Exhibit 10.1

STOCK PURCHASE AND STANDSTILL AGREEMENT

Among

DONEGAL MUTUAL INSURANCE COMPANY

and

DONEGAL GROUP INC.

and

GREGORY M. SHEPARD

Relating to

3,675,000 Shares of Class A Common Stock of Donegal Group Inc.

and

400,000 Shares of Class B Common Stock of Donegal Group Inc.

--------------------------------------------------------------------------------

TABLE OF CONTENTS

 

     Page  

RECITALS

     1   

ARTICLE I—REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLER

     1   

    1.1     Authority

     1   

    1.2     Title to the Shares

     2   

    1.3     Representations and Warranties to Be True on the Closing Date

     2         2   

ARTICLE II—REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF DGI

     3   

    2.1     Corporate Authority

     3   

    2.2     Availability of Funds to Consummate the Purchase of the Shares

     3   

    2.3     Representations and Warranties to be True on the Closing Date

     3   

ARTICLE III—REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF DMIC

     3   

    3.1     Corporate Authority

     3   

    3.2     Availability of Funds to Consummate the Purchase of the Shares

     4   

    3.3     Representations and Warranties to be True on the Closing Date

     4   

ARTICLE IV—ACTIONS PENDING THE CLOSING DATE

     4   

    4.1     Preserve Accuracy of Representations and Warranties

     4   

    4.2     No Public Announcement

     4   

    4.3     Receipt of Wire Transfer Instructions from the Seller

     5   

ARTICLE V—CONDITIONS PRECEDENT TO OBLIGATIONS OF DGI

     5   

    5.1     No Misrepresentation or Breach of Covenants and Warranties

     5   

    5.2     Legal Matters

     5   

ARTICLE VI—CONDITIONS PRECEDENT TO OBLIGATIONS OF DMIC

     5   

    6.1     No Misrepresentation or Breach of Covenants and Warranties

     5   

    6.2     Legal Matters

     6   

ARTICLE VII—CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER

     6   

    7.1     No Misrepresentation or Breach of Covenants and Warranties

     6   

    7.2     Legal Matters

     6   

 

(i)

--------------------------------------------------------------------------------

ARTICLE VIII—PURCHASE PRICE AND CLOSING

     6   

    8.1     Closing Date

     6   

    8.2     Purchase and Sale

     6   

    8.3     Deliveries by the Seller

     7   

    8.4     Deliveries by the Purchasers

     7   

ARTICLE IX—TERMINATION

     7   

    9.1     Termination

     7   

    9.2     Effect of Termination

     8   

ARTICLE X—STANDSTILL AGREEMENT OF THE SELLER

     8   

    10.1    Definitions

     8   

    10.2    Standstill Agreement of the Seller

     9   

    10.3    Prompt Filing of Amendment to the Seller’s Schedule 13D

     11   

    10.4    Specific Performance of the Seller’s Standstill Agreement

     12   

ARTICLE XI—AMENDMENT, WAIVER AND INDEMNIFICATION

     13   

    11.1    Amendment

     13   

    11.2    Extension; Waiver

     13   

    11.3    Survival of Obligations

     13   

    11.4    Indemnification

     14   

ARTICLE XII—MISCELLANEOUS

     14   

    12.1    Notices

     14   

    12.2    Expenses

     15   

    12.3    Successors and Assigns

     16   

    12.4    Partial Invalidity

     16   

    12.5    Execution in Counterparts

     16   

    12.6    Entire Agreement

     16   

SIGNATURES

     17   

 

(ii)

--------------------------------------------------------------------------------

STOCK PURCHASE AND STANDSTILL AGREEMENT

THIS STOCK PURCHASE AND STANDSTILL AGREEMENT (this “Agreement”) made and entered
into as of this 18th day of December, 2015 among Donegal Mutual Insurance
Company, a Pennsylvania mutual fire insurance company, with its principal
offices at 1195 River Road, Marietta, Pennsylvania 17547 (“DMIC”), Donegal Group
Inc., a Delaware corporation with its principal offices at 1195 River Road,
Marietta, Pennsylvania 17547 (“DGI”, and, together with DMIC, the “Purchasers”),
and Gregory M. Shepard, an individual with an address at 7028 Portmarnock Place,
Bradenton, Florida 34202 (the “Seller”).

