Document:

EX-10.6

 

Exhibit 10.6

DIAMOND HILL INVESTMENT GROUP, INC.

AMENDED & RESTATED

2005 EMPLOYEE AND DIRECTOR EQUITY INCENTIVE PLAN

(Effective January 1, 2008)

     1. Purposes of the Plan. The purposes of this Plan are (a) to attract and retain the
best available personnel for positions of substantial responsibility, (b) to provide additional
incentive to Employees, Directors and Consultants, and (c) to promote the success of the Company’s
business.

     The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted
Stock Units, Restricted Stock, Stock Grants and Stock Appreciation Rights.

     2. Definitions. As used herein, the following definitions shall apply:

	 	(a)	 	“Administrator” means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
	 
	 	(b)	 	“Applicable Laws” means the requirements relating to the
administration of equity-based awards under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange
or quotation system on which the Common Stock is listed or quoted and
the applicable laws of any foreign country or jurisdiction where
Awards are, or will be, granted under the Plan.
	 
	 	(c)	 	“Award” means, individually or collectively, a grant under the Plan of
Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock
Units, Restricted Stock, Stock Grants or Stock Appreciation Rights.
	 
	 	(d)	 	“Award Agreement” means the written or electronic agreement setting
forth the terms and provisions applicable to each Award granted under
the Plan. The Award Agreement is subject to the terms and conditions
of the Plan.
	 
	 	(e)	 	“Board” means the Board of Directors of the Company.
	 
	 	(f)	 	“Cash Position” means as to any Performance Period, the Company’s
level of cash and cash equivalents.
	 
	 	(g)	 	“Change in Control” means the occurrence of any of the following events:

	 	(i)	 	Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3
of the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting
power represented by the Company’s then outstanding voting securities;
	 
	 	(ii)	 	The consummation of the sale or disposition by the Company of all or
substantially all of the Company’s assets;
	 
	 	(iii)	 	A change in the composition of the Board occurring within a two-year
period, as a result of which fewer than a majority of the directors
are Incumbent Directors; or
	 
	 	(iv)	 	The consummation of a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity or its Parent) at least fifty percent (50%) of
the total voting power represented by the voting securities of the
Company or such surviving entity or its Parent outstanding
immediately after such merger or consolidation.

	 	(h)	 	“Code” means the Internal Revenue Code of 1986, as amended.

 

 

	 	(i)	 	“Committee” means a committee of Directors appointed by the Board in
accordance with Section 4 of the Plan.
	 
	 	(j)	 	“Common Stock” means the common stock of the Company.
	 
	 	(k)	 	“Company” means Diamond Hill Investment Group, Inc., an Ohio corporation.
	 
	 	(l)	 	“Consultant” means any natural person, including an advisor, engaged
by the Company to render services to the Company.
	 
	 	(m)	 	“Director” means a member of the Board.
	 
	 	(n)	 	“Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.
	 
	 	(o)	 	“Earnings Per Share” means as to any Performance Period, the Company’s
or a business unit’s Net Income, divided by a weighted average number
of Common Stock outstanding and dilutive common equivalent shares
deemed outstanding.
	 
	 	(p)	 	“Employee” means any person, including an Officer or Director,
employed by the Company or any Parent or Subsidiary of the Company,
with the status of employment determined based upon such factors as
are deemed appropriate by the Administrator in its discretion, subject
to any requirements of the Code or the Applicable Laws. Neither
service solely as a Director nor payment of a Director’s fee by the
Company shall be sufficient to constitute “employment” by the Company.
	 
	 	(q)	 	“Exchange Act” means the Securities Exchange Act of 1934, as amended.
	 
	 	(r)	 	“Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

	 	(i)	 	If the Common Stock is listed on any established stock exchange or a
national market system including, without limitation, The NASDAQ
National Market or The NASDAQ SmallCap Market of The NASDAQ Stock
Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or system on the day of determination, as reported in
The Wall Street Journal or such other source as the Administrator
deems reliable;
	 
	 	(ii)	 	If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the arithmetic mean between the
highest price and lowest price for the Common Stock on the day of
determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable; or
	 
	 	(iii)	 	In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined by the Administrator through
the reasonable application of a reasonable valuation method, taking
into account all information material to the value of the
corporation, within the meaning of Section 409A of the Code.

