As filed with the Securities and Exchange Commission on December 6, 2005
Registration No. 33-90810
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
POST-EFFECTIVE
AMENDMENT NO. 2
TO
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HARLEYSVILLE GROUP INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 51--0241172
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
355 Maple Avenue
Harleysville, Pennsylvania 19438
(215) 256-5000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Michael L. Browne
President and Chief Executive Officer
355 Maple Avenue
Harleysville, Pennsylvania 19438
(215) 256-5000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
With copies to:
Robert A. Kauffman Justin Klein
Harleysville Group Inc. Ballard Spahr Andrews & Ingersoll, LLP
355 Maple Avenue 1735 Market Street, 51st Floor
Harleysville, Pennsylvania 19438 Philadelphia, PA 19103
(215) 256-5000 (215) 864-8608
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. If this Form is filed to
register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
Page2
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If this Form is a registration statement pursuant to General Instruction
I.D. or a post-effective amendment thereto that shall become effective upon
filing with the Commission pursuant to Rule 462(e) under the Securities Act,
check the following box.
If this Form is a post-effective amendment to a registration statement
filed pursuant to General Instruction I.D. filed to register additional
securities or additional classes of securities pursuant to Rule 413(b) under the
Securities Act, check the following box.
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
maximum maximum
Title of each class Amount to offering aggregate Amount of
of securities to be be price per offering registration
registered registered(1) unit(2) price fee(3)
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Common Stock
$1.00 par value 500,000 shares $24.69 $12,343,750 $4,257.00
1 The 500,000 shares which were previously registered pursuant to the
Company's Registration Statement on Form S-3 filed on March 30, 1995 were
increased to 1,000,000 shares pursuant to a two for one stock split effective
October 6, 1997. No additional shares are being registered at this time.
2 Estimated solely for the purpose of computing the registration fee based,
in accordance with Rule 457(c), upon the average of high and low prices of
the Registrant's Common Stock on the NASDAQ National Market System on
March 24,1995.
3 The registration fee was paid on March 30, 1995 in connection with the
Company's Registration Statement filed on Form S-3 on March 30, 1995.
The registrant hereby amends this registration statement on such date or
such dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
Page 3
Michael L. Browne Tel: 215.256.5014
Chief Executive Officer Fax: 215.256.5008
Harleysville Insurance mbrowne@harleysvillegroup.com
355 Maple Avenue
Harleysville, PA 19438
Dear Agency Principal:
More than ten years ago, we introduced a discounted Stock Purchase Plan
enabling our best agencies to share in the ownership and success of Harleysville
Group Inc. It came as no surprise that our agents welcomed this opportunity and
to date have purchased more than $8.6 million of Harleysville Group stock (in
excess of 476,000 shares). We have recently revised the Agency Stock Purchase
Plan to provide for an additional twenty subscription periods to allow agents to
continue to take advantage of this opportunity.
As one of Harleysville's best agents, you are now eligible for Harleysville
Group's Amended and Restated Agency Stock Purchase Plan. This means that you can
purchase shares of Harleysville Group (HGIC on NASDAQ) common stock at a 10%
discount from the market price - without paying any brokerage commissions or
service charges. The price of your purchases will be discounted below the
closing price of our stock on the last day of each six-month subscription
period, as reported on the NASDAQ National Market System.
With an enviably solid balance sheet, escalating commercial lines profit
margins, and improving personal lines fundamentals, our company's future is
bright and Harleysville Group's stock represents an excellent value. Along with
our current dividend yield of 2.6%, Harleysville Group's stock appeals to many
long-term, value-oriented investors, especially when coupled with the 10%
discount offered through the Amended and Restated Agency Stock Purchase Plan.
There are three ways in which you can participate. You may contribute a
fixed percentage of your direct bill commissions, make lump-sum contributions,
or allocate a portion of your annual agency profit sharing bonus, payable in
March (only available during the January 15th to July 14th subscription period).
Whichever method or methods you select, you may not contribute more than $12,500
in any subscription period. Mellon Investor Services will provide you with
semiannual statements reflecting your stock purchases in order to simplify your
record-keeping efforts.
Enclosed is a Subscription Agreement. If you decide to enroll, we must
receive your completed Subscription Agreement by January 6th if you opt for the
direct bill commission method. Please note that you are also required to
complete, sign and return the enclosed W-9 along with your Subscription
Agreement.
I'm sure you will agree that this plan provides you with an excellent way
to share in the future growth and prosperity of Harleysville Insurance. For full
information on the program, please read the enclosed prospectus and brochure.
You will also find additional information on Agent Link at
https://agents.harleysvillegroup.com. If you have any questions, please contact
Hillary Kessler at 800.523.6344, extension 5719.
Sincerely,
Michael L. Browne
President and CEO
Page 4
PROSPECTUS
HARLEYSVILLE GROUP INC.
REVISED AND RESTATED
AGENCY STOCK PURCHASE PLAN
1,000,000 shares of Common Stock
par value $1.00
______________________________________________________________________
The Revised and Restated Agency Stock Purchase Plan (the "Plan") described
herein offers eligible agencies of the Harleysville Group Inc.'s parent and
subsidiary insurance companies an opportunity to acquire a proprietary interest
in Harleysville Group Inc. (the "Company") and share in its long-term profitable
growth.
Shares of Common Stock for the Plan will be made available by the
Company on the terms described herein and may be shares of treasury stock or
authorized but unissued shares. The purchase price for shares of Common Stock
purchased from the Company will be ninety per cent (90%) of the closing price of
the Common Stock as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") on the last trading day of the applicable
Subscription Period. Prices for the Common Stock are published in NASDAQ's
National Market System under the symbol "HGIC".
There will be no brokerage commissions or service charges upon the purchase
of shares under the Plan. The Company will bear all other costs of administering
the Plan. Mellon Investor Services ("Mellon") is agent under the Plan.
It is recommended that this Prospectus be retained for future
reference.
______________________________________
Risk Factors are set forth on Pages 12-19 of the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Price
to Proceeds to
Public Commissions Company (2)
Per Share See Footnote(1) None 100%
Total See Footnote(1) -0- 100%
(1) Common Stock is traded in the over-the-counter market and quoted
on the NASDAQ National Market System. Common Stock is offered to
participants in the Plan at a discount of ten per cent (10%) from the
closing price quoted on the NASDAQ National Market System on the last
trading day of the applicable Subscription Period. The closing price of
Common Stock quoted on the NASDAQ National Market System on November 15,
2005 was $23.77.
(2) Before deducting expenses payable by the Company estimated at
$9,000.00.
The date of this Prospectus is
__________________________
Page 5
TABLE OF CONTENTS
Available Information I-2
Incorporation of Certain Documents I-3
The Company I-4
Description of the Plan I-4
Purpose and Advantages of the Plan I-4
Administration of the Plan I-5
Participation I-5
Costs & Expenses I-7
Purchases I-7
Reports to Participants I-9
Certificates for Shares; Sale of Shares I-9
Withdrawal from Plan I-10
Other Information I-11
Risk Factors I-12
Use of Proceeds I-19
Experts I-19
Legal Opinion I-20
Page 6 (I-2)
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company may be inspected and copied at the SEC's public
reference room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet website that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the SEC at www.sec.gov.
