Document:

Exhibit 10.1 EIP42507

     

    

     

    

     

    HARLEYSVILLE
      GROUP INC.

     

    AMENDED
      AND RESTATED

     

    EQUITY
      INCENTIVE PLAN

     

    

     

    

     

    

     

    

     

    

     

    

     

    Approved
      by the Board of Directors: February 21, 2007

     

    Submitted
      to Stockholders for Approval: April 25, 2007

     

    

     

    
      
        
          

        

         

      

      
         

        
          

        

      

      
         

        
        

      

    

    HARLEYSVILLE
      GROUP INC.

     

    AMENDED
      AND RESTATED

     

    EQUITY
      INCENTIVE PLAN

     

    Table
      of Contents

     

    
      	 	 	 	
              Page

            
	 	 	 	 	 
	
               

              I.

            	 	
               

              Introduction

            	 	
               

              1

            
	 	 	
               

              A.
                Purpose of the Plan

            	 	
               

              1

            
	 	 	
               

              B.
                Definitions

            	 	
               

              1

            
	 	 	 	 	 
	
               

              II.

            	 	
               

              Plan
                Administration

            	 	
               

              6

            
	 	 	
               

              A.
                Administration

            	 	
               

              6

            
	 	 	
               

              B.
                Eligibility

            	 	
               

              7

            
	 	 	
               

              C.
                Maximum Number of Shares Available

            	 	
               

              7

            
	 	 	
               

              D.
                Maximum Shares Awarded

            	 	
               

              7

            
	 	 	
               

              E.
                Adjustments

            	 	
               

              7

            
	 	 	
               

              F.
                Rights Upon a Change in Control

            	 	
               

              7

            
	 	 	 	 	 
	
               

              III.

            	 	
               

              Stock
                Options

            	 	
               

              8

            
	 	 	
               

              A.
                Type of Option

            	 	
               

              8

            
	 	 	
               

              B.
                Price

            	 	
               

              8

            
	 	 	
               

              C.
                Exercise Term and Vesting

            	 	
               

              8

            
	 	 	
               

              D.
                Exercise Procedures

            	 	
               

              8

            
	 	 	
               

              E.
                Payment

            	 	
               

              8

            
	 	 	
               

              F.
                Rights Upon Termination of Employment

            	 	
               

              9

            
	 	 	
               

              G.
                Restrictions Upon Transfer

            	 	
               

              10

            
	 	 	
               

              H.
                Incentive Stock Options

            	 	
               

              10

            
	 	 	 	 	 
	
               

              IV.

            	 	
               

              Stock
                Appreciation Rights

            	 	
               

              11

            
	 	 	
               

              A.
                Grant of Rights

            	 	
               

              11

            
	 	 	
               

              B.
                Term

            	 	
               

              11

            
	 	 	
               

              C.
                Limits on Stock Appreciation Rights

            	 	
               

              11

            
	 	 	
               

              D.
                Payment

            	 	
               

              12

            
	 	 	 	 	 

    

    
      
         

      

      
        i

        
          

        

      

      
         

      

    

    

    

    

    
      	 	 	 	 	 
	
               

              V.

            	 	
               

              Restricted
                Stock Awards

            	 	
               

              12

            
	 	 	
               

              A.
                Price

            	 	
               

              12

            
	 	 	
               

              B.
                Restriction Period

            	 	
               

              12

            
	 	 	
               

              C.
                Restriction Upon Transfer

            	 	
               

              12

            
	 	 	
               

              D.
                Performance Goals

            	 	
               

              13

            
	 	 	
               

              E.
                Certificates

            	 	
               

              13

            
	 	 	
               

              F.
                Lapse of Restrictions

            	 	
               

              13

            
	 	 	
               

              G.
                Termination Prior to Lapse of Restrictions

            	 	
               

              14

            
	 	 	 	 	 
	
               

              VI.

            	 	
               

              Restricted
                Stock Unit Awards

            	 	
               

              14

            
	 	 	
               

              A.
                Restriction Period

            	 	
               

              14

            
	 	 	
               

              B.
                Performance Goals

            	 	
               

              15

            
	 	 	
               

              C.
                Vesting

            	 	
               

              15

            
	 	 	
               

              D.
                Account

            	 	
               

              15

            
	 	 	
               

              E.
                Dividend Equivalents

            	 	
               

              16

            
	 	 	
               

              F.
                Time and Method of Payment

            	 	
               

              16

            
	 	 	
               

              G.
                Forfeiture

            	 	
               

              16

            
	 	 	
               

              H.
                Nature of Restricted Stock Units

            	 	
               

              16

            
	 	 	 	 	 
	
               

              VII.

            	 	
               

              Miscellaneous
                Provisions

            	 	
               

              16

            
	 	 	
               

              A.
                Amendment, Suspension and Termination of Plan

            	 	
               

              16

            
	 	 	
               

              B.
                Government and Other Regulations

            	 	
               

              17

            
	 	 	
               

              C.
                Other Compensation Plans and Programs

            	 	
               

              17

            
	 	 	
               

              D.
                Withholding Taxes

            	 	
               

              17

            
	 	 	
               

              E.
                Single or Multiple Documents

            	 	
               

              18

            
	 	 	
               

              F.
                Certifications

            	 	
               

              18

            
	 	 	
               

              G.
                Construction of Plan

            	 	
               

              18

            
	 	 	
               

              H.
                Pronouns, Singular and Plural

            	 	
               

              18

            
	 	 	
               

              I.
                Limitation of Rights

            	 	
               

              18

            
	 	 	
               

              J.
                Plan Effective Date and Termination

            	 	
               

              18

            
	 	 	
               

              K.
                Successors

            	 	
               

              19

            
	 	 	 	 	 

    

    

     

    

    

    
      
        
        

         

      

      
        ii

        
          

        

      

      
         

        
        

      

    

    HARLEYSVILLE
      GROUP INC.

     

    AMENDED
      AND RESTATED

     

    EQUITY
      INCENTIVE PLAN

     

    

     

    I.  INTRODUCTION

     

    	A.  	
            PURPOSE
              OF THE PLAN:

          

     

         
       Harleysville Group Inc. (the “Company”) has established the Plan to
      further the growth, development and success of the Company by providing
      additional incentives to those officers and other employees of the Company,
      its
      insurance subsidiaries and its parent company to enable them to participate
      directly in the growth of the capital stock of the Company. The Company intends
      that the Plan will facilitate securing, retaining, and motivating eligible
      employees of high caliber and potential. It is intended that compensation paid
      hereunder to be fully deductible to the Company to the extent permitted under
      Section 162(m) of the Code.

     

    	B.  	
            DEFINITIONS:

          

     

          
       When used in the Plan, the following terms shall have the meanings set
      forth below:

     

    	1.  	
            “Award(s)”
              means Incentive Stock Options, Non-Qualified Stock Options, Stock
              Appreciation Rights, Restricted Stock, and Restricted Stock Units made
              under the Plan.

          

     

    	2.  	
            “Change
              in Control” shall be deemed to have
              occurred:

          

     

    (a)  if
      the
“beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act) of
      securities representing more than twenty percent (20%) of the combined voting
      power of the Employer Voting Securities (as herein defined) is acquired by
      any
      individual, entity or group (a “Person”), other than the Parent, the Company,
      any trustee or other fiduciary holding securities under any employee benefit
      plan of the Company or an affiliate thereof, or any corporation owned, directly
      or indirectly, by the stockholders of the Company in substantially the same
      proportions as their ownership of stock of the Company (for purposes of this
      Plan, “Company Voting Securities” shall mean the then outstanding voting
      securities of the Company entitled to vote generally in the election of
      directors); provided,
      however,
      that
      the following shall not
      constitute a Change in Control under this paragraph (a): (i) any acquisition
      pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
      paragraph (c) of this Section I.(B)(2); (ii) any acquisition of the Company
      Voting Securities from the Parent pursuant to a Business Combination (as herein
      defined) or otherwise, if (x) the acquiring or resulting entity is organized
      in
      the mutual form, and (y) persons who were members of the Incumbent Board (as
      herein defined) of the Parent immediately prior to such acquisition constitute
      at least two-thirds of the members of the Board of Directors of the acquiring
      entity immediately following such acquisition and (iii) any acquisition of
      voting securities from the Company or the Parent by a person engaged in business
      as an underwriter of securities who acquires the shares through his
      participation in good faith in a firm commitment underwriting registered under
      the Securities Act; and (iv) any acquisition otherwise within the terms of
      this
      paragraph (a) during any period in which Parent owns at least a majority of
      the
      combined voting power of Company Voting Securities (the “Parent Control
      Period”), but if such an acquisition is made during a Parent Control Period by
      any Person and such Person continues to hold more than 20% of the combined
      voting power of all Company Voting Securities on the first day following the
      termination of a Parent Control Period, such acquisition will be deemed to
      have
      been first made on such date; or

     

    
      
         

      

      
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    (b)  if,
      during any period of twenty-four (24) consecutive months, individuals who,
      as of
      the beginning of such period, constitute the Board of Directors of the Company
      or the Parent, as the case may be (the “Applicable Incumbent Board”), cease for
      any reason to constitute at least a majority of the Board of Directors of the
      Company or the Parent, as the case may be; provided,
      however,
      that
      (x) any individual becoming a director of the Company or the Parent, as the
      case
      may be, during such period whose election, or nomination for election, was
      approved by a vote of at least a two-thirds of the directors then comprising
      the
      Applicable Incumbent Board (other than in connection with the settlement of
      a
      threatened proxy contest) shall be considered as though such individual were
      a
      member of the Incumbent Board of Directors of the Company or the Parent, as
      the
      case may be, and (y) the provisions of this paragraph (b) shall not be
      applicable to the composition of the Board of Directors of Parent if Parent
      shall cease to own at least 20% of the combined voting power of all Company
      Voting Securities; or

     

    (c)  upon
      consummation by the Company of a reorganization, merger or consolidation or
      sale
      or other disposition of all or substantially all of the assets of the Company
      or
      the acquisition of assets or stock of another entity (a “Business Combination”),
      unless, in any such case, immediately following such Business Combination the
      following three conditions are met: (i) more than 50% of the combined voting
      power of the then outstanding voting securities entitled to vote generally
      in
      the election of directors of (x) the corporation resulting from such Business
      Combination (the “Surviving Corporation”), or (y) if applicable, a corporation
      which as a result of such transaction owns the Company or all or substantially
      all of the Company’s assets either directly or through one or more subsidiaries
      (the “New Parent Corporation”), is represented, in either such case, directly or
      indirectly, by Company Voting Securities outstanding immediately prior to such
      Business Combination (or, if applicable, is represented by shares into which
      such Company Voting Securities were converted pursuant to such Business
      Combination), and such voting power is distributed among the holders thereof,
      in
      substantially the same proportions as their ownership, immediately prior to
      such
      Business Combination, of the Company Voting Securities; and (ii) no Person
      (excluding any employee benefit plan (or related trust) of the Company or such
      corporation resulting from such Business Combination) beneficially owns,
      directly or indirectly, 50% or more of the combined voting power of the then
      outstanding voting securities eligible to elect directors of the New Parent
      Corporation (or, if there is no New Parent Corporation, the Surviving
      Corporation) except to the extent that such ownership of the Company existed
      prior to the Business Combination, and (iii) at least a majority of the members
      of the board of directors of the New Parent Corporation (or, if there is no
      New
      Parent Corporation, the Surviving Corporation) were members of the Board of
      Directors of the Company at the time of the execution of the initial agreement,
      or the action of the Board, providing for such Business Combination;
      or

     

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (d)  Parent
      affiliates with, or acquires by merger, a third party and, as a consequence
      thereof, persons who were members of the Incumbent Board of Parent immediately
      prior to such transaction cease to constitute at least two-thirds of the
      directors of Parent following such transaction provided,
      however,
      that
      this paragraph (d) shall not apply if immediately prior to such affiliation
      or
      merger, Parent does not own more than 20% of the combined voting power of
      Company Voting Securities; or

     

    (e)  upon
      approval by the stockholders of the Company and all necessary regulatory
      authorities of a complete liquidation or dissolution of the Company;
      or

     

    (f)  any
      other
      event shall occur that would be required to be reported by the Company in
      response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
      Exchange Act (or any provision successor thereto); or

     

    (g)  the
      Company or Parent has entered into a management agreement or similar arrangement
      pursuant to which an entity other than the Company or the Parent or the Boards
      of Directors or the executive officers and management of the Company or the
      Parent has the power to direct or cause the direction of the management and
      policies of the Company or the Parent; provided,
      however,
      that
      this paragraph (g) shall not apply to Parent if, immediately prior to entering
      into any such management agreement or similar arrangement, Parent does not
      own
      more than 20 percent of Company Voting Securities.