	 	(s)	 	“Fiscal Year” means the fiscal year of the Company.
	 
	 	(t)	 	“Freestanding SAR” means a Stock Appreciation Right that is granted independent of any Option.
	 
	 	(u)	 	“Incentive Stock Option” means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
	 
	 	(v)	 	“Incumbent Directors” means directors who either (i) are Directors as
of the effective date of the Plan, or (ii) are elected, or nominated
for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or
nomination (but will not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest
relating to the election of directors to the Company).
	 
	 	(w)	 	“Individual Objectives” means as to a Participant for any Performance
Period, the objective and measurable goals set by a process and
approved by the Administrator (in its discretion).

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	 	(x)	 	“Net Income” means as to any Performance Period, the Company’s or a
business unit’s income after taxes.
	 
	 	(y)	 	“Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.
	 
	 	(z)	 	“Officer” means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
	 
	 	(aa)	 	“Operating Cash Flow” means as to any Performance Period, the
Company’s or a business unit’s sum of Net Income plus depreciation
and amortization less capital expenditures plus changes in working
capital comprised of accounts receivable, inventories, other current
assets, trade accounts payable, accrued expenses, product warranty,
advance payments from customers and long-term accrued expenses.
	 
	 	(bb)	 	“Operating Income” means as to any Performance Period, the Company’s
or a business unit’s income from operations but excluding any unusual
items.
	 
	 	(cc)	 	“Option” means an Award of a right to purchase Common Stock granted
pursuant to Section 6 of the Plan.
	 
	 	(dd)	 	“Parent” means a “parent corporation”, whether now or hereafter
existing, as defined in Section 424(e) of the Code
	 
	 	(ee)	 	“Participant” means the holder of an outstanding Award.
	 
	 	(ff)	 	“Performance Goals” means the goal(s) (or combined goal(s))
determined by the Administrator (in its discretion) to be applicable
to a Participant with respect to an Award. As determined by the
Administrator, the Performance Goals applicable to an Award may
provide for a targeted level or levels of achievement using one or
more of the following measures: (i) Cash Position, (ii) Earnings Per
Share, (iii) Individual Objectives, (iv) Net Income, (v) Operating
Cash Flow, (vi) Operating Income, (vii) Return on Assets, (viii)
Return on Equity, (ix) Return on Sales, (x) Revenue, and (xi) Total
Shareholder Return. The Performance Goals may differ from Participant
to Participant and from Award to Award. Prior to the grant date, the
Administrator shall determine whether any significant element(s)
shall be included in or excluded from the calculation of any
Performance Goal with respect to any Participant. For example (but
not by way of limitation), the Administrator may determine that the
measures for one or more Performance Goals shall be based upon the
Company’s pro-forma results and/or results in accordance with
generally accepted accounting principles.
	 
	 	(gg)	 	“Performance Period” means any Fiscal Year or such other period as
determined by the Administrator in its sole discretion.
	 
	 	(hh)	 	“Plan” means this plan, the Diamond Hill Investment Group, Inc.
Amended and Restated 2005 Employee and Director Equity Incentive
Plan.
	 
	 	(ii)	 	“Restricted Stock” means Common Stock acquired pursuant to an Award
that is subject to a vesting schedule and the Company’s repurchase
option.
	 
	 	(jj)	 	“Restricted Stock Unit” means the right to receive a number of Shares
(or a payment equal to the Fair Market Value of a number of Shares)
pursuant to a grant under Section 7 of the Plan.
	 
	 	(kk)	 	“Return on Assets” means, as to any Performance Period, the
percentage equal to the Company’s or a business unit’s Operating
Income before incentive compensation, divided by average net Company
or business unit, as applicable, assets.
	 
	 	(ll)	 	“Return on Equity” means as to any Performance Period, the percentage
equal to the Company’s Net Income divided by average shareholder’s
equity.
	 
	 	(mm)	 	“Return on Sales” means as to any Performance Period, the percentage
equal to the Company’s or a business unit’s Operating Income before
incentive compensation, divided by the Company’s or the business
unit’s, as applicable, Revenue.

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	 	(nn)	 	“Revenue” means as to any Performance Period, the Company’s or business unit’s net sales.
	 
	 	(oo)	 	“Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
	 
	 	(pp)	 	“Section 16(b)” means Section 16(b) of the Exchange Act.
	 