This Prospectus, which constitutes a part of a registration statement (the
"Registration Statement") on Form S-3 No. 333-90810 filed by the Company with
the Commission under the Securities Act of 1933, omits certain of the
information set forth in the Registration Statement. Reference is hereby made to
the Registration Statement and to the exhibits thereto for further information
with respect to the Company and the securities offered hereby. Statements
contained herein concerning the provisions of such documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.
Copies of the Registration Statement and the exhibits thereto are on file at the
offices of the Commission and may be obtained upon payment of the prescribed fee
or may be examined without charge at the public reference facilities of the
Commission described above.
WHERE YOU CAN FIND MORE INFORMATION
We make available free of charge our Internet website at
www.harleysvillegroup.com our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports filed
and furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. The information on our website is not
incorporated by reference into this prospectus and does not constitute a part of
this prospectus.
Page 7 (I-3)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
are incorporated hereby by reference:
a. Annual Report on Form 10-K for the year ended December 31, 2004 filed
by the Company pursuant to Section 13(a) of the Exchange Act.
b. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005,
June 30, 2005 and September 30, 2005, filed by the Company pursuant to
Section 13(a) of the Exchange Act.
c. Definitive Proxy Statement dated March 29, 2005 for the Company's April
27, 2005 Annual Meeting of the Stockholders filed by the Company pursuant
to Section 14 of the Exchange Act.
d. The Information Statement dated June 21, 2005 filed by the Company
pursuant to Section 14 of the Exchange Act.
e. Our Current Reports on Form 8-K filed on January 6, 2005, January 14,
2005, January 18, 2005, January 31, 2005, February 28, 2005, May 3, 2005,
August 11, 2005, and August 25, 2005.
f. The description of the Company's common stock set forth in response to
Item 1(b) of the Registration Statement on Form 8-A filed by the Company
pursuant to Section 12 of the Exchange Act and any amendment to such
registration statement filed for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of Common Stock covered by this Prospectus shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of the filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which is also
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all documents incorporated herein by reference, other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
therein. Written requests should be directed to:
Harleysville Group Inc.
Attn: Investment Department
355 Maple Avenue
Harleysville, Pennsylvania 19438
Telephone requests may be directed to the Company at (215) 256-5151.
Page 8 (I-4)
THE COMPANY
Harleysville Group Inc. is a regional insurance holding company
headquartered in Pennsylvania which engages through its subsidiaries in the
property and casualty insurance business.
The Company is a Delaware corporation formed in 1979 as a wholly-owned
subsidiary of Harleysville Mutual Insurance Company (the "Mutual Company"). In
May 1986, the Company completed an initial public offering of its Common Stock,
reducing the percentage of outstanding shares owned by the Mutual Company to
approximately 70%. In April 1992, the Mutual Company completed a secondary
public offering further reducing the percentage of outstanding shares owned by
the Mutual Company to approximately 55%. The Mutual Company currently owns
approximately 56% of the outstanding shares.
Harleysville Group and the Mutual Company operate together to pursue a
strategy of underwriting a broad array of personal and commercial coverages.
These insurance coverages are marketed primarily in the eastern and Midwestern
United States through approximately 1,600 insurance agencies.
The Company's principal executive offices are located at 355 Maple Avenue,
Harleysville, Pennsylvania 19438 and its telephone number is (215) 256-5000.
DESCRIPTION OF THE
REVISED AND RESTATED AGENCY STOCK PURCHASE PLAN
The following is a description in question and answer form of the
provisions of the Plan offered to selected independent insurance agencies of the
Company's parent, or affiliated and subsidiary insurance companies. The Agency
Stock Purchase Plan was approved by the Company's Board of Directors on February
22, 1995, amended and restated on August 23, 1995. The Revised and Restated
Agency Stock Purchase Plan (the "Plan") was approved by the Company's Board of
Directors on June 7, 2005, subject to shareholder approval. The Plan was
approved by the shareholders by written consent on June 16, 2005.
Purpose and Advantages of the Plan
1.What is the purpose of the Plan?
This Plan provides an Eligible Agency and its Key Employees, as defined
below, an opportunity to acquire a long-term proprietary interest in the Company
through the purchase of the Company stock at a discount from fair market value.
In offering this Plan, the Company seeks to foster the common interests of the
Company and its independent agencies and employees thereof in achieving
long-term profitable growth for the Company. Accordingly, the Company has
created this Plan for the purpose of facilitating the purchase of, and long-term
holding of, shares of its stock by an Eligible Agency and its Key Employees and
not for such agency's or Key Employees' short-term gain. It is expected that an
Eligible Agency or Key Employee that purchases shares of stock
Page 9 (I-5)
hereunder will hold such shares on a long-term basis, as the Plan is not
intended to benefit an agency or employee which demonstrates a pattern of
immediate resale of shares acquired hereunder and, as discussed in Question &
Answer 6 below regarding eligibility, such a pattern of conduct will cause an
otherwise Eligible Agency to become ineligible for continued participation in
the Plan.
2.What are the advantages of the Plan?
Under the Plan, an agency can utilize three convenient payment methods for
the purchase of the Company's common stock at a 10% discount from the fair
market value of such shares. Purchases will also be made without paying any
brokerage commissions or service charges.
Administration
3.Who administers the Plan for participants?
The Plan shall be administered by a committee (the "Committee") consisting
of three employees of the Company who are appointed by and serve at the pleasure
of the Company's Board of Directors. The Committee may from time to time adopt
rules, regulations, and procedures for carrying out the Plan. Any interpretation
or construction of any provision of the Plan by the Committee shall be final and
conclusive on all persons absent contrary action by the Board of Directors.
4.Where can I obtain additional information about the Plan and its
administrators?
Additional information about the Plan and its administrators may be
obtained by contacting the Company's Investment Department at (215) 256-5151.
5.What is the term of the Plan?
The Plan has been in effect since July 15, 1995 and will continue through
the earlier of (i) July 31, 2015 or (ii) the date on which plan participants
have subscribed for the total number of shares of the Plan. There will be twenty
(20) Subscription Periods ("Subscription Periods"). Each Subscription Period
will run from July 15 through January 14 or January 15 through July 14.
Participation
6.What agencies are eligible to participate?
Selected independent insurance agencies that bring value to the Company,
its parent, affiliates, and subsidiaries, directly or indirectly, as determined
by the Company and with whom the Company seeks a long-term relationship are
eligible (an "Eligible Agency") to participate in the Plan. The Company, in its
discretion, may base eligibility on segmentation class or any other factor(s)
which indicates value to the Company, its parent, affiliates or subsidiaries,
directly or indirectly. An Eligible Agency shall be informed of its eligibility
to enroll in the Plan. Continued eligibility will be subject to the Company's
periodic review.
Page 10 (I-6)
An Eligible Agency that participates in the Plan may direct that shares
purchased under the Plan from its contribution account, as defined below in
Question & Answer 20, be registered as of the date of purchase in the name of
certain persons associated with the agency. Such persons shall only be (i) the
principal or principals of an Eligible Agency that is a proprietorship, (ii) the
general partner or general partners of an Eligible Agency that is a partnership,
(iii) the officers and stockholders of an Eligible Agency that is a corporation,
(iv) employee benefit plans of such entities established for the benefit of any
of the foregoing persons, and (v) key employees designated by the principal or
principals of an Eligible Agency that is a proprietorship, the general partner
or general partners of an Eligible Agency that is a partnership, or the
executive officers of an Eligible Agency that is a corporation. The Company's
determination of which persons are eligible for direct registration under the
Plan will be final, conclusive, and binding. All persons enumerated in (i)
through (v) above who are designated by any such Eligible Agency to participate
in the Plan are referred to in this Prospectus as "Key Employees."
