Exhibit 10.2
 
DONEGAL GROUP INC.
 
2007 EQUITY INCENTIVE PLAN FOR DIRECTORS
 
1. Purpose.  The purpose this Plan is to enhance the ability of Donegal Group
Inc., or the Company, and its subsidiaries and the member companies of the
Donegal Insurance Group, or the Group, to attract and retain highly qualified
directors, to establish a basis for providing a portion of director compensation
in the form of equity and, in doing so, to strengthen the alignment of the
interest of directors of the Company and the members of the Group with the
interests of the Company’s stockholders.
 
2. Administration.
 
(a) Administration by the Board.  The Board of Directors of the Company, or the
Board, shall administer this Plan.
 
(b) Duty and Powers of the Board.  The Board shall have the power to interpret
this Plan and the awards granted under this Plan and to adopt rules for the
administration, interpretation and application of this Plan. The Board shall
have the discretion to determine who will be granted stock options and to
determine the number of stock options to be granted to any director, the timing
of the grant and the terms of exercise. The Board shall not have any discretion
to determine who will be granted restricted stock awards under this Plan.
 
(c) Compensation; Professional Assistance; Good Faith Actions.  Members of the
Board shall not receive any compensation for their services in administering
this Plan. The Company shall pay all expenses and liabilities incurred in
connection with the administration of this Plan. The Company may employ
attorneys, consultants, accountants or other experts. The Board, the Company and
the officers and directors of the Company shall be entitled to rely upon the
advice, opinions or valuations of any such experts. All actions taken and all
interpretations and determinations made by the Board in good faith shall be
final and binding upon all grantees, the Company and all other interested
persons. No member of the Board shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan,
and all members of the Board shall be fully protected and indemnified by the
Company in respect to any such action, determination or interpretation.
 
3. Shares Subject to this Plan.
 
(a) Shares Authorized.  The shares of stock issuable pursuant to awards shall be
shares of Class A Common Stock. The total aggregate number of shares of Class A
Common Stock that may be issued under this Plan is 400,000 shares, subject to
adjustment as described below. 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 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.
 
(c) 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,

 

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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 automatically be 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
Internal Revenue Code of 1986, as amended, or the Code, to the extent
applicable.
 
4. Eligibility for Participation.  Each director of the Company and each
director of a member of the Group who is not eligible to receive stock options
under the Company’s Equity Incentive Plan for Employees shall be eligible to
receive stock options under this Plan. Each director of the Company and each
director of the member companies of the Group shall be eligible to receive
restricted stock awards under this Plan.
 
5. Awards.  Awards under this Plan may consist of stock options as described in
Section 7 and restricted stock awards as described in Section 8. Each award
shall be evidenced by a written agreement.
 
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
Class A 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.
 
(a) Granting of Stock Options.  The Board may grant stock options to an outside
director upon such terms as the Board deems appropriate under this Section 7.
 
(b) Type of Stock Option and Price.  The Board may grant stock options to
purchase Class A Common Stock that are not intended to qualify as incentive
stock options within the meaning of Section 422 of the Code. The Board shall
determine 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) Rights upon Termination of Service.  Upon an grantee’s termination of
service as an outside director, as a result of resignation, failure to be
re-elected, removal for cause or any reason other than death, the grantee shall
have the right to exercise the stock option during its term within a period of
three years after such termination to the extent that the stock option was
exercisable at the time of termination, or within such other period, and subject
to such terms and conditions, as may be specified by the Board. In the event
that a grantee dies prior to the expiration of his or her stock option and
without having fully exercised his or her stock option, the grantee’s
representative or successor shall have the right to exercise the stock option
during its term within a period of one year after the grantee’s death to the
extent that the stock option was exercisable at the time of death, or within
such other period, and subject to such terms and conditions, as may be specified
by the Board.
 
(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;

 

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  •  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 Board may determine from time to time and subject to the terms and
conditions as 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 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 Board depending on the type of payment being made, but in
all cases prior to the issuance of the shares.
 
8. Restricted Stock Awards.
 
(a) Granting of Awards.  Each director of the Company and each director of
Donegal Mutual shall be granted an annual restricted stock award consisting of
311 shares of Class A Common Stock, except that a person who serves as a
director on both boards shall receive only one annual grant. The restricted
stock awards shall be made on the first business day of January in each year,
commencing January 2, 2008, provided that the director served as a member of the
Board or of the board of directors of a member of the Group during any portion
of the preceding calendar year.
 
