Document:

EX-4.3 Amended & Restated Equity Incentive Plan of the Registrant

     

     

    HARLEYSVILLE
      GROUP INC.

    EQUITY
      INCENTIVE PLAN

    APPROVED
      BY THE BOARD OF DIRECTORS FEBRUARY 22, 2006

    APPROVED
      BY SHAREHOLDERS APRIL 26, 2006

    T
      A B L E O F C O N T E N T S

     

     

    
      	 I.   INTRODUCTION	 1
	     
              A.  Purpose of the Plan	 1
	     
              B.  Definitions	 1
	 	 
	 II. 
              PLAN ADMINISTRATION	 4
	     A. Administration	 4
	     B. Eligibility	 5
	     C. Maximum
              Number of Shares Available	 5
	     D. Maximum
              Shares Awarded	 6
	     E. Adjustments	 6
	     F. Registration
              Conditions	 6
	     G. Rights
              Upon a Change in Control	 7
	 	 
	 III.
              STOCK OPTIONS	 7
	     A. Type
              of
              Option	 7
	     B. Price	 7
	     C. Exercise
              Term and Vesting	 7
	     D. Exercise
              Procedures	 8
	     E. Payment	 8
	     F. Rights
              Upon Termination of Employment	 8
	     G. Restrictions
              Upon Transfer	 9
	     H. Incentive
              Stock Options	 9
	 	 
	 IV. 
              STOCK APPRECIATION RIGHTS	 11
	     A. Grant
              of Rights	 11
	     B. Term	 11
	     C. Limits
              on Stock Appreciation Rights	 11
	     D. Payment	 12
	     E. Other
              Terms	 12
	 	 
	 V. RESTRICTED
              STOCK AWARDS	 12
	     A. Price	 12
	     B. Restriction
              Period	 12
	     C. Restriction
              Upon Transfer	 12
	     D. Certificates	 13
	     E. Lapse
              of Restrictions	 13
	     F. Termination
              Prior to Lapse of Restrictions	 13
	 	 
	 VI.
              MISCELLANEOUS PROVISIONS	 14
	     A.
              Amendment, Suspension and Termination of the Plan	 14
	     B.
              Government and Other Regulations	 14
	     C. Other
              Compensation Plans and Programs	 14
	     D.
              Withholding Taxes	 14
	     E. 
              Single or Multiple 	 14
	     F. 
              Non-Uniform Determinations	 14
	     G.
              Construction of Plan	 14
	     H.
              Pronouns, Singular and Plural	 15
	     I. 
              Limitation of Rights	 15
	     J. 
              Duration of the Plan	 15
	     K.
              Stockholder Approval	 15

    

    
 

     

    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 key employees who are responsible for the
      management of the Company's business affairs which 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 management
      employees of high caliber and potential. It is intended that the amended and
      restated Plan shall satisfy the requirements for transactions pursuant hereto
      to
      be exempt from Section 16(b) of the Securities Exchange Act of 1934 ("Exchange
      Act") and for compensation paid hereunder to be fully deductible to the Company
      to the extent permitted under Section 162(m) of the Internal Revenue Code of
      1986.

    

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

    

    
      	 	 	
              1.

            	
              "Award(s)"
                shall mean Incentive Stock Options, Non-Qualified Stock Options,
                stock
                appreciation rights and restricted stock 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 Securities Exchange
                Act of
                1934) of securities representing more than twenty percent (20%) of
                the
                combined voting power of the Company 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 B2; (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 of 1933; 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 Employer 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
                Employer'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% of Company Voting
                  Securities.

              

               

            

    

     

    
      	 	 	
              3.

            	
              "Company"
                shall mean Harleysville Group Inc., a Delaware corpora-tion, and
                any
                successor in a reorganization or similar
                transaction.

            

    

    

    
      	 	 	
              4.

            	
              "Board"
                or "Board of Directors" shall mean the Board of Directors of the
                Company.

            

    

    

    
      	 	 	
              5.

            	
              "Code"
                shall mean the Internal Revenue Code of 1986, as
                amended.

            

    

    

    
      	 	 	
              6.