WITNESSETH:

WHEREAS, the Seller owns beneficially 3,675,000 shares of Class A common stock
of DGI (the “Class A Shares”) and 400,000 shares of Class B common stock of DGI
(the “Class B Shares,” and, together with the Class A Shares, the “Shares”);

WHEREAS, the Seller desires to sell the Shares to the Purchasers pursuant to the
terms and conditions set forth in this Agreement; and

WHEREAS, the Purchasers desire to purchase the Shares from the Seller on the
terms and conditions set forth in this Agreement;

NOW, THEREFORE, the Purchasers and the Seller, in consideration of the
agreements, covenants and conditions contained in this Agreement, and intending
to be legally bound hereby, make the following representations and warranties,
give the following covenants and agree as follows:

ARTICLE I

REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLER

As an inducement to the Purchasers to enter into this Agreement and to
consummate the purchase of the Shares this Agreement contemplates, the Seller
represents and warrants to the Purchasers and agrees as follows:

1.1 Authority. This Agreement and the sale and purchase of the Shares this
Agreement contemplates have been duly approved by all necessary action on the
part of the Seller. This Agreement, when executed and delivered by the Seller
and assuming the due execution of this Agreement by the Purchasers, will
constitute the valid, legal and binding agreement of the Seller enforceable in
accordance with its terms, subject to bankruptcy,

 

-1-

--------------------------------------------------------------------------------

insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors’ rights and to general principles of equity.
Neither the execution nor the delivery of this Agreement nor the consummation of
the sale and purchase of the Shares this Agreement contemplates, nor compliance
with nor fulfillment of the terms and provisions of this Agreement, will
(i) conflict with or result in a breach of the terms, conditions or provisions
of or constitute a default under any instrument, agreement, mortgage, judgment,
order, award, decree or other restriction to which the Seller is a party or by
provisions affecting the Seller; (ii) give any party to or with rights under any
such instrument, agreement, mortgage, judgment, order, award, decree or other
restriction the right to terminate, modify or otherwise change the rights or
obligations of the Seller under such instrument, agreement, mortgage, judgment,
order, award, decree or other restriction or (iii) require the approval, consent
or authorization of or any filing with or notification to any federal, state or
local court or Governmental Authority.

1.2 Title to the Shares. The Seller owns the Shares beneficially and, as of the
Closing Date, the Seller will own the Shares, free and clear of any liens,
claims, encumbrances and restrictions of any kind, and the transfer and delivery
of the Shares to the Purchasers as this Agreement contemplates will be
sufficient to transfer good and marketable record and beneficial title to all of
the Shares to the Purchasers, free and clear of liens, claims, encumbrances and
restrictions of any kind and, at the Closing, the Seller will have good and
marketable record and beneficial title to the Shares, free and clear of liens,
claims, encumbrances and restrictions of any kind. The Seller shall have taken
any necessary action not later than two business days prior to the Closing Date
to cause any pledgee who holds the Shares (the “Pledgee”) to notify the
Purchasers that the Pledgee agrees to release the Shares effective as of the
Closing Date to the Purchasers upon the Seller’s simultaneous repayment to the
Pledgee of the principal amount of any indebtedness of the Seller to the Pledgee
in full plus any accrued interest on any such indebtedness and any other fees in
respect of any such indebtedness, simultaneously with the Seller’s receipt of
the Purchase Price (as defined in Section 8.2 of this Agreement) for the Shares
and the Seller’s repayment to the Pledgee in full of the principal amount of any
such indebtedness and all accrued interest and fees in respect of any such
indebtedness.

1.3 Representations and Warranties to Be True on the Closing Date. All of the
representations and warranties of the Seller set forth in this Article I shall
be true and correct on the Closing Date.

 

-2-

--------------------------------------------------------------------------------

ARTICLE II

REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF DGI

As an inducement to the Seller to enter into this Agreement and to consummate
the sale of the Shares this Agreement contemplates, DGI represents and warrants
to the Seller and agrees as follows:

2.1 Corporate Authority. This Agreement and the purchase of the Shares this
Agreement contemplates have been duly approved by all necessary corporate action
on the part of DGI. This Agreement, when duly executed and delivered by the
Seller, DGI and DMIC, will constitute the valid and binding agreement of DGI
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors’ rights and to general principles of equity. Neither the
execution nor the delivery of this Agreement, nor the consummation of the
purchase of the Shares this Agreement contemplates, nor compliance with nor
fulfillment of the terms and provisions of this Agreement, will (i) conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under the Certificate of Incorporation or By-laws of DGI,
any instrument, agreement, mortgage, judgment, order, award, decree or other
restriction to which DGI is a party or by which DGI is bound or any statute or
regulatory provisions affecting DGI or (ii) require the approval, consent or
authorization of or any filing with or notification to any federal, state or
local court or Governmental Authority.

2.2 Availability of Funds to Consummate the Purchase of the Shares. DGI, in
conjunction with DMIC, has sufficient available financial resources to pay, in
conjunction with DMIC, the Purchase Price for the Shares.

