Document:

exv10w2

 

    Exhibit 10.2

 

    DONEGAL
    GROUP INC.

 

    2011
    EQUITY INCENTIVE PLAN FOR EMPLOYEES

 

    1. Purpose.  The purpose of this
    2011 equity incentive plan for employees (this “Plan”)
    is to encourage the employees of Donegal Group Inc. (the
    “Company”) and its subsidiaries to acquire a
    proprietary interest in the growth and performance of the
    Company, and to continue to align the interests of those
    employees with the interests of the Company’s stockholders
    to generate an increased incentive for such person to contribute
    to the growth, development and financial success of the Company
    and the member companies of the Donegal Insurance Group,
    including companies from which the Company or Donegal Mutual
    assumes 100% quota share reinsurance (the “Group”). To
    accomplish these purposes, this Plan provides a means whereby
    employees may receive stock options, stock awards and other
    stock-based awards that are based on, or measured by, or payable
    in shares of the Company’s Class A common stock.

 

    2. Administration.

 

    (a) Administrators.  The Board of
    Directors of the Company (the “Board”) shall
    administer this Plan. The Board shall appoint a committee, which
    initially shall be the compensation committee to assist in the
    administration of this Plan. The committee, with the advice of
    the Company’s chief executive officer, shall recommend to
    the Board the employees to whom the Company should grant awards
    and the type, size and terms of each grant. The Board has the
    authority to make all other determinations necessary or
    advisable for the administration of this Plan. All decisions,
    determinations and interpretations of the Board shall be final
    and binding on all grantees and all other holders of awards
    granted under this Plan.

 

    (b) The Committee.  The committee
    shall be comprised of two or more members of the Board, each of
    whom shall be a “non-employee director” within the
    meaning of
    Rule 16b-3
    under the Securities Exchange Act of 1934 (the “Exchange
    Act”). In addition, each member of the committee shall be
    an “outside director” within the meaning of
    Section 162(m) of the Internal Revenue Code of 1986, as
    amended (the “Code”). Subject to the foregoing, from
    time to time, the Board may increase or decrease the size of the
    committee, appoint additional members, remove members, with or
    without cause, appoint new members, fill vacancies or remove all
    members of the committee and thereafter directly administer this
    Plan. The committee shall have those duties and responsibilities
    assigned to it under this Plan, and the Board may assign to the
    committee the authority to make certain other determinations and
    interpretations under this Plan. All decisions, determinations
    and interpretations of the committee in such cases shall be
    final and binding on all grantees and all other holders of
    awards granted under this Plan.

 

    3. Shares Subject to this Plan.

 

    (a) Shares Authorized.  The
    total aggregate number of shares of Class A common stock
    that the Company may issue under this Plan is
    3,500,000 shares, subject to adjustment as described below.
    The Company may issue each of the shares authorized under this
    Plan pursuant to incentive stock options awards within the
    meaning of Section 422 of the Code. The shares may be
    authorized but unissued shares or reacquired shares for purposes
    of this Plan.

 

    (b) Share Counting.  For
    administrative purposes, when the Board approves an award
    payable in shares of Class A common stock, the Board shall
    reserve, and count against the share limit, shares equal to the
    maximum number of shares that the Company may issue under the
    award. If and to the extent options granted under this Plan
    terminate, expire or are canceled, forfeited, exchanged or
    surrendered without having been exercised, and if and to the
    extent that any restricted stock awards are forfeited or
    terminated, or otherwise are not paid in full, the Company shall
    make the shares reserved for such awards available again for
    purposes of this Plan.

 

    (c) Individual Limits.  All awards
    under this Plan shall be expressed in shares of Class A
    common stock. The maximum number of shares of Class A
    common stock with respect to all awards that the Company may
    issue to any individual under this Plan during any calendar year
    shall be 250,000 shares, subject to adjustment as described
    below.

    

    B-1

 

    (d) Adjustments.  If any change in
    the number or kind of shares of Class A common stock
    outstanding occurs by reason of:

 

			
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    a stock dividend, spinoff, recapitalization, stock split or
    combination or exchange of shares;

	 
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    a merger, reorganization or consolidation;

	 
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    a reclassification or change in par value; or

	 
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    any other extraordinary or unusual event affecting the
    outstanding Class A common stock as a class without the
    Company’s receipt of consideration, or if the value of
    outstanding shares of Class A common stock is substantially
    reduced as a result of a spinoff or the Company’s payment
    of any extraordinary dividend or distribution,

 

    the maximum number of shares of Class A common stock
    available for issuance under this Plan, the maximum number of
    shares of Class A common stock for which any individual may
    receive grants in any year, the kind and number of shares
    covered by outstanding awards, the kind and number of shares to
    be issued or issuable under this Plan and the price per share or
    applicable market value of such grants shall be automatically
    equitably adjusted to reflect any increase or decrease in the
    number of, or change in the kind or value of, issued shares of
    Class A common stock to preclude, to the extent
    practicable, the enlargement or dilution of rights and benefits
    under this Plan and such outstanding grants. The Company shall
    eliminate any fractional shares resulting from such adjustment.
    Any adjustments to outstanding awards shall be consistent with
    Section 409A of the Code, to the extent applicable.