	 	(qq)	 	“Service Provider” means an Employee, Director or Consultant of the Company.
	 
	 	(rr)	 	“Share” means a share of Common Stock or Restricted Stock, as the
case may be and as adjusted in accordance with Section 15 of the
Plan.
	 
	 	(ss)	 	“Stock Appreciation Right” or “SAR” means an Award, granted alone or
in connection with an Option, that is designated as a Stock
Appreciation Right pursuant to Section 9 of the Plan.
	 
	 	(tt)	 	“Stock Grant” means an Award of Shares of Common Stock acquired
pursuant to a grant under Section 8 of the Plan.
	 
	 	(uu)	 	“Subsidiary” means a “subsidiary corporation”, whether now or
hereafter existing, as defined in Section 424(f) of the Code.
	 
	 	(vv)	 	“Tandem SAR” means a Stock Appreciation Right that is granted in
connection with a related Option, the exercise of which will require
forfeiture of the right to purchase an equal number of Shares under
the related Option (and when a Share is purchased under the Option,
the Stock Appreciation Right will be canceled to the same extent).
	 
	 	(ww)	 	“Ten Percent Holder” means a person who owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of
the Company or any Parent or Subsidiary.
	 
	 	(xx)	 	“Total Shareholder Return” means as to any Performance Period, the
total return (change in Share price plus reinvestment of any
dividends) of a Share.
	 
	 	3.	 	Stock Subject to the Plan.
	 
	 	(a)	 	Number of Shares. Subject to the provisions of Section 15 of the Plan,
the maximum aggregate number of Shares that may be granted and/or sold
under the Plan is the total of (i) 500,000 Shares and (ii) an annual
increase to be added on the last day of the Fiscal Year beginning in
2005, equal to the lesser of (A) 100,000 Shares, (B) 5% of the
Company’s total outstanding Shares on such date, or (C) a lesser
amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock. Shares will not be deemed to
have been issued pursuant to the Plan with respect to any portion of
an Award that is settled in cash. Upon payment in Shares pursuant to
the exercise of a SAR, the number of Shares available for issuance
under the Plan will be reduced only by the number of Shares actually
issued in such payment. If the exercise price of an Award is paid by
tender to the Company of Shares owned by the Participant, the number
of Shares available for issuance under the Plan will be reduced by the
gross number of Shares for which the Award is exercised.
	 
	 	(b)	 	Share Usage. If an Award expires or becomes unexercisable without
having been exercised in full, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under
the Plan (unless the Plan has terminated); provided, however, that
Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future
distribution under the Plan, except that if unvested Shares of
Restricted Stock are repurchased by the Company, such Shares shall
become available for future grant under the Plan.
	 
	 	4.	 	Administration of the Plan.
	 
	 	(a)	 	Procedure.

	 	(i)	 	Section 162(m). To the extent that the Administrator determines it to
be desirable to qualify Awards granted hereunder as “performance-based
compensation” within the meaning of Section 162(m) of

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	 	 	 	the Code, the
Plan shall be administered by a Committee of two or more “outside
directors” within the meaning of Section 162(m) of the Code.
	 
	 	(ii)	 	Rule 16b-3. To the extent desirable to qualify transactions hereunder
as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
	 
	 	(iii)	 	Other Administration. Other than as provided above, the Plan shall
be administered by (A) the Board, or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.

	 	(b)	 	Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have
the authority, at its discretion:

	 	(i)	 	to determine the Fair Market Value;
	 
	 	(ii)	 	to select the Service Providers to whom Awards may be granted hereunder;
	 
	 	(iii)	 	to determine the number of Shares of Common Stock to be covered by
each Award granted hereunder;
	 
	 	(iv)	 	to approve forms of agreement for use under the Plan;
	 
	 	(v)	 	to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any Award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times
when Awards may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Award or
the Shares of Common Stock relating thereto, based in each case on
such factors as the Administrator, in its sole discretion, shall
determine;
	 
	 	(vi)	 	to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
	 
	 	(vii)	 	to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;
	 
	 	(viii)	 	to modify or amend each Award (subject to Section 25 of the Plan);
	 
	 	(ix)	 	to allow Participants to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued
upon exercise of an Award that number of Shares having a Fair Market
Value equal to the minimum amount required to be withheld;
	 
	 	(x)	 	to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Award previously granted
by the Administrator; and
	 
	 	(xi)	 	to make all other determinations deemed necessary or advisable for administering the Plan.