            	
              "Committee"
                shall mean the Compensation & Personnel Development Committee of the
                Board of Directors of Harleysville Group Inc. The Committee shall
                consist
                of three or more directors selected by the Board of Directors each
                of
                which whom:

            

    

     

    
      	 	 	 	
              (i)

            	
              is
                not a current employee of the Company, the Parent or a subsidiary
                of the
                Company; 

            

    

    

    
      	 	 	 	
              (ii)

            	
              is
                not a former employee of the Company who receives compensation for
                prior
                services (other than benefits under a tax-qualified retirement plan)
                during the taxable year; 

            

    

    

    
      	 	 	 	
              (iii)

            	
              has
                not been an officer of the Company and is not currently an officer
                of the
                Company, the Parent or subsidiary of the Company;
                

            

    

    

    
      	 	 	 	
              (iv)

            	
              does
                not receive remuneration from the Company, the Parent or a subsidiary
                of
                the Company either directly or indirectly for services rendered in
                any
                capacity other than as a director, except for an amount that is de
                minimis
                remuneration within the meaning of Treasury Regulation §1.162.27(e)(iii)
                and does not exceed the dollar amount for which disclosure would
                be
                required pursuant to Item 404 (a) of Regulation S-K;
                

            

    

    

    
      	 	 	 	
              (v)

            	
              does
                not possess an interest in any other transaction for which disclosure
                would be required pursuant to Item 404(a) of Regulation S-K; and
                

            

    

    

    
      	 	 	 	
              (vi)

            	
              ise
                not engaged in a business relationship for which disclosure would
                be
                required pursuant to Item 404(b) of Regulation
                S-K.

            

    

    

    
      	 	 	
              7.

            	
              "Common
                Stock" shall mean the common stock of the Company, par value of $1.00
                per
                share, and may be either stock previously authorized but unissued,
                or
                stock reacquired by the Company.

            

    

    

    
      	 	 	
              8.

            	
              "Director"
                shall mean a member of the Board of Directors of the
                Company.

            

    

    

    
      	 	 	
              9.

            	
              "Disability"
                shall mean 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 deter-mined by
                the
                Committee on the basis of appropriate medical evidence, and that
                results
                in the Participant's cessation of active employment with the
                Company.

            

    

    

    
      	 	 	
              10.

            	
              “Early
                Retirement shall mean 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.

            

    

    

    
      	 	 	
              11.

            	
              "Exchange
                Act" shall mean the Securities Exchange Act of 1934, as
                amended.

            

    

    

    
      	 	 	
              12.

            	
              "Fair
                Market Value" shall mean the closing price of Common Stock, as reported
                by
                such responsible reporting service as the Committee may select, or
                if
                there were no transactions in the Common Stock on such day, then
                on the
                last preceding day on which a transaction in the Common Stock took
                place.
                The foregoing notwithstanding, the Committee may determine the Fair
                Market
                Value in such other manner as it may deem more appropriate for Plan
                purposes or as is required by applicable laws or
                regulations.

            

    

    

    
      	 	 	
              13.

            	
              "Incentive
                Stock Option" or "ISO" shall mean 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, or
                such
                other sections of the Code as may be in effect from time to
                time.

            

    

    

    
      	 	 	
              14.

            	
              "Non-Qualified
                Stock Option" or "NQSO" shall mean a 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, or
                such other sections of the Code as may be in effect from time to
                time.

            

    

    

    
      	 	 	
              15.

            	
              “Normal
                Retirement” shall mean cessation of employment with the Company after
                attaining the age of 65 and achieving at least five years of continuous
                service with the Company.

            

    

    

    
      	 	 	
              16.

            	
              "Parent"
                shall mean Harleysville Mutual Insurance
                Company.

            

    

    

    
      	 	 	
              17.

            	
              "Participant"
                shall mean those eligible officers and other key employees of the
                Company
                who receive Awards under the Plan. 

            

    

    

    
      	 	 	
              18.

            	
              "Plan"
                shall mean the Company's Equity Incentive Plan amended and restated
                on
                February 22, 2006

            

    

     

    
      	 	 	
              19.
                

            	
              “1997
                Plan” shall mean the Equity Incentive Plan as amended and restated in
                1997.

