Document:

Exhibit 10.26

Exhibit 10.26

Addendum A

The Cortland Savings and Banking Company

Fourth Amended Split Dollar Agreement and Endorsement

This Fourth Amended Split Dollar Agreement and Endorsement (this “Agreement”) is
entered into as of this
 _____ 

day of                     , 2011, by and between The Cortland Savings and
Banking Company, an Ohio-chartered commercial bank (the “Bank”), and James M. Gasior, President and
Chief Executive Officer of the Bank (the “Executive”). This Agreement shall append the Split
Dollar Policy Endorsement entered into on even date herewith or as subsequently amended, by and
between the aforementioned parties.

Whereas, to encourage the Executive to remain a Bank employee, the Bank and the
Executive entered into a Third Amended Split Dollar Agreement and Endorsement dated as of December
3, 2008, providing for division of the death proceeds of a life insurance policy or policies on the
Executive’s life,

Whereas, the Bank and the Executive entered into a Fourth Amended Salary Continuation
Agreement dated as of June 1, 2010, providing for specified retirement benefits and amending and
restating in its entirety the Third Amended Salary Continuation Agreement, which also was dated as
of December 3, 2008, and

Whereas, the Bank and the Executive intend that this Fourth Amended Split Dollar
Agreement and Endorsement shall be attached as Addendum A to the Fourth Amended Salary Continuation
Agreement, amending and restating in its entirety the Third Amended Split Dollar Agreement and
Endorsement.

Now Therefore, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

Article 1

Definitions

Capitalized terms not otherwise defined in this Agreement are used herein as defined in the
Fourth Amended Salary Continuation Agreement dated as of June 1, 2010, between the Bank and the
Executive. The following terms shall have the meanings specified.

1.1 Administrator means the administrator described in Article 7.

1.2 Executive’s Interest means the benefit set forth in section 2.2.

1.3 Insured means the Executive.

1.4 Insurer means each life insurance carrier for which there is a Split Dollar Policy
Endorsement attached to this Agreement.

 

 

 

1.5 Net Death Proceeds means the total death proceeds of the Policy minus the cash surrender
value.

1.6 Policy means the specific life insurance policy or policies issued by the Insurer(s).

1.7 Salary Continuation Agreement means the Fourth Amended Salary Continuation Agreement dated
as of June 1, 2010, between the Bank and the Executive, as the same may hereafter be amended.

1.8 Split Dollar Policy Endorsement means the form required by the Administrator or the
Insurer to indicate the Executive’s interest, if any, in a Policy on such Executive’s life.

Article 2

Policy Ownership/Interests

2.1 Bank Ownership. The Bank is the sole owner of the Policy and shall have the right to
exercise all incidents of ownership. The Bank shall be the beneficiary of the remaining death
proceeds of the Policy after the Executive’s interest is paid according to section 2.2 below.

2.2 Death Benefit. Provided the Executive’s death occurs both before the Executive’s
Separation from Service and before the Executive attains age 65, at the Executive’s death the
Executive’s beneficiary designated in accordance with the Split Dollar Policy Endorsement shall be
entitled to Policy proceeds in an amount equal to the lesser of (x) 100% of the Net Death Proceeds
or (y) $1,118,817 (the lesser of the amounts specified in clauses (x) and (y) being referred to in
this Agreement as the “Executive’s Interest”). The Executive’s Interest shall be extinguished at
the earliest of the date of the Executive’s Separation from Service, the date the Executive attains
age 65, or the date on which the Executive receives payment of the benefit provided under the
Salary Continuation Agreement for a Change in Control, and the Executive’s beneficiary shall be
entitled to no benefits under the Agreement of the Executive’s death occurring thereafter. The
Executive shall have the right to designate the beneficiary of the Executive’s Interest.

2.3 Option to Purchase. Upon termination of this Agreement, the Bank shall not sell,
surrender, or transfer ownership of the Policy without first giving the Executive or the
Executive’s transferee the option to purchase the Policy for a period of 60 days from written
notice of such intention. The purchase price shall be an amount equal to the cash surrender value
of the Policy.

2.4 Comparable Coverage. The Bank may replace the Policy with a comparable insurance policy
to cover the benefit provided under this Agreement, in which case the Bank and the Executive shall
execute a new Split Dollar Policy Endorsement for the comparable insurance policy.

2.5 Internal Revenue Code Section 1035 Exchanges. The Executive recognizes and agrees that
the Bank may after this Agreement is adopted wish to exchange the Policy of life insurance on the
Executive’s life for another contract of life insurance insuring the Executive’s life. Provided
that the Policy is replaced (or intended to be replaced) with a comparable policy of life
insurance, the Executive agrees to provide medical information and cooperate with medical
insurance-related testing required by
a prospective insurer for implementing the Policy or, if necessary, for modifying or updating
to a comparable insurer.