	 	(c)	 	Effect of Administrator’s Decision. The Administrator’s decisions,
determinations and interpretations shall be final and binding on all
Participants and any other holders of Awards.

     5. Eligibility. Awards may be granted to Service Providers; provided, however, that
Incentive Stock Options may be granted only to Employees.

     6. Options.

	 	(a)	 	Share Limitations.

	 	(i)	 	No Service Provider shall be granted, in any Fiscal Year, Options to
purchase more than 25,000 Shares. Notwithstanding the foregoing
limitation, in connection with his or her initial service as a Service
Provider, a Service Provider may be granted Options to purchase up to
an additional 25,000 Shares. The foregoing limitations shall be
adjusted proportionately in connection with any change in

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	 	 	 	the Company’s capitalization as described in Section 15.
	 
	 	(ii)	 	Each Option shall be designated in the Award Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option; provided,
however, that Incentive Stock Options shall not be granted to any
Service Provider who is not an Employee. Notwithstanding such
designation, to the extent that the aggregate Fair Market Value of
the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Participant during any calendar
year (under all plans of the Company and any Parent or Subsidiary)
exceeds $100,000, such Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 6(a)(ii), Incentive Stock
Options shall be taken into account in the order in which they were
granted. The Fair Market Value of the Shares shall be determined as
of the time the Option with respect to such Shares is granted.
	 
	 	(iii)	 	If an Option is cancelled in the same Fiscal Year in which it was
granted (other than in connection with a transaction described in
Section 15), the cancelled Option will be counted against the limits
set forth in subsections (i) and (ii) above.

	 	(b)	 	Term of Option. The term of each Option shall be stated in the Award
Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be
provided in the Award Agreement. Moreover, in the case of an Incentive
Stock Option granted to a Participant who, at the time the Incentive
Stock Option is granted, is a Ten Percent Holder, the term of the
Incentive Stock Option shall be five (5) years from the date of grant
or such shorter term as may be provided in the Award Agreement.
	 
	 	(c)	 	Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied
before the Option may be exercised.
	 
	 	(d)	 	Option Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

	 	(i)	 	In the case of an Incentive Stock Option that is:

	 	(a)	 	granted to an Employee who, at the time the Incentive Stock Option is
granted, is a Ten Percent Holder, the per Share exercise price shall
be no less than one hundred ten percent (110%) of the Fair Market
Value per Share on the date of grant; and
	 
	 	(b)	 	granted to any Employee other than a Ten Percent Holder, the per Share
exercise price shall be no less than one hundred percent (100%) of the
Fair Market Value per Share on the date of grant.

	 	(ii)	 	In the case of a Nonstatutory Stock Option, including a Nonstatutory
Stock Option intended to qualify as “performance-based compensation”
within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than one hundred percent (100%) of
the Fair Market Value per Share on the date of grant.

	 	(e)	 	Notification Upon Disqualifying Disposition Under Section 421(b) of
the Code. Each Award Agreement with respect to an Incentive Stock
Option shall require the Participant to notify the Company of any
disposition of Shares issued pursuant to the exercise of such Option
under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within ten (10) days
of such disposition

     7. Restricted Stock Units/Restricted Stock.

	 	(a)	 	Grant of Restricted Stock Units or Restricted Stock. Subject to the
terms and provisions of the Plan, the Administrator, at any time and
from time to time, may grant Restricted Stock or Restricted Stock
Units to Participants in such amounts as the Administrator shall
determine, in its sole discretion, provided that during any Fiscal
Year, no Service Provider will receive grants of Restricted Stock for,
or Restricted Stock Units representing, more than an aggregate of
25,000 Shares of Restricted Stock. Notwithstanding the

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	 	 	 	foregoing limitation, in connection with his or her initial service as a Service
Provider, a Service Provider may be granted an aggregate of up to an
additional 25,000 Shares of Restricted Stock and/or Shares of
Restricted Stock underlying Restricted Stock Units. The foregoing
limitations shall be adjusted proportionately in connection with any
change in the Company’s capitalization as described in Section 15.
	 