            

    

    

    
      	 	 	
              20.

            	
              "Retirement"
                shall mean Normal Retirement or Early
                Retirement.

            

    

    

     

    
      	 	 	 	
              21.

            	
              "Stock
                Option" shall a mean Non-Qualified Stock Option and a Incentive Stock
                Option.

            

    

    

      
      22.       "Termination
      of Employment" shall mean a cessation of the Par-ticipant'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 Commit-tee. Subject to the express provisions
      of the Plan, the Committee shall have full and exclusive authority:

     

    
      	 	 	
              (i)

            	
              to
                interpret the Plan; 

            

    

    

    
      	 	 	
              (ii)

            	
              to
                determine the employees to whom awards should be made under the Plan;
                

            

    

    

    
      	 	 	
              (iii)

            	
              to
                determine the type of awards to be made and the amount, size and
                terms of
                each such award;

            

    

    

    
      	 	 	
              (iv)

            	
              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;

            

    

    

    
      	 	 	
              (v)

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

            

    

    

    
      	 	 	
              (vi)

            	
              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 §16 of the
                Exchange Act, or by rules and regulations of a national securities
                exchange or the NASDAQ NMS.

               

              
                The
                  determination of the Commit-tee 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 implement
                  the
                  Plan in accor-dance with its terms and 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.

                 

                Notwithstanding
                  the foregoing, no Incentive Stock Options may be granted after
                  the
                  expiration of ten years from the Plan's adoption by the Board of
                  Directors.

              

               

            

    

     

    

    B. ELIGIBILITY:
      Persons
      eligible to receive Awards under the Plan shall be those officers and other
      key
      employees of the Company, its Parent and its subsidiaries (as defined in Section
      424 of the Code, or any amendment or substitute thereto) who are in positions
      in
      which their decisions, actions and counsel significantly impact upon the
      profitability and success of the Company. Directors of the Company who are
      not
      otherwise officers or employees of the Company, its Parent or its sub-sidiaries
      shall not be eligible to participate in the Plan.

    

    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 or transferred under the Plan
      is 1,000,000 shares, which shall be newly registered subsequent to the
      adoption and approval of this Plan, plus such previously registered shares
      under
      the 1997 Plan that have not previously been granted or, if granted, have again
      become available for reissuance. If any previously registered shares again
      become available for issuance and are reissued, they shall be fully subject
      to
      the terms and conditions of this Plan. Such shares may be authorized and
      unissued shares or treasury shares. Except as provided herein, any shares
      subject to an option or right which for any reason expires or is forfeited
      or
      terminated in accordance with the Plan shall again be available under the Plan.
      

    

    D. MAXIMUM
      SHARES AWARDED:
      No one
      Participant shall receive stock options, restricted stock or stock appreciation
      rights for more than 100,000 shares of Common Stock during any one calendar
      year
      under the Plan.

    

    E. ADJUSTMENTS:
      In the
      event of stock dividends, stock splits, re-capita-liz-ations, mergers,
      consolidations, combinations, exchan-ges of shares, spin-offs, liquidations,
      reclassifications or other similar changes in the capitalization of the Company,
      the number of shares of Common Stock available for grant under this Plan in
      the
      aggregate or to any one individual shall be adjusted proportionately or
      otherwise by the Board, and where deemed appropriate, the number of shares,
      and
      the option price of outstanding Stock Options shall be similarly adjusted.
      Also,
      in instances where another business entity is acquired by the Company or its
      Parent, and the Company or its Parent has assumed outstanding employee option
      grants under a prior existing plan of the acquired entity, similar adjustments
      are permitted at the discretion of the Board of the Company. In the event of
      any
      other change affecting the Common Stock reserved under the Plan, such
      adjustment, if any, as may be deemed equitable by the Committee, shall be made
      to give proper effect to such event.

    

    F. REGISTRATION
      CONDITIONS:

    

    
      	 	 	
              1.

            	
              Unless
                issued pursuant to a registration statement under the Securities
                Act of
                1933, as amended, no shares shall be issued to a Participant under
                the
                Plan unless the Participant represents and agrees with the Company
                that
                such shares are being acquired for investment and not with a view
                to the
                resale or distribution thereof, or agrees to such other documentation
                as
                may be required by the Company, unless in the opinion of counsel
                to the
                Company such representation, agreement or documentation is not necessary
                to comply with such Act.