A pattern of immediate resale of stock acquired under this Plan by an
Eligible Agency or a Key Employee thereof, shall be a factor in the Company's
determination of continued eligibility for the Plan because it shows that an
agency and its Key Employees are not interested in sharing in the long term
profitable growth of the Company. However, an otherwise Eligible Agency may not
participate in the Plan if such agency is subject to Section 16 of the
Securities and Exchange Act of 1934 in connection with the Company or is a 5%
owner of the Company as defined in Section 13 of said Act. If an Eligible Agency
enrolled in the Plan becomes subject to Section 16 or a 5% owner, then such
Eligible Agency will be deemed to have withdrawn from the Plan and all amounts
credited, if any, will be refunded in cash.
7.How may an Eligible Agency participate in the Plan?
An Eligible Agency can enroll in the Plan by completing and filing a
Subscription Agreement with the Company. A Subscription Agreement is enclosed
with this Prospectus and additional Subscription Agreements may be obtained at
any time upon written request to the Company's local Marketing Representative.
In addition, Subscription Agreements will be sent to each Eligible Agency prior
to each Enrollment Period.
8.What does a Subscription Agreement provide?
A Subscription Agreement allows each Eligible Agency to decide and identify
the date on which the agency desires to become enrolled in the Plan, the
amount(s) of contribution and the payment method(s) selected for purchases under
the Plan.
An Eligible Agency must indicate on the Subscription Agreement how the
shares purchased are to be allocated by specifying the names and addresses of
the Eligible Agency and its Key Employees, where applicable, and the percentage
of the total purchase each is to receive. If an Eligible Agency wants to change
its allocation for any future Subscription Period, the Company must receive a
new Subscription Agreement on or before June 1 or December 1 of the applicable
Subscription Period.
9.When may an Eligible Agency enroll in the Plan?
If an Eligible Agency chooses the direct bill commission payment method, as
explained in Question & Answer 15, enrollment in the Plan may occur only during
Enrollment Periods, which
Page 11 (I-7)
are from the 1st through the 14th day of July and January of each year
commencing in July, 2005. Once enrolled in the direct bill commission payment
method, an Eligible Agency's participation in the Plan continues until the
agency terminates enrollment in the Plan or the agency ceases to be an Eligible
Agency. If an Eligible Agency chooses the lump sum payment method, as explained
in Question & Answer 17, an Eligible Agency may enroll by submitting a
Subscription Agreement to the Company and making a lump sum payment by June 1st
or December 1st. If an Eligible Agency chooses the bonus payment method, as
explained in Question & Answer 18, enrollment in the Plan may occur by
submitting a Subscription Agreement during the Enrollment Period immediately
preceding the January 15-July 14 Subscription Period.
10.May an Eligible Agency transfer its subscription rights to another
person or agency?
No. No Eligible Agency may assign its subscription or rights to subscribe
to any other person or agency and any such attempted assignment shall be void.
However, an Eligible Agency may permit direct registration of stock in the name
of a Key Employee as described in Question & Answer 6.
Costs and Expenses
11.Are there any expenses to participants in connection with purchases
under the Plan?
No. Eligible Agencies will not be obligated to pay any brokerage
commissions or other charges with respect to the purchase of Common Stock under
the Plan. However, a participating Eligible Agency which requests that Mellon
sell shares of Common Stock held in the participant's account in the Plan will
pay any applicable brokerage fees incurred in connection with such sale.
Purchases
12.What is the source and number of shares available to be purchased under
the Plan?
Shares purchased under the Plan may be authorized but unissued shares of
Common Stock of the Company or treasury stock reacquired by the Company. The
total number of shares available for purchase under the Plan is 1,000,000. As of
November 30, 2005, 499,394 shares have been issued and 500,606 shares remain
available for purchase.
13.What is the price of shares of Common Stock purchased under the Plan?
The Subscription Price for each share of Common Stock purchased under the
Plan will be 90% of the fair market value of such shares on the last trading day
of the Subscription Period; provided, however, the price shall never be less
than the par value of one dollar ($1.00) per share. "Fair market value" of a
share will be the Closing Price as reported on the NASDAQ National Market System
on the last day of the Subscription Period on which a trade occurs.
14.How may an Eligible Agency pay for shares purchased under the Plan?
Page 12 (I-8)
The Subscription Price for shares purchased under the Plan is payable by
participants by means of three payment methods, direct bill commission
deduction, lump sum payment or bonus deduction.
15.What is the direct bill commission payment method?
Under the direct bill commission payment method, an Eligible Agency may
contribute to the Plan a minimum of one per cent (1%) and up to a maximum of ten
per cent (10%) of the participant's direct bill commission payments, in whole
number increments, but in no event greater than $12,500 per Subscription Period.
"Direct bill commission payments" means those commissions which are earned and
actually available for payment for a semi-monthly period to an Eligible Agency
for personal and commercial direct bill policies after all offsetting debits and
credits are applied as determined solely from the Company's records.
16.May an Eligible Agency that chooses the direct bill change the method or
amount of contribution made or withheld under the Plan?
Yes. An Eligible Agency choosing the direct bill commission payment method
may change the method and/or amount of contribution by filing a new Subscription
Agreement with the Company during the applicable Enrollment Period. Such change
will become effective during the following Subscription Period.
17.What is the lump sum payment method?
Under the lump sum payment method, an Eligible Agency may, by June 1 or
December 1 of the applicable Subscription Period, elect to make lump sum cash
payments for the purchase of Common Stock under the Plan. Lump sum cash payments
shall not be less than $1,000 and, if the Eligible Agency is not enrolled under
the direct bill commission payment method, not more than $6,000 or, if an
Eligible Agency is enrolled in the direct bill commission payment method, not
more than $12,500. If the Eligible Agency that chooses the lump sum payment
method does not submit a check with the Subscription Agreement, the Agency must
complete a separate Lump Sum Contribution form and send it to the Company at the
time it submits the check.
18.What is the bonus payment method?
During the Enrollment Period immediately preceding the January 15 through
July 14 Subscription Period, an Eligible Agency may designate a percentage, in
whole number increments, subject to a maximum dollar amount not to exceed
$12,500, of the bonus payable to the participant under the terms of the Agency
Incentive Plan (or its equivalent) to be withheld for the purchase of Common
Stock under the Plan.
19.Are there limitations on the amount of contributions or purchases which
can be made?
Yes. During any one Subscription Period, the total allowable contributions
for purchases from all payment methods (described in Question & Answer 15, 17,
and 18 above) for each Eligible Agency shall not exceed $12,500. At the close of
each Subscription Period, each agency's contributions from all payment methods
will be totaled and any excess contributions above $12,500 shall be returned
without interest to the Eligible Agency within a reasonable time. If at any time
Page 13 (I-9)
throughout a Subscription Period, an Eligible Agency's total payments exceed the
maximum amount permitted for the agency and the agency so requests, the Company
will return the excess amount without interest to the agency within a reasonable
period.
20.How are purchases made under the Plan?