	 	(b)	 	Issue and Vesting Date(s). At the time of the grant of Restricted
Stock or Restricted Stock Units, the Administrator shall establish
issue and vesting date(s) with respect to the Restricted Stock or
Restricted Stock Units. The Administrator may divide the Restricted
Stock or Restricted Stock Units into classes and assign different
issue dates or vesting schedules to such classes.
	 
	 	(c)	 	Award Agreement; Repurchase Option. Each Restricted Stock Unit or
Restricted Stock grant shall be evidenced by an Award Agreement. The
Award Agreement will grant the Company a repurchase option with
respect to any unvested Shares of Restricted Stock, exercisable upon
the voluntary or involuntary termination of the Service Provider’s
relationship with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Award Agreement will be the original purchase price paid for the
Shares, if any, and may be paid by cancellation of any indebtedness of
the purchaser to the Company. The repurchase option will lapse at a
rate determined by the Administrator.
	 
	 	(d)	 	Other Restrictions. The Administrator shall impose such other
conditions and/or restrictions on the grant of Restricted Stock Units
or Restricted Stock pursuant to the Plan as it may deem advisable
including, without limitation, a requirement that Participants pay a
stipulated purchase price for each share of Restricted Stock and/or
restrictions under applicable federal or state securities laws.
	 
	 	(e)	 	Rights as a Shareholder. The holder of Restricted Stock shall have the
rights equivalent to those of a shareholder and may exercise full
voting powers with respected to the Restricted Stock during the
restriction period. The holder of Restricted Stock Units shall have
no rights with respect to the Shares underlying the grant, except the
right to receive payment as set forth in this Plan.
	 
	 	(f)	 	Dividends And Other Distributions. During the period of restriction,
Participants may, if the Administrator so determines, be credited with
dividends, in the case of Restricted Stock, or dividend equivalent
rights, in the case of Restricted Stock Units, that are paid with
respect to the underlying Shares while they are so held. The
Administrator may apply any restrictions to the dividends or dividend
equivalent rights that the Administrator deems appropriate. Any such
dividends or dividend equivalent rights shall be paid at the same time
as dividends are paid with respect to Shares. Without limiting the
generality of the preceding sentence, if the grant or vesting of
Restricted Stock or Restricted Stock Units granted to a Participant is
designed to comply with the requirements of “performance-based
compensation” under Section 162(m) of the Code, the Administrator may
apply any restrictions it deems appropriate to the payment of
dividends or dividend equivalent rights declared with respect to such
Restricted Stock or Restricted Stock Units, such that the dividends,
dividend equivalent rights, Restricted Stock and/or Restricted Stock
Units maintain eligibility therefor.
	 
	 	8.	 	Stock Grants.
	 
	 	(a)	 	Stock Grants. Subject to the terms and provisions of the Plan, the
Administrator, at any time and from time to time, may award Stock
Grants in such amounts as the Administrator shall determine, in its
sole discretion, provided that during any Fiscal Year, no Service
Provider will receive Stock Grants for more than an aggregate of
25,000 Shares of Common Stock. Notwithstanding the foregoing
limitation, in connection with his or her initial service as a Service
Provider, a Service Provider may be granted an aggregate of up to an
additional 25,000 Shares pursuant to Stock Grants. The foregoing
limitations shall be adjusted proportionately in connection with any
change in the Company’s capitalization as described in Section 15.
	 
	 	(b)	 	Restrictions. Generally, Shares issued in connection with a Stock
Grant will not have any vesting requirements or other restrictions;
provided, however, that the Administrator may impose such other
conditions and/or restrictions on the Common Stock issued pursuant to
Stock Grants as it may deem advisable, in its sole discretion. Each
Stock Grant shall be evidenced by an Award Agreement.

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	 	9.	 	Stock Appreciation Rights.
	 
	 	(a)	 	Grant of SARs. Subject to the terms and conditions of the Plan, a SAR
may be granted to Service Providers at any time and from time to time
as will be determined by the Administrator, in its sole discretion,
provided that during any Fiscal Year, no Service Provider will be
granted SARs covering more than 25,000 Shares. Notwithstanding the
foregoing limitation, in connection with his or her initial service as
a Service Provider, a Service Provider may be granted SARs covering up
to an additional 25,000 Shares. The foregoing limitations shall be
adjusted proportionately in connection with any change in the
Company’s capitalization as described in Section 15. The Administrator
may grant Freestanding SARs, Tandem SARs, or any combination thereof.
	 
