Document:

Exhibit 10.1

Exhibit 10.1

PENN MILLERS

STOCK INCENTIVE PLAN

 

 

 

PENN MILLERS

STOCK INCENTIVE PLAN

TABLE OF CONTENTS

	 	 	 	 	 
	ARTICLE	 	PAGE	 
	 
	 	 	 	 
	ARTICLE 1. PURPOSE OF THE PLAN; TYPES OF AWARDS
	 	 	1	 
	 
	 	 	 	 
	ARTICLE 2. DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	ARTICLE 3. ADMINISTRATION
	 	 	5	 
	 
	 	 	 	 
	ARTICLE 4. COMMON STOCK SUBJECT TO THE PLAN
	 	 	6	 
	 
	 	 	 	 
	ARTICLE 5. ELIGIBILITY
	 	 	7	 
	 
	 	 	 	 
	ARTICLE 6. STOCK OPTIONS IN GENERAL
	 	 	8	 
	 
	 	 	 	 
	ARTICLE 7. TERM, VESTING AND EXERCISE OF OPTIONS
	 	 	9	 
	 
	 	 	 	 
	ARTICLE 8. EXERCISE OF OPTIONS FOLLOWING TERMINATION OF EMPLOYMENT OR SERVICE
	 	 	10	 
	 
	 	 	 	 
	ARTICLE 9. RESTRICTED STOCK
	 	 	11	 
	 
	 	 	 	 
	ARTICLE 10. RESTRICTED STOCK UNITS
	 	 	13	 
	 
	 	 	 	 
	ARTICLE 11. ADJUSTMENT PROVISIONS
	 	 	14	 
	 
	 	 	 	 
	ARTICLE 12. GENERAL PROVISIONS
	 	 	14	 

 

 

 

ARTICLE 1. PURPOSE OF THE PLAN; TYPES OF AWARDS

1.1 Purpose. The Penn Millers Stock Incentive Plan, effective as of May 12, 2010, is
intended to provide selected employees and non-employee directors of Penn Millers Holding
Corporation (the “Corporation”) and its Subsidiaries (as hereinafter defined) with an opportunity
to acquire Common Stock of the Corporation. The Plan is designed to help the Corporation attract,
retain, and motivate employees and non-employee directors to make substantial contributions to the
success of the Corporation’s business and the businesses of its Subsidiaries. Awards made under
the Plan are based upon, among other things, a participant’s level of responsibility and
performance within the Corporation and its Subsidiaries.

1.2 Authorized Plan Awards. Incentive Stock Options, Nonqualified Stock Options,
Restricted Stock and Restricted Stock Units may be awarded within the limitations of the Plan
herein described.

ARTICLE 2. DEFINITIONS

2.1 “Agreement.” A written or electronic agreement between the Corporation and a
Participant evidencing an Award. A Participant may be issued one or more Agreements from time to
time, reflecting one or more Awards.

2.2 “Award.” The award of a Stock Option, Restricted Stock, or Restricted Stock
Unit.

2.3 “Board.” The Board of Directors of the Corporation.

2.4 “Change in Control.” Except as otherwise provided in an Agreement, the first to
occur of any of the following events:

(a) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
except for any of the Corporation’s employee benefit plans, or any entity holding the Corporation’s
voting securities for, or pursuant to, the terms of any such plan (or any trust forming a part
thereof) (the “Benefit Plan(s)”), is or becomes the beneficial owner, directly or indirectly, of
the Corporation’s securities representing 25% or more of the combined voting power of the
Corporation’s then outstanding securities other than pursuant to a transaction excepted in Clause
(b);

(b) the shareholders of the Corporation approve a merger, consolidation, or other
reorganization of the Corporation, unless:

(i) under the terms of the agreement providing for such merger, consolidation, or
reorganization, the shareholders of the Corporation immediately before such merger,
consolidation, or reorganization, will own, directly or indirectly immediately following
such merger, consolidation, or reorganization, at least 60% of the combined voting power of
the outstanding voting securities of the Corporation resulting from such merger,
consolidation, or reorganization (the “Surviving Corporation”) in substantially the same
proportion as their ownership of the voting securities immediately before such merger,
consolidation, or reorganization;

 

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(ii) under the terms of the agreement providing for such merger, consolidation, or
reorganization, the individuals who were members of the Board immediately prior to the
execution of such agreement will constitute at least a majority of the members of the board
of directors of the Surviving Corporation after such merger, consolidation, or
reorganization; and

(iii) based on the terms of the agreement providing for such merger, consolidation, or
reorganization, no Person (other than (A) the Corporation or any Subsidiary of the
Corporation, (B) any Benefit Plan, (C) the Surviving Corporation or any Subsidiary of the
Surviving Corporation, or (D) any Person who, immediately prior to such merger,
consolidation, or reorganization had beneficial ownership of 25% or more of the then
outstanding voting securities) will have beneficial ownership of 25% or more of the combined
voting power of the Surviving Corporation’s then outstanding voting securities;

(c) a plan of liquidation or dissolution of the Corporation, other than pursuant to
bankruptcy or insolvency laws, is adopted; or

(d) during any period of two consecutive years, individuals, who at the beginning of such
period, constituted the Board cease for any reason to constitute at least a majority of the Board
unless the election, or the nomination for election by the Corporation’s shareholders, of each new
director was approved by a vote of at least two-thirds of the directors then still in office who
were directors at the beginning of the period.

Notwithstanding Clause (a), a Change in Control shall not be deemed to have occurred if a
Person becomes the beneficial owner, directly or indirectly, of the Corporation’s securities
representing 25% or more of the combined voting power of the Corporation’s then outstanding
securities solely as a result of an acquisition by the Corporation of its voting securities which,
by reducing the number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 25% or more of the combined voting power of the Corporation’s
then outstanding securities; provided, however, that if a Person becomes a beneficial owner of 25%
or more of the combined voting power of the Corporation’s then outstanding securities by reason of
share purchases by the Corporation and shall, after such share purchases by the Corporation, become
the beneficial owner, directly or indirectly, of any additional voting securities of the
Corporation (other than as a result of a stock split, stock dividend or similar transaction), then
a Change in Control of the Corporation shall be deemed to have occurred with respect to such Person
under Clause (a). In no event shall a Change in Control of the Corporation be deemed to occur
under Clause (a) by virtue of the acquisition of the Corporation’s securities by Benefit Plans.

2.5 “Code.” The Internal Revenue Code of 1986, as amended.

2.6 “Code of Conduct.” The policies and procedures related to employment of
employees by the Corporation or a Subsidiary set forth in the Corporation’s employee handbook or
any similar document. The Code of Conduct may be amended and updated at any time. The term “Code
of Conduct” shall also include any other policy or procedure that may be adopted by the Corporation
or a Subsidiary and communicated to Employees and Non-Employee Directors.

 

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2.7 “Committee.” The Compensation Committee of the Board which Committee shall be
composed of two or more members of the Board, all of whom are (a) “non-employee directors” as such
term is defined under the rules and regulations adopted from time to time by the Securities and
Exchange Commission pursuant to Section 16(b) of the Exchange Act, (b) “outside directors” within
the meaning of Code Section 162(m), and (c) independent under any applicable stock listing
agreement with, or rules of, any exchange or electronic trading system. The Board may from time to
time remove members from, or add members to, the Committee. Vacancies on the Committee, however
caused, shall be filled by the Board.

2.8 “Common Stock.” The common stock of the Corporation (par value $0.01 per share)
as described in the Corporation’s Articles of Incorporation, or such other stock as shall be
substituted therefor.

2.9 “Corporation.” Penn Millers Holding Corporation, a Pennsylvania corporation.

2.10 “Disability.” “Permanent and total disability” (as defined in Code Section
22(e)(3)).

2.11 “Employee.” Any common law employee of the Corporation or a Subsidiary. An
Employee does not include any individual who: (i) does not receive payment for services directly
from the Corporation’s or a Subsidiary’s payroll; (ii) is employed by an employment agency that is
not a Subsidiary; or (iii) who renders services pursuant to a written arrangement that expressly
provides that the service provider is not eligible for participation in the Plan, regardless if
such person is later determined by the Internal Revenue Service or a court of law to be a common
law employee.

2.12 “Exchange Act.” The Securities Exchange Act of 1934, as amended.

2.13 “Incentive Stock Option.” A Stock Option intended to satisfy the requirements
of Code Section 422(b).

2.14 “Non-Employee Director.” A member of the Board or the board of directors of a
Subsidiary who is not an Employee.

2.15 “Nonqualified Stock Option.” A Stock Option which does not satisfy the
requirements of Code Section 422(b).

