Exhibit 10.1

 
DONEGAL GROUP INC.

 
2007 EQUITY INCENTIVE PLAN FOR EMPLOYEES
 
1. Purpose.  The purpose this Plan is to encourage the employees of Donegal
Group Inc., or the Company, and its subsidiaries to acquire a proprietary
interest in the growth and performance of the Company, and continuing to align
the interests of those employees with the interests of the Company’s
stockholders to generate an increased incentive for such person to contribute to
the future success and prosperity of the Company and the member companies of the
Donegal Insurance Group, or the Group. To accomplish these purposes, this Plan
provides a means whereby employees may receive stock options, stock appreciation
rights, stock awards and other stock-based awards that are based on, or measured
by, or payable in shares of the Company’s Class A Common Stock.
 
2. Administration by the Board of Directors and Role of the Committee.
 
(a) Administration by the Board of Directors.  The Board of Directors, or the
Board, shall administer this Plan. The Board of the Company shall appoint a
committee, which initially shall be the Compensation Committee. The Committee,
with the advice of the Company’s chief executive officer, shall recommend to the
Board the employees to whom awards will be granted and the type, size and terms
of each grant. The Board has the authority to make all other determinations
necessary or advisable for the administration of this Plan. All decisions,
determinations and interpretations of the Board shall be final and binding on
all grantees and all other holders of awards granted under this Plan.
 
(b) Composition and Role of the Committee.  The Committee shall be comprised of
two or more members of the Board, each of whom shall be a “non-employee
director” within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, or the Exchange Act. In addition, each member of the Committee shall be an
“outside director” within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended, or the Code. Subject to the foregoing, from time to
time the Board may increase or decrease the size of the Committee, appoint
additional members, remove members, with or without cause, appoint new members,
fill vacancies or remove all members of the Committee and thereafter directly
administer this Plan. The Committee shall have those duties and responsibilities
assigned to it under this Plan, and the Board may assign to the Committee the
authority to make certain other determinations and interpretations under this
Plan. All decisions, determinations and interpretations of the Committee in such
cases shall be final and binding on all grantees and all other holders of awards
granted under this Plan.
 
3. Shares Subject to this Plan.
 
(a) Shares Authorized.  The total aggregate number of shares of Class A Common
Stock that may be issued under this Plan is 3,500,000 shares, subject to
adjustment as described below. Each of the shares authorized under this Plan may
be issued pursuant to incentive stock options awards within the meaning of
Section 422 of the Code. The shares may be authorized but unissued shares or
reacquired shares for purposes of this Plan.
 
(b) Share Counting.  For administrative purposes, when the Board approves an
award payable in shares of Class A Common Stock, the Board shall reserve, and
count against the share limit, shares equal to the maximum number of shares that
may be issued under the award. If and to the extent options or stock
appreciation rights granted under this Plan terminate, expire or are canceled,
forfeited, exchanged or surrendered without having been exercised, and if and to
the extent that any restricted stock awards are forfeited or terminated, or
otherwise are not paid in full, the shares reserved for such awards shall again
be available for purposes of this Plan. If stock appreciation rights are
granted, the full number of shares subject to the stock appreciation right shall
be considered issued under this Plan, without regard to the number of shares
issued upon settlement of the stock appreciation rights.
 
(c) Individual Limits.  All awards under this Plan shall be expressed in shares
of Class A Common Stock. The maximum number of shares of Class A Common Stock
with respect to all awards that may be

 

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made to any individual under this Plan during any calendar year shall be
200,000 shares, subject to adjustment as described below.
 