            

    

    

    
      	 	 	
              2.

            	
              Any
                restriction on the resale of shares shall be evide-nced by an appropriate
                legend on the stock certificate.

            

    

    

    
      	 	 	
              3.

            	
              The
                Company shall not be obligated to deliver any Common Stock until
                it has
                been listed on each securities exchange on which the Common Stock
                may then
                be listed and until there has been qualification under or compliance
                with
                such federal or state laws, rules or regulations as the Company may
                deem
                applicable. The Company shall use reasonable efforts to obtain such
                listing, qualification and
                compliance.

            

    

    

    G. RIGHTS
      UPON A CHANGE IN CONTROL:
      In the
      event of a Change in Control, notwithstanding any other restrictive provisions
      herein, all previously granted Stock Options and stock appreciation rights
      shall
      become exercisable immediately and all previously issued shares of restricted
      stock shall be issued free of restrictive legend, except that no Incentive
      Stock
      Option may be exercised prior to six months following the date of grant
      thereof.

    

    
      	
              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:

            

    

    

    A. TYPE
      OF OPTION:
      Each
      Option Document shall identify the option presented thereby as Incentive Stock
      Options or Non-Qualified Stock Options, as the case may be.

    

    B. PRICE:
      The
      option 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 stock.

    

    C. EXERCISE
      TERM AND VESTING:
      Except
      as provided in Paragraph F below, 33 1/3% of a Stock Option award shall be
      exercisable after the first anniversary of the award, 33 1/3% of a Stock Option
      Award shall be exercisable after the second anniversary, and the remaining
      33
      1/3 percent of the Award shall be exercisable after the third anniversary of
      the
      Award. Each Stock Option document shall state the period or periods of time
      within which the Stock Option may be exercised, in whole or in part. 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 condi-tions as the Committee
      deems appropriate. All options shall expire as of 5:00 p.m. on the tenth
      anniversary of the grant unless the Committee provides otherwise.

    

    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 price
      of
      the shares being purchased, as well as payment of all withholding taxes due
      thereon, if any.

    

    E. PAYMENT:
      The
      price of an exercised Stock Option, or portion thereof, may be
      paid:

    

    
      	 	 	
              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 option 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 subparagraph
      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 Company, if any,
      ("Designated Broker") in lieu of delivery to the optionee. Such instructions
      must designate the account into which the shares are to be
      deposited.

    

    F. RIGHTS
      UPON TERMINATION OF EMPLOYMENT:
      In the
      event of an optionee's Termination of Employment, all Stock Options awarded
      to
      such optionee shall expire, on the thirtieth day following the effective date
      of
      the Termination of Employment unless the Committee in the Option Document or
      otherwise grants an additional period in which to exercise the Stock Options.
      In
      the event that an optionee ceases employment due to Retirement, death or
      Disability prior to the expiration of his or her Stock Options and without
      having fully exercised his or her Stock Options, all Non-Qualified Stock Options
      and Incentive Stock Options that have been held for at least six months shall
      immediately become exercisable and the optionee or his successor shall have
      the
      right to exercise the Stock Option during its term within a period of one year
      after cessation of employment due to death or Disability and within a period
      of
      two years after cessation of employment due to Retirement, or one year from
      Optionee's date of death, whichever occurs first, or within such other period,
      and subject to such terms and condi-tions, as may be specified by the
      Commit-tee; provided, however, an Optionee who ceases employment due to
      Retirement after attaining age 62 with at least 5 years of continuous service
      may exercise Non-Qualified Stock Options, if otherwise exercisable, during
      their
      term within five years after Retirement; and provided further that ISO tax
      treatment shall be available only as permitted under the Internal Revenue
      Code.