2.16 “Optionee.” A Participant who is awarded a Stock Option pursuant to the
provisions of the Plan.

2.17 “Participant.” An Employee or Non-Employee Director to whom an Award has been
made and remains outstanding.

2.18 “Performance Criteria.” Any objective determination based on one or more of the
following areas of performance of the Corporation, a Subsidiary, or any division, department or
group of either which includes, but is not limited to: (a) earnings, (b) cash flow, (c) revenue,
(d) financial ratios, (e) market performance, (f) shareholder return, (g) operating income or
profits (including earnings before interest, taxes, depreciation and amortization), (h) earnings
per
share, (i) return on assets, (j) return on equity, (k) return on investment, (l) stock price,
(m) expense reduction, (n) systems conversion, (o) special projects as determined by the Committee,
(p) increases in book value, and (q) acquisition integration initiatives. Performance Criteria
shall be established by the Committee prior to the issuance of a Performance Award.

 

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2.19 “Performance Goal.” One or more goals established by the Committee, with
respect to an Award intended to constitute a Performance Award, that relate to one or more
Performance Criteria. A Performance Goal shall relate to such period of time as may be specified
by the Committee and set forth in an applicable Agreement at the time a Performance Award is made.

2.20 “Performance Award.” An Award, the vesting or receipt without restriction of
which is conditioned on the satisfaction of one or more Performance Goals.

2.21 “Plan.” The Penn Millers Stock Incentive Plan.

2.22 “Restricted Stock.” An Award of Common Stock pursuant to the provisions of the
Plan, which award is subject to such restrictions and other conditions, as may be specified by the
Committee at the time of such award and set forth in an applicable Agreement.

2.23 “Restricted Stock Unit.” An Award of a right to receive, in Common Stock, the
market value of one share of Common Stock, the vesting of which right is subject to such terms and
conditions as may be provided by the Committee at the time of such award and set forth in an
applicable Agreement. A Restricted Stock Unit Award may be payable in Common Stock or in cash as
determined by the Committee in its sole discretion.

2.24 “Securities Act.” The Securities Act of 1933, as amended.

2.25 “Stock Option” or “Option.” An Award of a right to purchase Common
Stock pursuant to the provisions of the Plan.

2.26 “Subsidiary.” A subsidiary corporation, as defined in Code Section 424(f), that
is a subsidiary of a relevant corporation.

2.27 “Termination or Dismissal For Cause.” Termination of an Employee by the
Corporation or a Subsidiary or dismissal of a Non-Employee Director after:

(a) any government regulatory agency recommends or orders in writing that the Corporation or
a Subsidiary terminate the employment of such Employee or relieve him or her of his or her duties;

(b) such Employee or Non-Employee Director is convicted of or enters a plea of guilty or
nolo contendere to a felony, a crime of falsehood, or a crime involving fraud or
moral turpitude, or the actual incarceration of the Employee or Non-Employee Director for a period
of 45 consecutive days;

(c) a determination by the Committee that such Employee willfully failed to follow the lawful
instructions of the Board or any officer of the Corporation or a Subsidiary after such Employee’s
receipt of written notice of such instructions, other than a failure resulting from the Employee’s
incapacity because of physical or mental illness;

 

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(d) a determination by the Committee that the willful or continued failure by such Employee
or Non-Employee Director to substantially and satisfactorily perform his duties with the
Corporation or a Subsidiary (other than any such failure resulting from the Employee’s or
Non-Employee Director’s Disability), within a reasonable period of time after a demand for
substantial performance or notice of lack of substantial or satisfactory performance is delivered
to the Employee or Non-Employee Director, which demand identifies the manner in which the Employee
or Non-Employee Director has not substantially or satisfactorily performed his or her duties; or

(e) a determination by the Committee that such Employee or Non-Employee Director has failed
to conform to an applicable Code of Conduct.

For purposes of the Plan, no act, or failure to act, on an Employee’s or Non-Employee
Director’s part shall be deemed “willful” unless done, or omitted to be done, by such Employee or
Non-Employee Director not in good faith and without reasonable belief that such Employee’s or
Non-Employee Director’s action or omission was in the best interest of the Corporation or a
Subsidiary.

ARTICLE 3. ADMINISTRATION

3.1 The Committee. The Plan shall be administered by the Committee.

3.2 Powers of the Committee.

(a) The Committee shall be vested with full authority to make such rules and regulations as
it deems necessary or desirable to administer the Plan and to interpret the provisions of the Plan,
unless otherwise determined by a majority of the disinterested members of the Board. Any
determination, decision, or action of the Committee in connection with the construction,
interpretation, administration, or application of the Plan shall be final, conclusive, and binding
upon all Participants and any person claiming under or through a Participant, unless otherwise
determined by a majority of the disinterested members of the Board.

(b) Subject to the terms, provisions and conditions of the Plan and subject to review and
approval by a majority of the disinterested members of the Board, the Committee shall have
exclusive jurisdiction to:

(i) determine and select the Employees and Non-Employee Directors to receive Awards
(it being understood that more than one Award may be made to the same person);

(ii) determine the number of shares subject to each Award;

(iii) determine the date or dates when the Awards will be made;

(iv) determine the exercise price of shares subject to an Option in accordance with
Article 6;

 

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(v) determine the date or dates when an Option may be exercised within the term of the
Option specified pursuant to Article 7;

(vi) determine whether an Option constitutes an Incentive Stock Option or a
Nonqualified Stock Option;

(vii) determine the Performance Criteria and establish Performance Goals with respect
thereto, to be applied to an Award; and

(viii) prescribe the form, which shall be consistent with the Plan document, of the
Agreement evidencing any Awards made under the Plan.

3.3 Liability. No member of the Board or the Committee shall be liable for any
action or determination made in good faith by the Board or the Committee with respect to this Plan
or any Awards made under this Plan.

3.4 Establishment and Certification of Performance Goals. The Committee shall
establish, prior to award, Performance Goals with respect to each Award intended to constitute a
Performance Award. Except as may otherwise be provided in Articles 6 and 7 hereof, as applicable,
no Option that is intended to constitute a Performance Award may be exercised until the Performance
Goal or Goals applicable thereto is or are satisfied, nor shall any Restricted Stock Unit Award
that is intended to constitute a Performance Award be released to a Participant until the
Performance Goal or Goals applicable thereto is or are satisfied.

3.5 No Waiver of Performance Goals. The Committee or the Board shall not waive any
Performance Goals with respect to any Award hereunder.

3.6 Performance Awards Not Mandatory. Nothing herein shall be construed as requiring
that any Award be made a Performance Award.

ARTICLE 4. COMMON STOCK SUBJECT TO THE PLAN

4.1 Common Stock Authorized.

(a) The total aggregate number of shares of Common Stock that Awards may be made under the
Plan shall not exceed 762,163 shares. The limitation established by the preceding sentence shall
be subject to adjustment as provided in Article 11 and Section 4.1(f).

(b) The maximum aggregate number of shares of Common Stock that may be issued under the Plan
pursuant to the vesting of Awards of Restricted Stock or Restricted Stock Units shall not exceed
217,761 shares. The limitation established by the preceding sentence shall be subject to
adjustment as provided in Article 11 and Section 4.1(f).

(c) The maximum aggregate number of shares of Common Stock that may be awarded under the Plan
as Options shall not exceed 544,402. The limitation established by the preceding sentence shall be
subject to adjustment as provided in Article 11 and Section 4.1(f).

(d) [Reserved.]

 

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(e) If any Option is exercised by tendering Common Stock, either actually or by attestation,
to the Corporation as full or partial payment in connection with the exercise of such Option under
the Plan, or if the tax withholding requirements are satisfied through such tender, only the number
of shares of Common Stock issued net of the Common Stock tendered shall be deemed delivered for
purposes of determining the maximum number of shares available for Awards under the Plan.

(f) The number of shares of Common Stock for which Awards may be made under the Plan shall
automatically increase on the first trading day of January of each calendar year during the term of
the Plan, beginning with calendar year 2010, by an amount equal to one percent of the shares of
Common Stock outstanding on the last trading day in December of the immediately preceding calendar
year. Awards from shares of Common Stock available under the Plan as a result of the operation of
this Section 4.1(f) may be awarded as either Nonqualified Stock Options, Restricted Stock, or
Restricted Stock Units (but not as Incentive Stock Options), subject to the limitations of Sections
4.1(b), (c), and (d).