(d) Adjustments.  If any change in the number or kind of shares of Class A
Common Stock outstanding occurs by reason of:
 

  •  a stock dividend, spinoff, recapitalization, stock split or combination or
exchange of shares;     •  a merger, reorganization or consolidation;     •  a
reclassification or change in par value; or     •  any other extraordinary or
unusual event affecting the outstanding Class A Common Stock as a class without
the Company’s receipt of consideration, or if the value of outstanding shares of
Class A Common Stock is substantially reduced as a result of a spinoff or the
Company’s payment of any extraordinary dividend or distribution,

 
the maximum number of shares of Class A Common Stock available for issuance
under this Plan, the maximum number of shares of Class A Common Stock for which
any individual may receive grants in any year, the kind and number of shares
covered by outstanding awards, the kind and number of shares to be issued or
issuable under this Plan and the price per share or applicable market value of
such grants shall be automatically equitably adjusted to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares of
Class A Common Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under this Plan and such outstanding grants. Any
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments to outstanding awards shall be consistent with Section 409A of the
Code, to the extent applicable.
 
4. Eligibility for Participation.  All employees of the Company and its
subsidiaries and the member companies of the Group, including employees who are
officers or members of the Board of any of the foregoing companies, shall be
eligible to participate in this Plan. The Committee shall recommend to the Board
the employees to receive awards and the number of shares of Class A Common Stock
subject to each award.
 
5. Awards.  Awards under this Plan may consist of stock options as described in
Section 7, stock appreciation rights as described in Section 8, stock awards as
described in Section 9 and other stock-based awards as described in Section 10.
The Committee shall specify the terms and conditions of the award granted to the
grantee in an agreement. The award shall be conditioned upon the grantee’s
signed agreement to accept the award and to acknowledge that all decisions and
determinations of the Committee and the Board shall be final and binding on the
grantee, his or her beneficiaries and any other person having or claiming an
interest under the award. Awards under this Plan need not be uniform as among
the grantees. The Board may grant awards that are contingent on, and subject to,
stockholder approval of this Plan or an amendment to this Plan.
 
6. Definition of Fair Market Value.  For purposes of this Plan, “fair market
value” shall mean the last sales price of a share of Class A Common Stock on the
NASDAQ Stock Market, or Nasdaq, on the day on which fair market value is being
determined, as reported by Nasdaq. In the event that there are no transactions
in shares of Class A Common Stock on Nasdaq on such day, the fair market value
will be determined as of the immediately preceding day on which there were
transactions in shares of Class A Common Stock on that exchange. If shares of
Common Stock are not listed by Nasdaq, the Board shall determine the fair market
value pursuant to Section 422 of the Code.
 
7. Stock Options.  The Committee may recommend to the Board the grant of stock
options to an employee upon such terms and conditions as the Committee deems
appropriate under this Section 7.
 
(a) Number of Shares.  The Committee shall recommend the number of shares of
Class A Common Stock that will be subject to each grant of stock options.
 
(b) Type of Stock Option, Price and Term.  The Committee may recommend to the
Board the grant of stock options to purchase Class A Common Stock that are
intended to qualify as incentive stock options within the meaning of Section 422
of the Code, or incentive stock options, or stock options that are not intended
to

 

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so qualify, or nonqualified stock options. The Committee shall recommend the
exercise price of shares of Class A Common Stock subject to a stock option,
which shall be equal to or greater than the fair market value of a share of
Class A Common Stock on the date of grant.
 
(c) Exercisability of Stock Options.  Each stock option agreement shall specify
the period or periods of time within which a grantee may exercise a stock
option, in whole or in part, as determined by the Board. No grantee may exercise
a stock option after ten years from the grant date of the stock option. The
Board may accelerate the exercisability of any or all outstanding stock options
at any time for any reason.
 
(d) Termination of Employment.  Except as provided in the stock option
agreement, a grantee may only exercise a stock option while the grantee is
employed by the Company or any of its subsidiaries or by Donegal Mutual or any
of its subsidiaries. The Board shall specify in the option agreement under what
circumstances and during what time periods a grantee may exercise a stock option
after employment terminates. If the term of an incentive stock option continues
for more than three months after employment terminates due to retirement or more
than one year after termination of employment due to death or disability, the
stock option shall lose its status as an incentive stock option and shall be
treated as a nonqualified stock option.
 