The Company shall maintain on its books a contribution account for each
participating Eligible Agency. All contributions made by an Eligible Agency
during a Subscription Period will be credited to the contribution account for
that Eligible Agency. At the end of each Subscription Period, the amount
credited to each Eligible Agency's contribution account will be divided by the
Subscription Price for such Subscription Period and the Eligible Agency's
contribution account will be credited with the number of whole and fractional
shares (computed to no less than four decimal places) which results. The full
amount of shares, including fractional shares, will then be allocated to the
accounts maintained on the books of the Company's stock transfer agent ("Plan
Accounts") for the Eligible Agency and its Key Employees in accordance with the
allocation specified in the section on stock registration of the most current
Subscription Agreement filed with the Company by the Eligible Agency. The
Company will rely on the most current Subscription Agreement and will not be
liable as long as the shares are allocated in accordance with the stock
registration section. If the number of shares subscribed for during any
Subscription Period exceeds the number of shares available for sale under the
Plan, available shares will be allocated to participating Eligible Agencies in
proportion to their Plan Accounts and any excess contributions shall be returned
to the participating Eligible Agency without interest.
Reports to Participants
21.What kind of reports will be sent an Eligible Agency participating in
the Plan?
Each Eligible Agency participating in the Plan and, if applicable, its Key
Employees will receive as promptly as practicable after each purchase for the
participating Eligible Agency's account, a statement of account describing the
amount contributed, the number of shares purchased, the price per share and
total Harleysville Group Inc. shares accumulated under the Plan. These
statements will provide a continuing record of the dates and cost of purchases
and should be retained for income tax purposes. In addition, each stockholder
will also receive the Company's annual and quarterly reports to stockholders,
notices of stockholder meetings and proxy statements and Internal Revenue
Service ("IRS") information for reporting dividends paid.
Certificates for Shares; Sale of Shares
22.Are stock certificates issued for shares of Common Stock purchased?
Unless an agency requests, certificates for Common Stock purchased under
the Plan will not be issued. The number of shares credited to an account under
the Plan will be shown on the agency's and, if applicable, its Key Employees'
statement of account. However, except as indicated below, an agency and its Key
Employees may receive certificates for full shares accumulated in their accounts
under the plan at any time by sending a written request to the Company's
transfer agent, currently Mellon.
Page 14 (I-10)
An agency's rights under the Plan and shares credited to the account of an
agency or its Key Employees under the Plan may not be pledged. An agency or Key
Employee that wishes to pledge its shares must request that certificates for
such shares be issued in the agency's or Key Employee's name, as the case may
be.
Certificates for fractional shares will not be issued under any
circumstances.
23.In whose name are accounts maintained and certificates registered when
issued?
Plan Accounts will be maintained in the name of the agency or the Key
Employee, as the case may be. Consequently, certificates when issued for full
shares will be registered in the same name.
Upon written request to Mellon, certificates will be registered and issued
in names other than the account name, subject to compliance with any applicable
laws and the payment by the agency of any applicable taxes, provided that the
request meets the usual requirements of Mellon for the recognition of a transfer
of Common Stock of the Company.
24.When and how may an agency that has purchased stock under this Plan or a
Key Employee that has stock registered in a Key Employee's name withdraw shares
purchased under the Plan?
An agency that has purchased shares under the Plan or a Key Employee that
has stock registered in a Key Employee's name may withdraw all or a portion of
the shares of a Common Stock credited to its account by giving written notice to
Mellon to that effect and specifying in the notice the number of shares to be
withdrawn. When an agency or Key Employee withdraws shares from its account,
certificates for whole shares of Common Stock so withdrawn will be issued.
However, if the agency or Key Employee so requests, Mellon will sell all or a
portion of the shares of Common Stock in the agency's or Key Employee's account
and deliver the proceeds, less any applicable brokerage fees, to the agency or
Key Employee, as the case may be.
25.What happens to any fractional interest withdrawn from the Plan?
Any fractional interest withdrawn will be sold by Mellon as soon as
practicable, and shall be sold at the market price prevailing when the sale is
made, and a check remitted promptly for the proceeds thereof, less any
applicable brokerage fees. In no case will certificates representing a
fractional interest be issued.
Withdrawal from Plan
26.How and when may an Eligible Agency withdraw from the Plan?
An Eligible Agency may withdraw from the Plan at any time by giving written
notice to the Company of the agency's desire to do so. Termination of agency
status for any reason will be treated as an automatic withdrawal. If an agency
withdraws from the Plan, such agency, if it continues to be an Eligible Agency,
may not re-enroll until after the next full Subscription Period has elapsed.
Page 15 (I-11)
27.What happens to any amounts credited to an Eligible Agency's
contribution account at the time of withdrawal?
All amounts credited to an Eligible Agency's contribution account at the
time of withdrawal will be refunded to the participant in cash without interest.
Other Information
28.What happens if the Company declares a stock split or stock dividend or
changes or exchanges its Common Stock for shares of stock or other securities of
its own or another corporation?
If shares of the Company's Common Stock are changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or another corporation, as in a merger, consolidation or otherwise, or if the
Company declares a stock split or stock dividend, there will be substituted for
or added to each share reserved for sale under the Plan the number and kind of
shares of stock or other securities into or for which the Company's Common Stock
will be so changed or exchanged, or to which each such share will be entitled.
29.When do agencies participating in the Plan and its Key Employees become
entitled to the rights of a shareholder of the Company?
An agency participating in the Plan or Key Employees who have shares
registered in their name will become entitled to vote, to receive dividends and
to all other rights as a shareholder of the Company with respect to shares
issued under the Plan on the first day following the end of the Subscription
Period during which such shares were purchased. If an agency or Key Employee has
shares credited to an account under the Plan on a record date for a meeting of
stockholders, the agency or Key Employee will be able to vote those shares in
the same manner as shares for which the agency or Key Employee holds
certificates. The agency or Key Employee will be sent proxy material with
respect to that meeting. An agency or Key Employee will be entitled to vote both
the shares of Common Stock held in the agency's or Key Employee's account, as
the case may be, and those for which certificates are issued. An agency or Key
Employee may vote in person or by proxy at any such meeting.
30.What are the federal income tax consequences of participation in the
Plan?
At the time of purchase, an agency will be treated as having received
ordinary income in an amount equal to the difference between the Subscription
Price paid and the then fair market value of the Common Stock acquired. At the
end of each calendar year, the Company will mail to each agency, which is not
incorporated and has earned income of at least $600.00, a Form 1099 reflecting
the amount of ordinary income earned under the Plan. The Company is entitled to
a deduction at the same time in a corresponding amount. The agency's basis in
the Common Stock acquired is equal to the purchase price plus the amount of
ordinary income recognized. When an agency disposes of shares of Common Stock
acquired under the Plan, any amount received in excess of the value of the
shares of Common Stock on which the agency was previously taxed will be treated
as long-term or short-term capital gain depending upon the holding period of the
shares.
Page 16 (I-12)
If the amount received is less than that value, the loss will be treated
as long-term or short-term capital loss, depending upon the holding period of
the shares (which begins on the date after the share is acquired).
If an Eligible Agency that purchases shares has such shares registered in
the name of Key Employees, such shares may be income to such Key Employees,
depending upon the status of the Key Employee and the facts and circumstances of
the registration in the name of the Key Employees.