4.2 Shares Available. The Common Stock to be issued under the Plan shall be the
Corporation’s Common Stock, which shall be made available at the discretion of the Board, either
from authorized but unissued Common Stock, treasury shares, or shares acquired by the Corporation,
including shares purchased on the open market. In the event that any outstanding Award under the
Plan for any reason expires, terminates, or is forfeited, the shares of Common Stock allocable to
such expiration, termination, or forfeiture may thereafter again be made subject to an Award under
the Plan.

ARTICLE 5. ELIGIBILITY

5.1 Participation. Awards shall be made by the Committee only to persons who are
Employees or Non-Employee Directors.

5.2 Incentive Stock Option Eligibility. Incentive Stock Option Awards may only be
made to Employees of the Corporation. Notwithstanding any other provision of the Plan to the
contrary, an individual who owns more than ten percent of the total combined voting power of all
classes of outstanding stock of the Corporation shall not be eligible for the award of an Incentive
Stock Option, unless the special requirements set forth in Sections 6.1 and 7.1 are satisfied. For
purposes of this section, in determining stock ownership, an individual shall be considered as
owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the
whole or half blood), spouse, ancestors, and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being
owned proportionately by or for its shareholders, partners, or beneficiaries. “Outstanding stock”
shall include all stock actually issued and outstanding immediately before the award of the Option.
“Outstanding stock” shall not include shares authorized for issue under outstanding Options held
by the Optionee or by any other person.

 

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ARTICLE 6. STOCK OPTIONS IN GENERAL

6.1 Exercise Price. The exercise price of an Option to purchase a share of Common
Stock shall be, in the case of an Incentive Stock Option, not less than 100% of the fair market
value of a share of Common Stock on the date the Option is awarded, except that the exercise price
shall be not less than 110% of such fair market value in the case of an Incentive Stock Option
awarded to any individual described in the second sentence of Section 5.2. The exercise price of
an Option to purchase a share of Common Stock shall be, in the case of a Nonqualified Stock Option,
not less than 100% of the fair market value of a share of Common Stock on the date the Option is
awarded. The exercise price shall be subject to adjustment pursuant to the limited circumstances
set forth in Article 11.

6.2 Limitation on Incentive Stock Options. The aggregate fair market value
(determined as of the date an Option is awarded) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any individual in any calendar year
(under the Plan and all other plans maintained by the Corporation and Subsidiaries) shall not
exceed $100,000.

6.3 Determination of Fair Market Value.

(a) If the Common Stock is not listed on an established stock exchange or exchanges but is
listed on Nasdaq, the fair market value per share shall be the closing sale price for the Common
Stock on the relevant day. If no sale of Common Stock has occurred on that day, the fair market
value shall be determined by reference to such price for the next preceding day on which a sale
occurred.

(b) If the Common Stock is not listed on an established stock exchange or on Nasdaq, fair
market value per share shall be the mean between the closing dealer “bid” and “asked” prices for
the Common Stock for the day an Option is awarded, and if no “bid” and “asked” prices are quoted
for the day an Option is awarded, the fair market value shall be determined by reference to such
prices on the next preceding day on which such prices were quoted.

(c) If the Common Stock is listed on an established stock exchange or exchanges, the fair
market value shall be deemed to be the closing price of Common Stock on such stock exchange or
exchanges on the day an Option is awarded. If no sale of Common Stock has been made on any stock
exchange on that day, the fair market value shall be determined by reference to such price for the
next preceding day on which a sale occurred.

(d) In the event that the Common Stock is not traded on an established stock exchange or on
Nasdaq, and no closing dealer “bid” and “asked” prices are available on the day an Option is
awarded, then fair market value will be the price established by the Committee in good faith
through the reasonable application of a reasonable valuation method and as required by Code Section
409A.

In connection with determining the fair market value of a share of Common Stock on any
relevant day, the Committee may use any source deemed reliable; and its determination shall be
final and binding on all affected persons, absent clear error.

6.4 Limitation on Option Awards. Stock Option Awards under this Plan (and any other
plan of the Corporation or a Subsidiary providing for stock option awards) to any individual shall
not exceed, in the aggregate, Options to acquire 100,000 shares of Common Stock during any period
of 12 consecutive months. Such limitation shall be subject to adjustment in the manner described
in Article 11.

 

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6.5 Transferability of Options.

(a) Except as provided in Subsection (b), an Option awarded hereunder shall not be
transferable other than by will or the laws of descent and distribution, and such Option shall be
exercisable, during the Optionee’s lifetime, only by him or her.

(b) An Optionee may, with the prior approval of the Committee, transfer a Nonqualified Stock
Option for no consideration to or for the benefit of one or more members of the Optionee’s
“immediate family” (including a trust, partnership, or limited liability company for the benefit of
one or more of such members), subject to such limits as the Committee may impose, and the
transferee shall remain subject to all terms and conditions applicable to the Option prior to its
transfer. The term “immediate family” shall mean an Optionee’s spouse, parents, children,
stepchildren, adoptive relationships, sisters, brothers, and grandchildren (and, for this purpose,
shall also include the Optionee).

ARTICLE 7. TERM, VESTING AND EXERCISE OF OPTIONS

7.1 Term and Vesting. Each Option awarded under the Plan shall terminate on the date
determined by the Committee, and specified in the Agreement; provided, however, that (i) each
intended Incentive Stock Option awarded to an individual described in the second sentence of
Section 5.2 shall terminate not later than five years after the date of the Award, (ii) each other
intended Incentive Stock Option shall terminate not later than ten years after the date of the
Award, and (iii) each Option awarded under the Plan which is intended to be a Nonqualified Stock
Option shall terminate not later than ten years and one month after the date of the Award. Each
Option awarded under the Plan shall be subject to such terms and conditions as may be provided by
the Committee and set forth in the Agreement issued to a Optionee to evidence such Option;
provided, however, that, unless otherwise provided by the Committee and set forth in an applicable
Agreement, each Option shall be fully exercisable (i.e., become 100% vested) after the earlier of
the date on which, (i) a Change in Control occurs or (ii) the Optionee terminates employment or
service by reason of death or Disability). Except as provided in Article 8, an Option may be
exercised only during the continuance of the Optionee’s employment or service with the Corporation
or a Subsidiary.

7.2 Exercise.

(a) A person electing to exercise an Option shall give notice to the Corporation of such
election and of the number of shares he or she has elected to purchase and shall at the time of
exercise tender the full exercise price of the shares he or she has elected to purchase. The
exercise notice shall be delivered to the Corporation in person, by certified mail, or by such
other method (including electronic transmission) and in such form as determined by the Committee.
The exercise price shall be paid in full, in cash, upon the exercise of the Option; provided,
however, that in lieu of cash, with the approval of the Committee at or prior to exercise, an
Optionee may exercise an Option by tendering to the Corporation shares of Common Stock owned by him
or her and having a fair market value equal to the cash exercise price applicable to the Option
(with the fair market value of such stock to be determined in the manner provided in Section 6.3)
or by delivering such combination of cash and such shares as the Committee in its sole discretion
may approve; further provided, however, that no such manner of exercise shall be

 

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permitted if such exercise would violate Section 402 of the Sarbanes-Oxley Act of 2002.
Notwithstanding the foregoing, Common Stock acquired pursuant to the exercise of an Incentive Stock
Option may not be tendered as payment unless the holding period requirements of Code Section
422(a)(1) have been satisfied, and Common Stock not acquired pursuant to the exercise of an
Incentive Stock Option may not be tendered as payment unless it has been held, beneficially and of
record, for at least six months (or such longer time as may be required by applicable securities
law or accounting principles to avoid adverse consequences to the Corporation or a Participant).

(b) At the request of the Participant and to the extent permitted by applicable law, the
Committee may, in its sole discretion, selectively approve an arrangement whereby the Participant
irrevocably authorizes a third party to sell shares of Common Stock (or a sufficient portion of the
shares) acquired upon the exercise of an Option and to remit to the Corporation a sufficient
portion of the sales proceeds to pay the entire exercise price and any tax withholding required as
a result of such exercise.

(c) At the request of the Participant and to the extent permitted by applicable law, the
Committee may, in its sole discretion, selectively approve a “net exercise” arrangement whereby the
Corporation will reduce the number of shares of Common Stock issued upon exercise of a Nonqualified
Stock Option by the largest whole number of shares of Common Stock with a fair market value that
does not exceed the exercise price of the Option; provided, however, that the Optionee provide cash
to the Corporation to the extent of any remaining balance of the exercise price. Shares of Common
Stock will no longer be subject to such Option and such Option will no longer be exercisable
thereafter to the extent of the number of shares used to pay the exercise price pursuant to the net
exercise, the number of shares delivered to the Optionee as a result of such net exercise and the
number of shares, if any withheld to satisfy any tax withholding obligations.