(e) Exercise of Stock Options.  A grantee may exercise a stock option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company. The grantee shall pay the exercise price for the stock option:
 

  •  in cash;     •  by delivery of shares of Class A Common Stock at fair
market value, shares of Class B Common Stock at fair market value, or a
combination of those shares, as the Committee or the Board may determine from
time to time and subject to the terms and conditions as the Committee or the
Board may prescribe;     •  by payment through a brokerage firm of national
standing whereby the grantee will simultaneously exercise the stock option and
sell the shares acquired upon exercise through the brokerage firm and the
brokerage firm shall remit to the Company from the proceeds of the sale of the
shares the exercise price as to which the option has been exercised in
accordance with the procedures permitted by Regulation T of the Federal Reserve
Board; or     •  by any other method authorized by the Committee or the Board.

 
The Company must receive payment for the shares acquired upon exercise of the
stock option, and any required withholding taxes and related amounts, by the
time specified by the Committee depending on the type of payment being made, but
in all cases prior to the issuance of the shares.
 
(f) Incentive Stock Options.  The Committee shall recommend other terms and
conditions of an incentive stock option as shall be necessary or desirable in
order to qualify such stock option as an incentive stock option under
Section 422 of the Code, including the following provisions, which may be
omitted or modified if no longer required under that section:
 

  •  As determined as of the grant date, the aggregate fair market value of
shares subject to incentive stock options that first become exercisable by a
grantee during any calendar year, under all plans of the Company, shall not
exceed $100,000;     •  The exercise price of any incentive stock option granted
to an individual who owns stock having more than 10% of the total combined
voting power of all classes of stock of the Company must be at least 110% of the
fair market value of the shares subject to the incentive stock option on the
grant date, and the individual may not exercise the incentive stock option after
the expiration of five years from the date of grant; and     •  The grantee may
not exercise the incentive stock option more than three months, or one year in
the case of death or disability within the meaning of the applicable Code
provisions, after termination of employment.

 

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8. Stock Appreciation Rights.  The Committee may recommend to the Board the
grant of stock appreciation rights to an employee separately or in tandem with
any stock option, for all or a portion of the applicable stock option, under
this Section 8.
 
(a) Number of Shares, Term and Base Amount.  The Committee shall recommend the
number of shares, the term and the base amount of the stock appreciation right
at the time it grants the stock appreciation right. The term of a stock
appreciation right shall not exceed ten years from the grant date. The Committee
shall recommend the base price of the stock appreciation right, which shall be
equal to or greater than the fair market value of a share of Class A Common
Stock on the date of grant.
 
(b) Exercisability.  Each stock appreciation right agreement shall specify the
period or periods of time within which a grantee may exercise the stock
appreciation right, in whole or in part, as determined by the Board. The Board
may accelerate the exercisability of any or all outstanding stock appreciation
rights at any time for any reason. A tandem stock appreciation right shall be
exercisable only during the period in which the stock option to which it is
related is also exercisable.
 
(c) Termination of Employment.  Except as provided in the stock appreciation
right agreement, a grantee may exercise a stock appreciation right only while
the grantee is employed by the Company or any of its subsidiaries or by Donegal
Mutual or any of its subsidiaries. The Board shall specify in the stock
appreciation right agreement under what circumstances and during what time
periods a grantee may exercise a stock appreciation right after employment
terminates.
 
(d) Exercise of Stock Appreciation Right.  When a grantee exercises a stock
appreciation right, the grantee shall receive in settlement of the stock
appreciation right an amount equal to the value of the appreciation in the
Class A Common Stock for the number of stock appreciation rights exercised. The
appreciation in the Class A Common Stock shall be the amount by which the fair
market value of the underlying shares of Class A Common Stock on the date of
exercise of the stock appreciation right exceeds the base amount of the stock
appreciation right as specified in the stock appreciation right agreement. The
Company may pay the appreciation amount in shares of Class A Common Stock, cash
or any combination of the two, as determined by the Board in the stock
appreciation right agreement.
 