2.3 Representations and Warranties to Be True on the Closing Date. All of the
representations and warranties of DGI set forth in this Article II shall be true
and correct on the Closing Date.

ARTICLE III

REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF DMIC

As an inducement to the Seller to enter into this Agreement and to consummate
the sale of the Shares this Agreement contemplates, DMIC represents and warrants
to the Seller and agrees as follows:

3.1 Corporate Authority. This Agreement and the purchase of the Shares this
Agreement contemplates have been duly approved by all necessary corporate action
on the part of DMIC. This Agreement, when duly executed and delivered by the
Seller, DMIC and DGI, will constitute the valid and binding agreement of DMIC
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors’ rights and to general principles

 

-3-

--------------------------------------------------------------------------------

of equity. Neither the execution nor the delivery of this Agreement, nor the
consummation of the purchase of the Shares this Agreement contemplates, nor
compliance with nor fulfillment of the terms and provisions of this Agreement,
will (i) conflict with or result in a breach of the terms, conditions or
provisions of or constitute a default under the Articles of Incorporation or
By-laws of DMIC, any instrument, agreement, mortgage, judgment, order, award,
decree or other restriction to which DMIC is a party or by which DMIC is bound
or any statute or regulatory provisions affecting DMIC or (ii) require the
approval, consent or authorization of or any filing with or notification to any
federal, state or local court or Governmental Authority.

3.2 Availability of Funds to Consummate the Purchase of the Shares. DMIC, in
conjunction with DGI, has sufficient available financial resources to pay, in
conjunction with DGI, the Purchase Price for the Shares.

3.3 Representations and Warranties to Be True on the Closing Date. All of the
representations and warranties of DMIC set forth in this Article III shall be
true and correct on the Closing Date.

ARTICLE IV

ACTIONS PENDING THE CLOSING DATE

The parties covenant and agree as follows:

4.1 Preserve Accuracy of Representations and Warranties. Each of the Seller, DGI
and DMIC shall neither take nor permit any action or fail to take any action
that would cause any of their respective representations or warranties in this
Agreement not to be accurate as of the Closing Date.

4.2 No Public Announcement. Except for filings with the SEC to report the sale
and purchase of the Shares this Agreement contemplates required by provisions of
the federal securities laws applicable to the Seller and to the Purchasers and,
except as Section 10.3 of this Agreement otherwise provides, neither the Seller
nor the Purchasers shall, without the prior written approval of the other, make
any press release or other public announcement or filing concerning the sale and
purchase of the Shares this Agreement contemplates, except as and to the extent
that any such party shall so determine is required by applicable federal
securities laws, in which case the other parties to this Agreement shall be
advised in advance of such proposed disclosure and be given a reasonable
opportunity to comment on such proposed disclosure.

 

-4-

--------------------------------------------------------------------------------

4.3 Receipt of Wire Transfer Instructions from the Seller. Not later than two
business days prior to the Closing Date, the Seller shall have delivered to each
of the Purchasers instructions sufficient to enable the Purchasers to wire
transfer funds constituting the Purchase Price to a bank account of the Seller
upon the Closing Date. Such information shall include the name of the bank, the
ABA number of the bank, the name of the bank account of the Seller and the
number of the bank account of the Seller.

ARTICLE V

CONDITIONS PRECEDENT TO OBLIGATIONS OF DGI

The obligations of DGI under this Agreement to purchase and pay, in conjunction
with DMIC, for the Shares shall, at the option of DGI, be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:

5.1 No Misrepresentations or Breach of Covenants and Warranties. There shall
have been no material breach by the Seller in the performance of any of the
Seller’s covenants in this Agreement, each of the representations and warranties
of the Seller contained or referred to in this Agreement shall be true and
correct on the Closing Date as though made on the Closing Date and the Seller
shall deliver to DGI on the Closing Date a certificate or certificates to that
effect, dated the Closing Date, and signed by the Seller.

5.2 Legal Matters. No Order entered or Law promulgated or enacted by any
Governmental Authority shall be in effect that would prevent the consummation of
the sale and purchase of the Shares this Agreement contemplates and no
Proceeding brought by a Governmental Authority shall have been commenced and be
pending which seeks to restrain, prevent or materially delay or restructure the
sale and purchase of the Shares this Agreement contemplates or which otherwise
questions the validity or legality of the sale and purchase of the Shares in
accordance with the provisions of this Agreement.