 

    4. Eligibility for
    Participation.  All employees of the Company
    and its subsidiaries and the member companies of the Group,
    including employees who are officers or members of the Board of
    any of the foregoing companies, shall be eligible to participate
    in this Plan. The committee shall recommend to the Board the
    employees to receive awards and the number of shares of
    Class A common stock subject to each award.

 

    5. Awards.  Awards under this Plan
    may consist of stock options as described in Section 7,
    stock awards as described in Section 8 and other
    stock-based awards as described in Section 9. The committee
    shall specify the terms and conditions of the award granted to
    the grantee in an agreement. The award shall be conditioned upon
    the grantee’s signed agreement to accept the award and to
    acknowledge that all decisions and determinations of the
    committee and the Board shall be final and binding on the
    grantee, his or her beneficiaries and any other person having or
    claiming an interest under the award. Awards under this Plan
    need not be uniform as among the grantees. The Board may grant
    awards that are contingent on, and subject to, stockholder
    approval of this Plan or an amendment to this Plan.

 

    6. Definition of Fair Market
    Value.  For purposes of this Plan, “fair
    market value” shall mean the last sales price of a share of
    Class A common stock on the NASDAQ Global Select Stock
    Market, or NASDAQ, on the day on which the Board is determining
    the fair market value, as reported by NASDAQ. In the event that
    there are no transactions in shares of Class A common stock
    on NASDAQ on such day, the Board will determine the fair market
    value as of the immediately preceding day on which there were
    transactions in shares of Class A common stock on that
    exchange. If shares of common stock are not listed by NASDAQ,
    the Board shall determine the fair market value pursuant to
    Section 422 of the Code.

 

    7. Stock Options.  The committee
    may recommend to the Board the grant of stock options to an
    employee upon such terms and conditions as the committee deems
    appropriate under this Section 7.

 

    (a) Number of Shares.  The
    committee shall recommend the number of shares of Class A
    common stock that will be subject to each grant of stock options.

 

    (b) Type of Stock Option, Price and
    Term.  The committee may recommend to the
    Board the grant of stock options to purchase Class A common
    stock that the Company intends to qualify as incentive stock
    options within the meaning of Section 422 of the Code, or
    incentive stock options, or stock options that the Company does
    not intend to so qualify, or non-qualified stock options. The
    committee shall recommend the exercise price of shares of
    Class A common stock subject to a stock option, which shall
    be equal to or greater than the fair market value of a share of
    Class A common stock on the date of grant.

 

    (c) Exercisability of Stock
    Options.  Each stock option agreement shall
    specify the period or periods of time within which a grantee may
    exercise a stock option, in whole or in part, as the Board
    determines. No

    

    B-2

 

    grantee may exercise a stock option after ten years from the
    grant date of the stock option. The Board may accelerate the
    exercisability of any or all outstanding stock options at any
    time for any reason.

 

    (d) Termination of
    Employment.  Except as provided in the stock
    option agreement, a grantee may exercise a stock option only
    while the Company, Donegal Mutual or any of their respective
    subsidiaries employs the grantee. The Board shall specify in the
    option agreement under what circumstances and during what time
    periods a grantee may exercise a stock option after employment
    terminates. If the term of an incentive stock option continues
    for more than three months after employment terminates due to
    retirement or more than one year after termination of employment
    due to death or disability, the stock option shall lose its
    status as an incentive stock option and the Company shall treat
    such stock option as a non-qualified stock option.

 

    (e) Exercise of Stock Options.  A
    grantee may exercise a stock option that has become exercisable,
    in whole or in part, by delivering a notice of exercise to the
    Company. The grantee shall pay the exercise price for the stock
    option:

 

			
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    in cash;

	 
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    by delivery of shares of Class A common stock at fair
    market value, shares of Class B common stock at fair market
    value, or a combination of those shares, as the committee or the
    Board may determine from time to time and subject to the terms
    and conditions as the committee or the Board may prescribe;

	 
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    by payment through a brokerage firm of national standing whereby
    the grantee will simultaneously exercise the stock option and
    sell the shares acquired upon exercise through the brokerage
    firm and the brokerage firm shall remit to the Company from the
    proceeds of the sale of the shares the exercise price as to
    which the option has been exercised in accordance with the
    procedures permitted by Regulation T of the Federal Reserve
    Board; or

	 
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    by any other method the committee or the Board authorizes.

 

    The Company must receive payment for the shares acquired upon
    exercise of the stock option, and any required withholding taxes
    and related amounts, by the time the committee specifies
    depending on the type of payment being made, but in all cases
    prior to the issuance of the shares.

 

    (f) Incentive Stock Options.  The
    committee shall recommend other terms and conditions of an
    incentive stock option as the committee deems necessary or
    desirable in order to qualify such stock option as an incentive
    stock option under Section 422 of the Code, including the
    following provisions, which the committee may omit or modify if
    no longer required under that section:

 

			
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    As determined as of the grant date, the aggregate fair market
    value of shares subject to incentive stock options that first
    become exercisable by a grantee during any calendar year, under
    all plans of the Company, shall not exceed $100,000;

	 
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    The exercise price of any incentive stock option granted to an
    individual who owns stock having more than 10% of the total
    combined voting power of all classes of stock of the Company
    must be at least 110% of the fair market value of the shares
    subject to the incentive stock option on the grant date, and the
    individual may not exercise the incentive stock option after the
    expiration of five years from the date of grant; and

	 
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    The grantee may not exercise the incentive stock option more
    than three months, or one year in the case of death or
    disability within the meaning of the applicable Code provisions,
    after termination of employment.