 

2

 

Article 3

Premiums

3.1 Premium Payment. The Bank shall pay any premiums due on the Policy.

3.2 Economic Benefit. The Administrator shall annually determine the economic benefit
attributable to the Executive based on the life insurance premium factor for the Executive’s age
multiplied by the aggregate death benefit payable to the Executive’s beneficiary. The “life
insurance premium factor” is the minimum factor applicable under guidance published pursuant to
Treasury Reg. section 1.61-22(d)(3)(ii) or any subsequent authority.

3.3 Imputed Income. The Bank shall impute the economic benefit to the Executive on an annual
basis by adding the economic benefit to the Executive’s W-2, or if applicable, Form 1099.

Article 4

Assignment

The Executive may irrevocably assign without consideration all of the Executive’s interest in
the Policy and in this Agreement to any person, entity, or trust established by the Executive or
the Executive’s spouse. If the Executive transfers all of the Executive’s interest in the Policy,
all of the Executive’s interest in the Policy and in the Agreement shall be vested in the
Executive’s transferee, who shall be substituted as a party hereunder and the Executive shall have
no further interest in this Agreement.

Article 5

Insurer

The Insurer shall be bound by the terms of the Policy only. Any payments the Insurer makes or
actions it takes in accordance with the Policy shall fully discharge it from all claims, suits, and
demands of all entities or persons. The Insurer shall not be bound by or be deemed to have notice
of the provisions of this Agreement.

Article 6

Claims and Review Procedures

6.1 Claims Procedure. Any person or entity who has not received benefits under this Agreement
that he or she believes should be paid (the “claimant”) shall make a claim for benefits as follows
—

6.1.1 Initiation — written claim. The claimant initiates a claim by submitting to the
Administrator a written claim for benefits. If the claim relates to the contents of a
notice received by the claimant, the claim must be made within 60 days after the notice was
received by the claimant. All other claims must be made within 180 days after the date of
the event that
caused the claim to arise. The claim must state with particularity the determination
desired by the claimant.

 

3

 

6.1.2 Timing of Administrator response. The Administrator shall respond to the claimant
within 90 days after receiving the claim. If the Administrator determines that special
circumstances require additional time for processing the claim, the Administrator can extend
the response period by an additional 90 days by notifying the claimant in writing, before
the end of the initial 90-day period, that an additional period is required. The notice of
extension must set forth the special circumstances and the date by which the Administrator
expects to render its decision.

6.1.3 Notice of decision. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The Administrator shall
write the notification in a manner calculated to be understood by the claimant. The
notification shall set forth —

	 	(a)	 	The specific reasons for the denial,

	 	(b)	 	A reference to the specific provisions of this Agreement on which
the denial is based,

	 	(c)	 	A description of any additional information or material necessary
for the claimant to perfect the claim and an explanation of why it is needed,

	 	(d)	 	An explanation of the Agreement’s review procedures and the time
limits applicable to such procedures, and

	 	(e)	 	A statement of the claimant’s right to bring a civil action under
ERISA section 502(a) after an adverse benefit determination on review.

6.2 Review Procedure. If the Administrator denies part or all of the claim, the claimant
shall have the opportunity for a full and fair review by the Administrator of the denial, as
follows —

6.2.1 Initiation — written request. To initiate the review, the claimant must file with
the Administrator a written request for review within 60 days after receiving the
Administrator’s notice of denial.

6.2.2 Additional submissions — information access. The claimant shall then have the
opportunity to submit written comments, documents, records, and other information relating
to the claim. Upon request and free of charge, the Administrator shall also provide the
claimant reasonable access to and copies of all documents, records, and other information
relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

6.2.3 Considerations on review. In considering the review, the Administrator shall take
into account all materials and information the claimant submits relating to the claim,
without regard to whether the information was submitted or considered in the initial benefit
determination.

6.2.4 Timing of Administrator response. The Administrator shall respond in writing to the
claimant within 60 days after receiving the request for review. If the Administrator
determines that special circumstances require additional time for processing the claim, the
Administrator can extend the response period by an additional 60 days by notifying the
claimant in writing before
the end of the initial 60-day period that an additional period is required. The notice of
extension must set forth the special circumstances and the date by which the Administrator
expects to render its decision.