     

    	3.  	
            “Company”
              means Harleysville Group Inc., a Delaware corporation, and any successor
              in a reorganization or similar
              transaction.

          

     

    	4.  	
            “Board”
              or “Board of Directors” means the Board of Directors of the
              Company.

          

     

    	5.  	
            “Code”
              means the Internal Revenue Code of 1986, as amended. Any reference
              in this
              Plan to a Code Section shall mean and refer to such Section or any
              successor thereto as may be in effect from time to time and the
              regulations promulgated thereunder.

          

     

    	6.  	
            “Committee”
              means the Compensation & Personnel Development Committee of the Board
              of Directors of Harleysville Group Inc., or any other committee selected
              by the Board meeting the applicable requirements of the SEC and the
              NASDAQ
              corporate governance standards. 

          

     

    
      
        3

      

      
         

        
          

        

      

      
         

      

    

    	7.  	
            “Common
              Stock” means the common stock of the Company, par value of $1.00 per
              share.

          

     

    	8.  	
            “Date
              of Grant” means the date designated by the Committee as the date as of
              which the Committee grants an Award, which shall not be earlier than
              the
              date on which the Committee approves the granting of such
              Award.

          

     

    	9.  	
            “Director”
              means a member of the Board of Directors.

          

     

    	10.  	
            “Disability”
              means the inability of a Participant to perform the services normally
              rendered due to any physical or mental impairment that can be expected
              to
              be of either permanent or indefinite duration, as determined by the
              Committee on the basis of appropriate medical evidence, and that results
              in the Participant’s cessation of active employment with the
              Company.

          

     

    	11.  	
            “Early
              Retirement” means cessation of employment with the Company after attaining
              the age of 55 and completing at least ten years of continuous service
              with
              the Company or attaining the age of 62 and completing at least five
              years
              of continuous service with the Company.

          

     

    	12.  	
            “Effective
              Date” has the meaning set forth in Section VII.(J) of this
              Plan.

          

     

    	13.  	
            “Exchange
              Act” means the Securities Exchange Act of 1934, as
              amended.

          

     

    	14.  	
            “Fair
              Market Value” means, as of any given date, with respect to Awards made
              hereunder, (i) the closing sale price of a share of Common Stock on
              such
              date on the principal securities exchange on which the Company’s Common
              Stock is listed or traded, (ii) if not so reported, the average of
              the
              closing (or other designated) bid and asked prices on the immediately
              preceding business day as reported on the principal securities exchange
              on
              which the Company’s Common Stock is listed or traded, or (iii) if not so
              reported, as otherwise determined by the Committee in the good faith
              exercise of its discretion in accordance with applicable law. A “business
              day” is any day, other than Saturday or Sunday, on which the relevant
              market is open for trading. 

          

     

    	15.  	
            “Incentive
              Stock Option” or “ISO” means a right to purchase the Company’s Common
              Stock, which is intended to comply with the terms and conditions for
              an
              incentive stock option, set forth in Section 422 of the
              Code.

          

     

    	16.  	
            “Non-Qualified
              Stock Option” means a stock option right to purchase the Company’s Common
              Stock, which is not intended to comply with the terms and conditions
              for
              an incentive stock option, as set forth in Section 422 of the
              Code.

          

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    	17.  	
            “Normal
              Retirement” means cessation of employment with the Company after attaining
              the age of 65 and completing at least five years of continuous service
              with the Company.

          

     

    	18.  	
            “Option
              Document” has the meaning set forth in the first paragraph of Article
              III.

          

     

    	19.  	
            “Parent”
              means Harleysville Mutual Insurance
              Company.

          

     

    	20.  	
            “Participant”
              means those eligible officers and other employees of the Company who
              receive Awards under the Plan.

          

     

    	21.  	
            “Performance
              Goals” means specific targeted amounts of, or changes in, financial or
              operating goals including: revenues; expenses; net income; operating
              income; equity; return on equity, assets or capital employed; shareholder
              return; or premium volume. Other financial or operating goals may also
              be
              used as determined by the Committee. Such goals may be applicable to
              the
              Company as a whole or one or more of its business units and may be
              applied
              in total or on a per share or percentage basis and on an absolute basis
              or
              relative to other companies, including industries or indices or any
              combination thereof, as determined by the
              Committee.

          

     

    	22.  	
            “Performance
              Period” means the period of time designated by the Committee, for which
              Performance Goals are measured for Restricted Stock
              Awards.

          

     

    	23.  	
            “Plan”
              means this amended and restated Equity Incentive
              Plan.

          

     

    	24.  	
            “Record
              Date” means the date selected by the Company to determine and calculate
              dividend payments. 

          

     

    	25.  	
            “Restricted
              Stock” means an Award of shares of Common Stock subject to forfeiture
              restrictions described in Article V.

          

     

    	26.  	
            “Restricted
              Stock Unit” means the Awards described in Article
              VI.

          

     

    	27.  	
            “Retirement”
              means Normal Retirement or Early
              Retirement.

          

     

    	28.  	
            “SEC”
              means the Securities and Exchange
              Commission.

          

     

    	29.  	
            “Securities
              Act” means the Securities Act of 1933, as
              amended.

          

     

    	30.  	
            “Stock
              Appreciation Rights” means the Awards described in
              Article IV.

          

     

    	31.  	
            “Stock
              Option” means a Non-Qualified Stock Option and an Incentive Stock
              Option.

          

     

    	32.  	
            “Subsidiaries”
              means the subsidiaries (as defined in Section 424 of the Code) of the
              Company or the Parent.

          

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    	33.  	
            “Termination
              of
              Employment” means a cessation of the Participant’s employment with the
              Company for any reason other than Retirement, death or
              Disability.

          

     

    II.  PLAN
      ADMINISTRATION

     

    	A.  	
            ADMINISTRATION:

          

     

          
       The Plan shall be administered by the Committee. Subject to the express
      provisions of the Plan, the Committee shall have full and exclusive
      authority:

     

    	1.  	
            to
              interpret the Plan;

          

     

    	2.  	
            to
              determine the employees to whom Awards should be made under the
              Plan;

          

     

    	3.  	
            to
              determine the type of Awards to be made and the amount, size and terms
              of
              each such Award;

          

     

    	4.  	
            to
              determine the time when the Awards are granted and the duration of
              any
              applicable exercise or restriction period, including the criteria for
              exercisability and the acceleration
              thereof;

          

     

    	5.  	
            to
              prescribe, amend and rescind rules and regulations relating to the
              Plan;
              and

          

     

    	6.  	
            to
              make all other determinations deemed necessary or advisable in the
              implementation and administration of the Plan as permitted by federal
              and
              state laws and regulations, including those laws and regulations regarding
              deductibility from income under the Code and exemption from Section
              16 of
              the Exchange Act, or by rules and regulations of a national securities
              exchange on which the Common Stock is then listed or
              traded.

          

     

    The
      Committee’s determinations under the Plan (including without limitation
      determinations of the persons to receive Awards, the form, amount and timing
      of
      such Awards, the terms and provisions of such Awards, and the documents
      evidencing same) need not be uniform and may be made selectively among persons
      who receive, or are eligible to receive, Awards under the Plan whether or not
      such persons are similarly situated. 

     

    The
      determination of the Committee in the administration of the Plan, as described
      herein, shall be final and conclusive and binding upon all persons including,
      without limitation, the Company, its stockholders, Participants, and any persons
      having any interest under the Plan. The Secretary of the Company shall be
      authorized to take such action of a ministerial nature, including the
      preparation of Award documents provided to Participants, as shall be necessary
      to effectuate the intent and purposes hereof at the direction of the
      Committee.

     

    	B.  	
            ELIGIBILITY:

          

     

         
       Persons eligible to receive Awards under the Plan shall be those officers
      and other employees of the Company, the Subsidiaries and the Parent as
      determined by the Committee. Directors of the Company or the Parent who are
      not
      otherwise officers or employees of the Company, a Subsidiary or the Parent
      are
      not eligible to participate in this Plan.

     

     

    
      
         

      

      
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    	C.  	
            MAXIMUM
              NUMBER OF SHARES AVAILABLE:

          

     

         
       Subject to adjustment as specified in Section II.(E) below, the aggregate
      number of shares of Common Stock that may be issued under the Plan is 3,000,000
      shares, plus the number of shares that were registered on a Form S-8
      Registration Statement relating to the predecessors to this Plan prior to 1997,
      which shares may be either authorized and unissued shares of Common Stock or
      authorized and issued shares of Common Stock reacquired by the Company. If
      any
      Award granted under the Plan shall expire, terminate or be canceled for any
      reason without having been exercised or vested in full, the number of shares
      of
      Common Stock not purchased under such Award shall again be available for the
      purposes of the Plan. Notwithstanding anything to the contrary in this Section
      II.(C), (i) should the exercise price of a Stock Option be paid with shares
      of
      Common Stock or by reducing the number of shares of Common Stock issuable upon
      such exercise, or (ii) should shares of Common Stock otherwise issuable under
      the Plan be paid in cash or withheld by the Company in satisfaction of the
      withholding taxes incurred in connection with the exercise of a Stock Option
      or
      the vesting of an Award, then the number of shares of Common Stock available
      for
      issuance under the Plan shall be reduced by the gross number of shares for
      which
      the Stock Option is exercised or which vest under the Award, and not by the
      net
      number of shares of Common Stock issued to the holder of such Stock Option
      or
      Award. 

     

    	D.  	
            MAXIMUM
              SHARES AWARDED:

          

     

         
       Subject to adjustment as specified in Section II.(E) below, no one
      Participant shall receive Awards for more than 200,000 shares of Common Stock
      during any one calendar year under the Plan.