	 	(b)	 	Base Value and Other Terms. The Administrator, subject to the
provisions of the Plan, will have complete discretion to determine the
terms and conditions of SARs granted under the Plan. The base value of
Tandem SARs will equal the exercise price of the related Option;
provided, however, that the base value of a Tandem SAR shall not be
less than one hundred percent (100%) of the Fair Market Value of a
Share on the grant date. The base value of a Freestanding SAR shall
be not less than one hundred percent (100%) of the Fair Market Value
of a Share on the grant date. A SAR may be exercised for all or any
portion of the Shares as to which it is exercisable; provided, that no
partial exercise of a SAR shall be for an aggregate base value of less
than $1,000. The partial exercise of a SAR shall not cause the
expiration, termination or cancellation of the remaining portion
thereof.
	 
	 	(c)	 	Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the
right to exercise the equivalent portion of the related Option. A
Tandem SAR may be exercised only with respect to the Shares for which
its related Option is then exercisable. With respect to a Tandem SAR
granted in connection with an Incentive Stock Option: (i) the Tandem
SAR will expire no later than the expiration of the underlying
Incentive Stock Option; (ii) payment upon exercise of a Tandem SAR
shall not be greater than one hundred percent (100%) of the excess of
the Fair Market Value of a Share on the date of exercise over the
exercise price of a Share underlying the Option with respect to which
such Tandem SAR was granted; and (iii) the Tandem SAR will be
exercisable only when the Fair Market Value of the Shares subject to
the Incentive Stock Option exceeds the exercise price of the Incentive
Stock Option.
	 
	 	(d)	 	Exercise of Freestanding SARs. Freestanding SARs will be exercisable
on such terms and conditions as the Administrator, in its sole
discretion, will determine.
	 
	 	(e)	 	Payment of SAR Amount. Upon exercise of a SAR, a Participant will be
entitled to receive payment from the Company in an amount not to
exceed:

	 	(i)	 	The difference between: (1) the Fair Market Value of a Share on the
date of exercise; over (2) the Exercise Price of the SAR; multiplied
by
	 
	 	(ii)	 	The number of Shares with respect to which the SAR is exercised.

At the discretion of the Administrator, payment upon exercise of a SAR may be made in cash,
Shares or a combination thereof.

	 	(f)	 	Other Provisions. Each SAR grant will be evidenced by an Award
Agreement that will specify the base value, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the
Administrator, in its sole discretion, will determine.

     10. Performance-Based Restrictions on Awards. Any Award granted under the Plan may
vest subject to the satisfaction of one or more performance objectives. The Administrator may set
performance objectives, in its sole discretion, and the time period during which the performance
objectives must be met will be called the “Performance Period.”

	 	(a)	 	General Performance Objectives. The Administrator may set performance
objectives based upon the achievement of Company-wide, divisional, or
individual goals, or any other basis determined by the Administrator
in its discretion.

8

 

	 	(b)	 	Section 162(m) Performance Objectives. For purposes of qualifying
Awards as “performance-based compensation” under Section 162(m) of the
Code, the Committee, in its discretion, may determine that the
performance objectives applicable to Awards will be based on the
achievement of Performance Goals. The Performance Goals will be set by
the Committee on or before the latest date permissible to enable the
Awards to qualify as “performance-based compensation” under Section
162(m) of the Code. In granting Awards which are intended to qualify
as “performance-based compensation” under Section 162(m) of the Code,
the Committee will follow any procedures determined by it from time to
time to be necessary or appropriate to ensure qualification of the
Awards under Section 162(m) of the Code (e.g., in determining the
Performance Goals).
	 
	 	11.	 	Exercise and Settlement of Awards.
	 
	 	(a)	 	Procedure for Exercise of Options. Any Option granted under the Plan
shall be exercisable, to the extent applicable, according to the terms
of the Plan and at such times and under such conditions as determined
by the Administrator and set forth in the Award Agreement applicable
to such Option. An Option may not be exercised for a fraction of a
Share. An Option shall be deemed exercised when the Company receives:
(A) written or electronic notice of exercise (in accordance with the
Award Agreement) from the person entitled to exercise the Option, and
(B) full payment, as required by the Award Agreement and the Plan, for
the Shares with respect to which the Option is exercised. Shares
issued upon exercise of an Option shall be issued in the name of the
Participant or, if requested by the Participant, in the name of the
Participant and his or her spouse and/or to a trust if, under Code
Section 671 and applicable state law, the Participant remains the
beneficial owner of the Shares. Exercising an Option in any manner
shall decrease the number of Shares thereafter available, both for
purposes of the Plan and for issuance under the Option, by the number
of Shares as to which the Option is exercised.
	 