    

    G. RESTRICTIONS
      UPON TRANSFER:
      Unless
      otherwise directed by the Committee, each Option Document for Non-Qualified
      Stock Options shall further provide that no option nor any interest or right
      therein or part thereof shall be liable for the debts, contracts or engagements
      of the optionee or his 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
      Paragraph 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 therefor, and the Option will continue to be subject to the same
      terms and conditions as were applicable to the 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, or any amendment or substitute thereto
      or regulation thereunder):

    

    
      	 	 	
              (1)

            	
              The
                period or periods of time within which the 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 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 condi-tions
                as the
                Committee deems appropriate;

            

    

    

    
      	 	 	
              (2)

            	
              The
                aggregate Fair Market Value (determined as of the date the option
                is
                granted) of the stock with respect to which Incen-tive Stock Options
                are
                exer-cisable 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
                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 its subsidiaries unless at the time
                such
                option is granted the option price is at least 110 percent (110%)
                of the
                fair market value of the stock sub-ject to the option and such option
                by
                its terms is not exercisable after the expiration of five years from
                the
                date of grant; and

            

    

    

    
      	 	 	
              (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 optionee
                or
                his 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 Subparagraph III. H(4) shall not prevent transfers by will or
                by the
                laws of descent and distribution. During the lifetime of the optionee,
                the
                option is exercisable only by the
                optionee.

            

    

    

    IV. STOCK
      APPRECIATION RIGHTS

    

    Stock
      appreciation rights may be granted in connection with a contemporaneously
      granted stock option and shall be subject to the following terms and conditions
      which 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 grantee, 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 stock on the day the right is
      granted.

    

    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. 33 1/3 percent of an Award of stock appreciation rights
      shall be exercisable after the first anniversary of the Award, 33 1/3 percent
      of
      an Award of stock appreciation rights shall be exercisable after the second
      anniversary of the award, and the remaining 33 1/3 percent of the award shall
      be
      exercisable after the third anniversary of the Award. The Committee shall have
      the power to permit an acceleration of previously established exer-cise terms,
      subject to the requirements set forth here-in, 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 the Stock
                Option
                and then only in respect to the number of shares then being
                purchased.

            

    

    

    
      	 	 	
              (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 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 Subparagraph 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,
                however, 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 Subparagraph
                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
      contemporaneous Stock Option exercise.

    

    E. OTHER
      TERMS:
      Stock
      appreciation rights shall be granted in such manner and such form, and subject
      to such addi-tional terms and conditions as the Committee in its sole discretion
      deems necessary or desirable, including without limitation: (i) if in connection
      with an Incen-tive Stock Option, in order to satisfy any requirements set forth
      under Section 422 of the Code, or any amendment or substitute thereto, or
      regulation thereunder; or, (ii) in order to avoid any insider trading liability
      in connec-tion with stock appreciation rights under Section 16(b) of the
      Exchange Act.

    

    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 made available to a Participant free of any purchase
      price or for such purchase price as established by the Committee.

    

    B. RESTRICTION
      PERIOD:
      Shares
      awarded pursuant to this Plan shall be subject to such terms, conditions and
      restric-tions, including without limitation, prohibi-tions agai-nst transfer,
      substantial risks of forfeiture and attainment of performance objectives for
      such period or periods as shall be determined by the Committee and set forth
      in
      the Award Document. The Committee shall have the power to permit, in its
      discre-tion, an acceleration of the expiration of the appli-cable restriction
      period with respect to any part or all of the shares awarded to a
      Participant.

    

    C. RESTRICTION
      UPON TRANSFER:
      During
      the restriction period determined by the Committee that is applicable to any
      shares of restricted stock under the Plan, no right or interest of any
      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 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 fore-going and except
      as
      otherwise provided in the Plan, the Participant shall have all the other rights
      of a stock-holder 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 shares 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 repre-sented hereby are subject
                to the
                terms and condi-tions (inclu-ding forfei-ture provi-sions and
                restric-tions against transfer) contained in the Harleysville Group
                Inc.
                Amended and Restated Equity Incentive Plan and an agreement entered
                into
                between the Participant and the Company. Release from such terms
                and
                condi-tions shall be obtained only in accordance with the provisions
                of
                the Plan and agreement, 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 shares 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
      other
      legal repre-sentative.

    

     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 lapse of restrictions 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 date of the lapse of restrictions.