 

4

 

6.2.5 Notice of decision. The Administrator shall notify the claimant in writing of its
decision on review. The Administrator shall write the notification in a manner calculated
to be understood by the claimant. The notification shall set forth —

	 	(a)	 	The specific reasons for the denial,

	 	(b)	 	A reference to the specific provisions of the Agreement on which
the denial is based,

	 	(c)	 	A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to and copies of all documents,
records, and other information relevant (as defined in applicable ERISA
regulations) to the claimant’s claim for benefits, and

	 	(d)	 	A statement of the claimant’s right to bring a civil action under
ERISA section 502(a).

Article 7

Administration of Agreement

7.1 Administrator Duties. This Agreement shall be administered by an Administrator, which
shall consist of the Board or such committee as the Board shall appoint. The Executive may not be
a member of the Administrator. The Administrator shall have the discretion and authority to (x)
make, amend, interpret, and enforce all appropriate rules and regulations for the administration of
this Agreement and (y) decide or resolve any and all questions that may arise, including
interpretations of this Agreement.

7.2 Agents. In the administration of this Agreement, the Administrator may employ agents and
delegate to them such administrative duties as the Administrator sees fit (including acting through
a duly appointed representative) and may from time to time consult with counsel, who may be counsel
to the Bank.

7.3 Binding Effect of Decisions. The decision or action of the Administrator concerning any
question arising out of the administration, interpretation, and application of this Agreement and
the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all
persons having any interest in the Agreement.

7.4 Indemnity of Administrator. The Bank shall indemnify and hold harmless the members of the
Administrator against any and all claims, losses, damages, expenses, or liabilities arising from
any action or failure to act with respect to this Agreement, except in the case of willful
misconduct by the Administrator or any of its members.

7.5 Information. To enable the Administrator to perform its functions, the Bank shall supply
full and timely information to the Administrator on all matters relating to the date and
circumstances of the retirement, death, or Separation from Service of the Executive, and such
other pertinent information as the Administrator may reasonably require.

 

5

 

Article 8

Miscellaneous

8.1 Amendment and Termination of Agreement. This Agreement may be amended or terminated
solely by a written agreement signed by the Bank and the Executive. However, this Agreement shall
terminate upon the first to occur of (u) payment to the Executive of the benefit provided under the
Salary Continuation Agreement for a Change in Control, or (v) surrender, lapse, or other
termination of the Policy by the Bank, or (w) distribution of the death benefit proceeds in
accordance with section 2.2 above, or (x) termination of the Salary Continuation Agreement under
Article 5 of the Salary Continuation Agreement, or (y) the Executive’s Separation from Service, or
(z) the date the Executive attains age 65.

8.2 Binding Effect. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, administrators, and transferees, and any Policy beneficiary.

8.3 No Guarantee of Employment. This Agreement is not an employment policy or contract. This
Agreement does not give the Executive the right to remain an employee of the Bank nor does it
interfere with the Bank’s right to discharge the Executive. This Agreement also does not require
the Executive to remain an employee or interfere with the Executive’s right to terminate employment
at any time.

8.4 Successors; Binding Agreement. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the business or
assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform this Agreement had no succession
occurred.

8.5 Applicable Law. This Agreement and all rights hereunder shall be governed by and
construed according to the laws of the State of Ohio, except to the extent preempted by the laws of
the United States of America.

8.6 Entire Agreement. This Agreement and the Salary Continuation Agreement constitute the
entire agreement between the Bank and the Executive concerning the subject matter. No rights are
granted to the Executive under this Agreement other than those specifically set forth. This
Agreement amends and restates in its entirety the December 3, 2008 Third Amended Split Dollar
Agreement and Endorsement.

8.7 Severability. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and each such other provision
shall continue in full force and effect to the full extent consistent with law. If any provision
of this Agreement is held invalid in part, such invalidity shall not affect the remainder of the
provision not held invalid, and the remainder of the provision together with all other provisions
of this Agreement shall continue in full force and effect to the full extent consistent with law.

 

6

 

8.8 Headings. Caption headings and subheadings herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of this Agreement.

8.9 Notices. All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid, to the following addresses or to
such other address as either party may designate by like notice. If to the Bank, notice shall be
given to the board of directors, The Cortland Savings and Banking Company, 194 W. Main Street, P.O.
Box 98, Cortland, Ohio 44410-1466, or to such other or additional person or persons as the Bank
shall have designated to the Executive in writing. If to the Executive, notice shall be given to
the Executive at the Executive’s address appearing on the Bank’s records, or to such other or
additional person or persons as the Executive shall have designated to the Bank in writing.

In Witness Whereof, the Executive and a duly authorized representative of the Bank
have executed this Agreement as of the date first written above.