	 	(b)	 	Settlement or Payment of Stock Grants, Restricted Stock. Upon granting
of any Stock Grants or the vesting of any Restricted Stock, the
Administrator shall issue or cause to be issued any Shares within
sixty (60) days following the date of grant, settlement or lapse of
substantial risk of forfeiture, as the case may be, of such Stock
Grant or Restricted Stock.
	 
	 	(c)	 	Payment or Settlement of Restricted Stock Units. Upon the vesting of
any Restricted Stock Unit, the Administrator shall pay or cause to be
paid to an amount equal to the Fair Market Value of a Share on the
date of vesting multiplied by the number of vested Shares. The
Administrator may, in its discretion and in lieu of payment, issue or
cause to be issued a number of Shares with a value equal the Fair
Market Value of a Share on the date of vesting. Any fractional
Shares shall be paid in cash. Any payment or issuance of Shares with
respect to a Restricted Stock Unit shall be made within sixty (60)
days following the vesting of such Restricted Stock Unit.
	 
	 	(d)	 	Rights as a Shareholder. Except with respect to grants of Restrict
Stock or Restricted Stock Units, no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the
Shares, notwithstanding the exercise of the Award until the Shares are
issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company). No
adjustment will be made for a dividend or other right for which the
record date is prior to the date the Shares are issued, except as
provided in Section 15 of the Plan.
	 
	 	(e)	 	Termination of Relationship as a Service Provider. If a Participant
ceases to be a Service Provider, other than upon the Participant’s
death or Disability, the Participant may exercise, as applicable, his
or her Award to the extent that such Award is vested on the date of
termination, within three (3) months following the Participant’s
termination in the case of an Incentive Stock Option, or, in the case
of an Award other than an Incentive Stock Option, a greater/lesser
period if specified in the Award Agreement (but in no event later than
the expiration of the term of such Award as set forth in the Award
Agreement). If, on the date of termination, the Participant is not
vested as to his or her entire Award, the Shares covered by or
underlying the unvested portion of such Award shall revert to the
Plan; provided, however, that unvested Shares of Restricted Stock
shall not automatically revert to the Plan but shall be subject to the
Company’s repurchase option as provided in the Award Agreement. If,
after termination, the Participant does not exercise his or her Award,
as applicable, within the time specified herein, the Award shall
terminate, and the Shares covered by such Award shall revert to the
Plan.

9

 

	 	(f)	 	Disability of Participant. If a Participant ceases to be a Service
Provider as a result of the Participant’s Disability, the Participant
may exercise, as applicable, his or her Award, to the extent that the
Award is vested on the date of termination, within twelve (12) months
following the Participant’s termination, in the case of an Incentive
Stock Option, or, in the case of an Award other than an Incentive
Stock Option, a greater/lesser period if specified in the Award
Agreement or the Plan (but in no event later than the expiration of
the term of such Award as set forth in the Award Agreement or the
Plan). If, on the date of termination, the Participant is not vested
as to his or her entire Award of Restricted Stock or Restricted Stock
Units, the Shares covered by or underlying the unvested portion of the
Award shall revert to the Plan; provided, however, that unvested
Shares of Restricted Stock shall not automatically revert to the Plan
but shall be subject to the Company’s repurchase option as provided in
the Award Agreement. If, after a termination due to Disability, the
Participant does not exercise his or her Award, as applicable, within
the time specified herein, the Award shall terminate, and the Shares
covered by such Award shall revert to the Plan.
	 