 

    8. Stock Awards.  The committee may
    recommend to the Board the issuance of shares of Class A
    common stock to an employee upon such terms and conditions as
    the committee deems appropriate under this Section 8. The
    committee may recommend to the Board the issuance of shares of
    Class A common stock for cash consideration or for no cash
    consideration, and subject to restrictions or no restrictions.
    The committee may recommend conditions under which restrictions
    on stock awards shall lapse over a period of time or

    

    B-3

 

    according to other criteria as the committee deems appropriate,
    including restrictions based upon the achievement of specific
    performance goals.

 

    (a) Number of Shares.  The
    committee shall recommend the number of shares of Class A
    common stock to be issued pursuant to a stock award and any
    restrictions applicable to the stock award.

 

    (b) Requirement of Employment.  The
    Board shall specify in the stock award agreement under what
    circumstances a grantee may retain stock awards after
    termination of the grantee’s employment and under what
    circumstances the grantee may forfeit the stock awards.

 

    (c) Restrictions on
    Transfer.  During the period that the stock
    award is subject to restrictions, a grantee may not sell,
    assign, transfer, pledge or otherwise dispose of the shares of
    the stock award except upon death as described in
    Section 13. Each certificate representing a share of
    Class A common stock issued under the stock award shall
    contain a legend giving appropriate notice of the restrictions
    on the stock award. The grantee shall be entitled to have the
    legend removed when all restrictions on the shares subject to
    the stock award have lapsed. The Company may maintain possession
    of any certificates representing shares subject to the stock
    award until all restrictions on the shares subject to the stock
    award have lapsed.

 

    (d) Right To Vote and To Receive
    Dividends.  The committee shall recommend to
    what extent, and under what conditions, the grantee shall have
    the right to vote the shares subject to the stock award and to
    receive any dividends or other distributions paid on the shares
    during the restriction period.

 

    9. Other Stock-Based Awards.  The
    committee may recommend to the Board the grant of other awards
    that are based on, measured by or payable in Class A common
    stock to an employee on such terms and conditions as the
    committee deems appropriate under this Section 9. The
    committee may recommend to the Board the grant of other
    stock-based awards subject to achievement of performance goals
    or other conditions and may be payable in shares of Class A
    common stock or cash, or a combination of cash and shares, as
    recommended by the committee in the stock-based award agreement.

 

    10. Grant Date.  The grant date of
    an award under this Plan shall be the date of the Board of
    Director’s approval or such later date as may be determined
    by the Board at the time it authorizes the award. The Board may
    not make retroactive grants of awards under this Plan. The
    Company shall provide notice of the award to the grantee within
    a reasonable time after the grant date.

 

    11. Withholding.  All grants under
    this Plan shall be subject to applicable federal, including
    FICA, state and local tax withholding requirements. The Company
    may require that the grantee or other person receiving or
    exercising a grant pay to the Company the amount of any federal,
    state or local taxes that the Company is required to withhold
    with respect to the grant, or the Company may deduct from other
    wages paid to the grantee the amount of any withholding taxes
    due with respect to the grants. The Board or the committee may
    permit a grantee to elect to satisfy the Company’s tax
    withholding obligations with respect to grants paid in shares of
    Class A common stock by having shares of Class A
    common stock withheld, at the time such grants become taxable,
    up to an amount that does not exceed the minimum applicable
    withholding tax rate for federal, including FICA, state and
    local tax liabilities. The Board or committee will value any
    shares so withheld as of the date the grants become taxable.

 

    12. Transferability of
    Grants.  Only the grantee of an award may
    exercise rights under the award grant during the grantee’s
    lifetime, and a grantee may not transfer those rights except by
    will or by the laws of descent and distribution. When a grantee
    dies, the personal representative or other person entitled to
    succeed to the rights of the grantee may exercise those rights.
    Any successor to a grantee must furnish proof satisfactory to
    the Company of his or her right to receive the award under the
    grantee’s will or under the applicable laws of descent and
    distribution.

 

    13. Requirements for Issuance of
    Shares.  The Company will not issue shares of
    Class A common stock in connection with any award under
    this Plan until the issuance of the shares complies with all
    applicable legal requirements to the satisfaction of the Board.
    The Board shall have the right to condition any award made to
    any employee under this Plan on the employee’s undertaking
    in writing to comply with the restrictions on his or her
    subsequent disposition of shares subject to the award as the
    Board shall deem necessary or advisable, and the Company may
    legend certificates representing those shares to reflect any
    such restrictions. Certificates representing shares of
    Class A common stock issued under this Plan will be subject
    to

    

    B-4

 

    such stop-transfer orders and other restrictions as applicable
    laws, regulations and interpretations may require, including any
    requirement that a legend be placed thereon. No grantee shall
    have any right as a stockholder with respect to shares of
    Class A common stock covered by an award until shares have
    been issued to the grantee.

 

    14. Amendment and Termination of this Plan.

 

    (a) Amendments.  The Board may
    amend or terminate this Plan at any time, except that the Board
    shall not amend this Plan without approval of the stockholders
    of the Company if such approval is required in order to comply
    with the Code or applicable laws, or to comply with applicable
    stock exchange requirements. The Board may not, without the
    consent of the grantee, negatively affect the rights of a
    grantee under any award previously granted under this Plan.