	 	 	 	 	 	 	 
	Executive:	 	Bank:

The Cortland Savings and Banking Company	 
	 
	 	 	 	 	 	 
	 

	 	By: 	 	 	 
	 

James M. Gasior

	 	 	 	Title: 
	 	 

Agreement to Cooperate with Insurance Underwriting Incident to Internal Revenue
Code section 1035 Exchange

I acknowledge that I have read the Fourth Amended Split Dollar Agreement and Endorsement and
agree to be bound by its terms, particularly the covenant on my part set forth in section 2.5 of
the Fourth Amended Split Dollar Agreement and Endorsement to provide medical information and
cooperate with medical insurance-related testing required by an insurer to issue a comparable
insurance policy to cover the benefit provided under this Fourth Amended Split Dollar Agreement and
Endorsement.

	 	 	 
	 

	 	 
	Witness

	 	James M. Gasior

 

7

 

Split Dollar Policy Endorsement

Insured: James M. Gasior

Insurer: New York Life Insurance and Annuity Corporation

Policy No. 77251006

According to the terms of The Cortland Savings and Banking Company Fourth Amended Split Dollar
Agreement and Endorsement dated as of  , 2011,
the undersigned Owner requests that the above-referenced policy issued by the Insurer provide for
the following beneficiary designation and limited contract ownership rights to the Insured:

1. Upon the death of the Insured, proceeds shall be paid in one sum to the Owner, its
successors or assigns, to the extent of the Owner’s interest in the policy. It is hereby provided
that the Insurer may rely solely upon a statement from the Owner concerning the amount of proceeds
the Owner is entitled to receive under this paragraph.

2. Any proceeds at the death of the Insured in excess of the amount paid under the provisions
of the preceding paragraph shall be paid in one sum to:

 

Primary Beneficiary, Relationship/Social Security Number

 

Contingent Beneficiary, Relationship/Social Security Number

The exclusive rights to change the beneficiary for the proceeds payable under this paragraph and to
assign all rights and interests granted under this paragraph are hereby granted to the Insured.
The sole signature of the Insured shall be sufficient to exercise the rights. The Owner retains
all contract rights not granted to the Insured under this paragraph.

3. It is agreed by the undersigned that this designation and limited assignment of rights
shall be subject in all respects to the contractual terms of the policy.

4. Any payment directed by the Owner under this endorsement shall be a full discharge of the
Insurer, and such discharge shall be binding on all parties claiming any interest under the policy.

The undersigned for the Owner is signing in a representative capacity and warrants that he or
she has the authority to bind the entity on whose behalf this document is executed.

Signed at                                         , Ohio this                      day of  
                                       , 2011.

	 	 	 	 	 	 	 
	Insured:	 	Owner:

The Cortland Savings and Banking Company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 
	 
James M. Gasior

	 	 	Its: 	 	 	 

 

 

 

Split Dollar Policy Endorsement

Insured: James M. Gasior

Insurer: Midland National Life Insurance Company

Policy No. 690216

According to the terms of The Cortland Savings and Banking Company Fourth Amended Split Dollar
Agreement and Endorsement dated as of                                         , 2011,
the undersigned Owner requests that the above-referenced policy issued by the Insurer provide for
the following beneficiary designation and limited contract ownership rights to the Insured:

1. Upon the death of the Insured, proceeds shall be paid in one sum to the Owner, its
successors or assigns, to the extent of the Owner’s interest in the policy. It is hereby provided
that the Insurer may rely solely upon a statement from the Owner concerning the amount of proceeds
the Owner is entitled to receive under this paragraph.

2. Any proceeds at the death of the Insured in excess of the amount paid under the provisions
of the preceding paragraph shall be paid in one sum to:

 

Primary Beneficiary, Relationship/Social Security Number

 

Contingent Beneficiary, Relationship/Social Security Number

The exclusive rights to change the beneficiary for the proceeds payable under this paragraph and to
assign all rights and interests granted under this paragraph are hereby granted to the Insured.
The sole signature of the Insured shall be sufficient to exercise the rights. The Owner retains
all contract rights not granted to the Insured under this paragraph.

3. It is agreed by the undersigned that this designation and limited assignment of rights
shall be subject in all respects to the contractual terms of the policy.

4. Any payment directed by the Owner under this endorsement shall be a full discharge of the
Insurer, and such discharge shall be binding on all parties claiming any interest under the policy.

The undersigned for the Owner is signing in a representative capacity and warrants that he or
she has the authority to bind the entity on whose behalf this document is executed.

Signed at                                         , Ohio this                      day of  
                                       , 2011.

	 	 	 	 	 	 	 
	Insured:	 	Owner:

The Cortland Savings and Banking Company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 
	 

James M. Gasior

	 	 	Its:exv10w1

 

    Exhibit 10.1

 

    DONEGAL
    GROUP INC.