(d) A person holding more than one Option at any relevant time may, in accordance with the
provisions of the Plan, elect to exercise such Options in any order.

ARTICLE 8. EXERCISE OF OPTIONS FOLLOWING TERMINATION

OF EMPLOYMENT OR SERVICE

8.1 Other Termination by Corporation or Subsidiary; Change in Control. In the event
of an Optionee’s termination of employment or service (i) by the Corporation or a Subsidiary other
than Termination for Cause or (ii) due to a Change in Control, such Optionee’s Option shall lapse
at the earlier of the expiration of the term of such Option or:

(a) in the case of an Incentive Stock Option, three months from the date of such termination
of employment; and

(b) in the case of a Nonqualified Stock Option, 12 months from the date of such termination
of employment or service.

8.2 Death or Total Disability. In the event of an Optionee’s termination of
employment or service by reason of death or Disability, such Optionee’s Option shall lapse at the
earlier of the expiration of the term of such Option or:

 

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(a) in the case of an Incentive Stock Option, one year from the date of such termination of
employment; and

(b) in the case of a Nonqualified Stock Option, 12 months from the date of such termination
of employment or service.

8.3 Termination or Dismissal For Cause; Other Termination by Optionee. In the event
of an Optionee’s Termination or Dismissal For Cause, or in the event of termination of employment
at the election of an Optionee, such Optionee’s Option shall lapse upon such termination.

8.4 Special Termination Provisions for Options.

(a) In the event that an Optionee’s employment or service is terminated and the Committee
deems it equitable to do so, the Committee may, in its discretion and subject to the approval of a
majority of the disinterested members of the Board, waive any continuous service requirement for
vesting (but not any Performance Goal or Goals) specified in an applicable Agreement pursuant to
Section 7.1 and permit exercise of an Option held by such Optionee prior to the satisfaction of
such continuous service requirement. Any such waiver may be made with retroactive effect, provided
it is made within 60 days following the Optionee’s termination of employment or service.

(b) In the event the Committee waives the continuous service requirement with respect to an
Option as set forth in Section 8.4(a) above and the circumstance of an Optionee’s termination of
employment or service is described in Section 8.1, the affected Option will lapse as otherwise
provided in the relevant section.

(c) In the event the Committee waives the continuous service requirement with respect to an
Option as set forth in Section 8.4(a) above, such Option shall lapse at the earlier of the
expiration of the term of such Option or:

(i) in the case of an Incentive Stock Option, three months from the date of
termination of employment; and

(ii) in the case of a Nonqualified Stock Option, 12 months from the date of
termination of employment or service.

ARTICLE 9. RESTRICTED STOCK

9.1 In General. Each Restricted Stock Award shall be subject to such terms and
conditions as may be specified in the Agreement issued to a Participant to evidence such Award.
Subject to Section 3.6, a Restricted Stock Award shall be subject to a vesting schedule or
Performance Goals, or both.

9.2 Vesting. Each Restricted Stock Award shall vest under such terms and conditions
as may be provided by the Committee and set forth in an applicable Agreement; provided, however,
that, unless otherwise provided by the Committee and set forth in an applicable Agreement, each
Restricted Stock Award shall become fully vested upon the earlier of the date
on which: (i) a Change in Control occurs; or (ii) the Participant terminates employment or
service by reason of death or Disability.

 

11

 

9.3 Waiver of Vesting Period for Certain Restricted Stock Awards. In the event that
a Participant’s employment or service is terminated and the Committee deems it equitable to do so,
the Committee may, in its discretion and subject to the approval of a majority of the disinterested
members of the Board, waive any minimum vesting or holding period (but not any Performance Goal or
Goals) or forfeiture provision with respect to a Restricted Stock Award held by such Participant.
Any such waiver may be made with retroactive effect, provided it is made within 60 days following
such Participant’s termination of employment or service.

9.4 Issuance and Retention of Share Certificates By Corporation. One or more share
certificates shall be issued upon the award of Restricted Stock; but until such time as the
Restricted Stock shall vest or otherwise become distributable by reason of satisfaction of one or
more Performance Goals, the Corporation shall retain such share certificates.

9.5 Stock Powers. At the time of the award of Restricted Stock, the Participant to
whom the award is made shall deliver such stock powers, endorsed in blank, as may be requested by
the Corporation.

9.6 Release of Shares. Within 30 days following the date on which a Participant
becomes entitled under an Agreement to receive shares of previously Restricted Stock, the
Corporation shall deliver to him or her a certificate evidencing the ownership of such shares.

9.7 Forfeiture of Restricted Stock Awards. In the event of the forfeiture of a
Restricted Stock Award, by reason of a Participant’s termination of employment or termination of
service (including termination of service as a director emeritus) prior to vesting, the failure to
achieve a Performance Goal or otherwise, the Corporation shall take such steps as may be necessary
to cancel the affected shares and return the same to its treasury.

9.8 Assignment, Transfer, Etc. of Restricted Stock Rights. The potential rights of a
Participant to shares of Restricted Stock may not be assigned, transferred, sold, pledged,
hypothecated, or otherwise encumbered or disposed of until such time as the Participant receives
unrestricted certificates for such shares.

9.9 Shareholder Rights. Unless otherwise provided by the Committee and set forth in
an applicable Agreement, Participants who have been awarded shares of Restricted Stock shall not
have voting or dividend rights until such time as the Participant receives unrestricted
certificates for such shares.

9.10 Additional Holding Periods. Nothing in this Article 9 shall preclude the
Committee from providing additional (a) restrictions on the transfer or assignment of Common Stock
acquired by reason of the vesting of a Restricted Stock Award or (b) forfeiture provisions with
respect to Common Stock acquired by reason of the vesting of a Restricted Stock Award.

 

12

 

ARTICLE 10. RESTRICTED STOCK UNITS

10.1 In General. Each Restricted Stock Unit Award shall be subject to such terms and
conditions as may be provided by the Committee and set forth in the Agreement issued to a
Participant to evidence such Award. Subject to Section 3.6, a Restricted Stock Unit Award shall be
subject to a vesting schedule or Performance Goals, or both.

10.2 Vesting. Each Restricted Stock Unit Award shall vest under such terms and
conditions as may be provided by the Committee and set forth in an applicable Agreement; provided,
however, that, unless otherwise provided by the Committee and set forth in an applicable Agreement,
each Restricted Stock Unit Award shall become fully vested upon the earlier of the date on which:
(i) a Change in Control occurs; or (ii) the Participant terminates employment or service by reason
of death or Disability.

10.3 Waiver of Vesting Period for Certain Restricted Stock Unit Awards. In the event
that a Participant’s employment or service is terminated and the Committee deems it equitable to do
so, the Committee may, in its discretion and subject to the approval of a majority of the
disinterested members of the Board, waive any minimum vesting or holding period (but not any
Performance Goal or Goals) or forfeiture provision specified in the applicable Agreement with
respect to a Restricted Stock Unit Award held by such Participant. Any such waiver may be made
with retroactive effect, provided it is made within 60 days following such Participant’s
termination of employment or service.

10.4 Release of Shares. Within 30 days following the date on which a Participant
becomes entitled under an Agreement to receive shares of Common Stock pursuant to the vesting of a
Restricted Stock Unit Award, the Corporation shall deliver to him or her a certificate evidencing
the ownership of such shares of Common Stock.

10.5 Assignment, Transfer, Etc. of Restricted Stock Unit Rights. The potential
rights of a Participant to shares of Common Stock or cash pursuant to a Restricted Stock Unit Award
may not be assigned, transferred, sold, pledged, hypothecated, or otherwise encumbered or disposed
of until such time as until such time as the Participant receives, with respect to such Award, cash
or an unrestricted certificate for such Common Stock, as applicable.

10.6 Shareholder Rights. A Participant who receives a Restricted Stock Unit Award
that is paid in shares of Common Stock shall not have voting or, unless otherwise provided by the
Committee and set forth in an applicable Agreement, dividend rights until such time as the
Participant receives an unrestricted certificate for such shares.

10.7 Additional Holding Periods. Nothing in this Article 10 shall preclude the
Committee from providing additional (a) restrictions on the transfer or assignment of Common Stock
acquired by reason of the vesting of a Restricted Stock Unit Award or (b) forfeiture provisions
with respect to Common Stock acquired by reason of the vesting of a Restricted Stock Unit Award.