ARTICLE VI

CONDITIONS PRECEDENT TO OBLIGATIONS OF DMIC

The obligations of DMIC under this Agreement to purchase and pay, in conjunction
with DGI, for the Shares shall, at the option of DMIC, be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:

6.1 No Misrepresentations or Breach of Covenants and Warranties. There shall
have been no material breach by the Seller in the performance of any of his
covenants in this Agreement, each of the representations and warranties of the
Seller contained or referred to in this Agreement shall be true and correct on
the Closing Date as though made on the Closing Date and the Seller shall deliver
to DMIC on the Closing Date a certificate or certificates to that effect, dated
the Closing Date, and signed by the Seller.

 

-5-

--------------------------------------------------------------------------------

6.2 Legal Matters. No Order entered or Law promulgated or enacted by any
Governmental Authority shall be in effect that would prevent the consummation of
the sale and purchase of the Shares this Agreement contemplates and no
Proceeding brought by a Governmental Authority shall have been commenced and be
pending which seeks to restrain, prevent or materially delay or restructure the
sale and purchase of the Shares this Agreement contemplates or which otherwise
questions the validity or legality of the sale and purchase of the Shares in
accordance with the provisions of this Agreement.

ARTICLE VII

CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER

The obligations of the Seller under this Agreement to sell and receive payment
for the Shares shall, at the option of the Seller, be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:

7.1 No Misrepresentations or Breach of Covenants and Warranties. There shall
have been no material breach by DMIC or DGI in the performance of any of their
respective representations, warranties or covenants in this Agreement and each
of the Purchasers shall deliver to the Seller, a certificate or certificates to
that effect, dated the Closing Date, and signed on behalf of each of the
Purchasers.

7.2 Legal Matters. No Order entered or Law promulgated or enacted by any
Governmental Authority shall be in effect which would prevent the consummation
of the purchase and sale of the Shares this Agreement contemplates and no
Proceeding brought by a Governmental Authority shall have been commenced and be
pending which seeks to restrain, prevent or materially delay or restructure the
purchase and sale of the Shares this Agreement contemplates or which otherwise
questions the validity or legality of the sale and purchase of the Shares in
accordance with the provisions of this Agreement.

ARTICLE VIII

PURCHASE PRICE AND CLOSING

8.1 Closing Date. Subject to the fulfillment of the conditions precedent
specified in Articles V, VI, and VII, the purchase and sale of the Shares this
Agreement contemplates shall be consummated (the “Closing”) at 10:00 a.m., on
December 21, 2015 (the “Closing Date”) at the offices of Duane Morris LLP, 30
South 17th Street, Philadelphia, Pennsylvania 19103 or at such other place or
such other time as the Purchasers and the Seller shall mutually agree.

8.2 Purchase and Sale. On the Closing Date, the Purchasers shall purchase from
the Seller, and the Seller shall sell to the Purchasers, all of the Shares for a
purchase price of $16.50 per Class A Share, a total of $60,637,500, and $23.50
per Class B Share, a total of $9,400,000. The total purchase price of the
Class A Shares and the Class B Shares is $70,037,500, which amount is referred
to in this Agreement as the “Purchase Price”.

 

-6-

--------------------------------------------------------------------------------

8.3 Deliveries by the Seller. As of the Closing Date, the Seller shall deliver
all of the Shares electronically through book-entry to the Purchasers, free and
clear of any liens, claims or encumbrances of any sort.

8.4 Deliveries by the Purchasers. On the Closing Date, the Purchasers shall make
payment of the Purchase Price to the Seller by wire transfer of immediately
available funds to such bank account as the Seller shall specify in writing to
the Purchasers pursuant to Section 4.3 of this Agreement.

ARTICLE IX

TERMINATION

9.1 Termination. This Agreement may be terminated and the purchase and sale of
the Shares abandoned at any time prior to the Closing Date:

(a) by mutual consent of the Purchasers and the Seller;

(b) by either of the Purchasers or by the Seller by one day’s written notice to
the Seller or the Purchasers, as the case may be, if the Closing of the sale and
purchase of the Shares this Agreement contemplates shall not have been
consummated on or before March 31, 2016;

(c) by either of the Purchasers or by the Seller by one day’s written notice to
the Seller or the Purchasers, as the case may be, if any of the conditions to
such party’s obligations to consummate the sale and purchase of the Shares this
Agreement contemplates shall have become impossible to satisfy;

(d) by either of the Purchasers if (i) the Seller is in breach at any time prior
to the Closing Date of any of the representations and warranties made by the
Seller as though made on and as of such date or (ii) the Seller shall not have
performed and complied in all material respects with all covenants this
Agreement requires the Seller to perform or comply with on and as of such date,
which breach cannot be or has not been cured, in all material respects within 15
days after the giving of written notice thereof by the Purchasers to the Seller;
or

(e) by the Seller if either of the Purchasers shall not have performed and
complied in all material respects with all respective covenants this Agreement
requires the respective Purchasers to perform or comply with on and as of such
date, which breach cannot be or has not been cured, in all material respects
within 15 days after the giving of written notice thereof by the Seller to the
Purchasers.