     

    	E.  	
            ADJUSTMENTS:

          

     

          
       In the event of stock dividends, stock splits, re-capitalizations,
      mergers, consolidations, combinations, exchanges of shares, spin-offs,
      liquidations, reclassifications or other similar changes in the capitalization
      of the Company, such automatic substitution or adjustment shall be made in
      the
      maximum aggregate number of shares which may be issued under this Plan, the
      maximum number of shares with respect to which Awards may be granted to any
      individual during any year, the number and exercise price of shares subject
      to
      outstanding Options and Stock Appreciation Rights, and the number of shares
      subject to other outstanding Awards, as the Committee determines shall cause
      an
      equitable adjustment under this Plan, in proportion to the effect of such change
      to the Common Stock generally; provided
      that the
      number of shares subject to any Award shall be rounded down to the nearest
      whole
      number so that the number of shares subject to any Award shall always be a
      whole
      number. In the event of a change in the Common Stock as presently constituted,
      which change is limited to a change of all of the authorized shares with par
      value into the same number of shares with a different par value or without
      par
      value, the shares resulting from any such change shall be deemed to be the
      Common Stock within the meaning of this Plan. 

     

    	F.  	
            RIGHTS
              UPON A CHANGE IN CONTROL:

          

     

         
       In the event of a consummation of a Change in Control, notwithstanding any
      other restrictive provisions herein, all previously granted Stock Options and
      Stock Appreciation Rights shall become exercisable immediately, except that
      no
      Incentive Stock Option may be exercised prior to six months following the Date
      of Grant thereof, and all previously issued shares of Restricted Stock and
      Restricted Stock Units shall have all forfeiture restrictions lapse immediately
      regardless of whether the applicable Restriction Period has expired or whether
      the applicable Performance Goals have been met.

     

     

    
      
         

      

      
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    III.  STOCK
      OPTIONS

     

    All
      Stock
      Options granted to Participants under the Plan shall be subject to the following
      terms and conditions, which shall be set forth in an appropriate written
      document (“Option Document”) and which may provide such other terms, conditions
      and provisions, not inconsistent with this Plan, as the Committee may direct.
      For the avoidance of doubt, the Committee has the authority to revise any of
      the
      terms set forth in this Plan with respect to a Stock Option Award except for
      those terms required by law.

     

    	A.  	
            TYPE
              OF OPTION:

          

     

          
       Each Option Document shall identify the option presented thereby as an
      Incentive Stock Option or a Non-Qualified Stock Option, as the case may
      be.

     

    	B.  	
            PRICE:

          

     

         
       The exercise price per share shall not be less than one hundred percent
      (100%) of the Fair Market Value of a share of Common Stock on the Date of Grant
      and, in no event, less than the par value of the Common Stock.

     

    	C.  	
            EXERCISE
              TERM AND VESTING:

          

     

         
       The Committee shall establish the vesting schedule for each Stock Option
      in the Option Document; provided,
      that,
      except as provided in Section III.(F) below, or as varied in the Option
      Document, the standard vesting schedule for each Stock Option Award shall be
      33
      1/3% exercisable on and after the first anniversary of the Date of Grant, 33
      1/3% on and after the second anniversary of the Date of Grant, and the remaining
      33 1/3% shall be exercisable on and after the third anniversary of the Date
      of
      Grant, in each case until the end of the term of the Stock Option; provided,
      further, that the number of shares vesting in each year shall be adjusted,
      as
      necessary, so that only a whole number of shares shall vest each year. The
      Committee has the power to accelerate the vesting schedule of any outstanding
      Stock Option Award, subject to the requirements set forth herein, upon such
      circumstances and subject to such terms and conditions as the Committee deems
      appropriate. All Stock Options shall expire as of 5:00 p.m. on the tenth
      anniversary of the Date of Grant unless the Committee provides otherwise in
      the
      Option Document; provided,
      that
      the term of an Incentive Stock Option shall not be longer than ten (10)
      years.

     

    	D.  	
            EXERCISE
              PROCEDURES:

          

     

         
       A Stock Option, or portion thereof, shall be exercised by delivery of a
      written notice of exercise to the Secretary of the Company, and payment of
      the
      full exercise price for the shares being purchased, as well as payment of all
      withholding taxes due thereon, if any.

     

    	E.  	
            PAYMENT:

          

     

          
       The exercise price of a vested Stock Option, or portion thereof, may be
      paid:

     

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    	1.  	
            by
              check, bank draft, money order, or electronic funds transfer payable
              to
              the order of the Company; or

          

     

    	2.  	
            through
              the delivery of shares of the Company’s Common Stock owned by the
              Participant, having an aggregate Fair Market Value as determined as
              of the
              date prior to exercise equal to the exercise price;
              or

          

     

    	3.  	
            by
              such other method as the Committee may approve, including payment through
              a broker in accordance with procedures permitted by Regulation T of
              the
              Federal Reserve Board; or

          

     

    	4.  	
            by
              a combination
              of
              1, 2 and 3 above.

          

     

    In
      the
      event a Participant delivers already-owned shares of the Company’s Common Stock,
      at the Participant’s option, the Participant may provide an executed attestation
      of ownership in lieu of actual delivery of shares.

     

    Subject
      to the approval of the Committee, as set forth in the Option Document or
      otherwise in accordance with Rule 16b-3 of the Exchange Act, a Participant
      may
      surrender already-owned shares of the Company’s Common Stock or forego delivery
      of shares due as a result of the exercise, in order to pay any withholding
      tax
      required to be collected upon exercise of a Non-Qualified Stock Option. Such
      shares shall be valued at their Fair Market Value pursuant to Section III.(E)(2)
      above.

     

    If
      payment is made under Section III.(E)(3) of the Plan, the written exercise
      notice may instruct the Company to deliver shares due upon the exercise of
      the
      Stock Option to a registered broker or dealer designated by the Participant,
      if
      any, (“Designated Broker”) in lieu of delivery to the Participant. Such
      instructions must designate the account into which the shares are to be
      deposited.

     

    	F.  	
            RIGHTS
              UPON TERMINATION OF EMPLOYMENT:

          

     

    	1.  	
            Unless
              otherwise provided in the Option Document, in the event of a Participant’s
              Termination of Employment, all unvested Stock Options shall expire
              and be
              terminated on the date of termination, and the Participant shall have
              thirty (30) days to exercise all Stock Options that are vested and
              exercisable as of the date of termination unless the Committee in the
              Option Document or otherwise grants an additional period in which to
              exercise the vested Stock Options. If the Participant does not exercise
              such vested Stock Options in such 30-day period, the vested Stock Options
              shall automatically expire and be terminated.

          

     

    	2.  	
            Unless
              otherwise provided in the Option Document, in the event that a Participant
              ceases employment due to Retirement, death or Disability, prior to
              the
              expiration of the term of his or her outstanding Stock Option Awards,
              all
              Non-Qualified Stock Options, and all Incentive Stock Options that have
              been held for at least six months, shall immediately become vested
              and
              exercisable, and the Participant or his or her successor shall have
              the
              right to exercise such vested Stock Options for a period of the shorter
              of
              (i) the remaining term of any Stock Option or (ii) one year after
              cessation of employment due to death or Disability and two years after
              cessation of employment due to Retirement, or one year from the
              Participant’s date of death, whichever occurs first, or within such other
              period, and subject to such terms and conditions, as may be specified
              by
              the Committee; provided,
              however,
              a
              Participant who ceases employment due to Retirement after attaining
              the
              age of 62 with at least five years of continuous service may exercise
              vested Non-Qualified Stock Options, during the five year period after
              Retirement (or the remaining term of such Non-Qualified Stock Option,
              if
              shorter); and provided,
              further, that ISO tax treatment shall be available only as permitted
              under
              the Code.

          

     

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    	G.  	
            RESTRICTIONS
              UPON TRANSFER:

          

     

         
       Unless otherwise directed by the Committee, each Option Document for
      Incentive Stock Options shall prohibit any transfer thereof, except by will
      or
      by laws of descent and distribution, and for Non-Qualified Stock Options shall
      provide that no Stock Option nor any interest or right therein or part thereof
      shall be liable for the debts, contracts or engagements of the Participant
      or
      his or her successors in interest or shall be subject to disposition by
      transfer, alienation, anticipation, pledge, encumbrance, assignment or any
      other
      means whether such disposition be 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; provided,
      however,
      that
      this Section III.(G) shall not prevent (with Committee approval) transfers
      to
      the Participant’s spouse, children, grandchildren, parents or a trust
      established for any of them or the Participant, or by will or the laws of
      descent and distribution. If such a transfer is made, the employee may not
      receive any consideration therefore, and the Stock Option will continue to
      be
      subject to the same terms and conditions as were applicable to the Stock Option
      immediately before transfer.

     

    	H.  	
            INCENTIVE
              STOCK OPTIONS:

          

     

         
       An Incentive Stock Option shall be subject to the following terms and
      conditions, which shall be set forth in the Option Document and which may
      provide such other terms, conditions and provisions as the Committee determines
      necessary or desirable in order to qualify such option as an incentive stock
      option (within the meaning of Section 422 of the Code):

     

    	1.  	
            The
              period or periods of time within which the Incentive Stock Option may
              be
              exercised, in whole or in part, which shall be such period or periods
              of
              time as may be determined by the Committee; provided
              that no Incentive Stock Option shall be exercisable prior to six months
              nor after ten years from the Date of Grant thereof. The Committee shall
              have the power to permit an acceleration of previously established
              exercise terms, subject to the requirements set forth herein, upon
              such
              circumstances and subject to such terms and conditions as the Committee
              deems appropriate;

          

     

    	2.  	
            The
              aggregate Fair Market Value (determined as of the Date of Grant) of
              the
              stock with respect to which Incentive Stock Options are exercisable
              for
              the first time by such individual during a calendar year (under all
              plans
              of the Company) shall not exceed
              $100,000;

          

     

    	3.  	
            No
              Incentive Stock Option shall be granted to any employee if at the
              time
              the Stock Option is granted the individual owns stock possessing more
              than
              ten percent (10%) of the total combined voting power of all classes
              of
              stock of the Company or its Parent or Subsidiaries, unless at the time
              such Incentive Stock Option is granted the exercise price is at least
              one
              hundred ten percent (110%) of the Fair Market Value of the Common Stock
              on
              the Date of Grant and such Stock Option by its terms is not exercisable
              after the expiration of five years from the Date of Grant;
              

          

     

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    	4.  	
            No
              Incentive Stock Option nor any interest or right therein or part thereof
              shall be liable for the debts, contracts or engagements of the Participant
              or his or her successors in interest or shall be subject to disposition
              by
              transfer, alienation, anticipation, pledge, encumbrance, assignment
              or any
              other means whether such disposition be 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; provided,
              however,
              that this Section III.(H)(4) shall not prevent transfers by will or
              by the
              laws of descent and distribution. During the lifetime of the Participant,
              the Incentive Stock Option is exercisable only by the Participant;
              and

          

     

    	5.  	
            Notwithstanding
              any authority otherwise granted to the Committee hereunder, no Incentive
              Stock Options may be granted after the expiration of ten years from
              the
              Plan’s Effective Date. 

          

     

    IV.  STOCK
      APPRECIATION RIGHTS

     

    Stock
      Appreciation Rights may be granted in connection, in the discretion of the
      Committee, with a contemporaneously granted Stock Option and shall be subject
      to
      the following terms and conditions that shall be set forth in the Option
      Document which may provide such other terms, conditions and provisions, not
      inconsistent with this Plan, as the Committee may direct.