 

13

 

ARTICLE 11. ADJUSTMENT PROVISIONS

11.1 Share Adjustments.

(a) In the event that the shares of Common Stock of the Corporation, as presently
constituted, shall be changed into or exchanged for a different number or kind of shares of stock
or other securities of the Corporation, or if the number of such shares of Common Stock shall be
changed through the payment of a stock dividend, stock split or reverse stock split, then (i) the
shares of Common Stock authorized hereunder to be made the subject of Awards, (ii) the shares of
Common Stock then subject to outstanding Awards and the exercise price thereof (where relevant),
(iii) the maximum number of Awards that may be made within a 12-month period and (iv) the nature
and terms of the shares of stock or securities subject to Awards hereunder shall be increased,
decreased or otherwise changed to such extent and in such manner as may be necessary or appropriate
to reflect any of the foregoing events, provided that any such adjustment shall be made in a manner
to avoid adverse tax consequences to any Participant under Code Section 409A.

(b) An Award pursuant to the Plan shall not affect in any way the right or power of the
Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge, to consolidate, to dissolve, to liquidate, or to sell or transfer all
or any part of its business or assets.

11.2 Corporate Changes. A liquidation or dissolution of the Corporation, a merger or
consolidation in which the Corporation is not the surviving Corporation or a sale of all or
substantially all of the Corporation’s assets, shall cause each outstanding Award to terminate,
except to the extent that another corporation may and does, in the transaction, assume, and
continue the Award or substitute its own awards.

11.3 Fractional Shares. Fractional shares resulting from any adjustment in Awards
pursuant to this article may be settled as the Committee shall determine.

11.4 Binding Determination. To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments shall be made by a majority of the
disinterested members of the Board, whose determination in that respect shall be final, binding,
and conclusive. Notice of any adjustment shall be given by the Corporation to each holder of an
Award which shall have been so adjusted.

ARTICLE 12. GENERAL PROVISIONS

12.1 Effective Date. The Plan shall become effective upon the adoption of the Plan
by the Board, provided that any Award made hereunder shall be subject to the approval of the Plan
by the shareholders of the Corporation within 12 months of adoption of the Plan by the Board.

12.2 Termination of the Plan. Unless previously terminated by the Board, the Plan
shall terminate on, and no Award shall be made after, the day immediately preceding the tenth
anniversary of its adoption by the Board.

 

14

 

12.3 Limitation on Termination, Amendment, or Modification.

(a) The Board may at any time terminate, amend, modify or suspend the Plan, provided that,
without the approval of the shareholders of the Corporation, no amendment or modification shall be
made solely by the Board which:

(i) increases the maximum number of shares of Common Stock subject to Awards under the
Plan (except as provided in Section 11.1);

(ii) changes the class of eligible Participants; or

(iii) otherwise requires the approval of shareholders under applicable state law or
under applicable federal law to avoid potential liability or adverse consequences to the
Corporation or a Participant.

(b) No amendment, modification, suspension, or termination of the Plan shall in any manner
adversely affect any Award theretofore made under the Plan without the consent of the Participant.
Notwithstanding the foregoing, the Committee may, in its sole and absolute discretion and without
the consent of such Participant, amend, modify, suspend, or terminate the Plan or any Agreement
hereunder, to take effect retroactively or otherwise, as the Committee deems necessary or advisable
for the purpose of conforming the Plan or such Agreement to any present or future law, regulation,
or rule applicable to the Plan, including, but not limited to, Code Section 409A.

12.4 No Right to an Award or Continued Employment or Service. Nothing contained in
this Plan or otherwise shall be construed to (a) require that an Award be made to an individual who
qualifies as an Employee or Non-Employee Director, or (b) confer upon a Participant any right to
continue in the employ or service of the Corporation or any Subsidiary or limit in any respect the
right of the Corporation or of any Subsidiary to terminate the Participant’s employment or service
at any time and for any reason.

12.5 No Obligation. No exercise of discretion under this Plan with respect to an
event or person shall create an obligation to exercise such discretion in any similar or same
circumstance, except as otherwise provided or required by law.

12.6 Withholding Taxes.

(a) Subject to the provisions of Subsection (b), the Corporation will require, where
sufficient funds are not otherwise available, that a Participant who is an Employee pay or
reimburse to it any withholding taxes when withholding is required by law.

(b) With the permission of the Committee, a Participant who is an Employee may satisfy the
withholding obligation described in Subsection (a), in whole or in part, by electing to have the
Corporation withhold shares of Common Stock (otherwise issuable to him or her) having a fair market
value equal to the amount required to be withheld. An election by a Participant who is an Employee
to have shares withheld for this purpose shall be subject to such conditions as may then be imposed
thereon by any applicable securities law.

 

15

 

12.7 Listing and Registration of Shares.

(a) No Option awarded pursuant to the Plan shall be exercisable in whole or in part, and no
share certificate with respect to any Award shall be delivered, if at any relevant time the
Committee determines in its discretion that the listing, registration, or qualification of the
shares of Common Stock subject to an Award on any securities exchange or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, such Award, until such listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any conditions not acceptable to
the Committee.

(b) If a registration statement under the Securities Act with respect to the shares issuable
under the Plan is not in effect at any relevant time, as a condition of the issuance of the shares,
a Participant (or any person claiming through a Participant) shall give the Committee a written or
electronic statement, satisfactory in form and substance to the Committee, that he or she is
acquiring the shares for his or her own account for investment and not with a view to their
distribution. The Corporation may place upon any stock certificate for shares issued under the
Plan the following legend or such other legend as the Committee may prescribe to prevent
disposition of the shares in violation of the Securities Act or other applicable law:

‘THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (“ACT”) AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION OF
COUNSEL FOR THE CORPORATION THAT REGISTRATION IS NOT REQUIRED.’

12.8 Disinterested Director. For purposes of this Plan, a director shall be deemed
“disinterested” if such person could qualify as a member of the Committee under Section 3.1.

12.9 Gender; Number. Words of one gender, wherever used herein, shall be construed
to include each other gender, as the context requires. Words used herein in the singular form
shall include the plural form, as the context requires, and vice versa.

12.10 Applicable Law. Except to the extent preempted by federal law, this Plan
document, and the Agreements issued pursuant hereto, shall be construed, administered, and enforced
in accordance with the domestic internal law of the Commonwealth of Pennsylvania.

12.11 Headings. The headings of the several articles and sections of this Plan
document have been inserted for convenience of reference only and shall not be used in the
construction of the same.

 

16Exhibit 10.2

Exhibit 10.2

PENN MILLERS HOLDING CORPORATION

OPEN MARKET SHARE PURCHASE INCENTIVE PLAN

ARTICLE 1

INTRODUCTION

Section 1.1 Purpose. The purpose of the Penn Millers Holding Corporation Open Market
Share Purchase Incentive Plan (the “Plan”) is to attract, retain and motivate certain key employees
of the Penn Millers Holding Corporation (the “Company”) and its subsidiaries, to focus the efforts
of employees on continued improvement in the profitability of the Company, and to promote the
success and enhance the value of the Company by requiring employees to increase their stock
ownership in the Company. The Plan is a cash-based long-term incentive plan that provides award
opportunities based on achievement of performance goals over a two-year or three-year period.

Section 1.2 Effective Date. The “Effective Date” of the Plan is [January 1, 2010].

Section 1.3 Administration. The Plan will be administered by the Compensation
Committee (the “Committee”). The Committee, from time to time, may adopt any rules and procedures
it deems necessary or desirable for the proper and efficient administration of the Plan that are
consistent with the terms of the Plan. Any notice or document required to be given or filed with
the Committee will be properly given or filed if delivered to or mailed by registered mail, postage
paid, to the Corporate Secretary of the Board of Directors, Penn Millers Holding Corporation, 72
North Franklin Street, Wilkes-Barre, Pennsylvania 18773-0016. For purposes of this Plan, the term
“Compensation Committee” shall mean the Compensation Committee of the Board of Directors of the
Company (the “Board”), which Committee shall be composed of two or more members of the Board, all
of whom are (a) “non-employee directors” as such term is defined under the rules and regulations
adopted from time to time by the Securities and Exchange Commission pursuant to Section 16(b) of
the Securities Exchange Act of 1934, (b) “outside directors” within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the “Code”), and (c) independent under any
applicable stock listing agreement with, or rules of, any exchange or electronic trading system.

Section 1.4 Supplements. The provisions of the Plan may be modified by supplements
to the Plan. The terms and provisions of each supplement are a part of the Plan and supersede any
other provisions of the Plan to the extent necessary to eliminate any inconsistencies between the
supplement and any other Plan provisions.

 

 

 

ARTICLE 2

ELIGIBILITY AND PARTICIPATION

Section 2.1 Eligibility. Any employee of the Company is eligible to become a
“Participant” in the Plan, provided the employee is designated as a Participant by the Committee in
writing.