    

     In
      the event of a Participant’s cessation of employment due to death or Disability,
      all restrictions upon shares awarded under the 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 shares awarded under the 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 event of a Participant’s cessation of employment due to Early Retirement,
      restrictions upon shares awarded under the Plan shall lapse for that proportion
      of shares that represents the number of days from the Date of Grant until the
      date of 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 

    

     The
      Committee shall have the power to permit an acceleration of previously
      established lapse of restriction terms, upon such circumstances and subject
      to
      such terms and conditions as the Committee deems appropriate.  

    

    F. 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 subparagraph
      V.E, all shares as to which there still remains unlapsed restric-tions 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.

    

    VI. MISCELLANEOUS
      PROVISIONS

    

    A. AMENDMENT,
      SUSPENSION AND TERMINATION OF PLAN:
      The
      Board of Directors may suspend or terminate the Plan or revise or amend it
      in
      any respect whatsoever except where stockholder approval is required by federal
      or state laws or regulations or by rules and regulations of a national
      securities exchange or the NASDAQ.

    

    B. GOVERNMENT
      AND OTHER REGULATIONS:
      The
      obligation of the Company to issue Awards under the Plan shall be subject to
      all
      ap-plicable laws, rules and regulations, and to such approvals by any government
      agencies as may be required.

    

    C. OTHER
      COMPENSATION PLANS AND PROGRAMS:
      The
      Plan shall not be deemed to preclude the implementation by the Company, Parent
      or its subsidiaries 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, its Parent or its subsidiaries. Any Awards made pursuant to this
      Plan shall not be used in determining the bene-fits provided under any other
      plan of the Company, Parent or its subsidiaries 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.

    

    E. SINGLE
      OR MULTIPLE DOCUMENTS:
      Multiple forms of Awards or combinations thereof may be evidenced by a single
      document or multiple documents, as deter-mined by the Committee.

    

    F. NON-UNIFORM
      DETERMINATIONS:
      The
      Committee's determinations under the Plan (including without limita-tion
      determinations of the persons to receive Award-s, 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.

    

    G. Whenever
      the Plan provides for issuance of stock certificates 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.

    

    H. 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 Commonwealth
      of
      Pennsylvania.

    

    I. 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.

    

    J. 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 Options:
                An optionee shall have no rights as a stockholder with respect to
                the
                shares covered by options granted hereunder until the date of the
                issuance
                of stock in book entry or certifi-cate 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.

            

    

    

    K. DURATION
      OF THE PLAN:
      The
      Plan shall remain in effect until all Awards under the Plan have been satisfied
      by the issuance of shares or the payment of cash, expire by their terms, or
      are
      otherwise forfeited, provided, however, that no Incentive Stock Option Award
      shall be granted more than ten years after the Plan is adopted by the Company's
      Board of Directors. 

    

    L. STOCKHOLDER
      APPROVAL:
      The
      Plan shall be subject to stockholder approval.EX-4.4 Amended & Restated Non-Employee Directors' Deferred Stock Unit Plan

     

     

    HARLEYSVILLE
      GROUP INC.

     

    2006
      AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS' DEFERRED STOCK UNIT
      PLAN

     

    

    1.  Purpose.

     

    Harleysville
      Group Inc. (the "Company") has established the Plan to further its long-term
      financial success by providing stock units to Non-Employee Directors of the
      Company and of its Parent, Harleysville Mutual Insurance Company, (the “Parent”)
      whereby such 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.

     

    The
      following terms, when used with an initial capital letter, shall have the
      following meanings:

    “Annual
      Meeting”
means
      the annual shareholders meeting held in April of each year.

    “April
      Board Meeting”
means
      the meeting of the Board of Directors held in April of each year.

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

    "Committee"
      means
      the Nominating and Corporate Governance Committee of the Board.

    “Company”
means
      Harleysville Group Inc., a Delaware corporation.

    “Deferred
      Stock Unit”
means
      a
      right to receive, without payment to the Company, one (1) Share as further
      described in 

    Section
      4.