9. Stock Awards.  The Committee may recommend to the Board the issuance of
shares of Class A Common Stock to an employee upon such terms and conditions as
the Committee deems appropriate under this Section 9. The Committee may
recommend to the Board the issuance of shares of Class A Common Stock for cash
consideration or for no cash consideration, and subject to restrictions or no
restrictions. The Committee may recommend conditions under which restrictions on
stock awards shall lapse over a period of time or according to other criteria as
the Committee deems appropriate, including restrictions based upon the
achievement of specific performance goals.
 
(a) Number of Shares.  The Committee shall recommend the number of shares of
Class A Common stock to be issued pursuant to a stock award and any restrictions
applicable to the stock award.
 
(b) Requirement of Employment.  The Board shall specify in the stock award
agreement under what circumstances a grantee may retain stock awards after
termination of the grantee’s employment and the circumstances under with the
stock awards may be forfeited.
 
(c) Restrictions on Transfer.  During the period that the stock award is subject
to restrictions, a grantee may not sell, assign, transfer, pledge or otherwise
dispose of the shares of the stock award except upon death as described in
Section 13. Each certificate representing a share of Class A Common Stock issued
under the stock award shall contain a legend giving appropriate notice of the
restrictions on the stock award. The grantee shall be entitled to have the
legend removed when all restrictions on the shares subject to the stock award
have lapsed. The Company may maintain possession of any certificates
representing shares subject to the stock award until all restrictions on the
shares subject to the stock award have lapsed.
 
(d) Right To Vote and To Receive Dividends.  The Committee shall recommend to
what extent, and under what conditions, the grantee shall have the right to vote
the shares subject to the stock award and to receive any dividends or other
distributions paid on the shares during the restriction period.

 

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10. Other Stock-Based Awards.  The Committee may recommend to the Board the
grant of other awards that are based on, measured by or payable in Class A
Common Stock to an employee on such terms and conditions as the Committee deems
appropriate under this Section 10. The Committee may recommend to the Board the
grant of other stock-based awards subject to achievement of performance goals or
other conditions and may be payable in shares of Class A Common Stock or cash,
or a combination of cash and shares, as recommended by the Committee in the
stock-based award agreement.
 
11. Date of Grant.  The grant date of an award under this Plan shall be the date
of the Board of Director’s approval or such later date as may be determined by
the Board at the time it authorizes the award. The Board may not make
retroactive grants of awards under this Plan. The Company shall provide notice
of the award to the grantee within a reasonable time after the grant date.
 
12. Withholding.  All grants under this Plan shall be subject to applicable
federal, including FICA, state and local tax withholding requirements. The
Company may require that the grantee or other person receiving or exercising a
grant pay to the Company the amount of any federal, state or local taxes that
the Company is required to withhold with respect to the grant, or the Company
may deduct from other wages paid to the grantee the amount of any withholding
taxes due with respect to the grants. The Board or the Committee may permit a
grantee to elect to satisfy the Company’s tax withholding obligations with
respect to grants paid in shares of Class A Common Stock by having shares of
Class A Common Stock withheld, at the time such grants become taxable, up to an
amount that does not exceed the minimum applicable withholding tax rate for
federal, including FICA, state and local tax liabilities. Any shares so withheld
will be valued by the Board or the Committee as of the date the grants become
taxable.
 
13. Transferability of Grants.  Only the grantee of an award may exercise rights
under the award grant during the grantee’s lifetime, and a grantee may not
transfer those rights except by will or by the laws of descent and distribution.
When a grantee dies, the personal representative or other person entitled to
succeed to the rights of the grantee may exercise those rights. Any successor to
a grantee must furnish proof satisfactory to the Company of his or her right to
receive the award under the grantee’s will or under the applicable laws of
descent and distribution.
 