Section 2.2 Participation. A designated employee or otherwise eligible employee will
become a Participant as of the later of the Effective Date or the date specified by the Committee.
Any Participant may be removed as an active Participant by the Committee effective as of any date.

ARTICLE 3

AWARDS

Section 3.1 Awards. At the beginning of each Performance Period, the Committee may,
in its discretion, make an Award to a Participant. Each Award will be equal to a percentage of the
Participant’s annual base salary at the beginning of the Performance Period as described in the
applicable Award Agreement.

(a) Performance Period. Unless otherwise provided in an Award Agreement, a
“Performance Period” is a rolling three-calendar-year period over which an Award can be earned.

(b) Award Agreement. An “Award” to a Participant will be evidenced by a written
“Award Agreement” issued by the Company to a Participant that specifies the Performance Goals, the
Performance Period, and other necessary terms and conditions applicable to the Award. Such Award
Agreement will be substantially in the form of Exhibit A attached hereto.

(c) Award Levels. Participants will receive varying Awards based on their position
with the Company.

(d) Discretionary Award. The President and Chief Executive Officer may recommend to
the Committee, and the Committee, with respect to the President and Chief Executive Officer, may
recommend to the Board, that an additional discretionary Award (the “Discretionary Award”) be made
to a Participant to address external market considerations, including for recruiting purposes.

(e) Final Award. The “Final Award” is the amount of an Award as adjusted based upon
the level at which the Performance Goals have been achieved, including any Discretionary Award,
that is ultimately paid to a Participant under the Plan for a Performance Period. Final Awards may
be modified up or down at the Committee’s discretion to account for performance that is not
captured in the Performance Goals. The Committee in its discretion may also consider Extraordinary
Occurrences when assessing performance results and determining Final Awards. “Extraordinary
Occurrences” mean those events that, in the opinion and discretion of the Committee, are outside
the significant influence of the Participant or the Company and are
likely to have a significant unanticipated effect, whether positive or negative, on the
Company’s operating and/or financial results.

 

 

 

Section 3.2 Performance Goals. The vesting of an Award shall be subject to the
satisfaction of one or more Performance Goals, which shall be set forth in an Award Agreement.
“Performance Goals” are one or more goals established by the Committee that relate to one or more
Performance Criteria. “Performance Criteria” means any objective determination based on one or more
of the following areas of performance of the Company, a subsidiary, or any division, department, or
group of either which includes, but is not limited to: earnings, cash flow, revenue, financial
ratios, market performance, shareholder return, operating income or profits (including earnings
before interest, taxes, depreciation and amortization), earnings per share, return on assets,
return on equity, return on investment, stock price, expense reduction, systems conversion, special
projects as determined by the Committee, increases in book value, and acquisition integration
initiatives. Performance Goals shall be established by the Committee prior to the issuance of an
Award.

(a) Establishment of Performance Goals. Performance Goals for Performance Periods
commencing on and after [January 1, 2010], will be communicated to Participants in writing after
they have been established by the Committee.

(b) Achievement Level. Three achievement levels will be defined for each Performance
Goal.

(i) Threshold. The “Threshold” achievement level is the minimum achievement level
accepted for a Performance Goal.

(ii) Target. The “Target” achievement level is the planned achievement level for a
Performance Goal.

(iii) Maximum. The “Maximum” achievement level is achievement that substantially
exceeds the Target achievement level.

(c) [Interpolation. Achievement levels between Threshold — Target and Target —
Maximum will be interpolated in a consistent manner as determined by the Committee.]

Section 3.3 Earning and Vesting of Awards. Generally, an Award will become earned,
and therefore vested, if:

(a) the applicable Performance Goals for the Performance Period are satisfied; and

(b) the Participant is actively employed on the last day of the Performance Period.

The value of Awards will be calculated in accordance with the applicable Award Agreement.

 

 

 

Section 3.4 Effect of Termination of Service.

(a) In General. If a Participant incurs a Termination of Service for any reason other
than a reason set forth in subsection 3.4(b), then any portion of an Award which has not otherwise
become vested as of the date of Termination of Service will be forfeited, effective as of the date
of such termination. For purposes of the Plan, “Termination of Service” means the occurrence of any
act or event or any failure to act, that actually or effectively causes or results in a Participant
ceasing, for whatever reason, to be an employee of the Company, including, but not limited to,
death, Disability, retirement, termination by the Company of the Participant’s employment (whether
for Cause or otherwise), and voluntary resignation or termination by the Participant of his or her
employment for any reason.

(b) Termination Due to Death, Disability, or after Age 65. Notwithstanding the
provisions of Section 3.3 and subsection 3.4(a), if a Participant incurs an involuntary Termination
of Service due to death or Disability after reaching age 55 or 10 years of service with the
Company, any portion of an Award which has not otherwise become vested as of the date of such
Termination of Service will be treated as earned and vested, effective as of the date of such
Termination of Service, at the Target level and in a pro rata manner equivalent to the period of
time during the Performance Periods the Participant participated in the Plan prior to the
Termination of Service. Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a
Participant incurs a Termination of Service for any reason other than by the Company for Cause
after reaching age 65, any portion of his or her Award eligible to become earned and vested in the
Performance Periods in which the termination occurs will, to the extent the Performance Goals for
such Performance Periods are satisfied, be treated as earned and vested, effective as of the last
day of such Performance Periods in which the Termination of Service occurs, in a pro rata manner
equivalent to the period of time during the Performance Periods the Participant participated in the
Plan.

(i) For purposes of the Plan, “Disability” means “permanent and total disability” as defined
in Code Section 22(e)(3).

(ii) For purposes of the Plan, “Cause” will mean “cause” as defined under a Participant’s
employment agreement with the Company or if there is no such agreement, or if such agreement does
not define “cause,” “Cause” will mean:

(A) any government regulatory agency recommends or orders in writing that the Company or a
subsidiary terminate the employment of a Participant or relieve him or her of his or her duties;

(B) a Participant is convicted of or enters a plea of guilty or nolo contendere to a felony,
a crime of falsehood, or a crime involving fraud or moral turpitude, or the actual incarceration of
a Participant for a period of 45 consecutive days;

(C) a determination by the Committee that a Participant willfully failed to follow the lawful
instructions of the Board or any officer of the Company or a subsidiary after such Participant’s
receipt of written notice of such instructions, other than a failure resulting from the
Participant’s Disability;

 

 

 

(D) a determination by the Committee that a Participant willfully or continuously failed to
substantially and satisfactorily perform his duties with the Company or a subsidiary (other than
any such failure resulting from the Participant’s Disability), within a reasonable period of time
after a demand for substantial performance or notice of lack of substantial or satisfactory
performance is delivered to the Participant; or

(E) a determination by the Committee that a Participant has failed to conform to an
applicable code of conduct of the Company.

For purposes of the Plan, no act, or failure to act, on a Participant’s part shall be deemed
“willful” unless done, or omitted to be done, by such Participant not in good faith and without
reasonable belief that such Participant’s action or omission was in the best interest of the
Company. In addition, term “code of conduct” shall meant the policies and procedures related to
employment of employees by the Company or a subsidiary set forth in the Company’s employee handbook
or any similar document. The code of conduct may be amended and updated at any time. The term
“code of conduct” shall also include any other policy or procedure that may be adopted by the
Company or a subsidiary and communicated to employees.

Section 3.5 Effect of Change in Control. Notwithstanding the provisions of Sections
3.3 and 3.4, if a Change in Control of the Company occurs, then any portion of an Award which has
not otherwise become vested as of the date of the Change in Control will be treated as earned and
vested, effective as of the date of the Change in Control, at the Target level and in a pro rata
manner equivalent to the period of time during the Performance Periods the Participant participated
in the Plan prior to the Change in Control. “Change in Control” of the Company will mean a “Change
in Control” as defined in the Penn Millers Stock Incentive Plan, as may be amended from time to
time.

Section 3.6 Payment of Awards; Open Market Purchases.

(a) A Final Award will be paid in a single sum cash payment by March 15th of the year
following the year in which the Award becomes vested. Compensation will be paid upon approval by
the Committee. However, in the event of a Change in Control, payment of a Final Award will be made
in a single sum on the date on which the Change in Control occurs.