 

    2011
    EMPLOYEE STOCK PURCHASE PLAN

 

    Section 1.  Purpose.

 

    Donegal Group Inc. (the “Company”) has established
    this 2011 Employee Stock Purchase Plan (this “Plan”)
    for the benefit of the eligible employees of the Company, its
    parent, Donegal Mutual Insurance Company (“Donegal
    Mutual”), participating subsidiaries of the Company and of
    Donegal Mutual and any company from which the Company or Donegal
    Mutual assumes 100% quota share reinsurance.

 

    The purpose of this Plan is to provide each eligible employee
    with an opportunity to acquire or increase his or her
    proprietary interest in the Company through the purchase of
    shares of the Company’s Class A common stock (the
    “Class A common stock”) at a discount from the
    market prices prevailing at the time of purchase. The Company
    intends that this Plan meet the requirements of Section 423
    of the Internal Revenue Code of 1986, as amended (the
    “Code”).

 

    Section 2.  Eligible
    Employees.

 

    (a) Employees eligible to participate in this Plan
    (“Eligible Employees”) will consist of all
    individuals: (i) who are full-time employees, as defined in
    Section 2(b) of this Plan, of the Company, Donegal Mutual,
    any subsidiary, as defined in Section 424 of the Code, of
    the Company or Donegal Mutual or any company from which the
    Company or Donegal Mutual assumes 100% quota share reinsurance
    (a “Participating Company”), and (ii) who have
    completed one month of employment on or prior to the date on
    which an Enrollment Period, as defined in Section 4 of this
    Plan, begins.

 

    (b) A “full-time employee” is an employee of the
    Company, Donegal Mutual or any Participating Company who works
    or is scheduled to work at least 1,000 hours during any
    calendar year. The Company will consider an employee who is not
    scheduled to work at least 1,000 hours during a calendar
    year, but who in fact works at least 1,000 hours during a
    calendar year, a “full-time employee” once the
    employee is credited with at least 1,000 hours during such
    year.

 

    (c) A person who is otherwise an Eligible Employee may not
    purchase any shares of Class A common stock under this Plan
    to the extent that: (i) immediately after such person
    purchases Class A common stock, the person would own shares
    of Class A common stock, including shares that would be
    owned if all outstanding options to purchase Common Stock such
    person holds were exercised, that possess 5% or more of the
    total combined voting power or value of all classes of stock of
    the Company or any subsidiary of the Company or (ii) such
    right would cause such person to have purchase rights under this
    Plan and all other stock purchase plans of the Company or any
    subsidiary of the Company or Donegal Mutual that meet the
    requirements of Section 423 of the Code, that accrue at a
    rate that exceeds $25,000 of fair market value of the stock of
    the Company, or any subsidiary of the Company, determined at the
    time the right to purchase Class A common stock under this
    Plan is exercisable, for each calendar year in which a purchase
    right under this Plan is outstanding. For this purpose, a right
    to purchase Class A common stock accrues when such right
    first becomes exercisable during the calendar year, but the rate
    of accrual for any calendar year may in no event exceed $25,000
    of the fair market value of Class A common stock subject to
    the right, and the number of shares of Class A common stock
    under one right may not be carried over to any other right.

 

    (d) Notwithstanding other provisions in this Plan to the
    contrary, any officer of the Company, Donegal Mutual or any
    Participating Company who is subject to Section 16 of the
    Securities Exchange Act of 1934 (the “Exchange Act”)
    with respect to his or her ownership of shares of Class A
    common stock (a “Section 16 officer”) will be
    subject to the restrictions and conditions set forth in
    Sections 7(b) and 9 of this Plan.

 

    Section 3.  Duration
    of Plan and Subscription Periods.

 

    This Plan is effective as of July 1, 2011 through and
    including June 30, 2022. During the term of this Plan, this
    Plan will have 20 semi-annual “Subscription Periods.”
    Each Subscription Period will extend from July 1 through
    December 31 or from January 1 through June 30,
    respectively, with the first Subscription Period beginning on
    July 1, 2011 and the last Subscription Period ending on
    June 30, 2022.

    

    A-1

 

    Section 4.  Enrollment
    and Enrollment Period.