 

-7-

--------------------------------------------------------------------------------

9.2 Effect of Termination. In the event of the termination of this Agreement by
either of the Purchasers or the Seller, as provided in Section 9.1 of this
Agreement, this Agreement shall thereafter become void and there shall be no
liability on the part of any party to this Agreement to any other party to this
Agreement, except that (i) any such termination shall be without prejudice to
the rights of any party to this Agreement arising out of the willful breach by
any other party of any covenant or agreement contained in this Agreement and
(ii) each of the parties to this Agreement shall provide the other party to this
Agreement with a copy of any proposed public announcement regarding the
occurrence of such termination and a reasonable opportunity to comment on such
proposed public announcement prior to its dissemination.

ARTICLE X

STANDSTILL AGREEMENT OF THE SELLER

10.1 Definitions. For purposes of this Agreement:

(a) The terms “Affiliate” and “Associate” have the respective meanings set forth
in Rule 12b-2 promulgated by the Securities and Exchange Commission (the “SEC”)
under the Securities Exchange Act of 1934, as amended (the “1934 Act”); the
terms “beneficial owner” and “beneficial ownership” shall have the respective
meanings as set forth in Section 13(d) of the 1934 Act and in Rule 13d-3
promulgated by the SEC under the 1934 Act and the terms “person” or “persons”
shall mean any individual, corporation (including not-for-profit), general or
limited partnership, limited liability company, joint venture, estate, trust,
association, organization or other entity of any kind or nature.

(b) “Board” means the Board of Directors of DGI.

(c) “Common Stock” means the Class A common stock, par value $.01 per share, of
DGI and the Class B common stock, par value $.01 per share, of DGI.

(d) The “Standstill Period” means the period that commences on the Closing Date
and expires on the 25th anniversary of the date of such Closing Date.

 

-8-

--------------------------------------------------------------------------------

10.2 Standstill Agreement of the Seller. The Seller agrees that, during the
Standstill Period, he will not, and he will cause each of his Affiliates or
agents or other persons acting on his behalf not to, and will use commercially
reasonable efforts to cause his respective Associates not to:

(a) own, directly or indirectly purchase or cause to be purchased or otherwise
acquire or agree to acquire beneficial ownership of, or encourage, propose or
suggest to any third party that any such person purchase, tender, exchange or
otherwise acquire or agree to acquire, directly or indirectly, or through the
acquisition of control of another person, any Common Stock or other securities
issued by DGI or any securities convertible into or exchangeable for Common
Stock or any other equity securities issued by DGI or acquire or own, directly
or indirectly, an insurance policy from DMIC or any insurance subsidiary of DGI;

(b) acquire, offer to acquire, solicit an offer to sell, agree to acquire,
encourage, propose or suggest to any third party that any third party acquire,
offer to acquire or agree to acquire, directly or indirectly, by purchase,
tender, exchange or otherwise, any Common Stock or other securities issued by
DGI or any subsidiary or division of DGI or of any successor to DGI or any
controlling person or any subsidiary or division of DGI or enter into any
agreement or arrangement or otherwise act in concert with any other person for
the purpose of acquiring, holding or disposing of any Common Stock;

(c) submit any stockholder proposal (pursuant to Rule 14a-8 promulgated by the
SEC under the 1934 Act or otherwise) or any notice of nomination or other
business for consideration, and will not nominate any candidate for election to
the Board or oppose the directors nominated by the Board or induce, or attempt
to induce, any other person to initiate any stockholder proposal or participate,
directly or indirectly, alone or in concert with others, any solicitation of
proxies to vote any shares of the Common Stock at any meeting of the
stockholders of DGI or the policyholders of DMIC or any insurance subsidiary of
DGI;

(d) seek the removal of any director of DGI or DMIC;

(e) form, join in or in any other way participate in a “partnership, limited
partnership, syndicate or other group” within the meaning of Section 13(d)(3) of
the 1934 Act with respect to the Common Stock or deposit any shares of Common
Stock in a voting trust or similar arrangement or subject any shares of Common
Stock to any voting agreement or pooling arrangement;

(f) solicit proxies or written consents of stockholders, or otherwise conduct
any nonbinding referendum with respect to the Common Stock, or make, or in any
way participate in, any “solicitation” of any “proxy” within the meaning of Rule
14a-1 promulgated by the SEC under the 1934 Act to vote, or advise, encourage or
influence any person with respect to voting, any shares of Common Stock with
respect to any matter, or become a “participant” in any contested “solicitation”
for the election of directors with respect to DGI or any controlling person of
DGI (as such terms are defined or used under the 1934 Act);