 

    (b) No Repricing Without Stockholder
    Approval.  The Board may not reprice stock
    options nor may the Board amend this Plan to permit repricing of
    options unless the stockholders of the Company provide prior
    approval for the repricing.

 

    (c) Termination.  This Plan shall
    terminate on April 20, 2021, unless the Board terminates
    this Plan earlier or the term is extended with the approval of
    the stockholders of the Company. The termination of this Plan
    shall not impair the power and authority of the Board or the
    committee with respect to an outstanding award.

 

    15. Grants in Connection with Corporate Transactions
    and Otherwise.  Nothing contained in this Plan
    shall be construed to:

 

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

	 
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    limit the right of the Company to grant stock options or make
    other stock-based awards outside of this Plan.

 

    Without limiting the foregoing, the Board may grant an award to
    an employee of another corporation or other entity who becomes
    an employee by reason of a corporate merger, consolidation,
    acquisition of stock or property, reorganization or liquidation
    involving the Company in substitution for a grant made by that
    corporation or other entity. The terms and conditions of the
    awards may vary from the terms and conditions this Plan requires
    and from those of the substituted stock awards, as the Board
    determines.

 

    16. Right to Terminate
    Employment.  Nothing contained in this Plan or
    in any award agreement entered into pursuant to this Plan shall
    confer upon any grantee the right to continue in the employment
    of the Company or any of its subsidiaries or the Group or affect
    any right that the Company or any of its subsidiaries or the
    Group may have to terminate the employment of the grantee.

 

    17. Reservation of Shares.  The
    Company, during the term of this Plan, shall at all times
    reserve and keep available the number of shares of Class A
    common stock needed to satisfy the requirements of this Plan.
    The inability of the Company to obtain authority from any
    regulatory body having jurisdiction, which the Company’s
    counsel has deemed such authority to be necessary to the lawful
    issuance and sale of any shares under this Plan, shall relieve
    the Company of any liability for the failure to issue or sell
    any shares as to which the Company has not obtained such
    requisite authority.

 

    18. Effect on Other
    Plans.  Participation in this Plan shall not
    affect an employee’s eligibility to participate in any
    other benefit or incentive plan of the Company or any of its
    subsidiaries or the Group. The Company shall not use any awards
    granted pursuant to this Plan in determining the benefits
    provided under any other plan unless specifically provided.

 

    19. Forfeiture for
    Dishonesty.  Notwithstanding anything to the
    contrary in this Plan, if the Board finds, by a majority vote,
    after full consideration of the facts presented on behalf of
    both the Company and any grantee, that the grantee has engaged
    in fraud, embezzlement, theft, commission of a felony or
    dishonest conduct in the course of his employment that damaged
    the Company or any of its subsidiaries or the Group or that the
    grantee has disclosed confidential information of the Company or
    any of its subsidiaries or the Group,

    

    B-5

 

    the grantee shall forfeit all unexercised or unvested awards and
    all exercised or vested awards under which the Company has not
    yet delivered the certificates or cash payments therefor. The
    decision of the Board in interpreting and applying the
    provisions of this Section 19 shall be final. No decision
    of the Board, however, shall affect the finality of the
    discharge or termination of the grantee.

 

    20. No Prohibition on Corporate
    Action.  No provision of this Plan shall be
    construed to prevent the Company or any officer or director of
    the Company from taking any action the Company or such officer
    or director of the Company deems to be appropriate or in the
    Company’s best interest, whether or not such action could
    have an adverse effect on this Plan or any awards granted under
    this Plan, and no grantee or grantee’s estate, personal
    representative or beneficiary shall have any claim against the
    Company or any officer or director of the Company as a result of
    the taking of the action.

 

    21. Indemnification.  With respect
    to the administration of this Plan, the Company shall indemnify
    each present and future member of the committee and the Board
    against, and each member of the committee and the Board shall be
    entitled without further action on such member’s part to
    indemnity from the Company for, all expenses, including the
    amount of judgments and the amount of approved settlements made
    with a view to the curtailment of costs of litigation, other
    than amounts paid to the Company itself, such member reasonably
    incurs in connection with or arising out of, any action, suit or
    proceeding in which he or she may be involved by reason of being
    or having been a member of the committee or the Board, whether
    or not he or she continues to be such member at the time of
    incurring such expenses; provided, however, that this indemnity
    shall not include any expenses such member incurs (i) in
    respect of matters as to which he or she shall be finally
    adjudged in any such action, suit or proceeding to have been
    guilty of gross negligence or willful misconduct in the
    performance of his or her duty as such member of the committee
    or the Board; or (ii) in respect of any matter in which any
    settlement is effected for an amount in excess of the amount
    approved by the Company on the advice of its legal counsel; and
    provided further that no right of indemnification under the
    provisions set forth in this Section 21 shall be available
    to or enforceable by any such member of the committee or the
    Board unless, within 60 days after institution of any such
    action, suit or proceeding, he or she shall have offered the
    Company in writing the opportunity to handle and defend the same
    at its own expense. The foregoing right of indemnification shall
    inure to the benefit of the heirs, executors or administrators
    of each such member of the committee or the Board and shall be
    in addition to all other rights to which such member may be
    entitled as a matter of law, contract or otherwise.

