapter 611.76 of the Wisconsin
Statutes. It is the intent of SFM that the Effective Date be 12:01
a.m., Central Standard Time, on December 1, 2008.
“Eligible
Policyholder” means a SFM policyholder entitled to such
policyholder’s equitable share in the Value of SFM as
determined in accordance with Section 4m(a) of
Chapter 611.76 of the Wisconsin Statutes.
“Equitable
Share” has the meaning specified in Section 4m(a) of
Chapter 611.76 of the Wisconsin Statutes.
“Hearing”
means the public hearing to be held by OCI to present evidence and
argument relevant to the fairness and equity of this Plan as
specified in Section 6(a) of Chapter 611.76 of the Wisconsin
Statutes.
“In
Force” means a Policy that was in effect on a given date.
This determination is made in accordance with Section 6.3 and
is based on SFM’s records.
“Note
Purchase Agreement” means the Contribution Note Purchase
Agreement dated as of December 27, 2006 between SFM and
DM.
“OCI”
means the Office of the Commissioner of Insurance of the State of
Wisconsin, or such governmental officer, body or authority as
becomes the primary regulator of SFM and SFS under applicable
Wisconsin law.
“Owner”
means the Person or Persons who, as determined by the records of
SFM, the Restated Articles of Incorporation of SFM and the Amended
and Restated Bylaws of SFM, were holders of an In Force Policy on
April 30, 2008 or who paid premiums to SFM within the five
years prior to April 30, 2008 and as further specified or
determined in accordance with Section 6.2.
“Ownership
Interest” means a Person’s rights as an Owner. These
rights include all rights arising prior to the Effective Date under
the Restated Articles of Incorporation of SFM
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and the Amended
and Restated Bylaws of SFM and as otherwise provided under
Wisconsin law through ownership or issuance of a Policy or Policies
by SFM, excluding Contract Rights and any other right or interest
conferred solely by and under the terms and conditions of a Policy.
Such Ownership Interest rights include (i) Voting Rights and
(ii) any rights of an Owner to the return of the surplus of
SFM that may exist with regard to the surplus not apportioned or
declared by the Board as divisible surplus, including rights of an
Owner to a distribution of such surplus in dissolution or
conversion proceedings under Chapter 611 of the Wisconsin
Statutes.
“Person”
means an individual, corporation, limited liability company, joint
venture, partnership, association, trust, trustee, unincorporated
entity or any other form of organization or government or any
department or agency thereof. A Person who is the Owner of Policies
in more than one legal capacity, e.g., a trustee under separate
trusts, shall be deemed to be a separate Person in each such
capacity.
“Plan”
means this Plan of Conversion of SFM submitted to OCI pursuant to
Section 4m of Chapter 611.76 of the Wisconsin Statutes as it
may be amended from time to time or withdrawn in accordance with
Section 7.3.
“Policy”
has the meaning specified in Section 6.1.
“Policyholders
Information Statement” means the document summarizing this
Plan and containing information relevant to the Hearing, the
Special Meeting and the Conversion that will be mailed to the
Voting Policyholders in connection with the notice required by
Section 6 of Chapter 611.76 of the Wisconsin
Statutes.
“SFM”
means the Wisconsin-domiciled mutual insurance company named
Sheboygan Falls Mutual Insurance Company.
“SFS”
means Sheboygan Falls Insurance Company as reorganized as and
converted to the Wisconsin-domiciled stock insurance corporation
named Sheboygan Falls Insurance Company.
“Special
Meeting” has the meaning specified in
Section 4.1(a).
“Value”
has the meaning specified in Section 5.1(a).
“Voting
Policyholder” means the policyholders entitled to vote at the
Special Meeting in accordance with Section 8 of
Chapter 611.76 of the Wisconsin Statutes.
“Voting
Right” means the right of the holder of an In Force Policy to
vote for the election of directors of SFM at the annual meeting of
policyholders and to vote on other matters pursuant to the Restated
Articles of Incorporation of SFM and the Amended and Restated
Bylaws of SFM.
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ARTICLE II
THE CONVERSION
(a) The
Board approved resolutions determining that the Conversion is in
the best interests of the current and future policyholders of SFM
and specifying the reasons therefor and the purposes of the
Conversion, and the manner in which the Conversion is expected to
benefit the policyholders at a meeting duly called and held on
April 30, 2008 (the “Conversion
Resolutions”).
(b) Under
this Plan, SFM shall convert into SFS, a Wisconsin-domiciled stock
insurance corporation and all Ownership Interests shall terminate
on the Effective Date. Upon the Conversion, each Eligible
Policyholder shall have the right to receive cash in an amount
equal to the Equitable Share of such Eligible Policyholder in the
Value of SFM.
(c) While
the Ownership Interests shall terminate and be extinguished upon
the Effective Date, the Conversion in and of itself shall not, in
any way, alter the Contract Rights, including but not limited to,
the premiums due in respect of a Policy that is In Force, reduce
the benefits under a Policy that is In Force or otherwise diminish
the obligations of SFS as the successor to SFM to the holders of In
Force Policies.
2.2 Conditions
Precedent . The effectiveness of the Conversion and the
Acquisition shall be subject to the satisfaction, or waiver by DM
and SFM if legally permitted, of the following conditions in each
case in accordance with applicable provisions of
Chapter 611.76 of the Wisconsin Statutes:
(i) the
approval of the Conversion and other transactions that are
contemplated by this Plan by OCI;
(ii) the
approval of this Plan by the Voting Policyholders of SFM;
and
(iii) DGI
shall have made the payments and the contributions to SFS in
accordance with subsections (b) and (c) of
Section 5.4.
ARTICLE III
ACTIONS BY SHEBOYGAN FALLS MUTUAL
3.1
Application . SFM shall file an Application with OCI
requesting approval of the Conversion and the other transactions
contemplated by this Plan. The Application shall include the
following:
(a) the
Conversion Resolutions certified by the Secretary of
SFM;
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(c) the
form of notice of the Hearing;
(d) the
form of notice of the Special Meeting;
(e) the
form of proxy to be solicited from the Voting Policyholders with
respect to the Conversion;
(f) the
Policyholders Information Statement to be mailed to the Voting
Policyholders;
(g) a
Form D Statement filing with respect to the exchange of the
Contribution Note for the shares of SFS;
(h) the
proposed Articles of Incorporation of SFS;
(i) the
proposed Bylaws of SFS;
(j) a
projection of the planned or anticipated financial situation of SFS
for five years after the Conversion; and
(k) any
other information or documentation required or requested by OCI to
make the findings required by Section 5(c) of Chapter 611.76
of the Wisconsin Statutes.
3.2 Notice of
the Hearing .
(a) SFM,
at its expense, shall mail written notice of the Hearing, in a form
satisfactory to OCI, by first-class mail, postage prepaid, to each
Voting Policyholder at the address of such Voting Policyholder as
it appears in the books of SFM, except in instances where mailing
of notice is not feasible as determined by OCI, and other
interested persons as determined by OCI, not less than 10 nor more
than 30 days prior to the date of the Hearing. Such notice
shall be accompanied
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