 

-9-

--------------------------------------------------------------------------------

(g) seek to call, or request the call of, a special meeting of the stockholders
of DGI or policyholders of DMIC or any insurance subsidiary of DGI, or seek to
make, or make, a stockholder proposal at any meeting of the stockholders of DGI
or a proposal at any meeting of policyholders of DMIC or make a request for a
list of DGI’s stockholders or DMIC’s policyholders or any other books and
records of DGI pursuant to Section 220 of the Delaware General Corporation Law
or of DMIC pursuant to the Pennsylvania Business Corporation Law or the
Pennsylvania Insurance Holding Companies Act or otherwise or otherwise induce or
encourage any other person to initiate such proposal or request or otherwise
acting alone, or in concert with others, seek to control or influence the
governance or policies of DGI or DMIC;

(h) effect or seek to effect including, without limitation, by entering into any
discussions, negotiations, agreements or understandings with any third person,
offer or propose, whether publicly or otherwise, to effect or cause or
participate in, or in any way assist or facilitate any other person to effect or
seek, offer or propose, whether publicly or otherwise, to effect or participate
in (i) any acquisition of record or beneficial ownership of any securities of
DGI or rights or options to acquire any securities or beneficial ownership of
such securities, or any material assets or businesses, of DGI or any of its
subsidiaries, (ii) any tender offer or exchange offer, merger, acquisition or
other business combination proposal or transaction involving DGI or any of its
subsidiaries or (iii) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to DGI, any
subsidiary of DGI or any controlling person of DGI;

(i) publicly disclose, or cause or facilitate the public disclosure, including,
without limitation, the filing of any document or report with the SEC or any
other Governmental Authority or any disclosure to any journalist, member of the
media or securities analyst, of any intent, purpose, plan or proposal to obtain
any waiver or consent under, or any amendment of, any of the provisions of this
Section 10.2, or otherwise seek, in any manner that would require public
disclosure by the Seller or the Seller’s Affiliates or Associates, to obtain any
waiver or consent under, or any amendment of, any provision of this Agreement,
or take any action that could require DGI or DMIC to make any public disclosure
with respect to any of the matters set forth in this Agreement;

(j) seek to have DGI waive, amend or modify any provisions of DGI’s Certificate
of Incorporation or By-laws or to have DMIC waive, amend or modify any
provisions of DMIC’s Articles of Association or Bylaws;

(k) enter into any arrangements, understandings or agreements (whether written
or oral) with, or advise, finance, assist or encourage, any other person that
engages, or offers or proposes to engage, in any of the foregoing;

 

-10-

--------------------------------------------------------------------------------

(l) otherwise act, alone, or in concert with others, to seek to control, advise,
change or influence the management, board of directors, governing instruments,
policies or affairs of DGI or DMIC;

(m) request DGI, DMIC or their professional advisors, directly or indirectly, to
amend or waive any of the provisions of this Agreement;

(n) initiate or participate, by encouragement or otherwise, in any litigation,
arbitration or other proceeding against or involving DMIC or DGI or their
respective officers or directors, including but not limited to, any derivative
litigation any person brings on behalf of DGI or any class action litigation
brought against DGI or DMIC;

(o) advise, assist, encourage or finance, or arrange, assist or facilitate
financing to or for, any other person in connection with any of the matters this
Agreement restricts or otherwise seek to circumvent the restrictions or
prohibitions set forth in this Section 10.2;

(p) announce an intention to do, or enter into any arrangement or understanding
with others to do, any of the actions this Section 10.2 restricts or prohibits,
or publicly announce or disclose any request to be excused from any of this
restrictions or prohibitions this Section 10.2 imposes on the Seller and any
Affiliate of the Seller;

(q) disparage DGI, DMIC or any of their respective officers or directors,
including nominees for election as members of the Board, in any public or
quasi-public forum;

(r) enter into any discussions, negotiations, agreements or understandings with
any third party with respect to any of the matters this Section 10.2 restricts
or prohibits, or advise, assist, knowingly encourage or seek to persuade any
third party to take any actions or make any statement with respect to any of the
foregoing or make any statement inconsistent with any of the restrictions and
prohibitions in this Section 10.2; or

(s) take or cause or induce others to take any action inconsistent with any of
the foregoing provisions of this Section 10.2.