 

    22. Miscellaneous Provisions.

 

    (a) Compliance with Plan
    Provisions.  No grantee or other person shall
    have any right with respect to this Plan, the Class A
    common stock reserved for issuance under this Plan or in any
    award until the Company and the grantee executed a written
    agreement and all the terms, conditions and provisions of this
    Plan and the award applicable to the grantee have been met.

 

    (b) Approval of Counsel.  In the
    discretion of the Board, no shares of Class A common stock,
    other securities or property of the Company or other forms of
    payment shall be issued under this Plan with respect to any
    award unless counsel for the Company is satisfied that such
    issuance will be in compliance with applicable federal, state,
    local and foreign legal, securities exchange and other
    applicable requirements.

 

    (c) Compliance with
    Rule 16b-3.  To
    the extent that
    Rule 16b-3
    under the Exchange Act applies to this Plan or to awards granted
    under this Plan, it is the intention of the Company that this
    Plan comply in all respects with the requirements of
    Rule 16b-3,
    that any ambiguities or inconsistencies in construction of this
    Plan be interpreted to give effect to such intention and that,
    if this Plan shall not so comply, whether on the date of
    adoption or by reason of any later amendment to or
    interpretation of
    Rule 16b-3,
    the provisions of this Plan shall be deemed to be automatically
    amended so as to bring them into full compliance with such rule.

    

    B-6

 

    (d) Section 409A
    Compliance.  This Plan is intended to comply
    with the requirements of Section 409A of the Code and the
    regulations issued thereunder. To the extent of any
    inconsistencies with the requirements of Section 409A, this
    Plan shall be interpreted and amended in order to meet the
    requirements of Section 409A. Notwithstanding anything
    contained in this Plan to the contrary, it is the intent of the
    Company to have this Plan interpreted and construed to comply
    with any and all provisions Section 409A including any
    subsequent amendments, rulings or interpretations from
    appropriate governmental agencies.

 

    (e) Effects of Acceptance of the
    Award.  By accepting any award or other
    benefit under this Plan, each grantee and each person claiming
    under or through the grantee shall be conclusively deemed to
    have indicated his acceptance and ratification of, and consent
    to, any action taken under this Plan by the Company, the Board
    or the committee or its delegates.

    

    B-7exv10w3

 

    Exhibit 10.3

 

    DONEGAL
    GROUP INC.

 

    2011
    EQUITY INCENTIVE PLAN FOR DIRECTORS

 

    1. Purpose.  The purpose of this
    2011 equity incentive plan for directors (this “Plan”)
    is to enhance the ability of Donegal Group Inc. (the
    “Company”) and its subsidiaries and the member
    companies of the Donegal Insurance Group, including companies
    from which the Company or Donegal Mutual assumes 100% quota
    share reinsurance (the “Group”), to attract and retain
    highly qualified directors, to establish a basis for providing a
    portion of director compensation in the form of equity and, in
    doing so, to strengthen the alignment of the interest of
    directors of the Company and the members of the Group with the
    interests of the Company’s stockholders.

 

    2. Administration.

 

    (a) Administration by the
    Board.  The Board of Directors of the Company
    (the “Board”) shall administer this Plan.

 

    (b) Duty and Powers of the
    Board.  The Board shall have the power to
    interpret this Plan and the awards granted under this Plan and
    to adopt rules for the administration, interpretation and
    application of this Plan. The Board shall have the discretion to
    determine to whom the Company will grant stock options and to
    determine the number of stock options the Company will grant to
    any director, the timing of the grant and the terms of exercise.
    The Board shall not have any discretion to determine to whom the
    Company will grant restricted stock awards under this Plan.

 

    (c) Compensation; Professional Assistance; Good Faith
    Actions.  Members of the Board shall not
    receive any compensation for their services in administering
    this Plan. The Company shall pay all expenses and liabilities
    incurred in connection with the administration of this Plan. The
    Company may employ attorneys, consultants, accountants or other
    experts. The Board, the Company and the officers and directors
    of the Company shall be entitled to rely upon the advice,
    opinions or valuations of any such experts. All actions taken
    and all interpretations and determinations the Board makes in
    good faith shall be final and binding upon all grantees, the
    Company and all other interested persons. No member of the Board
    shall be personally liable for any action, determination or
    interpretation the Board makes in good faith with respect to
    this Plan, and the Company shall fully protect and indemnify all
    members of the Board in respect to any such action,
    determination or interpretation.

 

    3. Shares Subject to this Plan.

 

    (a) Shares Authorized.  The
    shares of stock issuable pursuant to awards shall be shares of
    Class A common stock. The total aggregate number of shares
    of Class A common stock that the Company may issue under
    this Plan is 400,000 shares, subject to adjustment as
    described below. The shares may be authorized but unissued
    shares or reacquired shares for purposes of this Plan.

 

    (b) Share Counting.  For
    administrative purposes, when the Board approves an award
    payable in shares of Class A common stock, the Board shall
    reserve, and count against the share limit, shares equal to the
    maximum number of shares that the Company may issue under the
    award. If and to the extent options granted under this Plan
    terminate, expire or are canceled, forfeited, exchanged or
    surrendered without having been exercised, and if and to the
    extent that any restricted stock awards are forfeited or
    terminated, or otherwise are not paid in full, the Company shall
    make the shares reserved for such awards available again for
    purposes of this Plan.