     

    	A.  	
            GRANT
              OF RIGHTS:

          

     

          
       Stock Appreciation Rights shall entitle the Participant, subject to such
      terms and conditions determined by the Committee, to receive upon exercise
      thereof all or a portion of the excess of (i) the Fair Market Value of a
      specified number of shares of the Common Stock at the time of exercise, as
      determined by the Committee, over (ii) a specified price, which shall not be
      less than 100 percent (100%) of the Fair Market Value of the Common Stock on
      the
      Date of Grant of the Stock Appreciation Rights.

     

    	B.  	
            TERM:

          

     

         
       The period or periods of time within which the Stock Appreciation Rights
      may be exercised, in whole or in part, is co-extensive with the
      contemporaneously granted Stock Option. The Committee shall have the power
      to
      permit an acceleration of previously established exercise terms, co-extensive
      with similar changes to the contemporaneously granted Stock Option, subject
      to
      the requirements set forth herein, upon such circumstances and subject to such
      terms and conditions as the Committee deems appropriate.

     

    	C.  	
            LIMITS
              ON STOCK APPRECIATION RIGHTS:

          

     

    	1.  	
            Stock
              Appreciation Rights shall be paid only upon exercise of all or a portion
              of the co-extensive Stock Option and then only in respect to the number
              of
              shares then being purchased.

          

     

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    	2.  	
            Stock
              Appreciation Rights shall be payable only to the extent the Stock Option
              may become exercisable and shall expire or terminate with the Stock
              Option.

          

     

    	3.  	
            No
              Stock Appreciation Rights nor any interest or right therein or part
              thereof shall be liable for the debts, contracts or engagements of
              the
              Participant or his or her successors in interest or shall be subject
              to
              disposition by transfer, alienation, anticipation, pledge, encumbrance,
              assignment or any other means whether such disposition be 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; provided,
              however,
              that this Section IV.(C)(3) shall not prevent transfers to the
              Participant’s spouse, children, grandchildren, parents or trust
              established for any of them or the Participant, or by will or the laws
              of
              descent and distribution; provided,
              further, that Stock Appreciation Rights granted in connection with
              an
              Incentive Stock Option shall be subject to the same transferability
              restrictions as Incentive Stock Options as provided in Section
              III.(H)(4).

          

     

    	D.  	
            PAYMENT:

          

     

           Payments
      upon exercise of Stock Appreciation Rights shall be paid in cash, less any
      withholding tax required to be withheld, and may be applied to the payment
      of
      the contemporaneous Stock Option exercise price.

     

    V.  RESTRICTED
      STOCK AWARDS

     

    Restricted
      Stock Awards shall be subject to the following terms and conditions, which
      shall
      be set forth in an appropriate written agreement between the Company and the
      Participant (“Award Document”) and which may provide such other terms,
      conditions and provisions not inconsistent with this Plan, as the Committee
      may
      direct.

     

    	A.  	
            PRICE:

          

     

        Restricted
      Stock may be awarded to a
      Participant free of any purchase price or for such purchase price as is
      established by the Committee in the Award Document.

     

    	B.  	
            RESTRICTION
              PERIOD:

          

     

         
        Restricted Stock
      awarded pursuant to this Plan shall be subject to such terms, conditions and
      restrictions, including without limitation, prohibitions against transfer,
      substantial risks of forfeiture and attainment of Performance Goals for such
      period or periods as shall be determined by the Committee and set forth in
      the
      Award Document (“Restriction Period”). A Restriction Period will generally be
      from three to five years; provided,
      however,
      that
      the Committee in its sole discretion may establish other time periods. The
      Committee shall have the power to permit, in its discretion, an acceleration
      of
      the lapse of the applicable Restriction Period with respect to any part or
      all
      of the Restricted Stock awarded to a Participant.

     

    	C.  	
            RESTRICTION
              UPON TRANSFER:

          

     

         
 During
      the Restriction Period
      applicable to any Restricted Stock Award, no right or interest of the
      Participant in such Restricted Stock nor any interest or right therein
      (including the right to vote such shares and receive dividends thereon) or
      part
      thereof shall be liable for the debts, contracts or engagements of the
      Participant or his or her successors in interest or shall be subject to
      disposition by transfer, alienation, anticipation, pledge, encumbrance,
      assignment or any other means whether such disposition be 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.
      Notwithstanding the foregoing and except as otherwise provided in this Plan,
      the
      Participant shall have all the other rights of a stockholder including, but
      not
      limited to, the right to receive dividends and the right to vote such
      shares.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    	D.  	
            PERFORMANCE
              GOALS:

          

     

      
   
The
      lapse of restrictions on a Restricted Stock Award may be based upon the
      attainment of Performance Goals established by the Committee, in writing, in
      accordance with Section 162(m) of the Code. Such Performance Goals shall be
      established within the period of time required by Code Section 162(m). In
      establishing the Performance Goals, the Committee shall take the necessary
      steps
      to insure that the Company’s ability to achieve the pre-established goals is
      uncertain at the time the goals are set. The established written Performance
      Goals shall be based upon an objective formula, whereby any third party having
      knowledge of the relevant Company performance results could calculate the amount
      to be paid. Such Performance Goals may vary by Participant and by
      Award.

     

    The
      Committee shall have the discretion, by Participant and by Award, to reduce
      (but
      not to increase) some or all of the number of shares on which restrictions
      lapse
      that would otherwise be payable by reason of the satisfaction of the Performance
      Goals. In making any such determination, the Committee is authorized to take
      into account any such factors it determines are appropriate, including but
      not
      limited to Company, business unit and individual performance.

     

    	E.  	
            CERTIFICATES:
              

          

     

        Each
      certificate issued in respect of Restricted Stock awarded to a Participant
      shall
      be deposited with the Company or its designee and shall bear the following
      legend:

     

    This
      certificate and the shares of stock represented hereby are subject to the terms
      and conditions (including forfeiture provisions and restrictions against
      transfer) contained in the Harleysville Group Inc. Amended and Restated Equity
      Incentive Plan and a related Award Document between the Participant and the
      Company. Release from such terms and conditions shall be obtained only in
      accordance with the provisions of the Plan and Award Document, a copy of each
      of
      which is on file in the office of the Secretary of Harleysville Group
      Inc.

     

    	F.  	
            LAPSE
              OF RESTRICTIONS:

          

     

                  
      The Award Document shall specify the terms and conditions upon which any
      restrictions upon Restricted Stock awarded under the Plan shall lapse, as
      determined by the Committee. Upon the lapse of such restrictions, shares of
      Common Stock free of the restrictive legend shall be issued to the Participant
      or his or her legal representative.

     

    If
      established in the Award Document, a Participant may surrender already owned
      shares of the Company’s Common Stock or forego delivery of shares due as a
      result of the lapse of restrictions of a Restricted Stock Award in order to
      pay
      any withholding tax required to be collected upon lapse of restrictions. Such
      shares shall be valued at their Fair Market Value as of the trading day
      immediately prior to the date of the lapse of restrictions.

     

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    Unless
      otherwise provided in the Award Document, in the event of a Participant’s
      cessation of employment due to death or Disability, all restrictions upon
      Restricted Stock awarded under this Plan shall lapse and shares of Common Stock
      free of the restrictive legend shall be issued to the Participant or his or
      her
      legal representative.

     

    In
      the
      event of a Participant’s cessation of employment due to Normal Retirement, all
      restrictions upon Restricted Stock awarded under this Plan shall lapse and
      shares of Common Stock free of the restrictive legend shall be issued to the
      Participant or his or her legal representative, unless the Committee provides
      otherwise in the Award Document.

     

    In
      the
      event of a Participant’s cessation of employment due to Early Retirement,
      restrictions upon Restricted Stock awarded under this Plan shall lapse for
      that
      proportion of shares, rounded down to the nearest whole number, that represents
      the number of days from the Date of Grant until the date of Early Retirement
      divided by the number of days in the Restriction Period, and that number of
      shares of Common Stock free of the restrictive legend shall be issued to the
      Participant or his or her legal representative, unless the Committee provides
      otherwise in the Award Document.

     

    The
      Committee shall have the power to permit an acceleration of previously
      established Restriction Periods or other forfeiture requirements, upon such
      circumstances and subject to such terms and conditions as the Committee deems
      appropriate.

     

    	G.  	
            TERMINATION
              PRIOR TO LAPSE OF RESTRICTIONS:

          

     

      
 In
      the event of a Participant’s
      Termination of Employment prior to the lapse of restrictions as determined
      pursuant to the provisions of preceding Section V.(E), all Restricted Stock
      as
      to which there still remains unlapsed restrictions shall be forfeited by such
      Participant to the Company without payment of any consideration by the Company,
      and neither the Participant nor any successors, heirs, assigns, or personal
      representatives of such Participant shall thereafter have any further rights
      or
      interest in such shares of Restricted Stock or any certificate representing
      such
      shares of Restricted Stock.

     

    VI.  RESTRICTED
      STOCK UNIT AWARDS

     

    Restricted
      Stock Unit Awards shall be subject to the following terms and conditions, which
      shall be set forth in an appropriate written agreement between the Company
      and
      the Participant (“Award Commitment”) and which may provide for such terms,
      conditions and provisions not inconsistent with this Plan, as the Committee
      may
      direct. 

     

    	A.  	
            RESTRICTION
              PERIOD:

          

     

                  
      Restricted Stock Units awarded pursuant to this Plan shall be subject to such
      terms, conditions and restrictions, including without limitation, prohibitions
      against transfer, substantial risks of forfeiture and attainment of Performance
      Goals for such period or periods as shall be determined by the Committee and
      set
      forth in the Award Commitment (“Restriction Period”). The Committee shall have
      the power to permit, in its discretion, an acceleration of the lapse of the
      applicable Restriction Period with respect to any part or all of the Restricted
      Stock Units awarded to a Participant.

     

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    	B.  	
            PERFORMANCE
              GOALS:

          

     

       
The
      lapse of
      restrictions on a Restricted Stock Units Award may be based upon the attainment
      of Performance Goals established by the Committee, in writing, in accordance
      with Section 162(m) of the Code. Such Performance Goals shall be established
      within the period of time required by Code Section 162(m). In establishing
      the
      Performance Goals, the Committee shall take the necessary steps to insure that
      the Company’s ability to achieve the pre-established goals is uncertain at the
      time the goals are set. The established written Performance Goals shall be
      based
      upon an objective formula, whereby any third party having knowledge of the
      relevant Company performance results could calculate the amount to be paid.
      Such
      Performance Goals may vary by Participant and by Award. 

     

    The
      Committee shall have the discretion, by Participant and by Award, to reduce
      (but
      not to increase) some or all of the number of shares on which restrictions
      lapse
      that would otherwise be payable by reason of the satisfaction of the Performance
      Goals. In making any such determination, the Committee is authorized to take
      into account any such factors it determines are appropriate, including but
      not
      limited to Company, business unit and individual performance.

     

    	C.  	
            VESTING:
              

          

     

        The
      amounts
      credited with respect to each Restricted Stock Unit shall become vested on
      the
      lapse of the Restriction Period as set forth in the applicable Award Commitment
      at the Date of Grant.

     

    Unless
      otherwise provided in the Award Commitment, in the event of a Participant’s
      cessation of employment due to Normal Retirement, the Participant shall become
      fully vested in his or her Restricted Stock Units.

     

    Unless
      otherwise provided in the Award Commitment, in the event of a Participant’s
      cessation of employment due to Early Retirement, the Participant shall vest
      in
      that proportion of the Restricted Stock Unit Award, rounded down to the nearest
      whole number, that represents the number of days from the Date of Grant until
      the date of Early Retirement divided by the number of days in the vesting
      period.