Each participating agency or Key Employee is advised to consult with a tax
advisor to determine the tax consequences of a particular transaction in the
agency's account or the tax treatment of registration in the name of a Key
Employee.
31.What are the responsibilities of the Company and Mellon under the Plan?
Mellon, as agent, maintains account records for participating agencies and
Key Employees and notifies them of transactions in, and the status of, their
accounts. Mellon shall have no duties, obligations or liabilities with respect
to the Plan except such as are expressly set forth in this Prospectus.
The Company and Mellon, in administering the Plan, will not be liable for
any act done in good faith or for their good faith omission or act, including,
without limitation, with respect to the prices at which shares are purchased for
the participant's account and the times when such purchases are made, or with
respect to any loss or fluctuation in the market value of the Common Stock after
the purchase of shares.
All notices from Mellon to a participating agency or Key Employee will be
mailed to the agency's or Key Employee's address of record, and the mailing of a
notice to an agency's or Key Employee's most recent address of record will
satisfy Mellon's obligation to provide notice to that participant. Accordingly,
an agency and Key Employees should promptly advise the Company and Chemical
Mellon of any change of address.
32.May the Plan be changed or discontinued?
Yes. The Company's Board of Directors has the right to amend, modify, or
terminate the Plan at any time without notice so long as no participating
agency's existing rights are adversely affected as a result of such change,
amendment or modification. The Company must seek stockholder approval for
certain amendments to the Plan as required by Nasdaq.
RISK FACTORS
You should consider carefully the following risks, as well as the other
information contained in this Prospectus. If any of the following events
described in the risk factors below actually occur, our business, financial
condition and results of operations could be adversely affected.
Risks Related to the Property and Casualty Insurance Industry Generally
Page 17 (I-13)
If our estimated liability for losses and loss settlement expenses is
incorrect, our reserves may not be adequate to cover our ultimate liability for
losses and loss settlement expenses and may have to be increased.
We are required to maintain loss reserves for our estimated liability for
losses and loss settlement expenses associated with reported and unreported
claims for each accounting period. We regularly review our reserving techniques
and our overall amount of reserves and, based on our estimated liability, raise
or lower the levels of our reserves accordingly. If our estimates are incorrect
and our reserves are inadequate, we are obligated to increase our reserves. An
increase in reserves results in an increase in losses and a reduction in our net
income for the period in which the deficiency in reserves is identified.
Accordingly, an increase in reserves could have a material adverse effect on our
results of operations, liquidity and financial condition. For every 1% change in
our reserve, our pre-tax income is affected by approximately $12.2 million. Our
reserve amounts are estimated based on what we expect our ultimate liability for
losses and loss settlement expenses to be. These estimates are based on facts
and circumstances of which we are aware, predictions of future events, trends in
claims severity and frequency and other subjective factors. Although we use a
number of methods to project our ultimate liability, there is no method that can
always exactly predict our ultimate liability for losses and loss settlement
expenses.
In addition to reviewing our reserving techniques, as part of our reserving
process we also consider:
*information regarding each claim for losses;
*our loss history and the industry's loss history;
*legislative enactments, judicial decisions and legal developments
regarding damages;
*changes in political attitudes; and
*trends in general economic conditions, including inflation.
If certain catastrophic events occur, they could have a significant
impact on our financial and operational condition.
Results of property insurers are subject to weather and other events
prevailing in any given year. While one year may be relatively free of major
weather or other disasters, another year may have numerous such events causing
results for that year to be materially worse than for other years.
Our insurance subsidiaries have experienced, and are expected in the future
to experience, catastrophe losses. It is possible that a catastrophic event or a
series of multiple catastrophic events could have a material adverse effect on
the operating results and financial condition of our insurance subsidiaries,
thereby limiting the ability of our insurance subsidiaries to pay dividends to
us. In the last 6 years, the largest catastrophe to affect our results of
operations was Hurricane Floyd in the third quarter of 1999, which resulted in
$15.1 million of losses.
Various events can cause catastrophes, including severe winter weather,
hurricanes, windstorms, earthquakes, hail, war, terrorism, explosions and fires.
The frequency and severity
Page 18 (I-14)
of these catastrophes are inherently unpredictable. The extent of losses
from a catastrophe is a function of both the total amount of insured exposures
in the area affected by the event and the severity of the event. Our insurance
subsidiaries seek to reduce the impact on our business of a catastrophe through
geographic diversification and through the purchase of reinsurance covering
various categories of catastrophes, which generally excludes terrorism.
Nevertheless, reinsurance may prove inadequate if:
* a major catastrophic loss exceeds the reinsurance limit, or
* an insurance subsidiary pays a number of smaller catastrophic
loss claims that, individually, fall below the subsidiary's retention level.
We are heavily regulated in the states in which we operate and if we
violate those regulations or if the regulations unreasonably restrict our
ability to do business, it could have an adverse effect on our business. We are
subject to extensive supervision and regulation in the states in which we
transact business. The purpose of supervision and regulation is to protect
individual policyholders and not shareholders or other investors. Our business
can be adversely affected by private passenger automobile insurance regulations
and any other regulations affecting property and casualty insurance companies.
For example, laws and regulations can reduce or set rates at levels that we do
not believe are adequate for the risks we insure. Other laws and regulations can
limit our ability to cancel or refuse to renew policies and require us to offer
coverage to all consumers. Changes in laws and regulations, or their
interpretations, pertaining to insurance, including workers compensation, may
also have an adverse effect on our business. Although the federal government
does not directly regulate the insurance industry, federal initiatives, such as
federal terrorism backstop legislation, from time to time, also can impact the
insurance industry.
In addition, proposals intended to control the cost and availability of
health care services have been debated in the U.S. Congress and state
legislatures. Although we do not write health insurance, rules affecting health
care services can affect other insurance that we write, including workers
compensation and commercial and personal automobile and liability insurance. We
cannot determine whether or in what form health care reform legislation may be
adopted by the U.S. Congress or any state legislature. We also cannot determine
the nature and effect, if any, that the adoption of health care legislation or
regulations, or changing interpretations, at the federal or state level would
have on us.
If demand for property and casualty insurance decreases, it could have an
adverse impact on our business.
Historically, the results of the property and casualty insurance industry
have been subject to significant fluctuations over time due to competition and
due to unpredictable developments, including:
* natural and man-made disasters;
* fluctuations in interest rates and other changes in the investment
environment that affect returns on our investments;
* inflationary pressures that affect the size of losses; and
* legislative and regulatory changes and judicial decisions that
affect insurers'liabilities.
Page 19 (I-15)
The demand for property and casualty insurance, particularly commercial
lines, also can vary with the overall level of economic activity. In addition to
the cyclicality of the property and casualty industry, our surety business is
affected adversely by economic downturns that make it difficult for the insureds
whose obligations we guarantee to fulfill their obligations.
If we are unable to reduce our exposure to risks through reliable
reinsurance or if the cost of reinsurance increases, our risk of loss, or the
cost of controlling our risk of loss, will increase.
We transfer a portion of our exposure to selected risks to other insurance
and reinsurance companies through reinsurance arrangements. Under our
reinsurance arrangements, another insurer assumes a specified portion of our
losses and loss adjustment expenses in exchange for a specified portion of
policy premiums. The availability, amount and cost of reinsurance depend on
market conditions and may vary significantly. Any decrease in the amount of our
reinsurance will increase our risk of loss. Furthermore, we face a credit risk
when we obtain reinsurance because we are still liable for the transferred risks
if the reinsurer cannot meet the transferred obligations. Therefore, the
inability of any of our reinsurers to meet its financial obligations could
materially and adversely affect our operations.