(b) Within 30 days following payment of a Final Award to a Participant, the Participant shall
purchase on the open market the number of shares of Common Stock equal to the value of such Final
Award (less applicable federal, state, and local taxes) divided by the fair market value of a share
of Common Stock on the date of such purchase, rounding any fractional shares to the nearest lower
whole share. Within 30 days following such purchase of such shares of Common Stock, the Participant
will submit proof of such purchase to the satisfaction of the Committee. The Committee will develop
appropriate procedures for Participants to demonstrate the purchase of shares of Common Stock on
the open market in accordance with this subsection. Notwithstanding the foregoing, in the event a
Final Award is paid to a Participant at or following his or her Termination of Service as provided
in subsection 3.4(b) or a Change in Control, the provisions of this subsection 3.6(b) shall not
apply with respect to such Final Award.

 

 

 

(c) In the event that the Committee determines in its sole discretion that a Participant
fails to comply with the requirements of subsection 3.6(b) above, the Committee shall have the
right to recover, to the fullest extent permitted by law, the value of the most recent Final Award
(less applicable federal, state, and local taxes) paid to the Participant.

(d) Nothing in this Section 3.6 shall preclude the Committee from providing additional
restrictions with respect to the transfer of Common Stock purchased by reason of the requirements
of subsection 3.6(b).

(e) Shares purchased pursuant to subsection 3.6(b) shall be subject to the Company’s insider
trading policy (including but not limited to any blackout period), securities pre-clearance policy,
stock ownership guidelines, and any other restrictions that may be imposed from time to time on the
Company’s employees by the Company or applicable law.

(f) For purposes of the Plan, “Common Stock” means the common stock of the Company (par value
$0.01 per share) as described in the Company’s Articles of Incorporation, or such other stock as
shall be substituted therefor.

Section 3.7 Forfeiture and Recovery of Awards.

(a) Notwithstanding anything in this Plan to the contrary, the Company reserves the right to
withhold, reduce, eliminate, amend, modify or suspend Awards or the payment of Final Awards based
on a Participant’s failure to adhere to the Company’s stock ownership guidelines.

(b) Notwithstanding anything in this Plan to the contrary, if a Participant shall engage in
any “harmful activity” (as defined herein) while employed by the Company or a subsidiary or during
the six-month period thereafter, then (a) all amounts of cash received by the Participant in
connection with the payment of a Final Award shall inure to the benefit of the Company and (b) any
and all Awards that have not yet vested and any and all Final Awards that have not yet been paid
shall immediately be forfeited. If any cash inures to the benefit of the Company under this
subsection, the Participant shall pay cash to the Company within 30 days after receiving written
notice from the Company that the Participant has engaged in a harmful activity. The determination
by the Committee as to whether a Participant engaged in “harmful activity” while employed by the
Company or a subsidiary or during the six-month period thereafter shall be final and conclusive,
unless otherwise determined by a majority of disinterested members of the Board.

(c) A “harmful activity” shall have occurred if a Participant shall do any one or more of the
following:

(i) Engage in any fraud or intentional misconduct that is a significant contributing factor
to the Company having to restate all or a portion of its financial statement(s).

(ii) Engage in activities that would constitute grounds for the Company or a subsidiary to
terminate the Participant’s employment by reason of a Termination or Dismissal for Cause (as
defined in the Company’s Stock Incentive Plan) or for Cause (as
defined in an applicable employment agreement between the Participant and the Company and/or a
subsidiary), whether or not the Participant is employed at the time the Participant engages in such
activities.

 

 

 

(iii) Solicit or hire any employees of the Company or a subsidiary or induce any of such
employees to terminate their employment relationship with the Company or a subsidiary.

(iv) Solicit, induce, or attempt to solicit or induce any customer, supplier, or other entity
doing business with the Company of a subsidiary to cease doing business with the Company or a
subsidiary or, in the case of a customer, to place agribusiness insurance, as that term is commonly
understood in the industry, with any competitor of the Company or a subsidiary. For purposes of
the foregoing provision, the term “customer” shall mean a business that the Company or a subsidiary
insures on the date that the Participant’s employment terminates (or has insured during the
previous twelve months) and a broker who has placed business with the Company or a subsidiary on
the date that the Participant’s employment terminates but only with respect to those clients of the
broker for which the broker has placed business with the Company or a subsidiary in the 12-month
period preceding the date that the Participant’s employment terminates.

(v) Directly or indirectly, own, manage, operate, render services for (as a consultant or an
advisor), or accept any employment with (i) Nationwide Agribusiness Insurance Company, Michigan
Millers Insurance Company, or Westfield Insurance Company, or any of their successors in interest
or (ii) the agribusiness insurance business of any other insurance company whose business has, or
could reasonably be expected to have, a material adverse effect on the Company’s or a subsidiary’s
business insurance business.

(vi) Directly or indirectly, own, manage, operate, render services for (as a consultant or an
adviser), or accept any employment with, within a 50-mile radius of Wilkes-Barre, Pennsylvania, any
other property and casualty insurance or reinsurance line of business to the extent that such
ownership, management, operating, rendering of services, or employment (and the activities
necessarily incident thereto) have, or could reasonably be expected to have, a material adverse
effect on the Company’s or a subsidiary’s business insurance business.

(vii) For any reason, in any fashion, form or manner, either directly or indirectly, divulge,
disclose or communicate to any person, firm, corporation, or other business entity, in any manner
whatsoever, any confidential information or trade secrets concerning the business of the Company or
a subsidiary, including, without limiting the generality of the foregoing, any customer lists or
other customer identifying information, the techniques, methods or systems of the Company’s or a
subsidiary’s operations or management, any information regarding their respective financial
matters, or any other material information concerning the business of the Company or a subsidiary,
their manner of operation, plan, or other material data. The provisions of this subsection shall
not apply to (i) information that is public knowledge other than as result of Participant’s
authorized disclosure; (ii) information disseminated by the Company or a subsidiary to third
parties in the ordinary course of business; (iii) information lawfully received by the Participant
from a third party who, based upon inquiry
by the Participant, is not bound by a confidential relationship to the Company or a
subsidiary; or (iv) information disclosed under a requirement of law or as directed by applicable
legal authority having jurisdiction over the Participant.

 

 

 

ARTICLE 4

ADMINISTRATION

Section 4.1 Appointment of the Committee. The Committee, or a duly authorized
officer or officers of the Company empowered by the Committee to act on its behalf under
sub-section 4.2(d), will be responsible for administering the Plan, will be charged with the full
power and the responsibility for administering the Plan in all its details, and will be vested with
full authority to make such rules and regulations as it deems necessary or desirable to administer
the Plan and to interpret the provisions of the Plan, unless otherwise determined by a majority of
the disinterested members of the Board.

Section 4.2 Powers and Responsibilities of the Committee. Subject to the terms,
provisions and conditions of the Plan and subject to review and approval by a majority of the
disinterested members of the Board, the Committee will have all powers necessary to administer the
Plan, including, but not limited to, the power to construe and interpret the Plan document, to
decide all questions relating to an individual’s eligibility to participate in the Plan, to
determine the amount of any Award, to determine the date or dates when Awards will be made,
determine the Performance Criteria and establish Performance Goals with respect thereto, to be
applied to an Award, to prescribe the form, which shall be consistent with the Plan, of the Award
Agreement evidencing any Awards made under the Plan, to determine the amount, manner and timing of
any distribution of benefits under the Plan, to resolve any claim for benefits in accordance with
Article 5, and to appoint or employ advisors, including legal counsel, to render advice with
respect to any of the Committee’s responsibilities under the Plan. Any construction,
interpretation, or application of the Plan by the Committee will be final, conclusive and binding.
Any determination, decision, or action of the Committee in connection with the construction,
interpretation, administration, or application of the Plan shall be final, conclusive, and binding
upon all Participants and any person claiming under or through a Participant, unless otherwise
determined by a majority of the disinterested members of the Board.

(a) Records and Reports. The Committee will be responsible for maintaining sufficient
records to determine each Participant’s eligibility to participate in the Plan.

(b) Rules and Decisions. The Committee may adopt such rules as it deems necessary,
desirable, or appropriate in the administration of the Plan. All rules and decisions of the
Committee will be applied uniformly and consistently to all Participants in similar circumstances.
When making a determination or calculation, the Committee will be entitled to rely upon information
furnished by a Participant, the Company, or the legal counsel of the Company.

(c) Application for Benefits. The Committee may require a Participant to complete and
file with it an application for a benefit, and to furnish all pertinent information
requested by it. The Committee may rely upon all such information so furnished to it,
including the Participant’s current mailing address.

 

 

 

(d) Delegation. The Committee may authorize one or more officers of the Company to
perform administrative responsibilities on its behalf under the Plan. Any such duly authorized
officer will have all powers necessary to carry out the administrative duties delegated to such
officer by the Committee.

Section 4.3 Income and Employment Tax Withholding. The Company will withhold from
payments to Participants of their Awards, to the extent required by law, all applicable federal,
state, and local taxes.