 

    Enrollment for participation in this Plan will take place during
    the “Enrollment Period” that precedes each
    Subscription Period. Enrollment Periods are in effect from June
    1 through June 30 and from December 1 through December 31 of
    each year. In addition, the Company will deem each individual
    who participates in the Company’s 2001 Employee Stock
    Purchase Plan and who is an Eligible Employee as of May 31,
    2011 as automatically enrolled in this Plan effective as of the
    first Subscription Period. Except as provided regarding
    automatic enrollment in this Plan as of the first Subscription
    Period, any person who is an Eligible Employee and who would
    like to participate in this Plan should file a subscription
    agreement during an Enrollment Period, and that eligible
    employee’s participation in this Plan will then commence as
    of the commencement of the next Subscription Period. Once
    enrolled, an Eligible Employee will continue to participate in
    this Plan for each succeeding Subscription Period until such
    Eligible Employee terminates his or her participation, the
    Eligible Employee ceases to be an Eligible Employee or elects to
    withdraw from this Plan, this Plan expires or the Company
    terminates this Plan. An Eligible Employee who desires to change
    his or her rate of contribution may do so effective as of the
    beginning of the next Subscription Period by submitting a
    properly completed and executed enrollment form to the Company
    during the Enrollment Period for the next Subscription Period.
    An Eligible Employee who is not a Section 16 officer may
    also change his or her rate of contribution during a
    Subscription Period only pursuant to Section 7(b) of this
    Plan.

 

    Section 5.  Total
    Number of Shares Available.

 

    The total number of shares available under this Plan is
    300,000 shares of Class A common stock. Such
    Class A common stock may be authorized and unissued shares
    or previously issued shares that the Company reacquired. In the
    event the total number of shares available for purchase under
    this Plan have been purchased prior to the expiration of this
    Plan, the Company may terminate this Plan in accordance with
    Section 13 of this Plan.

 

    Section 6.  Subscription
    Price.

 

    The “Subscription Price” for each share of
    Class A common stock subscribed for purchase under this
    Plan during each Subscription Period will be the lesser of
    (i) 85% of the fair market value of such share as
    determined as of the last trading day before the first day of
    the Enrollment Period with respect to such Subscription Period
    or (ii) 85% of the fair market value of such share as
    determined on the last trading day of such Subscription Period.
    The fair market value of a share will be the closing price the
    NASDAQ Stock Market reports for the applicable date.

 

    Section 7.  Amount
    of Contribution and Method of Payment.

 

    (a) An Eligible Employee must pay the Subscription Price
    through a payroll deduction. The maximum payroll deduction may
    not be more than 10% of an Eligible Employee’s Base Pay, as
    defined in Section 7(c) of this Plan. An Eligible Employee
    must authorize a minimum payroll deduction, based on such
    employee’s Base Pay at the time of such authorization, that
    will enable such employee to accumulate by the end of the
    Subscription Period an amount sufficient to purchase at least
    ten shares of Class A common stock. An Eligible Employee
    may not make separate cash deposits toward the payment of the
    Subscription Price.

 

    (b) An Eligible Employee who is not a Section 16
    officer may at any time during a Subscription Period reduce the
    amount the Eligible Employee previously authorized the Company
    to deduct from his or her Base Pay, provided the reduction
    conforms with the minimum payroll deduction set forth in
    Section 7(a) of this Plan. To do so, an Eligible Employee
    should forward to the Company a properly completed and executed
    written notice setting forth the requested reduction in his or
    her payroll deduction. The change in payroll deduction will
    become effective on a prospective basis as soon as practicable
    after the Company receives the change notice. An Eligible
    Employee may change his or her payroll deduction under this
    Section 7(b), by forwarding to the Company a properly
    completed and executed written notice setting forth such
    reduction in his or her payroll deduction only once during any
    Subscription Period. Any such reduction will remain in effect
    for subsequent Subscription Periods, subject to compliance with
    Section 7(a) of this Plan, until such Eligible Employee
    terminates his or her participation in this Plan, the Eligible
    Employee ceases to be an Eligible Employee, this Plan expires or
    the Company terminates this Plan. A Section 16 officer may
    not change his or her rate of contribution during a Subscription
    Period.

    

    A-2

 

    (c) “Base Pay” means the straight-time earnings
    or regular salary paid to an Eligible Employee. Base Pay will
    not include overtime, bonuses or other items that the committee
    administering this Plan pursuant to Section 14 of this Plan
    does not consider to be regular compensation. Payroll deductions
    will commence with the first paycheck issued during the
    Subscription Period and, except as set forth in Sections 9
    and 10, will continue with each paycheck throughout the entire
    Subscription Period, except for pay periods for which the
    Eligible Employee receives no compensation (i.e.,
    uncompensated personal leave, leave of absence, etc.).

 

    Section 8.  Purchase
    of Shares.