     

    “Fair
      Market Value”
means,
      with respect to a given day, (i) the closing sales price of a Share as reported
      on the principal securities exchange on which Shares are then listed or admitted
      to trading, or (ii) if not so reported, the closing sales price on the
      immediately preceding business day of a Share as published in the NASDAQ
      National Market Issues report in the Eastern Edition of The
      Wall Street Journal,
      or
      (iii) if not so reported, the average of the closing bid and asked prices on
      the
      immediately preceding business day as reported on the NASDAQ National Market
      System, or (iv) if not so reported, as furnished by any member of the National
      Association of Securities Dealers, Inc. selected by the Board.

    “Grant”
means
      a
      grant of Deferred Stock Units which are subject to the terms and conditions
      of
      this Plan. 

    “Grant
      Date”
means
      the date on which a Deferred Stock Unit is granted.

    “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.

    "Parent"
      means
      Harleysville Mutual Insurance Company.

    “Plan”
means
      the Harleysville Group Inc. 2006 Amended and Restated Non-Employee Directors
      Deferred Stock Unit Plan, as set forth herein and as amended from time to
      time.

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

    “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.  Authorization
      of Shares Subject to Deferred Stock Unit.

     

    The
      maximum number of Shares for which Deferred Stock Units may be granted during
      the entire duration of the Plan is 110,000. This number shall be adjusted if
      the
      number of outstanding Shares is increased or reduced by split-up,
      reclassification, stock dividend or similar event. The number of Shares subject
      to outstanding Deferred Stock Units shall also be adjusted whenever the number
      of outstanding Shares is so increased or reduced.

     

    4.  Granting
      of Deferred Stock Units.

     

    (a)  Each
      individual who was a Non-Employee Director at the time of the April 2005 or
      the
      April 2006 Board Meeting received an award of Deferred Stock Units and at each
      April Board Meeting thereafter for three consecutive years until and including
      the April 2009 Board Meeting, each individual who is a Non-Employee Director
      at
      the April Board Meeting, and continuing to serve in such capacity after such
      April Board Meeting shall automatically receive a number of Deferred Stock
      Units
      equal to the result of dividing (i) $30,000 by (ii) the Fair Market Value of
      a
      Share as of the day before the date of the April Board Meeting for that
      year.

    (b)  Each
      Grant of Deferred Stock Units under the Plan shall be evidenced by a written
      document which shall indicate (i) the number of Deferred Stock Units granted
      to
      the Non-Employee Director; (ii) the effective date of the Grant; and (iii)
      any
      other terms and conditions the Board deems necessary or
      appropriate.

    (c)  All
      Grants shall be subject to the terms of this Plan and the written document
      evidencing such Grant.

     

    5.  Term
      of Deferred Stock Units.

     

    Deferred
      Stock Units shall be granted on the following terms:

    (a)  Deferred
      Stock Units shall be fully vested at all times.

    (b)  Upon
      a
      Non-Employee Director’s Termination of Service, he, or, upon the Non-Employee’s
      Director’s death, the executor or administrator of his estate or the person or
      persons who shall have acquired a Deferred Stock Unit directly from the
      Non-Employee Director by bequest or inheritance, shall receive a number of
      Shares equal to the number of his 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.

    (c)  A
      Deferred Stock Unit shall not be transferable otherwise than by will or the
      laws
      of intestate distribution.

    (d)  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 Deferred Stock
      Units pursuant to Section 4.

    (e)  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
      or certificates representing such Shares are issued.

     

    6.  Grant
      of Dividend Equivalent Rights.

     

    Whenever
      the Company pays cash dividends with respect to 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 Deferred Stock Units (“dividend
      equivalents”), unless the Non-Employee Director has elected 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 Harleysville Group Inc. Dividend Reinvestment
      and
      Stock Purchase Plan.

     

    7.  Common
      Stock Subject to Deferred Stock Units.

     

    Shares
      issuable under Deferred Stock Units may be unissued shares or treasury shares.
      The Company at all times during the term of this Plan shall reserve for issuance
      the number of Shares issuable under Deferred Stock Units.

     

    8.  Compliance
      with Legal Requirements.

     

    The
      Company will not be obligated to issue Shares if, in the opinion of its counsel,
      such issuance would violate any applicable federal or state securities laws.
      The
      Company will seek to obtain from each regulatory commission or agency having
      jurisdiction, such authority as may be required to issue Shares. Inability
      of
      the Company to obtain from any such regulatory commission or agency authority
      which counsel for the Company deems necessary for the lawful issuance of Shares
      shall relieve the Company from any liability for failure to issue such Shares
      until the time when such authority is obtained.