 

    (c) Adjustments.  If any change in
    the number or kind of shares of Class A common stock
    outstanding occurs by reason of:

 

			
	 	    • 
	
    a stock dividend, spinoff, recapitalization, stock split or
    combination or exchange of shares;

	 
	 	    • 
	
    a merger, reorganization or consolidation;

	 
	 	    • 
	
    a reclassification or change in par value; or

    

    C-1

 

 

			
	 	    • 
	
    any other extraordinary or unusual event affecting the
    outstanding Class A common stock as a class without the
    Company’s receipt of consideration, or if the value of
    outstanding shares of Class A common stock is substantially
    reduced as a result of a spinoff or the Company’s payment
    of any extraordinary dividend or distribution,

 

    the maximum number of shares of Class A common stock
    available for issuance under this Plan, the maximum number of
    shares of Class A common stock for which any individual may
    receive grants in any year, the kind and number of shares
    covered by outstanding awards, the kind and number of shares to
    be issued or issuable under this Plan and the price per share or
    applicable market value of such grants shall automatically be
    equitably adjusted to reflect any increase or decrease in the
    number of, or change in the kind or value of, issued shares of
    Class A common stock to preclude, to the extent
    practicable, the enlargement or dilution of rights and benefits
    under this Plan and such outstanding grants. Any fractional
    shares resulting from such adjustment shall be eliminated. Any
    adjustments to outstanding awards shall be consistent with
    Section 409A of the Internal Revenue Code of 1986, as
    amended, or the Code, to the extent applicable.

 

    4. Eligibility for
    Participation.  Each director of the Company
    and its subsidiaries and each director of a member of the Group
    who is not eligible to receive stock options under the
    Company’s Equity Incentive Plan for Employees shall be
    eligible to receive stock options under this Plan. Each director
    of the Company and each director of the member companies of the
    Group shall be eligible to receive restricted stock awards under
    this Plan.

 

    5. Awards.  Awards under this Plan
    may consist of stock options as described in Section 7 and
    restricted stock awards as described in Section 8. Each
    award shall be evidenced by a written agreement.

 

    6. Definition of Fair Market
    Value.  For purposes of this Plan, “fair
    market value” shall mean the last sales price of a share of
    Class A common stock on the NASDAQ Stock Market, or NASDAQ,
    on the day on which the board is determining the fair market
    value, as reported by NASDAQ. In the event that there are no
    transactions in shares of Class A common stock on NASDAQ on
    such day, the Board will determine the fair market value as of
    the immediately preceding day on which there were transactions
    in shares of Class A common stock on that exchange. If
    shares of Class A common stock are not listed by NASDAQ,
    the Board shall determine the fair market value pursuant to
    Section 422 of the Code.

 

    7. Stock Options.

 

    (a) Granting of Stock Options.  The
    Board may grant stock options to an outside director upon such
    terms as the Board deems appropriate under this Section 7.

 

    (b) Type of Stock Option and
    Price.  The Board may grant stock options to
    purchase Class A common stock that the Board does not
    intend to qualify as incentive stock options within the meaning
    of Section 422 of the Code. The Board shall determine the
    exercise price of shares of Class A common stock subject to
    a stock option, which shall be equal to or greater than the fair
    market value of a share of Class A common stock on the date
    of grant.

 

    (c) Exercisability of Stock
    Options.  Each stock option agreement shall
    specify the period or periods of time within which a grantee may
    exercise a stock option, in whole or in part, as the Board
    determines. No grantee may exercise a stock option after ten
    years from the grant date of the stock option. The Board may
    accelerate the exercisability of any or all outstanding stock
    options at any time for any reason.

 

    (d) Rights upon Termination of
    Service.  Upon a grantee’s termination of
    service as an outside director, as a result of resignation,
    failure to be re-elected, removal for cause or any reason other
    than death, the grantee shall have the right to exercise the
    stock option during its term within a period of three years
    after such termination to the extent that the stock option was
    exercisable at the time of termination, or within such other
    period, and subject to such terms and conditions, as the Board
    may specify. In the event that a grantee dies prior to the
    expiration of his or her stock option and without having fully
    exercised his or her stock option, the grantee’s
    representative or successor shall have the right to exercise the
    stock option during its term within a period of one year after
    the grantee’s death to the extent that the stock option was
    exercisable at the time of death, or within such other period,
    and subject to such terms and conditions, as the Board may
    specify.

    

    C-2

 

    (e) Exercise of Stock Options.  A
    grantee may exercise a stock option that has become exercisable,
    in whole or in part, by delivering a notice of exercise to the
    Company. The grantee shall pay the exercise price for the stock
    option:

 

			
	 	    • 
	
    in cash;

	 
	 	    • 
	
    by delivery of shares of Class A common stock at fair
    market value, shares of Class B common stock at fair market
    value, or a combination of those shares, as the Board may
    determine from time to time and subject to the terms and
    conditions as the Board may prescribe;

	 
	 	    • 
	
    by payment through a brokerage firm of national standing whereby
    the grantee will simultaneously exercise the stock option and
    sell the shares acquired upon exercise through the brokerage
    firm and the brokerage firm shall remit to the Company from the
    proceeds of the sale of the shares the exercise price as to
    which the option has been exercised in accordance with the
    procedures permitted by Regulation T of the Federal Reserve
    Board; or

	 
	 	    • 
	
    by any other method the Board authorizes.