14. Requirements for Issuance of Shares.  The Company will not issue shares of
Class A Common Stock in connection with any award under this Plan until all
legal requirements applicable to the issuance of the shares have been complied
with to the satisfaction of the Board. The Board shall have the right to
condition any award made to any employee hereunder on the employee’s undertaking
in writing to comply with the restrictions on his or her subsequent disposition
of shares subject to the award as the Board shall deem necessary or advisable,
and certificates representing those shares may be legended to reflect any such
restrictions. Certificates representing shares of Class A Common Stock issued
under this Plan will be subject to such stop-transfer orders and other
restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon. No
grantee shall have any right as a stockholder with respect to shares of Class A
Common Stock covered by an award until shares have been issued to the grantee.
 
15. Amendment and Termination of this Plan.
 
(a) Amendments.  The Board may amend or terminate this Plan at any time, except
that the Board shall not amend this Plan without approval of the stockholders of
the Company if such approval is required in order to comply with the Code or
applicable laws, or to comply with applicable stock exchange requirements. The
Board may not, without the consent of the grantee, negatively affect the rights
of a grantee under any award previously granted under this Plan.
 
(b) No Repricing Without Stockholder Approval.  The Board may not reprice stock
options or stock appreciation rights, nor may the Board amend this Plan to
permit repricing of options or stock appreciation rights unless the stockholders
of the Company provide prior approval for the repricing.
 
(c) Termination.  This Plan shall terminate on April 19, 2017, unless the Board
earlier terminates this Plan or the term is extended with the approval of the
stockholders of the Company. The termination of this

 

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Plan shall not impair the power and authority of the Board or the Committee with
respect to an outstanding award.
 
16. Grants in Connection with Corporate Transactions and Otherwise.  Nothing
contained in this Plan shall be construed to:
 

  •  limit the right of the Board to grant awards under this Plan in connection
with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business or assets of any corporation, firm or association, including awards
to employees of those entities who become employees, or for other proper
corporate purposes, or     •  limit the right of the Company to grant stock
options or make other stock-based awards outside of this Plan.

 
Without limiting the foregoing, the Board may grant an award to an employee of
another corporation or other entity who becomes an employee by reason of a
corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company in substitution for a grant
made by that corporation or other entity. The terms and conditions of the awards
may vary from the terms and conditions required by this Plan and from those of
the substituted stock awards, as determined by the Board.
 
17. Right to Terminate Employment.  Nothing contained in this Plan or in any
award agreement entered into pursuant to this Plan shall confer upon any grantee
the right to continue in the employment of the Company or any of its
subsidiaries or the Group or affect any right that the Company or any of its
subsidiaries or the Group may have to terminate the employment of the grantee.
 
18. Reservation of Shares.  The Company, during the term of this Plan, shall at
all times reserve and keep available the number of shares of Class A Common
Stock needed to satisfy the requirements of this Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company’s counsel to be necessary to the lawful
issuance and sale of any shares hereunder, shall relieve the Company of any
liability for the failure to issue or sell any shares as to which the requisite
authority shall not have been obtained.
 
19. Effect on Other Plans.  Participation in this Plan shall not affect an
employee’s eligibility to participate in any other benefit or incentive plan of
the Company or any of its subsidiaries or the Group. Any awards granted pursuant
to this Plan shall not be used in determining the benefits provided under any
other plan unless specifically provided.
 
20. Forfeiture for Dishonesty.  Notwithstanding anything to the contrary in this
Plan, if the Board finds, by a majority vote, after full consideration of the
facts presented on behalf of both the Company and any grantee, that the grantee
has been engaged in fraud, embezzlement, theft, commission of a felony or
dishonest conduct in the course of his employment that damaged the Company or
any of its subsidiaries or the Group or that the grantee has disclosed
confidential information of the Company or any of its subsidiaries or the Group,
the grantee shall forfeit all unexercised or unvested awards and all exercised
or vested awards under which the Company has not yet delivered the certificates
or cash payments therefor. The decision of the Board in interpreting and
applying the provisions of this Section 20 shall be final. No decision of the
Board, however, shall affect the finality of the discharge or termination of the
grantee.
 