     

    Unless
      otherwise provided in the Award Commitment, in the event of a Participant’s
      cessation of employment due to death or Disability, the Participant shall become
      fully vested in his or her Restricted Stock Units.

     

    Notwithstanding
      any of the foregoing, a Participant who is eligible to defer compensation
      pursuant to the Company’s Non-Qualified Deferred Compensation Plan may defer the
      receipt of shares under any Restricted Stock Unit Award prior to vesting, as
      long as such deferral is made in accordance with the provisions of such
      Non-Qualified Deferred Compensation Plan.

     

    	D.  	
            ACCOUNT:

          

     

                   
      The Company shall maintain in its records an account for each Participant who
      has been granted Restricted Stock Units, to which shall be credited such number
      of Restricted Stock Units as is specified in the Award. Each Restricted Stock
      Unit shall, upon vesting, be equal to one share of Common Stock.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    	E.  	
            DIVIDEND
              EQUIVALENTS:

          

     

                   
      Unless the Award Commitment provides otherwise, as soon as practicable following
      each date that occurs between the Date of Grant of a Restricted Stock Unit
      and
      the date of forfeiture of the Award on which the Company pays a regular cash
      dividend on its Common Stock (the “Dividend Distribution Date”), each
      Participant will be paid an amount in cash equal to the product of the number
      of
      Restricted Stock Units credited to his or her Account on the Record Date for
      such dividend and the per share dividend payable on such Dividend Distribution
      Date, if any.

     

    	F.  	
            TIME
              AND METHOD OF PAYMENT:

          

     

        Payments
      shall be made at such time on
      the date or dates determined for the vesting of any Restricted Stock Unit Award
      and set forth in the applicable Award Commitment at the Date of Grant. Unless
      the Award Commitment provides otherwise, any payment which may become due from
      the Company under the Award Commitment shall be payable in Common
      Stock.

     

    	G.  	
            FORFEITURE:

          

     

          
      Unless the Award Commitment provides otherwise, in the event of a Participant’s
      Termination of Employment prior to the full vesting of the Restricted Stock
      Units as determined pursuant to the provisions of Section VI.(C), all Restricted
      Stock Units that are not vested shall be forfeited by such Participant to the
      Company without payment of any consideration by the Company, and neither the
      Participant nor any successors, heirs, assigns, or personal representatives
      of
      such Participant shall thereafter have any further rights or interest in such
      shares or certificates.

     

    	H.  	
            NATURE
              OF RESTRICTED STOCK UNITS:

          

     

         
       Restricted Stock Units shall be used solely as a device for the
      measurement and determination of the amount to be paid to Participants who
      receive such Awards as provided in this Plan. Restricted Stock Units shall
      not
      constitute or be treated as property or as a trust fund of any kind. All amounts
      at any time attributable to the Restricted Stock Units shall be and remain
      the
      sole property of the Company, until payment, and each applicable Participant’s
      rights hereunder are limited to the right to receive cash and shares of Common
      Stock upon the vesting of any such Award as provided in this Plan and the Award
      Commitment.

     

    VII.  MISCELLANEOUS
      PROVISIONS

     

    	A.  	
            AMENDMENT,
              SUSPENSION AND TERMINATION OF PLAN:

          

     

         
       The Committee or the Board may, at any time, amend, discontinue or
      terminate this Plan or any part thereof (including any amendment deemed
      necessary to ensure that the Company may comply with any regulatory requirement
      referred to in Section VII.(B) or amend any Award previously granted,
      prospectively or retroactively (subject to Article II); provided,
      however,
      that,
      (i) unless otherwise required by law, the rights of a Participant with
      respect to Awards granted prior to such amendment, discontinuance or termination
      may not be impaired without the consent of such Participant; (ii) except as
      otherwise provided in Section III.(E) hereof, the Committee shall not reduce
      the
      exercise price of Stock Options previously awarded to any Participant, whether
      through amendment, cancellation and replacement grant, or any other means,
      without prior stockholder approval; and (iii) the Company will seek the
      approval of the Company’s stockholders for any amendment if such approval is
      necessary to comply with the Code, Federal or state securities laws or any
      other
      applicable laws or regulations, including the Marketplace Rules of the National
      Association of Securities Dealers, Inc. 

     

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    	B.  	
            GOVERNMENT
              AND OTHER REGULATIONS:

          

     

         
       The obligation of the Company to issue Awards under the Plan shall be
      subject to all applicable laws, rules and regulations, and to such approvals
      by
      any government agencies as may be required.

     

    	1.  	
            If
              the Common Stock is listed on a national securities exchange or The
              NASDAQ
              Stock Market, the issuance of any shares of Common Stock pursuant to
              an
              Award shall be conditioned upon such shares being listed on such exchange
              or The NASDAQ Stock Market. The Company shall have no obligation to
              issue
              any shares of Common Stock unless and until such shares are so listed,
              and
              the right to exercise any Stock Option or Stock Appreciation Right
              or vest
              in any Restricted Stock or Restricted Stock Unit shall be suspended
              until
              such listing has been effected.

          

     

    	2.  	
            If
              at any time counsel to the Company shall be of the opinion that any
              sale
              or delivery of shares of Common Stock pursuant to an Award is or may
              in
              the circumstances be unlawful or result in the imposition of excise
              taxes
              under the statutes, rules or regulations of any applicable jurisdiction,
              the Company shall have no obligation to make such sale or delivery,
              or to
              make any application or to effect or to maintain any qualification
              or
              registration under the Securities Act or otherwise with respect to
              shares
              of Common Stock or Awards, and the right to exercise any Stock Option
              or
              Stock Appreciation Right or vest in any Restricted Stock or Restricted
              Stock Unit shall be suspended until, in the opinion of such counsel,
              such
              sale or delivery shall be lawful or shall not result in the imposition
              of
              excise taxes.

          

     

    	3.  	
            Upon
              termination of any period of suspension under this Section VII.(B),
              any
              Award affected by such suspension which shall not then have expired
              or
              terminated shall be reinstated as to all shares available before such
              suspension and as to shares which would otherwise have become available
              during the period of such suspension, but no such suspension shall
              extend
              the term of any Stock Option or Stock Appreciation
              Right.

          

     

    	C.  	
            OTHER
              COMPENSATION PLANS AND PROGRAMS:

          

     

        
 The
      Plan shall not be deemed to preclude the implementation by the Company, Parent
      or any Subsidiary of other compensation plans or programs which may be in effect
      from time to time. Participation in this Plan shall not affect an employee’s
      eligibility to participate in any other benefit or incentive plan of the
      Company, Parent or any Subsidiary. Any Awards made pursuant to this Plan shall
      not be used in determining the benefits provided under any other plan of the
      Company, Parent or any Subsidiary unless specifically provided.

     

    	D.  	
            WITHHOLDING
              TAXES:

          

     

         
       The Company shall have the right to require a payment from a Participant
      to cover applicable withholding for any federal, state or local taxes. The
      Company reserves the right to offset such tax payment from any other funds
      which
      may be due the Participant by the Company.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    	E.  	
            SINGLE
              OR MULTIPLE DOCUMENTS:

          

     

         
       Multiple forms of Awards or combinations thereof may be evidenced by a
      single document or multiple documents, as determined by the
      Committee.

     

    	F.  	
            CERTIFICATES:

          

     

         
       Whenever the Plan provides for issuance of a stock certificate(s) to
      reflect the issuance of shares of Common Stock, the issuance may be affected
      on
      a non-certificate basis, to the extent not prohibited by applicable law or
      the
      applicable rules of any stock exchange.

     

    	G.  	
            CONSTRUCTION
              OF PLAN:

          

     

         
       The interpretation of the Plan and the application of any rules
      implemented hereunder shall be determined in accordance with the laws of the
      State of Delaware.

     

    	H.  	
            PRONOUNS,
              SINGULAR AND PLURAL:

          

     

         
       The masculine may be read as feminine, the singular as plural, and the
      plural as singular as necessary to give effect to the Plan.

     

    	I.  	
            LIMITATION
              OF RIGHTS:

          

     

    	1.  	
            No
              Right to Continue as an Employee:
              Neither the Plan, nor the granting of an Award nor any other action
              taken
              pursuant to the Plan, shall constitute or be evidence of any agreement
              or
              understanding, express or implied, that the Participant has a right
              to
              continue as an employee of the Company for any period of time, or at
              any
              particular rate of compensation.

          

     

    	2.  	
            No
              Stockholder’s Rights for Stock Options:
              A
              Participant shall have no rights as a stockholder with respect to the
              shares covered by Stock Options granted hereunder until the date of
              the
              issuance of stock in book entry or certificate form and no adjustment
              will
              be made for dividends or other rights for which the record date is
              prior
              to the date such shares are issued.

          

     

    	3.  	
            Rights
              as a Shareholder:
              A
              recipient of a Restricted Stock Unit shall have no rights as a stockholder
              with respect to the Restricted Stock Units granted hereunder until
              the
              date of the issuance of stock in book entry or certificate form to
              the
              Participant to the extent described in the terms of the Award
              Commitment.

          

     

    	J.  	
            PLAN
              EFFECTIVE DATE AND TERMINATION:

          

     

         
       This Plan shall be deemed effective on the day the Board approves this
      Plan, as amended and restated, subject to the approval by the stockholders
      of
      the Company (the “Effective Date”). Any Award made between the date of Board
      approval and the date of stockholder approval shall not be deemed fully approved
      until the Plan is approved by the stockholders, and if the Plan is not so
      approved, shall Award(s) shall be null and void. Unless earlier terminated
      by
      action of the Board, the Plan will remain in effect until such time as no shares
      of Common Stock remains available for delivery under the Plan and the Company
      has no further rights or obligations under the Plan with respect to outstanding
      Awards under the Plan.

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    	K.  	
            SUCCESSORS:

          

     

         
       Any successor (whether direct or indirect, by purchase, merger,
      consolidation or otherwise) to all or substantially all of the business or
      assets of the Company, shall assume the liabilities of the Company under this
      Plan and perform any duties and responsibilities in the same manner and to
      the
      same extent that the Company would be required to perform if no such succession
      had taken place. 

     

    
 

    
      
         

      

      
        19Exhibit 10.2 DECP42507

    HARLEYSVILLE
      GROUP INC.

     

    AMENDED
      AND RESTATED

     

    DIRECTORS’
      EQUITY COMPENSATION PLAN

     

    

     

    

     

    

     

    

     

    

     

    

     

    Approved
      by the Board of Directors: February 21, 2007

     

    Approved
      by Stockholders: April 25, 2007

     

    

     

    

     

    
      
        
          

        

         

      

      
         

        
          

        

      

      
         

        
          

        

      

    

    

     

    HARLEYSVILLE
      GROUP INC.

     

    AMENDED
      AND RESTATED DIRECTORS’ EQUITY COMPENSATION PLAN

     

    

    1.  Purpose.
      Harleysville Group Inc. (the “Company”) has established the Plan to further its
      long-term financial success by providing a mechanism to make equity-based awards
      to Non-Employee Directors of the Company and of its Parent, whereby such
      Non-Employee Directors can share in achieving and sustaining such success.
      The
      Plan also provides a means to attract and retain the Non-Employee Directors
      needed to achieve the Company’s and the Parent’s long-term growth and
      profitability objectives.