Many reinsurers experienced significant losses related to the terrorist
acts of September 11, 2001, and future terrorist acts may have similar effects.
As a result, we may incur significantly higher reinsurance costs and more
restrictive terms and conditions, or may be unable to obtain reinsurance for
some types of commercial exposures.
The threat of terrorism and military and other actions may result in
decreases in our net income, revenue and assets under management and may
adversely affect our investment portfolio. The threat of terrorism, both within
the United States and abroad, and military and other actions and heightened
security measures in response to these types of threats, may cause significant
volatility and declines in the equity markets in the United States, Europe and
elsewhere, as well as loss of life, property damage, additional disruptions to
commerce and reduced economic activity. Actual terrorist attacks could cause
losses from insurance claims related to the property and casualty insurance
operations of Harleysville Group, as well as a decrease in our stockholders'
equity, net income and/or revenue. The effects of changes related to
Harleysville Group may result in a decrease in our stock price. The Terrorism
Risk Insurance Act of 2002 requires that some coverage for terrorist loss be
offered by primary property insurers and provides Federal assistance for
recovery of claims through 2005. In addition, some of the assets in our
investment portfolio may be adversely affected by declines in the equity markets
and economic activity caused by the continued threat of terrorism, ongoing
military and other actions and heightened security measures.
We cannot predict at this time whether and the extent to which industry
sectors in which we maintain investments may suffer losses as a result of
potential decreased commercial and economic activity, or how any such decrease
might impact the ability of companies within the affected industry sectors to
pay interest or principal on their securities, or how the value of any
underlying collateral might be affected.
We can offer no assurances that the threats of future terrorist-like events
in the United States and abroad or military actions by the United States will
not have a material adverse effect on our business, financial condition or
results of operations.
Page 20 (I-16)
Certain changes in the accounting standards issued by the Financial
Accounting Standards Board or other standard-setting bodies could have a
material adverse impact on our reported net income.
We are subject to the application of GAAP, which is periodically revised
and/or expanded. As such, we are periodically required to adopt new or revised
accounting standards issued by recognized authoritative bodies, including the
Financial Accounting Standards Board. It is possible that future changes
required to be adopted could change the current accounting treatment that we
apply and such changes could result in material adverse impacts on our results
of operations and financial condition.
If our investments lose value, our revenues and earnings will be adversely
affected.
Like many other property and casualty insurance companies, we depend on
income from our investment portfolio for a significant portion of our revenues
and earnings. Any significant decline in our investment income as a result of
falling interest rates, decreased dividend payment rates or general market
conditions would have an adverse effect on our results. Any significant decline
in the market value of our investments would reduce our shareholders' equity and
our policyholders' surplus, which could impact our ability to write additional
business.
If our financial strength ratings are reduced, we may be adversely impacted.
Insurance companies are subject to financial strength ratings produced by
external rating agencies. Higher ratings generally indicate greater financial
stability and a stronger ability to pay claims. Ratings are assigned by rating
agencies to insurers based upon factors that they believe are relevant to
policyholders. Ratings are not recommendations to buy, hold or sell our
securities.
Although other agencies cover the property and casualty industry, we
believe our ability to write business is most influenced by our rating from A.
M. Best. According to A. M. Best, its ratings are designed to assess an
insurer's financial strength and ability to meet ongoing obligations to
policyholders. Currently, our rating from A. M. Best is "A-", the 4th of A. M.
Best's 15 ratings. A rating below "A-" from A. M. Best could materially
adversely affect the business we write. We believe that our financial strength
rating from Moody's (which is A3, the 7th of Moody's 21 ratings), although
important, has less of an impact on our business. An unfavorable change in our
Moody's financial strength rating, however, could make it more expensive for us
to access capital markets. We cannot be sure that we will maintain our current
A. M. Best or Moody's ratings. Although Standard & Poor's rates our debt
securities at BBB-/Negative (the 10th of Standard & Poor's 23 ratings), Standard
& Poor's does not currently rate our financial strength and ability to meet
ongoing obligations.
Risks Related to Our Company in Particular
We face significant competition from other regional and national insurance
companies, agents and from self-insurance, which may result in lower revenues.
We compete with local, regional and national insurance companies, including
direct writers of insurance coverage. Many of these competitors are larger than
we are and many have greater financial, technical and operating resources. In
addition, we face competition within each insurance agency that sells our
insurance because we sell through independent agencies that represent more than
one insurance company.
Page 21 (I-17)
The property and casualty insurance industry is highly competitive on the
basis of product, price and service. If our competitors offer products with more
coverage, or price their products more aggressively, our ability to grow or
renew our business may be adversely impacted. There are more than 250 groups
writing property and casualty insurance in the United States, and we are
approximately 60th in size. Our most significant competitors vary significantly
in our different lines of business and in the geographic markets in which we
compete. The internet also could emerge as a significant source of new
competition, both from existing competitors using their brand name and resources
to write business through this distribution channel and from new competitors.
We also face competition because of entities that self-insure, primarily in
the commercial insurance market. From time to time, certain of our customers and
potential customers may examine the benefits and risks of self-insurance and
other alternatives to traditional insurance.
A number of new, proposed or potential legislative or industry developments
could further increase competition in the property and casualty insurance
industry. These developments include:
* the enactment of the Gramm-Leach-Bliley Act of 1999, which could result
in increased competition from new entrants to the insurance market,
including banks and other financial service companies;
* programs in which state-sponsored entities provide property
insurance in catastrophe-prone areas or other alternative market
types of coverage; and
* changing practices caused by the internet, which have led to greater
competition in the insurance business and,in some cases, greater
expectations for customer service.
New competition from these developments could cause the supply or demand
for insurance to change, which could adversely affect our results of operations
and financial condition.
If adverse conditions in the eastern and midwestern United States exist, our
business would be disproportionately impacted.
We write property and casualty insurance business in the eastern and
midwestern United States. Consequently, unusually severe storms or other natural
or man-made disasters that destroy property in these states could adversely
affect our operations. Our revenues and profitability also are subject to
prevailing economic and regulatory conditions in the states in which we write
insurance. We may be exposed to risks of adverse developments that are greater
than if we conducted business nationwide.
We depend on independent insurance agents, which exposes us to risks not
applicable to companies with dedicated agents.
We market and sell our insurance products through independent,
non-exclusive insurance agencies. These agencies are not obligated to sell our
insurance products, and generally they also sell our competitors' insurance
products. As a result, our business depends in part on the marketing and sales
efforts of these agencies. If we diversify and expand our business
geographically, then we may need to expand our network of agencies to
successfully market our products. If these agencies fail to market our products
successfully, our business may be adversely impacted. Also, independent agents
may decide to sell their businesses to banks, other insurance agencies or other
businesses. Changes in ownership of agencies, or expansion of
Page 22 (I-18)
agencies through acquisition, could adversely affect an agency's ability to
control growth and profitability, thereby adversely affecting our business.
If our insurance subsidiaries are not able to pay adequate dividends to us,
our ability to meet our obligations and pay dividends would be affected.