 

    The Company must receive payment for the shares acquired upon
    exercise of the stock option, and any required withholding taxes
    and related amounts, by the time the Board specifies depending
    on the type of payment being made, but in all cases prior to the
    issuance of the shares.

 

    8. Restricted Stock Awards.

 

    (a) Granting of Awards.  The
    Company shall grant each director of the Company and each
    director of Donegal Mutual an annual restricted stock award
    consisting of 400 shares of Class A common stock,
    except that a person who serves as a director on both boards
    shall receive only one annual grant. The Company shall grant the
    restricted stock awards on the first business day of January in
    each year, commencing January 2, 2012, provided that the
    director served as a member of the Board or of the board of
    directors of a member of the Group during any portion of the
    preceding calendar year.

 

    (b) Terms of Restricted Stock
    Awards.  Each restricted stock award agreement
    shall contain such restrictions, terms and conditions as this
    Plan requires:

 

			
	 	    • 
	
    The grantee may not sell or otherwise transfer the shares of
    Class A common stock comprising the restricted stock awards
    until one year after the date of grant. Although the Company
    shall register the shares of Class A common stock
    comprising each restricted stock award in the name of the
    grantee, the Company reserves the right to place a restrictive
    legend on the stock certificate. None of such shares of
    Class A common stock shall be subject to forfeiture.

	 
	 	    • 
	
    Subject to the restrictions on transfer set forth in this
    Section 8(b), a grantee shall have all the rights of a
    stockholder with respect to the shares of Class A common
    stock the Company issues pursuant to restricted stock awards
    made under this Plan, including the right to vote the shares and
    receive all dividends and other distributions paid or made with
    respect to the shares.

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

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

 

    9. Date of Grant.  The grant date
    of a stock option under this Plan shall be the date of the
    Board’s approval or such later date as the Board determines
    at the time it authorizes the grant. The Board may not make
    retroactive grants of stock options under this Plan. The Company
    shall provide notice of the grant to the grantee within a
    reasonable time after the grant date.

    

    C-3

 

    10. Requirements for Issuance of
    Shares.  The Company will not issue shares of
    Class A common stock in connection with any award under
    this Plan until the issuance of the shares complies with all of
    the applicable legal requirements to the satisfaction of the
    Board. The Board shall have the right to condition any award
    made to any director on the director’s undertaking in
    writing to comply with the restrictions on his or her subsequent
    disposition of shares subject to the award as the Board shall
    deem necessary or advisable, and certificates representing those
    shares may be legended to reflect any such restrictions.
    Certificates representing shares of Class A common stock
    issued under this Plan will be subject to such stop-transfer
    orders and other restrictions as applicable laws, regulations
    and interpretations may require, including any requirement that
    a legend be placed on the certificate.

 

    11. Withholding.  The Company shall
    have the right to require the grantee to remit to the Company an
    amount sufficient to satisfy any federal, state or local
    withholding tax requirements prior to the delivery of any
    certificate for shares of Class A common stock. If and to
    the extent the Board authorizes, in its sole discretion, a
    grantee may make an election, by means of a form of election the
    Board prescribes, to have shares of Class A common stock
    that are acquired upon exercise of a stock option withheld by
    the Company or to tender other shares of Class A common
    stock or other securities of the Company owned by the grantee to
    the Company at the time of exercise of a stock option to pay the
    amount of tax that would otherwise be required by law to be
    withheld by the Company. Any such election shall be irrevocable
    and shall be subject to termination by the Board, in its sole
    discretion, at any time. Any securities so withheld or tendered
    will be valued by the Board as of the date of exercise.

 

    12. Transferability of
    Awards.  Only the grantee of an award may
    exercise rights under the award grant during the grantee’s
    lifetime, and a grantee may not transfer those rights except by
    will or by the laws of descent and distribution. When a grantee
    dies, the personal representative or other person entitled to
    succeed to the rights of the grantee may exercise those rights.
    Any successor to a grantee must furnish proof satisfactory to
    the Company of his or her right to receive the award under the
    grantee’s will or under the applicable laws of descent and
    distribution. Except as stated in this Section 12, no stock
    option or interest therein and, for a period of one year after
    the date of grant, no restricted stock award or any interest
    therein, shall be subject to the debts, contracts or engagements
    of the grantee or his or her successors in interest, nor shall
    they be subject to disposition by transfer, alienation,
    anticipation, pledge, encumbrance, assignment or any other
    means, whether such disposition is voluntary or involuntary or
    by operation of law by judgment, levy, attachment, garnishment
    or any other legal or equitable proceedings, including
    bankruptcy, and any attempted disposition thereof shall be null
    and void and of no effect.

 

    13. Amendment and Termination of this Plan.

 

    (a) Amendments.  The Board may
    amend or terminate this Plan at any time, except that the Board
    shall not amend this Plan without approval of the stockholders
    of the Company if such approval is required in order to comply
    with the Code or applicable laws, or to comply with applicable
    stock exchange requirements. The Board may not, without the
    consent of the grantee, negatively affect the rights of a
    grantee under any award previously granted under this Plan.