 

    The Company will maintain a “Plan Account” on its
    books for recordkeeping purposes only in the name of each
    Eligible Employee who authorized a payroll deduction (a
    “participant”). At the close of each pay period, the
    Company will credit the amount deducted from the
    participant’s Base Pay to the participant’s Plan
    Account. The Company will pay no interest on any Plan Account
    balance in any circumstance. As of the last day of each
    Subscription Period, the Company will divide the amount then in
    the participant’s Plan Account by the Subscription Price
    for such Subscription Period as determined pursuant to
    Section 6 , and credit the participant’s Plan Account
    with the number of whole shares that results. The Company will
    not credit fractional shares under this Plan. The Company will
    issue and deliver share certificates to each participant within
    a reasonable time thereafter. The Company will carry forward any
    amount remaining in a participant’s Plan Account to the
    next Subscription Period. However, any amount the Company
    carries forward pursuant to this Section 8 will not reduce
    the amount a participant may contribute pursuant to
    Section 7 of this Plan during the next Subscription Period.
    If a participant does not accumulate sufficient funds in his or
    her Plan Account to purchase at least ten shares of Class A
    common stock during a Subscription Period, the Company will deem
    such participant to have withdrawn from this Plan pursuant to
    Section 9 of this Plan.

 

    If the number of shares subscribed for purchase during any
    Subscription Period exceeds the number of shares available for
    purchase under this Plan, the Company will allocate the
    remaining shares available for purchase among all participants
    in proportion to their Plan Account balances, exclusive of any
    amounts carried forward pursuant to the preceding paragraph. If
    the number of shares that would be credited to any
    participant’s Plan Account in either or both of the
    Subscription Periods occurring during any calendar year exceeds
    the limit specified in Section 2(c) of this Plan, the
    Company will credit the participant’s Plan Account with the
    maximum number of shares permissible, and refund the remaining
    amounts to the participant in cash without interest thereon.

 

    Section 9.  Withdrawal
    from This Plan.

 

    A participant, other than a Section 16 officer, may
    withdraw from this Plan at any time by giving a properly
    completed and executed written notice of withdrawal to the
    Company. As soon as practicable following the Company’s
    receipt of a notice of withdrawal, the Company will refund the
    amount credited to the participant’s Plan Account in cash
    without interest thereon. The Company will make no further
    payroll deductions with respect to such participant except in
    accordance with an authorization for a new payroll deduction
    filed during a subsequent Enrollment Period in accordance with
    Section 4 of this Plan. A participant’s withdrawal
    will not affect the participant’s eligibility to
    participate during any succeeding Subscription Period. A
    withdrawal by a Section 16 officer, other than a withdrawal
    under Section 10 of this Plan, will not become effective
    until the Subscription Period that commences after the date the
    Company receives written notice of such withdrawal.

 

    Section 10.  Separation
    from Employment.

 

    The Company will treat separation from employment for any
    reason, including death, disability or retirement, as defined in
    this Section 10, as an automatic withdrawal pursuant to
    Section 9 of this Plan. However, at the election of a
    participant who retires, or in the event of a participant’s
    death at the election of the participant’s beneficiary, any
    cash balance in such participant’s Plan Account may be used
    to purchase the appropriate number of whole shares of
    Class A common stock at a Subscription Price determined in
    accordance with Section 6 of this Plan using the date of
    the participant’s retirement or death as though it was the
    last day of the Subscription Period. The Company will refund in
    cash any cash balance in the Plan Account after such purchase to
    the participant, or in the event of the participant’s death
    to the participant’s beneficiary without interest thereon.
    As used in this Section 10, “retirement” means a
    termination of

    

    A-3

 

    employment by reason of a participant’s retirement at or
    after the participant’s earliest permissible retirement
    date pursuant to and in accordance with his or her
    employer’s regular retirement plan or practice.

 

    Section 11.  Assignment
    and Transfer Prohibited.

 

    No participant may assign, pledge, hypothecate or otherwise
    dispose of his or her subscription or rights to subscribe under
    this Plan to any other person, and any attempted assignment,
    pledge, hypothecation or disposition will be void. However, a
    participant may acquire shares of Class A common stock
    subscribed to under this Plan in the names of the participant
    and another person jointly with the right of survivorship upon
    appropriate written notice to the Company. No subscription or
    right to subscribe granted to a participant under this Plan will
    be transferable by the participant otherwise than by will or by
    the laws of descent and distribution, and such subscription
    rights will be exercisable only by the participant during the
    participant’s lifetime.

 

    Section 12.  Adjustment
    of and Changes in Class A Common Stock.