Our principal assets are the shares of capital stock of our insurance
company subsidiaries. We rely on dividends from our insurance company
subsidiaries to meet our obligations for paying principal and interest on
outstanding debt obligations and for paying corporate expenses and dividends to
shareholders. As described below, the payment of dividends by our insurance
company subsidiaries is subject to regulatory restrictions and will depend on
the surplus and future earnings of these subsidiaries, as well as other
regulatory restrictions. As a result, we may not be able to receive dividends
from these subsidiaries at times and in amounts necessary to meet our
obligations or to allow us to pay dividends.
Generally, the maximum dividend that may be paid by an insurance subsidiary
during any year without prior regulatory approval is limited to a stated
percentage of that subsidiary's statutory surplus as of a certain date, or
adjusted net income of the subsidiary for the preceding year. Our insurance
subsidiaries paid $26.6 million of dividends to us in 2004, none in 2003, and
$12.0 million in 2002. Of the dividends paid in 2004, $11.6 million were
declared by our insurance subsidiaries in 2002. Applying the current regulatory
restrictions as of December 31, 2004, $51.0 million would be available for
distribution to us without prior approval during 2005. We anticipate no
objections to the payment of the dividends described in the preceding sentence.
Notwithstanding the foregoing, if insurance regulators otherwise determine
that payment of a dividend to an affiliate would be detrimental to an insurance
subsidiary's policyholders or creditors, because of the financial condition of
the insurance subsidiary or otherwise, the regulators may block dividends to
affiliates that would otherwise be permitted without prior approval.
Our subsidiaries are permitted under the terms of our indebtedness to incur
additional indebtedness that may restrict or prohibit the making of
distributions, the payment of dividends or the making of loans by our
subsidiaries to us. We cannot assure you that the agreements governing the
current and future indebtedness of our subsidiaries will permit our subsidiaries
to provide us with sufficient dividends, distributions or loans to fund payments
on these notes when due.
Although we have paid cash dividends in the past, we may not be able to pay
cash dividends in the future.
We have a history of paying dividends to our shareholders when sufficient
cash is available. However, future cash dividends will depend upon our results
of operations, financial condition, cash requirements and other factors,
including the ability of our subsidiaries to make distributions to us, which
ability is restricted in the manner previously discussed in this section. Also,
there can be no assurance that we will continue to pay dividends even if the
necessary financial conditions are met and if sufficient cash is available for
distribution.
If we lose our key personnel our business could be adversely affected.
The success of our business is dependent, to a large extent, on our ability
to attract and retain key employees, in particular our senior officers, and key
management, sales, information systems, underwriting, claims and corporate
personnel. Competition to attract and retain key personnel is intense. Although
we have change of control agreements with a number of key
Page 23 (I-19)
managers, in general, we do not have employment contracts or non-compete
arrangements with, or key person insurance covering, our employees, including
our key employees.
Applicable insurance laws and certain provisions in our certificate of
incorporation make it difficult to effect a change of control of our Company,
and a large shareholder may have significant influence over potential change of
control transactions, which could affect our share value.
Under applicable insurance laws and regulations of the states in which our
subsidiaries are domiciled, no person may acquire control of us unless that
person has filed a statement containing specified information with the insurance
commissioner of each state and obtains advance approval for such acquisition.
Under applicable laws and regulations, any person acquiring, directly or
indirectly (by revocable proxy or otherwise), 10% or more of the voting stock of
any other person is presumed to have acquired control of such person, and a
person who beneficially acquires 10% or more of our common stock without
obtaining advance approval of the insurance commissioner of each state would be
in violation of applicable insurance laws and would be subject to injunctive
action requiring disposition or seizure of the shares and prohibiting the voting
of such shares, as well as other action determined by the insurance commissioner
of each such state.
In addition, many state insurance laws require prior notification to the
state insurance department of a change of control of a non-domiciliary insurance
company licensed to transact insurance in that state. Although these
pre-notification statutes do not authorize the state insurance departments to
disapprove the change of control, they authorize regulatory action - including a
possible revocation of our authority to do business - in the affected state if
particular conditions exist such as undue market concentration. Any future
transactions that would constitute a change of control of us may require prior
notification in the states that have pre-acquisition notification laws.
As of December 31, 2004, the Mutual Company owned approximately 56% of our
outstanding common stock. The Mutual Company's stock ownership and ability, by
reason of such ownership, to elect our board of directors, provides it with
significant influence over potential change of control transactions.
Finally, our certificate of incorporation permits our board of directors to
issue up to one million shares of preferred stock having such terms, including
voting rights, as the board of directors shall fix and determine.
USE OF PROCEEDS
The proceeds to the Company from sales of Common Stock pursuant to the Plan
will be used for general corporate purposes, including investment in and
advances to the Company's subsidiaries.
EXPERTS
The consolidated financial statements and schedules of Harleysville Group
Inc. as of December 31, 2004 and 2003, and for each of the years in the
three-year period ended December 31, 2004, and management's assessment of the
effectiveness of internal control over financial reporting as of December 31,
2004 have been incorporated by reference, herein in reliance upon the reports of
KPMG LLP, independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
Page 24 (I-20)
LEGAL OPINION
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon the Company by Morgan Lewis & Bockius, Philadelphia,
Pennsylvania.
Page 25
HARLEYSVILLE GROUP INC.
REVISED AND RESTATED AGENCY STOCK PURCHASE PLAN
1,000,000
Shares of
Common Stock
__________________
PROSPECTUS
___________________
Dated: November 30, 2005
No person has been authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. Neither delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offering in such jurisdiction.
Page 26
HARLEYSVILLE GROUP INC.
AGENCY STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Please indicate the desired payment method(s) by marking the appropriate
block(s)below. (Note: 1, 2, or all 3 payment methods may be selected.)
On behalf of ______________(agency), _____________(primary agency code number),
I hereby elect to enroll in the Harleysville Group Inc. Agency Stock Purchase
Plan. I understand a maximum total contribution of $12,500 from all payment
methods applies for each Subscription Period. I further understand that Common
Stock of the Company will be purchased in accordance with the Prospectus, a
copy of which has been given to me.
__ Direct Bill Commission Payment Method (Submit by 1/14 for Jan. 15 - July 14
Subscription Period or by July 14 for July 15 - Jan. 14 Subscription Period)
I request that___ % of my direct bill commission be withheld from each
commission statement during the next six-month Subscription Period and for
future Subscription Periods (not less than 1% and not more than 10% of direct
bill commissions in whole number increments subject to a maximum of $12,500 per
Subscription Period).
___ Lump Sum Payment Method (Submit by 6/1 for Jan. 15 - July 14
Subscription Period or by Dec. 1 for July 15 - Jan. Subscription Period)
I will make a lump sum payment (not less than $1,000 and not greater than
(1) $6,000 if direct bill commission payment is not selected, or (2) $12,500 if
direct bill commission payment is selected). I enclose $ or, if no check is
enclosed, the Lump Sum Contribution Supplemental Enrollment Form will be
submitted with my payment by June 1 or December 1. (Checks should be made
payable to Harleysville Group, Inc.)
____ Bonus Payment Method (Submit by 1/14 for Jan. 15 - July 14 Subscription
Period)
I request that ___%, in whole number increments, subject to a maximum
dollar amount of $ (not greater than $12,500) be deducted from the bonus (if
any) payable to my agency under the Profit Sharing Plan for the purchase of
stock during the next January 15-July 14 Subscription Period in which the bonus,
if any, is paid.