 

    (b) No Repricings Without Stockholder
    Approval.  The Board may not reprice stock
    options, nor may the Board amend this Plan to permit repricing
    of stock options unless the stockholders of the Company provide
    prior approval for the repricing.

 

    (c) Termination.  This Plan shall
    terminate on April 21, 2021, unless the Board earlier
    terminates this Plan or the term is extended with the approval
    of the stockholders of the Company. The termination of this Plan
    shall not impair the power and authority of the Board with
    respect to an outstanding award.

    

    C-4

 

    14. Reservation of Shares.  The
    Company, during the term of this Plan, shall at all times
    reserve and keep available the number of shares of Class A
    common stock needed to satisfy the requirements of this Plan.
    The inability of the Company to obtain authority from any
    regulatory body having jurisdiction, which authority the
    Company’s counsel deems necessary to the lawful issuance
    and sale of any shares under this Plan, shall relieve the
    Company of any liability for the failure to issue or sell any
    shares as to which the requisite authority the Company has not
    obtained.

 

    15. No Prohibition on Corporate
    Action.  No provision of this Plan shall be
    construed to prevent the Company or any officer or director of
    the Company from taking any action the Company or such officer
    or director deems appropriate or in the Company’s best
    interest, whether or not such action could have an adverse
    effect on this Plan or any awards granted under this Plan, and
    no grantee or grantee’s estate, personal representative or
    beneficiary shall have any claim against the Company or any
    officer or director of the Company as a result of the taking of
    the action.

 

    16. Indemnification.  With respect
    to the administration of this Plan, the Company shall indemnify
    each present and future member of the Board against, and each
    member of the Board shall be entitled without further action on
    such member’s part to indemnity from the Company for, all
    expenses, including the amount of judgments and the amount of
    approved settlements made with a view to the curtailment of
    costs of litigation, other than amounts paid to the Company
    itself, reasonably incurred by him or her in connection with or
    arising out of, any action, suit or proceeding in which he or
    she may be involved by reason of being or having been a member
    of the Board, whether or not he or she continues to be such
    member at the time of incurring such expenses; provided,
    however, that this indemnity shall not include any expenses
    incurred by any such member of the Board (i) in respect of
    matters as to which he or she shall be finally adjudged in any
    such action, suit or proceeding to have been guilty of gross
    negligence or willful misconduct in the performance of his or
    her duty as such member of the Board or (ii) in respect of
    any matter in which any settlement is effected for an amount in
    excess of the amount approved by the Company on the advice of
    its legal counsel; and provided further that no right of
    indemnification under the provisions set forth in this
    Section 16 shall be available to or enforceable by any such
    member of the Board unless, within 60 days after
    institution of any such action, suit or proceeding, he or she
    shall have offered the Company in writing the opportunity to
    handle and defend same at its own expense. The foregoing right
    of indemnification shall inure to the benefit of the heirs,
    executors or administrators of each such member of the Board and
    shall be in addition to all other rights to which such member
    may be entitled as a matter of law, contract or otherwise.

 

    17. Miscellaneous Plan Provisions.

 

    (a) Compliance with Plan
    Provisions.  No grantee or other person shall
    have any right with respect to this Plan, the Class A
    common stock reserved for issuance under this Plan or in any
    award until the Company and the grantee execute a written
    agreement and the Company and grantee satisfy all the applicable
    terms, conditions and provisions of this Plan and award.

 

    (b) Approval of Counsel.  In the
    discretion of the Board, no shares of Class A common stock,
    other securities or property of the Company or other forms of
    payment shall be issued hereunder with respect to any award
    unless counsel for the Company shall be satisfied that such
    issuance will be in compliance with applicable federal, state,
    local and foreign legal, securities exchange and other
    applicable requirements.

 

    (c) Compliance with
    Rule 16b-3.  To
    the extent that
    Rule 16b-3
    under the Securities Exchange Act of 1934, as amended, applies
    to awards granted under this Plan, it is the intention of the
    Company that this Plan comply in all respects with the
    requirements of
    Rule 16b-3,
    that any ambiguities or inconsistencies in construction of this
    Plan be interpreted to give effect to such intention and that if
    this Plan shall not so comply, whether on the date of adoption
    or by reason of any later amendment to or interpretation of
    Rule 16b-3,
    the provisions of this Plan shall be deemed to be automatically
    amended so as to bring them into full compliance with that rule.

    

    C-5

 

    (d) Section 409A
    Compliance.  This Plan is intended to comply
    with the requirements of Section 409A of the Code and the
    regulations issued thereunder. To the extent of any
    inconsistencies with the requirements of Section 409A, this
    Plan shall be interpreted and amended in order to meet the
    requirements of Section 409A. Notwithstanding anything
    contained in this Plan to the contrary, it is the intent of the
    Company to have this Plan interpreted and construed to comply
    with any and all provisions Section 409A including any
    subsequent amendments, rulings or interpretations from
    appropriate governmental agencies.

 

    (e) Effects of Acceptance of the
    Award.  By accepting any award or other
    benefit under this Plan, the Company shall conclusively deem
    each grantee and each person claiming under or through the
    grantee to have indicated his acceptance and ratification of,
    and consent to, any action taken under this Plan by the Company,
    the Board or its delegates.

    

    C-6

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