10.3 Prompt Filing of Amendment to the Seller’s Schedule 13D. The Seller shall
promptly file an amendment to the Seller’s Schedule 13D to report the Seller’s
entry into this Agreement and shall file this Agreement as an exhibit to such
amendment. The Seller shall provide to DGI a reasonable opportunity to review
and comment on such amendment in advance of its filing, and the Seller shall
consider in good faith the reasonable comments of DGI.

 

-11-

--------------------------------------------------------------------------------

10.4 Specific Performance of the Seller’s Standstill Agreement. The Seller
hereby acknowledges and agrees, on behalf of himself and his Affiliates, that
(a) irreparable harm to DGI and DMIC would occur in the event the Seller did not
perform any of the provisions of this Agreement in accordance with their
specific terms or otherwise breach any of the provisions of this Agreement and
(b) money damages would not be an adequate remedy for any such breach.
Accordingly, the Seller agrees that DMIC and DGI shall be entitled to specific
relief under this Agreement, including, without limitation, an injunction or
injunctions to prevent and enjoin any breaches or threatened breaches by the
Seller or any Affiliates of the Seller of the provisions of this Agreement and
to enforce specifically the terms and provisions of this Agreement in any state
or federal court in the State of Delaware, in addition to any other remedy to
which DGI and DMIC may be entitled at law or in equity. In the event that DMIC
or DGI shall bring any action in equity to enforce this Agreement, the Seller
agrees the Seller shall not allege, and the Seller hereby waives, the defense
that DMIC or DGI has an adequate remedy at law.

Furthermore, the Seller:

(a) consents to the exclusive personal jurisdiction of the Court of Chancery or
other federal or state court of the State of Delaware in the event any dispute
between the Seller and the Purchasers arises out of this Agreement and the sale
and purchase of the Shares this Agreement contemplates;

(b) agrees that the Seller shall not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court;

(c) agrees that the Seller shall not bring any action relating to this Agreement
or the sale and purchase of the Shares this Agreement contemplates in any court
other than the Court of Chancery or other federal or state court of the State of
Delaware, and the Seller irrevocably waives the right to trial by jury in any
such action;

(d) agrees to waive any bonding requirement under any applicable law, in the
event another party to this Agreement seeks to enforce the terms of this
Agreement by way of equitable relief; and

(e) irrevocably consents to service of process by a reputable overnight mail
delivery service, signature requested, to the Seller’s address as set forth in
Section 12.1 of this Agreement or as applicable law otherwise provides. THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING THE VALIDITY,
INTERPRETATION AND EFFECT OF THIS AGREEMENT, BY THE LAWS OF THE STATE OF
DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE.

 

-12-

--------------------------------------------------------------------------------

ARTICLE XI

AMENDMENT, WAIVER AND INDEMNIFICATION

11.1 Amendment. This Agreement may be amended or modified in whole or in part at
any time by an agreement in writing executed in the same manner as this
Agreement, provided, however, that no amendment shall be made that changes the
terms of this Agreement in any material respect and that requires the further
approval or proceedings of any insurance Governmental Authority without such
approval having first been obtained or such proceedings having first been
completed.

11.2 Extension; Waiver. At any time prior to the Closing Date, any party to this
Agreement may:

(a) extend the time for the performance of any of the obligations or other acts
of the other parties to this Agreement;

(b) waive any inaccuracies in the representations and warranties contained in
this Agreement or in any document delivered pursuant to this Agreement; or

(c) waive compliance with any of the agreements or conditions contained in this
Agreement.

Any waiver by any party of a breach of any provision of this Agreement shall not
operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Agreement. The failure of a
party to insist upon strict adherence to any term of this Agreement on one or
more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement.

11.3 Survival of Obligations. All certifications, representations and warranties
made in this Agreement by the Seller and the performance obligations of the
Seller under the terms of this Agreement shall survive the Closing Date under
this Agreement, notwithstanding any notice of any inaccuracy, breach or failure
to perform not waived in writing, and notwithstanding the consummation of the
sale and purchase of the Shares this Agreement contemplates with knowledge of
such inaccuracy, breach or failure. All representations and warranties this
Agreement contains shall terminate one year after the Closing Date; provided
that the representations in Section 1.2 of this Agreement relating to the
Seller’s title to the Shares shall not expire.

 

-13-

--------------------------------------------------------------------------------

11.4 Indemnification.

(a) The Seller agrees to indemnify and hold harmless the Purchasers from and
against any liabilities, losses, costs, deficiencies or damages (“Loss”) and
reasonable attorneys’ fees and expenses, court costs and all other reasonable
out-of-pocket expenses (“Expense”) the Purchasers incur arising from any claim
that the Seller did not convey to the Purchasers good and marketable title to
all of the Shares pursuant to this Agreement, provided that with respect to the
representations and warranties contained in Section 1.2 of this Agreement
relating to the Seller’s title to the Shares, the liability of the Seller to the
Purchasers shall not be in excess of the Purchase Price.