     

    2.  Definitions.
      When used in this Plan, the following defined terms shall have the following
      meanings:

     

    “Annual
      Meeting”
means
      the annual meeting of stockholders for the election of Director, generally
      held
      in April of each year.

     

    “Annual
      Board Meeting”
means
      the meeting of the Board of Directors held in conjunction with the Annual
      Meeting of each year.

     

    “Award(s)”
means
      Stock Options, Deferred Stock Units and Restricted Stock granted or awarded
      under this Plan.

     

    “Change
      in Control”
shall
      be deemed to have occurred:

     

    (a)  if
      the
“beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act) of
      securities representing more than twenty percent (20%) of the combined voting
      power of the Employer Voting Securities (as herein defined) is acquired by
      any
      individual, entity or group (a “Person”), other than the Parent, the Company,
      any trustee or other fiduciary holding securities under any employee benefit
      plan of the Company or an affiliate thereof, or any corporation owned, directly
      or indirectly, by the stockholders of the Company in substantially the same
      proportions as their ownership of stock of the Company (for purposes of this
      Plan, “Company Voting Securities” shall mean the then outstanding voting
      securities of the Company entitled to vote generally in the election of
      directors); provided,
      however,
      that
      the following shall not constitute a Change in Control under this paragraph
      (a):
      (i) any acquisition pursuant to a transaction which complies with clauses (i),
      (ii) and (iii) of paragraph (c) of this definition; (ii) any acquisition of
      the
      Company Voting Securities from the Parent pursuant to a Business Combination
      (as
      herein defined) or otherwise, if (x) the acquiring or resulting entity is
      organized in the mutual form, and (y) persons who were members of the Incumbent
      Board (as herein defined) of the Parent immediately prior to such acquisition
      constitute at least two-thirds of the members of the Board of Directors of
      the
      acquiring entity immediately following such acquisition and (iii) any
      acquisition of voting securities from the Company or the Parent by a person
      engaged in business as an underwriter of securities who acquires the shares
      through his participation in good faith in a firm commitment underwriting
      registered under the Securities Act; and (iv) any acquisition otherwise within
      the terms of this paragraph (a) during any period in which Parent owns at least
      a majority of the combined voting power of Company Voting Securities (the
“Parent Control Period”), but if such an acquisition is made during a Parent
      Control Period by any Person and such Person continues to hold more than 20%
      of
      the combined voting power of all Company Voting Securities on the first day
      following the termination of a Parent Control Period, such acquisition will
      be
      deemed to have been first made on such date; or

     

    (b)  if,
      during any period of twenty-four (24) consecutive months, individuals who,
      as of
      the beginning of such period, constitute the Board of Directors of the Company
      or the Parent, as the case may be (the “Applicable Incumbent Board”), cease for
      any reason to constitute at least a majority of the Board of Directors of the
      Company or the Parent, as the case may be; provided,
      however,
      that
      (x) any individual becoming a director of the Company or the Parent, as the
      case
      may be, during such period whose election, or nomination for election, was
      approved by a vote of at least a two-thirds of the directors then comprising
      the
      Applicable Incumbent Board (other than in connection with the settlement of
      a
      threatened proxy contest) shall be considered as though such individual were
      a
      member of the Incumbent Board of Directors of the Company or the Parent, as
      the
      case may be, and (y) the provisions of this paragraph (b) shall not be
      applicable to the composition of the Board of Directors of Parent if Parent
      shall cease to own at least 20% of the combined voting power of all Company
      Voting Securities; or

     

    (c)  upon
      consummation by the Company of a reorganization, merger or consolidation or
      sale
      or other disposition of all or substantially all of the assets of the Company
      or
      the acquisition of assets or stock of another entity (a “Business Combination”),
      unless, in any such case, immediately following such Business Combination the
      following three conditions are met: (i) more than 50% of the combined voting
      power of the then outstanding voting securities entitled to vote generally
      in
      the election of directors of (x) the corporation resulting from such Business
      Combination (the “Surviving Corporation”), or (y) if applicable, a corporation
      which as a result of such transaction owns the Company or all or substantially
      all of the Company’s assets either directly or through one or more subsidiaries
      (the “New Parent Corporation”), is represented, in either such case, directly or
      indirectly, by Company Voting Securities outstanding immediately prior to such
      Business Combination (or, if applicable, is represented by shares into which
      such Company Voting Securities were converted pursuant to such Business
      Combination), and such voting power is distributed among the holders thereof,
      in
      substantially the same proportions as their ownership, immediately prior to
      such
      Business Combination, of the Company Voting Securities; and (ii) no Person
      (excluding any employee benefit plan (or related trust) of the Company or such
      corporation resulting from such Business Combination) beneficially owns,
      directly or indirectly, 50% or more of the combined voting power of the then
      outstanding voting securities eligible to elect directors of the New Parent
      Corporation (or, if there is no New Parent Corporation, the Surviving
      Corporation) except to the extent that such ownership of the Company existed
      prior to the Business Combination, and (iii) at least a majority of the members
      of the board of directors of the New Parent Corporation (or, if there is no
      New
      Parent Corporation, the Surviving Corporation) were members of the Board of
      Directors of the Company at the time of the execution of the initial agreement,
      or the action of the Board, providing for such Business Combination;
      or

     

    (d)  Parent
      affiliates with, or acquires by merger, a third party and, as a consequence
      thereof, persons who were members of the Incumbent Board of Parent immediately
      prior to such transaction cease to constitute at least two-thirds of the
      directors of Parent following such transaction provided,
      however,
      that
      this paragraph (d) shall not apply if immediately prior to such affiliation
      or
      merger, Parent does not own more than 20% of the combined voting power of
      Company Voting Securities; or

     

    (e)  upon
      approval by the stockholders of the Company and all necessary regulatory
      authorities of a complete liquidation or dissolution of the Company;
      or

     

    (f)  any
      other
      event shall occur that would be required to be reported by the Company in
      response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
      Exchange Act (or any provision successor thereto); or

     

    (g)  the
      Company or Parent has entered into a management agreement or similar arrangement
      pursuant to which an entity other than the Company or the Parent or the Boards
      of Directors or the executive officers and management of the Company or the
      Parent has the power to direct or cause the direction of the management and
      policies of the Company or the Parent; provided,
      however,
      that
      this paragraph (g) shall not apply to Parent if, immediately prior to entering
      into any such management agreement or similar arrangement, Parent does not
      own
      more than 20 percent of Company Voting Securities.

     

    “Board”
means
      the Board of Directors of the Company. 

     

    “Code”
means
      the Internal Revenue Code of 1986, as amended. Any reference in this Plan to
      a
      Code Section shall mean and refer to such Section or any successor thereto
      as
      may be in effect from time to time and the regulations promulgated
      thereunder.

     

    “Committee”
means
      the Compensation & Personnel Development Committee of the Board of the
      Company or any other committee selected by the Board meeting the applicable
      requirements of the SEC and the NASDAQ corporate governance standards.

     

    “Common
      Stock”
means
      the common stock of the Company, par value $1 per share.

     

    “Company”
means
      Harleysville Group Inc., a Delaware corporation, and any successor in a
      reorganization or similar transaction.

     

    “Date
      of Grant”
means
      the date designated by the Committee as the date as of which the Committee
      grants an Award, which shall not be earlier than the date on which the Committee
      approves the granting of such Award. 

     

    “Deferred
      Stock Unit”
means
      an Award under this Plan of a right to receive one Share per unit, as further
      described in Section 6.

     

    “Directors’
      Standard Deferred Compensation Plan”
means
      the Company’s Directors’ Standard Deferred Compensation Plan, which allows
      Non-Employee Directors to defer some or all of their director fees and equity
      awards. 

     

    “Dividend
      Reinvestment and Stock Purchase Plan”
means
      the Harleysville Group Inc. Dividend Reinvestment and Stock Purchase Plan under
      which eligible Non-Employee Directors may reinvest dividends and dividend
      equivalents to purchase Shares.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Fair
      Market Value”
means,
      as of any given date, with respect to Awards made hereunder, (i) the closing
      sale price of a Share of Common Stock on such date on the principal securities
      exchange on which the Company’s Common Stock is listed or traded, (ii) if not so
      reported, the average of the closing (or other designated) bid and asked prices
      on the immediately preceding business day as reported on the principal
      securities exchange on which the Company’s Common Stock is listed or traded, or
      (iii) if not so reported, as otherwise determined by the Committee in the good
      faith exercise of its discretion in accordance with applicable law. A “business
      day” is any day, other than Saturday or Sunday, on which the relevant market is
      open for trading. 

     

    “Non-Employee
      Director”
means
      a
      member of the Company’s Board of Directors or a member of the Parent’s Board of
      Directors, who is not an employee of the Company or the Parent or any subsidiary
      of either the Company or the Parent.

     

    “Parent”
means
      Harleysville Mutual Insurance Company.

     

    “Plan”
means
      this Harleysville Group Inc. Amended and Restated Directors’ Equity Compensation
      Plan.

     

    “Restricted
      Stock”
means
      an award of Shares subject to restrictions, as further described in Section
      7 of
      this Plan.

     

    “SEC”
means
      the Securities and Exchange Commission.

     

    “Share”
means
      a
      share of Common Stock.

     

    “Stock
      Option(s)”
means
      a
      stock option right to purchase Shares of the Company’s Common Stock, which is
      not intended to comply with the terms and conditions for an incentive stock
      option, as set forth in Section 422 of the Code.

     

    “Termination
      of Service”
means
      the termination of an individual’s status as a Non-Employee Director for any
      reason whatever, whether voluntarily or involuntarily, including disability
      or
      death of the Non-Employee Director.

     

    3.  Plan
      Administration.
      The
      Plan shall be administered by the Committee. Subject to the express provisions
      of the Plan, the Committee shall have full and exclusive authority:

     

    (a)  to
      interpret the Plan;

     

    (b)  to
      determine the Non-Employee Directors to whom Awards should be made under the
      Plan;

     

    (c)  to
      determine the type of Awards to be made and the amount, size and terms of each
      such Award;

     

    (d)  to
      determine the time when the Awards are granted and the duration of any
      applicable exercise or restriction period, including the criteria for
      exercisability and the acceleration thereof;

     

    (e)  to
      prescribe, amend and rescind rules and regulations relating to the Plan;
      and

     

    (f)  to
      make
      all other determinations deemed necessary or advisable in the implementation
      and
      administration of the Plan as permitted by federal and state laws and
      regulations, including those laws and regulations exemption from Section 16
      of
      the Exchange Act, or by rules and regulations of a national securities exchange
      on which the Common Stock is then listed or traded.

     

    The
      Committee’s determinations under the Plan (including without limitation
      determinations of the persons to receive Awards, the form, amount and timing
      of
      such Awards, the terms and provisions of such Awards, and the documents
      evidencing same) need not be uniform and may be made selectively among persons
      who receive, or are eligible to receive, Awards under the Plan whether or not
      such persons are similarly situated. 

     

    The
      determination of the Committee in the administration of the Plan, as described
      herein, shall be final and conclusive and binding upon all persons including,
      without limitation, the Company, its stockholders, the Non-Employee Directors,
      and any persons having any interest under the Plan. The Secretary of the Company
      shall be authorized to take such action of a ministerial nature, including
      the
      preparation of Award documents provided to Non-Employee Directors, as shall
      be
      necessary to effectuate the intent and purposes hereof at the direction of
      the
      Committee.