Please check the applicable block(s):
__ New Participant
__ Change of Direct Bill Commission Withholding Percentage for next
Subscription Period
__ Withdrawal from the Plan at the end of the current Subscription Period
and receive stock for the current period
__ Withdrawal from the Plan immediately and receive all funds withheld for
the current Subscription Period
__ Addition or deletion of Payment Option for current Subscription Period
__ Change of Entity/Individual(s) for whom stock should be registered
(see Side B)
__ Change of Agency/Entity/Individual(s) Address
Subscribers must complete both Side A and Side B of this Subscription
Agreement.
Stock Registration
Pursuant to my participation in the Harleysville Group Inc. Agency Stock
Purchase Plan, I would like the shares purchased to be registered in the names
of the following individuals/entities according to the specifications set forth
below (ONLY NECESSARY IF NEW PARTICIPANT OR CHANGES NEED TO BE MADE TO PRIOR
REGISTRATION INFORMATION):
Page 27
Please list as many entities/individuals as you desire along with the
corresponding information. Please use an additional sheet if more space is
required.
Name and Full Address of Social Security or Percentage of Total
Entity/ Individual(s) For Taxpayer Purchase (Whole Numbers)
Whom Stock Should be Identification Totaling 100%)
Registered Number
1._____________________ __________________ _____________________
_____________________
_____________________
2._____________________ __________________ _____________________
_____________________
_____________________
3._____________________ __________________ _____________________
_____________________
_____________________
Allocations of shares to the above entities/individuals and in the above
percentages will remain in effect for future Subscription Periods until changed
by filing another Subscription Agreement with Harleysville Insurance.
Please Complete:
_________________________________ __________________________________
Agency Names PRIMARY Agency Code Number
____________________________ _________________________________
Address Federal ID Number
____________________________
City State Zip Code
Authorized By: ____________________________ _______________________
Agency Principal (Print) Signature
____________________________ ____________
Title Date
This form should be sent in the enclosed postage-paid return envelope to
Harleysville Insurance, Accounting Department, 355 Maple Avenue, Harleysville,
PA 19438, Attention: Pat Barndt.
Page 28
SUPPLEMENTAL ENROLLMENT FORM
Lump Sum Contribution
Please mark the appropriate block below and fill in the required information:
Eligible Agencies currently enrolled in the Harleysville Group Inc.
Agency Stock Purchase Plan (the "Plan") under the direct bill commission
payment method may make supplemental lump sum contributions subject to a
minimum of $1,000 and a maximum total contribution of $12,500 per
Subscription Period.
For the current Subscription Period, enclosed is $ to be used to
purchase Harleysville Group Inc. common stock as described in the
Prospectus.
Eligible Agencies currently enrolled in the Plan under the direct bill
commission payment method may make supplemental lump sum contributions
subject to a minimum of $1,000 and a maximum contribution of $6,000 per
Subscription Period.
For the current Subscription Period, enclosed is $ to be used to
purchase Harleysville Group Inc. common stock as described in the
Prospectus.
Please Complete:
__________________________ ________________________
Agency Names PRIMARY Agency Code Number
__________________________ _________________________
Address Federal ID Number
__________________________
City State Zip Code
Authorized By:
__________________________ _________________________
Agency Principal (Print) Signature
__________________________ _________________________
Title Date
This form should be sent in the enclosed postage-paid return envelope to
Harleysville Insurance, Accounting, 355 Maple Avenue, Harleysville, PA 19438,
Attention: Pat Barndt along with a Subscription Agreement if not previously
submitted for the Subscription Period and your check made payable to
Harleysville Group Inc. These should be received prior to June 1 or December 1
of each Subscription Period.
Page 29 (II-1)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation and Bylaws contain provisions permitted by
the Delaware General Corporation Law ("DGCL") (under which we are organized)
that provide that our directors and officers will be indemnified by the Company
to the fullest extent permitted by law for all losses that may be incurred by
them in connection with any action, suit or proceeding in which they may become
involved by reason of their service as a director or officer of the Company.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorney's
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
In addition, our Certificate of Incorporation contains provisions permitted
by the DGCL that limit the monetary liability of our directors for certain
breaches of their fiduciary duty, and our Bylaws provide for the advancement by
us to directors and officers of expenses incurred by them in connection with a
proceeding of a type to which the duty of indemnification applies. We maintain
directors' and officers' liability insurance to insure our directors and
officers against certain liabilities incurred in their capacity as such,
including claims based on breaches of duty, negligence, error and other wrongful
acts.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a) The following exhibits are filed as part of this Registration
Statement:
Exhibit Sequentially Numbered
Number Description Document Page
- ------- ------------------------------ ---------------------
4 (A) Amended and Restated Agency Stock Purchase Plan 34
(B) Certificate of Incorporation 43
(C) Amended and Restated By-Laws 51
5 Opinion of Morgan, Lewis & Bockius 74
23(A) Consent of KPMG LLP 75
(B) Consent of Morgan Lewis & Bockius included in Exhibit 5 74
Page 30 (II-2)
ITEM 17. UNDERTAKINGS
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made of
securities registered hereby, a post-effective amendment to this registration
statement:
(i) to include any prospectus required by Section 10(a)(3)of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the then-effective registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (i), (ii) and (iii) above do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrants
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
Page 31 (II-3)
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrants hereby undertake that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Page 32 (II-4)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Harleysville
Group Inc. certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Post
Effective Amendment No. 2 to its registration statement on Form S-3 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Township of
Lower Salford, Commonwealth of Pennsylvania, on December 6, 2005.
HARLEYSVILLE GROUP INC.
/s/Michael L. Browne
_____________________
Michael L. Browne
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That each of the undersigned officers and directors of Harleysville Group
Inc. do hereby constitute and appoint Michael L. Browne and Robert A. Kauffman,
and each of them, with full power to act without the others, as his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement and any registration statement
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting to said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing necessary or appropriate to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
thereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has executed
this Power of Attorney as of the date indicated opposite the name.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Page 33 (II-5)
Signature Title Date
/s/ Michael L. Browne President, CEO 12/01/05
- ---------------------------- and a Director
/s/ Arthur E. Chandler Senior Vice President, 11/30/05
- ---------------------------- Chief Financial Officer
(Principal financial officer
and principal accounting
Officer)
/s/ Lowell R. Beck Director 12/05/05
- ---------------------------
Lowell R. Beck
/s/ W. Thatcher Brown Director 12/01/05
- ----------------------------
W. Thatcher Brown
/s/G. Lawrence Buhl Director 12/01/05
- ----------------------------
G. Lawrence Buhl
/s/ Mirian M. Graddick Director 12/05/05
- ----------------------------
Mirian M. Graddick
/s/ Frank E. Reed Director 12/01/05
- ----------------------------
Frank E. Reed
/s/ Jerry S. Rosenbloom Director 12/05/05
- ----------------------------
Jerry S. Rosenbloom
/s/ William W. Scranton, III Non-Executive Chairman 12/05/05
- --------------------------------
William W. Scranton, III
HARLEYSVILLE GROUP INC.
By: /s/ Robert A. Kauffman
--------------------------
Robert A. Kauffman
Attorney-in-Fact