Section 4.4 Plan Expenses. The expenses incurred for the administration and
maintenance of the Plan will be paid by the Company.

ARTICLE 5

BENEFIT CLAIMS

While a Participant need not file a claim to receive his or her benefit under the Plan, if he
or she wishes to do so, a claim must be made in writing and filed with the Committee. If a claim is
denied, the Committee will furnish the claimant with written notice of its decision. A claimant may
request a full and fair review of the denial of a claim for benefits by filing a written request
with the Committee.

ARTICLE 6

AMENDMENT AND TERMINATION OF THE PLAN

Section 6.1 Amendment or Termination of the Plan. The Board may amend or terminate
the Plan at any time in its sole discretion. Notwithstanding the foregoing, no amendment,
modification, suspension, or termination of the Plan shall in any manner adversely affect any Award
theretofore made under the Plan without the consent of the Participant; provided, however, that the
Committee may, in its sole and absolute discretion and without the consent of such Participant,
amend, modify, suspend, or terminate the Plan or any Award Agreement hereunder, to take effect
retroactively or otherwise, as the Committee deems necessary or advisable for the purpose of
conforming the Plan or such Award Agreement to any present or future law, regulation, or rule
applicable to the Plan.

Section 6.2 Payment of Benefits upon Plan Termination. Absent an amendment to the
contrary, in the event of a termination of the Plan, Plan benefits that had vested prior to the
termination of the Plan will be paid at the times and in the manner provided for by the Plan at the
time of the termination.

ARTICLE 7

MISCELLANEOUS

Section 7.1 Governing Law. Except to the extent superseded by laws of the United
States, the laws of the Commonwealth of Pennsylvania will be controlling in all matters relating to
the Plan without regard to the choice of law principles therein. The Plan and all Award Agreements
are intended to comply, and will be construed by the Company in a manner which they are exempt from
or comply with the applicable provisions of Code Section 409A. To the extent there is any conflict
between a provision of the Plan or an Award Agreement and a provision of Code Section 409A, the
applicable provision of Code Section 409A will control.

 

 

 

Section 7.2 Headings and Gender. The headings and subheadings in the Plan have been
inserted for convenience of reference only and will not affect the construction of the Plan
provisions. In any necessary construction, the masculine will include the feminine and the singular
the plural, and vice versa.

Section 7.3 Spendthrift Clause. No benefit or interest available under the Plan will
be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment by creditors of a Participant, either voluntarily or
involuntarily.

Section 7.4 Counterparts. This Plan may be executed in any number of counterparts,
each one constituting but one and the same instrument, and may be sufficiently evidenced by any one
counterpart.

Section 7.5 No Enlargement of Employment Rights. Nothing contained in the Plan may
be construed as a contract of employment between the Company and any person, nor may the Plan be
deemed to give any person the right to be retained in the employ of the Company or limit the right
of the Company to employ or discharge any person with or without cause.

Section 7.6 Limitations on Liability. The individual members of the Board and the
Committee will, in accordance with the Company’s by-laws, be indemnified and held harmless by the
Company with respect to any alleged breach of responsibilities performed or to be performed
hereunder. In addition, notwithstanding any other provision of the Plan, neither the Company nor
any individual acting as an employee or agent of the Company will be liable to a Participant for
any claim, loss, liability, or expense incurred in connection with the Plan, except when the same
has been affirmatively determined by a court order or by the affirmative and binding determination
of an arbitrator, to be due to the gross negligence or willful misconduct of that person.

Section 7.7 Incapacity of Participant. If any person entitled to receive a
distribution under the Plan is physically or mentally incapable of personally receiving and giving
a valid receipt for any payment due (unless a prior claim for the distribution has been made by a
duly qualified guardian or other legal representative), then, unless and until a claim for the
distribution has been made by a duly appointed guardian or other legal representative of the
person, the Committee may provide for the distribution to be made to any other individual or
institution then contributing toward or providing for the care and maintenance of the person. Any
payment made for the benefit of the person under this Section will be a payment for the account of
such person and a complete discharge of any liability of the Company and the Plan.

Section 7.8 Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document, or other information which the person relying on the evidence
considers pertinent and reliable, and signed, made or presented by the proper party or parties.

 

 

 

Section 7.9 Severability. In the event any provisions of the Plan are held to be
illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts
of the Plan, and the Plan will be construed and endorsed as if the illegal or invalid provisions
had never been contained in the Plan.

Section 7.10 Information to be Furnished by a Participant. A Participant, or any
other person entitled to benefits under the Plan, must furnish the Committee with any and all
documents, evidence, data, or other information the Committee considers necessary or desirable for
the purpose of administering the Plan. Benefit payments under the Plan are conditioned on a
Participant (or other person who is entitled to benefits) furnishing full, true and complete data,
evidence, or other information to the Committee, and on the prompt execution of any document
reasonably related to the administration of the Plan requested by the Committee.

Section 7.11 Binding on Successors. The Plan will be binding upon and inure to the
benefit of the Company and its successors and assigns, and the successors, assigns, designees, and
estates of a Participant. The Plan will also be binding upon and inure to the benefit of any
successor organization succeeding to substantially all of the assets and business of the Company,
but nothing in the Plan will preclude the Company from merging or consolidating into or with, or
transferring all or substantially all of its assets to, another organization which assumes the Plan
and all obligations of the Company hereunder. The Company agrees that it will make appropriate
provision for the preservation of a Participant’s rights under the Plan in any agreement or plan
which it may enter into to effect any merger, consolidation, reorganization, or transfer of assets.
Upon such a merger, consolidation, reorganization, or transfer of assets and assumption of Plan
obligations of the Company, the term “Company” will refer to such other organization and the Plan
will continue in full force and effect.

 

 

 

EXHIBIT A

FORM OF AWARD AGREEMENT

THIS AWARD AGREEMENT (the “Award Agreement”) is made and entered into this
          
day of
                    , 2010, but effective as of [January 1, 2010], between Penn Millers Holding Corporation
(the “Company”), and
                    
(the “Participant”).

WITNESSETH:

WHEREAS, the Company has adopted the Penn Millers Holding Corporation Open Market Share
Purchase Incentive Plan (the “Plan”) to attract, retain and motivate designated key employees of
the Company, to focus the efforts of employees on continued improvement in the profitability of the
Company, and to promote the success and enhance the value of the Company by requiring employees to
increase their share ownership in the Company; and

WHEREAS, the Participant is eligible to receive an Award;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
the Company and the Participant agree as follows:

1. Award. The Company hereby awards to the Participant the Award specified in Schedule
A to this Award Agreement which is incorporated herein as if fully set forth, subject to the terms
of this Award Agreement and the provisions of the Plan (the “Award”). All provisions of the Plan,
including defined terms, are incorporated herein and are expressly made a part of this Award
Agreement and related schedules by reference. If any provision of this Award Agreement conflicts
with a provision of the Plan, the provision of the Plan will control.

2. Open Market Shares. The Participant hereby agrees that in the event that the
Participant receives payment of a Final Award under this Award Agreement and the Plan, the
Participant will, within 30 days after the payment of such Final Award, purchase on the open market
shares of Common Stock with a fair market value equal to the value of such Final Award (less
applicable federal, state, and local taxes).

3. Income and Employment Tax Withholding. The Participant will be responsible for
(and, where required by applicable law, the Company will withhold from any amounts payable under
the Plan) all required federal, state, and local taxes.

4. Nontransferability. During the Participant’s lifetime, Awards will be payable only
to him or her. Neither an Award nor any rights and privileges pertaining thereto, may be
transferred, assigned, pledged or hypothecated by the Participant in any way, whether by operation
of law or otherwise, and are not subject to execution, attachment or similar process.

5. Condition Precedent. In no event will the Company be obligated to make payment for
a vested Award until it is satisfied that all conditions precedent to the payment of the Award, as
provided in the Plan and this Award Agreement, have been performed and completed.

 

 

 

6. Acknowledgments. The Participant acknowledges receiving, reading and fully
understanding all of the provisions of the Plan and this Award Agreement and that the execution and
delivery of this Award Agreement constitutes his or her unequivocal acceptance of all of the terms
and conditions thereof.

IN WITNESS WHEREOF, the Company, by its officer thereunder duly authorized, and the
Participant, have executed this Award Agreement on the day and year first above written, but
effective as of [January 1, 2010].

	 	 	 	 	 
	 	PENN MILLERS HOLDING CORPORATION

 	 
	 	By  	 	 
	 	 	Title 	 	 
	 	 	 	 
	 
	 	PARTICIPANT

 	 
	 	
 	 
	 	[Name]

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