21. No Prohibition on Corporate Action.  No provision of this Plan shall be
construed to prevent the Company or any officer or director thereof from taking
any action deemed by the Company or such officer or director to be appropriate
or in the Company’s best interest, whether or not such action could have an
adverse effect on this Plan or any awards granted under this Plan, and no
grantee or grantee’s estate, personal representative or beneficiary shall have
any claim against the Company or any officer or director thereof as a result of
the taking of the action.
 
22. Indemnification.  With respect to the administration of this Plan, the
Company shall indemnify each present and future member of the Committee and the
Board against, and each member of the Committee and the Board shall be entitled
without further action on such member’s part to indemnity from the Company for,
all expenses, including the amount of judgments and the amount of approved
settlements made with a view to

 

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the curtailment of costs of litigation, other than amounts paid to the Company
itself, reasonably incurred by him or her in connection with or arising out of,
any action, suit or proceeding in which he or she may be involved by reason of
being or having been a member of the Committee or the Board, whether or not he
or she continues to be such member at the time of incurring such expenses;
provided, however, that this indemnity shall not include any expenses incurred
by any such member of the Committee or the Board (i) in respect of matters as to
which he or she shall be finally adjudged in any such action, suit or proceeding
to have been guilty of gross negligence or willful misconduct in the performance
of his or her duty as such member of the Committee or the Board; or (ii) in
respect of any matter in which any settlement is effected for an amount in
excess of the amount approved by the Company on the advice of its legal counsel;
and provided further that no right of indemnification under the provisions set
forth in this Section 22 shall be available to or enforceable by any such member
of the Committee or the Board unless, within 60 days after institution of any
such action, suit or proceeding, he or she shall have offered the Company in
writing the opportunity to handle and defend same at its own expense. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Committee or the Board
and shall be in addition to all other rights to which such member may be
entitled as a matter of law, contract or otherwise.
 
23. Miscellaneous Provisions.
 
(a) Compliance with Plan Provisions.  No grantee or other person shall have any
right with respect to this Plan, the Class A Common Stock reserved for issuance
under this Plan or in any award until a written agreement shall have been
executed by the Company and the grantee and all the terms, conditions and
provisions of this Plan and the award applicable to the grantee have been met.
 
(b) Approval of Counsel.  In the discretion of the Board, no shares of Class A
Common Stock, other securities or property of the Company or other forms of
payment shall be issued hereunder with respect to any award unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign legal, securities exchange and
other applicable requirements.
 
(c) Compliance with Rule 16b-3.  To the extent that Rule 16b-3 under the
Exchange Act applies to this Plan or to awards granted under this Plan, it is
the intention of the Company that this Plan comply in all respects with the
requirements of Rule 16b-3, that any ambiguities or inconsistencies in
construction of this Plan be interpreted to give effect to such intention and
that, if this Plan shall not so comply, whether on the date of adoption or by
reason of any later amendment to or interpretation of Rule 16b-3, the provisions
of this Plan shall be deemed to be automatically amended so as to bring them
into full compliance with such rule.
 
(d) Section 409A Compliance.  This Plan is intended to comply with the
requirements of Section 409A of the Code and the regulations issued thereunder.
To the extent of any inconsistencies with the requirements of Section 409A, this
Plan shall be interpreted and amended in order to meet the requirements of
Section 409A. Notwithstanding anything contained in this Plan to the contrary,
it is the intent of the Company to have this Plan interpreted and construed to
comply with any and all provisions Section 409A including any subsequent
amendments, rulings or interpretations from appropriate governmental agencies.
 
(e) Effects of Acceptance of the Award.  By accepting any award or other benefit
under this Plan, each grantee and each person claiming under or through the
grantee shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under this Plan by the
Company, the Board or the Committee or its delegates.