(b) Terms of Restricted Stock Awards.  Each restricted stock award agreement
shall contain such restrictions, terms and conditions as are required by this
Plan:
 

  •  The shares of Class A Common Stock comprising the restricted stock awards
may not be sold or otherwise transferred by the grantee until one year after the
date of grant. Although the shares of Class A Common Stock comprising each
restricted stock award shall be registered in the name of the grantee, the
Company reserves the right to place a restrictive legend on the stock
certificate. None of such shares of Class A Common Stock shall be subject to
forfeiture.     •  Subject to the restrictions on transfer set forth in this
Section 8(b), a grantee shall have all the rights of a stockholder with respect
to the shares of Class A Common Stock issued pursuant to restricted stock awards
made under this Plan, including the right to vote the shares and receive all
dividends and other distributions paid or made with respect to the shares.

 

  •  In the event of changes in the capital stock of the Company by reason of
stock dividends, split-ups or combinations of shares, reclassifications,
mergers, consolidations, reorganizations or liquidations while the shares
comprising a restricted stock award shall be subject to restrictions on
transfer, any and all new, substituted or additional securities to which the
grantee shall be entitled by reason of the ownership of a restricted stock award
shall be subject immediately to the terms, conditions and restrictions of this
Plan.

 

  •  If a grantee receives rights or warrants with respect to any shares
comprising a restricted stock award, such rights or warrants or any shares or
other securities acquired by the exercise of such rights or warrants may be
held, exercised, sold or otherwise disposed of by the grantee free and clear of
the restrictions and obligations set forth in this Plan.

 
9. Date of Grant.  The grant date of a stock option under this Plan shall be the
date of the Board’s approval or such later date as may be determined by the
Board at the time it authorizes the grant. The Board may not make retroactive
grants of stock options under this Plan. The Company shall provide notice of the
grant to the grantee within a reasonable time after the grant date.
 
10. 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 director on the director’s undertaking in
writing to comply with the restrictions on his

 

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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 on the certificate.
 
11. Withholding.  The Company shall have the right to require the grantee to
remit to the Company an amount sufficient to satisfy any federal, state or local
withholding tax requirements prior to the delivery of any certificate for shares
of Class A Common Stock. If and to the extent authorized by the Board, in its
sole discretion, a grantee may make an election, by means of a form of election
to be prescribed by the Board, to have shares of Class A Common Stock that are
acquired upon exercise of a stock option withheld by the Company or to tender
other shares of Class A Common Stock or other securities of the Company owned by
the grantee to the Company at the time of exercise of a stock option to pay the
amount of tax that would otherwise be required by law to be withheld by the
Company. Any such election shall be irrevocable and shall be subject to
termination by the Board, in its sole discretion, at any time. Any securities so
withheld or tendered will be valued by the Board as of the date of exercise.
 
12. Transferability of Awards.  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. Except as stated in this Section 12, no stock option
or interest therein and, for a period of one year after the date of grant, no
restricted stock award or any interest therein, shall be subject to the debts,
contracts or engagements of the grantee or his or her successors in interest,
nor shall they be subject to disposition by transfer, alienation, anticipation,
pledge, encumbrance, assignment or any other means, whether such disposition is
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings, including bankruptcy,
and any attempted disposition thereof shall be null and void and of no effect.
 
13. 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 Repricings Without Stockholder Approval.  The Board may not reprice stock
options, nor may the Board amend this Plan to permit repricing of stock options
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 Plan shall not impair the
power and authority of the Board with respect to an outstanding award.
 
14. 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.
 
15. No Prohibition on Corporate Action.  No provision of this Plan shall be
construed to prevent the Company or any officer or director of the Company 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.

 

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16. Indemnification.  With respect to the administration of this Plan, the
Company shall indemnify each present and future member of the Board against, and
each member of 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
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 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 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 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 16 shall be
available to or enforceable by any such member of 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
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.
 
17. Miscellaneous Plan 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 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
Securities Exchange Act of 1934, as amended, applies 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 that 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 its delegates.