     

    4.  Shares
      Available; Adjustments. 

     

    (a)  Shares
      Available.
      Subject
      to adjustment as specified in Section 4(b) below, the aggregate number of Shares
      that may be issued under the Plan is 500,000 Shares, which may be either
      authorized and unissued shares of Common Stock or authorized and issued shares
      of Common Stock reacquired by the Company. If any Award granted under the Plan
      shall expire, terminate or be canceled for any reason without having been
      exercised or vested in full, the number of Shares not purchased under such
      Award
      shall again be available for the purposes of the Plan. Notwithstanding anything
      to the contrary in this Section 4(a), (i) should the exercise price of a
      Stock Option be paid with Shares or by reducing the number of Shares issuable
      upon such exercise, or (ii) should Shares otherwise issuable under the Plan
      be paid in cash or withheld by the Company in satisfaction of the withholding
      taxes incurred in connection with the exercise of a Stock Option or the vesting
      of an Award, then the number of Shares available for issuance under the Plan
      shall be reduced by the gross number of Shares for which the Stock Option is
      exercised or which vest under the Award, and not by the net number of Shares
      issued to the holder of such Stock Option or Award. 

     

    (b)  Adjustments.
      In the
      event of stock dividends, stock splits, re-capitalizations, mergers,
      consolidations, combinations, exchanges of shares, spin-offs, liquidations,
      reclassifications or other similar changes in the capitalization of the Company,
      such automatic substitution or adjustment shall be made in the maximum aggregate
      number of Shares which may be issued under this Plan, the maximum number of
      shares with respect to which Awards may be granted to any individual during
      any
      year, the number and exercise price of Shares subject to outstanding Stock
      Options, and the number of Shares subject to other outstanding Awards, as the
      Committee determines shall cause an equitable adjustment under this Plan, in
      proportion to the effect of such change to the Common Stock generally;
provided
      that the
      number of Shares subject to any Award shall be rounded down to the nearest
      whole
      number so that the number of Shares subject to any Award shall always be a
      whole
      number. In the event of a change in the Common Stock as presently constituted,
      which change is limited to a change of all of the authorized shares with par
      value into the same number of shares with a different par value or without
      par
      value, the shares resulting from any such change shall be deemed to be the
      Common Stock within the meaning of this Plan. 

     

    (c)  Rights
      Upon a Change in Control.
      In the
      event of a consummation of a Change in Control, notwithstanding any other
      restrictive provisions herein, all previously granted Stock Options shall become
      exercisable immediately, and all previously issued Deferred Stock Units and
      Restricted Stock shall have all forfeiture restrictions lapse immediately
      regardless of whether the applicable deferral period or Restriction Period
      has
      expired.

     

    5.  Stock
      Options.
      All
      Stock Options granted to Non-Employee Directors under the Plan shall be subject
      to the following terms and conditions, which shall be set forth in an
      appropriate written document (“Option Document”) and which may provide such
      other terms, conditions and provisions, not inconsistent with this Plan, as
      the
      Committee may direct. For the avoidance of doubt, the Committee has the
      authority to revise any of the terms set forth in this Plan with respect to
      a
      Stock Option Award except for those terms required by law.

     

    (a)  Price.
      The
      exercise price per Share for each Stock Option Award shall not be less than
      one
      hundred percent (100%) of the Fair Market Value of a Share of Common Stock
      on
      the Date of Grant and, in no event, less than the par value of the Common
      Stock.

     

    (b)  Exercise
      Term and Vesting.
      The
      Committee shall establish the vesting schedule for each Stock Option in the
      Option Document; provided, that, except as provided in Section 5(e) below,
      or as
      varied in the Option Document, the standard vesting schedule for each Stock
      Option Award shall be 33 1/3% exercisable on and after the first anniversary
      of
      the Date of Grant, 33 1/3% on and after the second anniversary of the Date
      of Grant, and the remaining 33 1/3% shall be exercisable on and after the third
      anniversary of the Date of Grant, in each case until the end of the term of
      the
      Stock Option; provided, further, that the number of Shares vesting in each
      year
      shall be adjusted, as necessary, so that only a whole number of Shares shall
      vest each year. The Committee has the power to accelerate the vesting schedule
      of any outstanding Stock Option Award, subject to the requirements set forth
      herein, upon such circumstances and subject to such terms and conditions as
      the
      Committee deems appropriate. All Stock Options shall expire as of 5:00 p.m.
      on
      the tenth anniversary of the Date of Grant unless the Committee provides
      otherwise in the Option Document.

     

    (c)  Exercise
      Procedures.
      A Stock
      Option, or portion thereof, shall be exercised by delivery of a written notice
      of exercise to the Secretary of the Company, and payment of the full exercise
      price for the Shares being purchased, as well as payment of all withholding
      taxes due thereon, if any.

     

    (d)  Payment.
      The
      exercise price of a vested Stock Option, or portion thereof, may be
      paid:

     

    (i)  by
      check,
      bank draft, money order, or electronic funds transfer payable to the order
      of
      the Company; or

     

    (ii)  through
      the delivery of Shares of the Company’s Common Stock owned by the Non-Employee
      Director, having an aggregate Fair Market Value as determined as of the date
      prior to exercise equal to the exercise price; or

     

    (iii)  by
      such
      other method as the Committee may approve, including payment through a broker
      in
      accordance with procedures permitted by Regulation T of the Federal Reserve
      Board; or

     

    (iv)  by
      a
      combination of (i), (ii) and (iii) above.

     

    In
      the
      event a Non-Employee Director delivers already-owned Shares of the Company’s
      Common Stock, at the Non-Employee Director’s option, the Non-Employee Director
      may provide an executed attestation of ownership in lieu of actual delivery
      of
      Shares.

     

    Subject
      to the approval of the Committee, as set forth in the Option Document or
      otherwise in accordance with Rule 16b-3 of the Exchange Act, a Non-Employee
      Director may surrender already-owned Shares of the Company’s Common Stock or
      forego delivery of Shares due as a result of the exercise, in order to pay
      any
      withholding tax required to be collected upon exercise of a Stock Option. Such
      Shares shall be valued at their Fair Market Value pursuant to Section 5(d)(ii)
      above.

     

    If
      payment is made under Section 5(d)(iii) of the Plan, the written exercise notice
      may instruct the Company to deliver Shares due upon the exercise of the Stock
      Option to a registered broker or dealer designated by the Non-Employee Director,
      if any, (“Designated Broker”) in lieu of delivery to the Non-Employee Director.
      Such instructions must designate the account into which the Shares are to be
      deposited.

     

    (e)  Rights
      upon Termination of Service.
      

     

    (i)  Unless
      different provisions are made in the Option Document, in the event of a
      Non-Employee Director’s Termination of Service, all unvested Stock Options shall
      expire and be terminated on the date of termination, and the Non-Employee
      Director shall have one hundred and eighty (180) days to exercise all Stock
      Options that are vested and exercisable as of the date of termination unless
      the
      Committee in the Option Document or otherwise grants an additional period in
      which to exercise the vested Stock Options. If the Non-Employee Director does
      not exercise such vested Stock Options in such 180-day period, the vested Stock
      Options shall automatically expire and be terminated. 

     

    (ii)  In
      the
      event of a Non-Employee Director’s Termination of Service due to death, prior to
      the expiration of the term of his or her outstanding Stock Option Awards, all
      Stock Options shall immediately become vested and exercisable, and the
      Non-Employee Director’s estate or personal representative shall have the right
      to exercise such vested Stock Options for a period of the shorter of (i) the
      remaining term of any Stock Option or (ii) one year after Termination of
      Service, subject to such terms and conditions, as may be specified by the
      Committee.

     

    (f)  Restrictions
      upon Transfer.
      Unless
      otherwise directed by the Committee, each Option Document shall provide that
      no
      Stock Option nor any interest or right therein or part thereof shall be liable
      for the debts, contracts or engagements of the Non-Employee Director or his
      or
      her successors in interest or shall be subject to disposition by transfer,
      alienation, anticipation, pledge, encumbrance, assignment or any other means
      whether such disposition be 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; provided,
      however,
      that
      this Section 5(f) shall not prevent (with Committee approval) transfers to
      the
      Non-Employee Director’s spouse, children, grandchildren, parents or a trust
      established for any of them or the Non-Employee Director, or by will or the
      laws
      of descent and distribution. If such a transfer is made, the Non-Employee
      Director may not receive any consideration therefor, and the Stock Option will
      continue to be subject to the same terms and conditions as were applicable
      to
      the Stock Option immediately before transfer.

     

    6.  Deferred
      Stock Units.

     

    (a)  Automatic
      Awards.
      Beginning with the Annual Meeting to be held in April 2007, each individual
      who
      is serving as Non-Employee Director at the time of an Annual Board Meeting,
      and
      will be continuing to serve in such capacity after such Annual Board Meeting,
      shall automatically receive a number of Deferred Stock Units equal to the result
      of dividing (i) $50,000 by (ii) the Fair Market Value of a Share as of the
      day
      before the date of the Annual Board Meeting for that year. These automatic
      Awards will be made in connection with each Annual Meeting until this provision
      is amended or removed by the Committee or the Board. Each such automatic
      Deferred Stock Unit Award shall entitle the Non-Employee Director to receive,
      upon Termination of Service or upon the Non-Employee Director’s death, the
      number of Shares equal to the number of Deferred Stock Units, unless the
      Non-Employee Director has elected in writing to the Company, prior to the date
      of Termination of Service, to defer receipt of the Shares in accordance with
      the
      Directors’ Standard Deferred Compensation Plan. The provisions of this Section
      6(a) specifically supersede and replace the provisions of this Plan, prior
      to
      its amendment and restatement in calendar year 2007 with respect to Deferred
      Stock Units to be awarded in 2007, 2008 and 2009. 

     

    (b)  Other
      Deferred Stock Awards.
      The
      Committee shall have the authority, in its discretion, to make additional
      Deferred Stock Unit Awards to Non-Employee Directors in accordance with the
      provisions of this Plan. Such Awards shall have the vesting schedule and other
      terms as set forth in the Award Commitment for such Award. 

     

    (c)  Provisions
      Applicable to all Deferred Stock Unit Awards.
      

     

    (i)  Each
      award of Deferred Stock Units under the Plan shall be evidenced by a written
      document (the “Award Commitment”) which shall indicate (1) the number of
      Deferred Stock Units granted to the Non-Employee Director; (2) the Date of
      Grant; and (3) any other terms and conditions the Committee deems necessary
      or
      appropriate. All Deferred Stock Unit Awards shall be subject to the terms of
      this Plan and the Award Commitment.

     

    (ii)  Whenever
      the Company pays cash dividends with respect to its outstanding Shares, a
      Non-Employee Director shall receive an amount equal to all or any portion of
      the
      dividends that would be paid on Shares equal to the number of his or her
      Deferred Stock Units (“dividend equivalents”), unless the Non-Employee Director
      has elected, in writing, prior to such payment, to defer receipt of the dividend
      equivalents pursuant to the Directors’ Standard Deferred Compensation Plan or
      has elected to use the dividend equivalents to purchase Common Stock pursuant
      to
      the Dividend Reinvestment and Stock Purchase Plan.

     

    (iii)  The
      receipt of Shares under any Deferred Stock Unit Awards may be deferred by a
      Non-Employee Director prior to vesting as long as such deferral is made in
      accordance with the provisions of the Directors’ Standard Deferred Compensation
      Plan.