(b) If either Purchaser has suffered or incurred any Loss or incurred any
Expense, it shall so notify the Seller promptly in writing describing such Loss
or Expense, the amount of such Loss or Expense, if known, and the method of
computation of such Loss or Expense, all with reasonable particularity and
containing a reference to the provision of this Agreement or any certificate
delivered pursuant to this Agreement in respect of which such Loss or Expense
shall have occurred. If any action at law or suit in equity is instituted by or
against a third party with respect to which any Indemnified Person intends to
claim any liability or expense as Loss or Expense under this Section 11.4, such
Indemnified Person shall promptly notify the Indemnifying Person of such action
or suit. The failure of an Indemnified Person to notify the Indemnifying Person
promptly of a claim as contemplated by the preceding sentence shall not relieve
the Indemnifying Person of its obligations under this Section 11.4 except to the
extent that the Indemnifying Person is prejudiced in its defense of such claim
as a result of such failure to give prompt notice.

(c) The Indemnified Persons shall have the right to conduct and control, through
counsel of their choosing, any third party claim, action or suit and may
compromise or settle the same, provided that any of the Indemnified Persons
shall give the Indemnifying Person advance notice of any proposed compromise or
settlement.

ARTICLE XII

MISCELLANEOUS

12.1 Notices. All notices or other communications required or permitted under
this Agreement shall be in writing and shall be given by confirmed electronic
mail or registered mail, postage prepaid, addressed as follows:

if to the Purchasers, to:

Donegal Mutual Insurance Company

1195 River Road, P.O. Box 302

Marietta, Pennsylvania 17547

Attention: Donald H. Nikolaus, President and Chief Executive Officer

 

-14-

--------------------------------------------------------------------------------

Donegal Group Inc.

1195 River Road, P.O. Box 302

Marietta, Pennsylvania 17547

Attention: Kevin G. Burke, President and Chief Executive Officer

with copies to:

Dechert LLP

Cira Centre

2929 Arch Street

Philadelphia, PA 19104-2808

Attention: Joseph A. Tate, Esq.

Duane Morris LLP

30 South 17th Street

Philadelphia, Pennsylvania 19103

Attention: Frederick W. Dreher, Esq.

if to the Seller, to:

Gregory M. Shepard

7028 Portmarnock Place

Bradenton, Florida 34202

with a copy to:

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Attention: Christopher S. Harrison, Esq.

or to such other address as the party to whom notice is given may have
previously furnished to the other parties in writing in accordance with this
Section 12.1.

12.2 Expenses. Each party to this Agreement shall pay its own expenses
including, without limitation, legal and accounting fees and expenses incident
to the negotiation and preparation of this Agreement and to its performance and
compliance with the provisions contained in this Agreement.

 

-15-

--------------------------------------------------------------------------------

12.3 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties to this Agreement and their respective successors and
assigns, provided that the rights of the Seller under this Agreement may not be
assigned and the rights of the Purchasers may be assigned only (i) to such other
business organization which shall succeed to substantially all the assets,
liabilities and business of DMIC or DGI, as the case may be, or (ii) to a wholly
owned subsidiary of DMIC or DGI, as the case may be, in which event such
assignment shall not relieve DMIC or DGI, as the case may be, of any of their
respective obligations to the Seller under this Agreement. Nothing in this
Agreement, expressed or implied, is intended to confer upon any other Person any
rights or remedies of any nature under or by reason of this Agreement.

12.4 Partial Invalidity. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained in this Agreement unless the deletion of
such provision or provisions would result in such a material change as to cause
completion of the sale and purchase of the Shares this Agreement contemplates to
be unreasonable or materially and adversely frustrate the objectives of the
parties as expressed in this Agreement.

12.5 Execution in Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, and
shall become a binding agreement when one or more counterparts have been signed
by each of the parties and delivered to each of the other parties.

12.6 Entire Agreement. This Agreement contains the entire understanding of the
parties to this Agreement with regard to the purchase and sale of the Shares and
the standstill obligations of the Seller.

 

-16-

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, each party to this Agreement has caused this Agreement to be
executed on its behalf all as of the date first above written.

 

DONEGAL MUTUAL INSURANCE COMPANY By:   /s/ Donald H. Nikolaus  

Donald H. Nikolaus, President

    and Chief Executive Officer

 

DONEGAL GROUP INC. By:   /s/ Kevin G. Burke  

Kevin G. Burke, President

    and Chief Executive Officer

/s/ Gregory M. Shepard Gregory M. Shepard

 

-17-