     

    9.  Nonassignment
      of Deferred Stock Units.

     

    Except
      as
      otherwise provided in Section 5(b), 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.

     

    10.  Rights
      of Non-Employee Director in Stock.

     

    Neither
      the holder of a Deferred Stock Unit, nor the legal representatives, heirs,
      legatees or distributees of any holder, shall be deemed to be the holder of,
      or
      to have any of the rights of a holder with respect to, any Shares issuable
      under
      such Deferred Stock Unit unless and until such Shares are issued to him or
      them
      and such person or persons have received a certificate or certificates
      therefore, except for dividend equivalent rights as provided in Section
      6.

     

    11.  Withholding
      of Applicable Taxes.

     

    The
      Company shall have the right to deduct or withhold, or require a holder of
      a
      Deferred Stock Unit 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.

     

    12.  Plan
      and Deferred Stock Units Not to Affect Service as a Director.

     

    Neither
      this Plan nor any Deferred Stock Unit shall confer upon any Non-Employee
      Director any right to continue as a director of the Company.

     

    13.  Administration and Interpretation.

     

        The
      Plan
      shall be administered by the Committee. Subject to the express provisions of
      the
      Plan, the Committee shall have authority to interpret the Plan, to prescribe,
      amend and rescind rules and regulations relating to the Plan and to make all
      other determinations deemed necessary or advisable in the implementation and
      administration of the Plan; provided, however, that the Committee shall have
      no
      discretion with respect to the eligibility or selection of Directors to receive
      stock units under the Plan, the number of stock units granted under the Plan,
      or
      the price thereof, and provided further that the Committee shall not have the
      authority to take any action or make any determination that would materially
      increase the benefits accruing to Participants under the Plan The determination
      of the Committee in the administration of the Plan as described herein, shall
      be
      final, conclusive and binding upon all persons including, without limitation,
      the Company, its stockholders and the persons granted stock units under the
      Plan. The Secretary of the Company shall be authorized to implement the Plan
      in
      accordance with its terms and to take such action of a ministerial nature as
      shall be necessary to effectuate the intent and purposes thereof.

     

    14.  Amendment
      of Plan.

     

    The
      Board
      shall have complete power and authority to amend the Plan, provided, however,
      that it shall not without shareholder approval (a) increase the maximum number
      of Deferred Stock Units that may be granted or (b) adopt any other amendment
      which the Board determines to be required or advisable to be approved by the
      shareholders of the Company under regulations of the U. S. Securities and
      Exchange Commission, the rules of any stock exchange or stock market on which
      the Company’s stock is listed, the Internal Revenue Code of 1986, as amended, or
      other applicable law or regulation.

     

    15.  Notices.

     

    Any
      notice required or permitted hereunder shall be sufficiently given only if
      sent
      by registered or certified mail, postage prepaid, addressed to the Company,
      355
      Maple Avenue, Harleysville, PA 19438-2297, and to the holder of a Deferred
      Stock
      Unit at the most recent address on file with the Company.

     

    16.  Successors.

     

    The
      Plan
      shall be binding upon and inure to the benefit of any successor or successors
      of
      the Company.

     

    17.  Severability.

     

    If
      any
      part of this Plan shall be determined to be invalid or void in any respect,
      such
      determination shall not affect, impair, invalidate or nullify the remaining
      provisions of this Plan which shall continue in full force and
      effect.

     

    18.  Effective
      Date and Term of Plan.

     

    The
      Plan
      first became effective on January 1, 2005, was approved by the stockholders
      of
      the Company on April 27, 2005, and was amended and restated by the Board of
      Directors effective August 8, 2006 and shall expire on December 31, 2009, unless
      sooner terminated by the Board. The Board may terminate this Plan at any time.
      

     

    19.  Gender
      and Number.

     

    Unless
      clearly indicated by context, the singular shall include the plural and the
      masculine shall include the feminine, and vice-versa.

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