     

    (iv)  A
      Deferred Stock Unit shall not be transferable otherwise than by will or the
      laws
      of intestate distribution. Except for such transfers, Deferred Stock Units
      and
      the rights and privileges conferred hereby shall not be transferred, assigned,
      pledged or hypothecated in any way (whether by operation of law or otherwise)
      and shall not be subject to execution, attachment or similar process. Upon
      any
      attempt to transfer, assign, pledge, hypothecate or otherwise dispose of a
      Deferred Stock Unit, right or privilege contrary to the provisions hereof,
      or
      upon the levy of any attachment or similar process upon the rights and
      privileges conferred hereby, such Deferred Stock Unit and the rights and
      privileges conferred hereby shall immediately terminate.

     

    (v)  A
      Non-Employee Director granted a Deferred Stock Unit under this Plan shall have
      only the rights of a general unsecured creditor of the Company until such
      Non-Employee Director receives Shares equal to the number of his or her Deferred
      Stock Units pursuant to this Section 6. A Non-Employee Director shall have
      no
      voting rights with respect to any Shares issuable pursuant to Deferred Stock
      Units until the date on which a certificate representing such Shares is issued.
      

     

    7.  Restricted
      Stock Awards.
      Restricted Stock Awards shall be subject to the following terms and conditions,
      which shall be set forth in an appropriate written agreement between the Company
      and the Non-Employee Director (“Award Document”) and which may provide such
      other terms, conditions and provisions not inconsistent with this Plan, as
      the
      Committee may direct.

     

    (a)  Price.
      Restricted Stock may be awarded to a Non-Employee Director free of any purchase
      price or for such purchase price as is established by the Committee in the
      Award
      Document.

     

    (b)  Restriction
      Period.
      Restricted Stock awarded pursuant to this Plan shall be subject to such terms,
      conditions and restrictions, including without limitation, prohibitions against
      transfer, and substantial risks of forfeiture as shall be determined by the
      Committee and set forth in the Award Document (“Restriction Period”). A
      Restriction Period will generally be from three to six years; provided,
      however,
      that
      the Committee in its sole discretion may establish other time periods. The
      Committee shall have the power to permit, in its discretion, an acceleration
      of
      the lapse of the applicable Restriction Period with respect to any part or
      all
      of the Restricted Stock awarded to a Non-Employee Director.

     

    (c)  Restriction
      Upon Transfer.
      During
      the Restriction Period applicable to any Restricted Stock Award, no right or
      interest of the Non-Employee Director in such Restricted Stock nor any interest
      or right therein (including the right to vote such Shares and receive dividends
      thereon) or part thereof shall be liable for the debts, contracts or engagements
      of the Non-Employee Director or his or her successors in interest or shall
      be
      subject to disposition by transfer, alienation, anticipation, pledge,
      encumbrance, assignment or any other means whether such disposition be 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.
      Notwithstanding the foregoing and except as otherwise provided in this Plan,
      the
      Non-Employee Director shall have all the other rights of a stockholder
      including, but not limited to, the right to receive dividends and the right
      to
      vote such Shares.

     

    (d)  Certificates.
      Each
      certificate issued in respect of Restricted Stock awarded to a Non-Employee
      Director shall be deposited with the Company or its designee and shall bear
      the
      following legend:

     

    This
      certificate and the shares of stock represented hereby are subject to the terms
      and conditions (including forfeiture provisions and restrictions against
      transfer) contained in the Harleysville Group Inc. Amended and Restated
      Directors’ Equity Compensation Plan and a related Award Document between the
      Non-Employee Director and the Company. Release from such terms and conditions
      shall be obtained only in accordance with the provisions of the Plan and Award
      Document, a copy of each of which is on file in the office of the Secretary
      of
      Harleysville Group Inc.

     

    (e)  Lapse
      of Restrictions.
      The
      Award Document shall specify the terms and conditions upon which any
      restrictions upon Restricted Stock awarded under the Plan shall lapse, as
      determined by the Committee. Upon the lapse of such restrictions, Shares of
      Common Stock free of the restrictive legend shall be issued to the Non-Employee
      Director or his or her legal representative.

     

    If
      established in the Award Document, a Non-Employee Director may surrender already
      owned Shares of the Company’s Common Stock or forego delivery of Shares due as a
      result of the lapse of restrictions of a Restricted Stock Award in order to
      pay
      any withholding tax required to be collected upon lapse of restrictions. Such
      Shares shall be valued at their Fair Market Value as of the trading day
      immediately prior to the date of the lapse of restrictions.

     

    In
      the
      event of a Non-Employee Director’s Termination of Service due to death, all
      restrictions upon Restricted Stock awarded under this Plan shall lapse and
      Shares of Common Stock free of the restrictive legend shall be issued to the
      Non-Employee Director or his or her legal representative.

     

    (f)  Termination
      Prior to Lapse of Restrictions.
      In the
      event of a Non-Employee Director’s Termination of Service prior to the lapse of
      restrictions as determined pursuant to the provisions of the Section 7(e) above,
      all Restricted Stock as to which there still remains unlapsed restrictions
      shall
      be forfeited by such Non-Employee Director to the Company without payment of
      any
      consideration by the Company, and neither the Non-Employee Director nor any
      successors, heirs, assigns, or personal representatives of such Non-Employee
      Director shall thereafter have any further rights or interest in such Shares
      of
      Restricted Stock or any certificate representing such Shares of Restricted
      Stock.

     

    The
      Committee shall have the power to permit an acceleration of previously
      established Restriction Periods or other forfeiture requirements, upon such
      circumstances and subject to such terms and conditions as the Committee deems
      appropriate.

     

    8.  Miscellaneous
      Provisions.

     

    (a)  Amendment,
      Suspension and Termination of Plan.
      The
      Committee or the Board may, at any time, amend, discontinue or terminate this
      Plan or any part thereof (including any amendment deemed necessary to ensure
      that the Company may comply with any regulatory requirement referred to in
      Section 8(b) or amend any Award previously granted, prospectively or
      retroactively (subject to Section 4); provided,
      however,
      that,
      (i) unless otherwise required by law, the rights of a Non-Employee Director
      with
      respect to Awards granted prior to such amendment, discontinuance or termination
      may not be impaired without the consent of such Non-Employee Director; (ii)
      except as otherwise provided in Section 4(b) hereof, the Committee shall not
      reduce the exercise price of Stock Options previously awarded to any
      Non-Employee Director, whether through amendment, cancellation and replacement
      grant, or any other means, without prior stockholder approval; and (iii) the
      Company will seek the approval of the Company’s stockholders for any amendment
      if such approval is necessary to comply with the Code, Federal or state
      securities laws or any other applicable laws or regulations, including the
      Marketplace Rules of the National Association of Securities Dealers, Inc.

     

    (b)  Government
      and Other Regulations.
      The
      obligation of the Company to issue Awards under the Plan shall be subject to
      all
      applicable laws, rules and regulations, and to such approvals by any government
      agencies as may be required.

     

    (i)  If
      the
      Common Stock is listed on a national securities exchange or The NASDAQ Stock
      Market, the issuance of any Shares of Common Stock pursuant to an Award shall
      be
      conditioned upon such Shares being listed on such exchange or The NASDAQ Stock
      Market. The Company shall have no obligation to issue any Shares of Common
      Stock
      unless and until such Shares are so listed, and the right to exercise any Stock
      Option or vest in any Deferred Stock Unit shall be suspended until such listing
      has been effected.

     

    (ii)  If
      at any
      time counsel to the Company shall be of the opinion that any sale or delivery
      of
      Shares pursuant to an Award is or may in the circumstances be unlawful or result
      in the imposition of excise taxes under the statutes, rules or regulations
      of
      any applicable jurisdiction, the Company shall have no obligation to make such
      sale or delivery, or to make any application or to effect or to maintain any
      qualification or registration under the Securities Act of 1933, as amended,
      or
      otherwise with respect to Shares or Awards, and the right to exercise any Stock
      Option or vest in any Deferred Stock Unit shall be suspended until, in the
      opinion of such counsel, such sale or delivery shall be lawful or shall not
      result in the imposition of excise taxes.

     

    (iii)  Upon
      termination of any period of suspension under this Section 8(b), any Award
      affected by such suspension which shall not then have expired or terminated
      shall be reinstated as to all Shares available before such suspension and as
      to
      Shares which would otherwise have become available during the period of such
      suspension, but no such suspension shall extend the term of any Stock Option.
      

     

    (c)  Other
      Compensation Plans:
      The
      Plan shall not be deemed to preclude the implementation by the Company or the
      Parent of other compensation plan for Non-Employee Directors which may be in
      effect from time to time. Participation in this Plan shall not affect a
      Non-Employee Directors’ eligibility to participate in any other compensation
      plan of the Company or the Parent. Any Awards made pursuant to this Plan shall
      not be used in determining the benefits provided under any other plan of the
      Company or the Parent, unless specifically provided.

     

    (d)  Withholding
      Taxes.
      The
      Company shall have the right to deduct or withhold, or require a holder of
      an
      Award to remit to the Company, an amount sufficient to satisfy Federal, state,
      and local taxes required by law to be withheld with respect to any grant,
      exercise, or payment made under or as a result of the Plan. 

     

    (e)  Certificates.
      Whenever the Plan provides for issuance of a stock certificate(s) to reflect
      the
      issuance of Shares, the issuance may be affected on a non-certificate basis,
      to
      the extent not prohibited by applicable law or the applicable rules of any
      stock
      exchange.

     

    (f)  Construction
      of Plan.
      The
      interpretation of this Plan and the application of any rules implemented
      hereunder shall be determined in accordance with the laws of the State of
      Delaware.

     

    (g)  Pronouns,
      Singular and Plural.
      The
      masculine may be read as feminine, the singular as plural, and the plural as
      singular as necessary to give effect to the Plan.

     

    (h)  Limitation
      of Rights.

     

    (i)  No
      Right to Continue as a Non-Employee Director.
      Neither
      the Plan, nor the granting of an Award nor any other action taken pursuant
      to
      the Plan, shall constitute or be evidence of any agreement or understanding,
      express or implied, that the Non-Employee Director has a right to continue
      as a
      Non-Employee Director of the Company or the Parent for any period of
      time.

     

    (ii)  No
      Stockholder’s Rights.
      Except
      with respect to Restricted Stock Awards, a Non-Employee Director shall have
      no
      rights as a stockholder with respect to the Shares covered by Awards granted
      or
      made hereunder until the date of the issuance of stock in book entry or
      certificate form and no adjustment will be made for dividends or other rights
      for which the record date is prior to the date such Shares are
      issued.

     

    (i)  Plan
      Effective Date and Termination.
      This
      Plan shall be deemed effective on the day the Board approves this Plan, as
      amended and restated, subject to the approval by the stockholders of the Company
      (the “Effective Date”). Unless earlier terminated by action of the Board, the
      Plan will remain in effect until such time as no Shares of Common Stock remains
      available for delivery under the Plan and the Company
      has no further rights or obligations under the Plan with respect to outstanding
      Awards under the Plan. 

     

    (j)  Successors.
      Any
      successor (whether direct or indirect, by purchase, merger, consolidation or
      otherwise) to all or substantially all of the business or assets of the Company,
      shall assume the liabilities of the Company under this Plan and perform any
      duties and responsibilities in the same manner and to the same extent that
      the
      Company would be required to perform if no such succession had taken place.

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