 

    In the event that the outstanding shares of Class A common
    stock of the Company are hereafter increased or decreased or
    changed into or exchanged for a different number or kind of
    shares or other securities of the Company, or of another
    corporation, by reason of reorganization, merger, consolidation,
    recapitalization, reclassification, stock
    split-up,
    stock dividend, either in shares of Class A common stock or
    of another class of the Company’s stock, spin-off or
    combination of shares, the committee appointed pursuant to
    Section 14 of this Plan will make appropriate adjustments
    in the aggregate number and kind of shares that are reserved for
    sale under this Plan.

 

    Section 13.  Amendment
    or Termination of This Plan.

 

    The Board of Directors of the Company (the “Board”)
    will have the right to amend, modify or terminate this Plan at
    any time without notice, provided that the amendment,
    modification or termination of this Plan does not adversely
    affect any participant’s existing rights and provided
    further that, without the approval of the stockholders of the
    Company in accordance with applicable law and regulations, no
    such amendment will increase the benefits accruing to
    participants under this Plan, increase the total number of
    shares subject to this Plan, change the formula by which the
    price at which the shares will be sold is determined, or change
    the class of employees eligible to participate in this Plan.

 

    Section 14.  Administration.

 

    A committee of three employees of the Company the Board appoints
    from time to time will administer this Plan. The committee may
    from time to time adopt rules and regulations for carrying out
    this Plan. Any interpretation or construction of any provision
    of this Plan by the committee will be final and conclusive on
    all persons absent contrary action by the Board. Any
    interpretation or construction of any provision of this Plan by
    the Board will be final and conclusive on all persons.

 

    Section 15.  Designation
    of Beneficiary.

 

    A participant may file a written designation of a beneficiary
    who is to receive any cash credited to the participant under
    this Plan in the event of such participant’s death prior to
    the delivery to the participant of such cash. A participant may
    change such designation of a beneficiary at any time upon
    written notice to the Company. Upon the death of a participant
    and upon the committee’s receipt of proof of the
    participant’s death and of the identity and existence of a
    beneficiary validly designated by the participant under this
    Plan, the Company will deliver such cash to such beneficiary. In
    the event of the death of a participant and in the absence of a
    beneficiary validly designated under this Plan who is living at
    the time of such participant’s death, the Company will
    deliver such cash to the executor or administrator of the estate
    of the participant, or if, to the knowledge of the Company, the
    participant has not appointed such executor or administrator,
    the Company, in its sole discretion, may deliver such cash to
    the spouse or to any one or more dependents or relatives of the
    participant, or if no spouse, dependent, or relative is known to
    the Company, then to such other person as the Company may
    designate. No designated beneficiary will, prior to the death of
    the participant by whom the beneficiary has been designated,
    acquire any interest in the shares or cash credited to the
    participant under this Plan.

    

    A-4

 

    Section 16.  Employees’
    Rights.

 

    Nothing contained in this Plan will prevent the Company, Donegal
    Mutual or any Participating Company from terminating any
    employee’s employment. No employee will have any rights as
    a stockholder of the Company by reason of participation in this
    Plan unless and until the Company has issued and delivered
    certificates to the participant representing shares of
    Class A common stock for which the participant has
    subscribed.

 

    Section 17.  Use
    of Funds.

 

    The Company may use all payroll deductions it receives or holds
    under this Plan for any corporate purpose, and the Company will
    not be obligated to segregate such payroll deductions. Any
    account established for a participant will be for recordkeeping
    purposes only.

 

    Section 18.  Government
    Regulations.

 

    The Company’s obligation to sell and deliver Class A
    common stock under this Plan is subject to any prior approval or
    compliance that may be required to be obtained or made from or
    with any governmental or regulatory authority in connection with
    the authorization, issuance or sale of such Class A common
    stock.

 

    Section 19.  Titles.

 

    Titles are provided in this Plan for convenience only and are
    not to serve as a basis for interpretation or construction of
    this Plan.

 

    Section 20.  Applicable
    Law.

 

    This Plan will be construed, administered and governed in all
    respects under the laws of the Commonwealth of Pennsylvania and
    the United States of America.

 

    Section 21.  Compliance
    with
    Rule 16b-3.

 

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

 

    Section 22.  Approval
    of Stockholders.

 

    Prior to June 30, 2011, the Company will submit this Plan
    to its stockholders for approval in accordance with applicable
    law and regulations. Subscriptions for the purchase of shares
    under this Plan will be subject to the condition that the
    stockholders of the Company approve this Plan prior to such date
    in the manner contemplated by Section 423(b)(2) of the
    Code. If the Company’s stockholders do not approve this
    Plan prior to such date, this Plan will terminate, all
    subscriptions under this Plan will be terminated and be of no
    further force or effect and the Company shall promptly refund in
    cash, without interest, of all sums previously deducted from
    their compensation pursuant to this Plan.

    

    A-5

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