	 	(f)	 	Death of Participant. If a Participant dies while a Service Provider,
the Award may be exercised, as applicable, by the Participant’s
designated beneficiary, provided such beneficiary has been designated
prior to Participant’s death in a form acceptable to the
Administrator, to the extent that the Award is vested on the date of
termination, within twelve (12) months following Participant’s death
or a greater/lesser period if specified in the Award Agreement of the
Plan (but in no event later than the expiration of the term of such
Award as set forth in the Award Agreement of the Plan). If no such
beneficiary has been designated by the Participant, then such Award
may be exercised by the personal representative of the Participant’s
estate or by the person(s) to whom the Award is transferred pursuant
to the Participant’s will or in accordance with the laws of descent
and distribution. If, at the time of death, Participant is not vested
as to his or her entire Award of Restricted Stock or Restricted Stock
Units, the Shares covered by or underlying the unvested portion of the
Award shall immediately revert to the Plan; provided, however, that
unvested Shares of Restricted Stock shall not automatically revert to
the Plan but shall be subject to the Company’s repurchase option as
provided in the Award Agreement. If the Award is not so exercised, as
applicable, within the time specified herein, the Award shall
terminate, and the Shares covered by such Award shall revert to the
Plan.

     12. Form of Consideration. The Administrator shall determine the acceptable form of
consideration for exercising an Award, including the method of payment. In the case of an Incentive
Stock Option, the Administrator shall determine the acceptable form of consideration at the time of
grant. Such consideration may consist entirely of:

	 	(a)	 	cash;
	 
	 	(b)	 	check;
	 
	 	(c)	 	other Shares which, in the case of Shares acquired directly or
indirectly from the Company, (i) have been owned by the Participant
for more than six (6) months on the date of surrender, and (ii) have a
Fair Market Value on the date of surrender equal to the exercise price
or base value of the Shares as to which said Award shall be exercised;
	 
	 	(d)	 	consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
	 
	 	(e)	 	any combination of the foregoing methods of payment; or
	 
	 	(f)	 	such other consideration and method of payment for the issuance of
Shares to the extent permitted by Applicable Laws.

     13. Transferability of Awards. Unless determined otherwise by the Administrator,
Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Participant, only by the Participant. If the Administrator makes an Award
transferable, such Award shall contain such additional terms and conditions as the Administrator
deems appropriate. Notwithstanding the foregoing, Incentive Stock Options may not sold, pledged,

10

 

assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws
of descent or distribution and may be exercised, during the lifetime of the Participant, only by
the Participant.

[NOTE: The transferability of Incentive Stock Options is limited by Section 422 of the Code. We
have clarified that the Administrator may not exercise discretion with respect to transferability
of Incentive Stock Options.]

     14. Leaves of Absence. Unless the Administrator provides otherwise, vesting of Awards
granted hereunder will be suspended during any unpaid leave of absence. A Service Provider will not
cease to be an Employee in the case of any bona fide leave of absence approved by the Company. For
purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment
upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration
of a leave of absence approved by the Company is not so guaranteed, then an additional three (3)
months following the end of the original three (3) month term of such leave, any Incentive Stock
Option held by the Participant will cease to be treated as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option.

     15. Adjustments Upon Changes in Capitalization, Merger or Change in Control.

	 	(a)	 	Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of Shares of Common Stock that
have been authorized for issuance under the Plan but as to which no
Awards have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Award, the number of Shares that
may be added annually to the Plan pursuant to Section 3(a), the number
of Shares of Common Stock as well as the price per share of Common
Stock covered by each such outstanding Award, and the numerical Share
limits in Sections 3(a), 6(a), 7(a), 8(a) and 9(a) shall be
proportionately adjusted for any increase or decrease in the number of
issued Shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of
issued Shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have
been “effected without receipt of consideration.” Such adjustment
shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of Shares of Common Stock subject to an Award.
Any adjustment pursuant to this Section 15 shall, to the extent
applicable, be made in accordance with the requirements of Sections
409A and 422 of the Code.
	 
	 	(b)	 	Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify each
Participant as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide
for a Participant to have the right to exercise his or her Award until
ten (10) days prior to such transaction as to all Shares covered
thereby, including Shares as to which the Award would not otherwise be
exercisable. In addition, the Administrator may provide that any
Company repurchase option applicable to any Restricted Stock shall
lapse as to all such Shares, provided the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To
the extent it has not been previously exercised, an Award will
terminate immediately prior to the consummation of such proposed
action.
	 
	 	(c)	 	Merger or Change in Control. In the event of a merger of the Company
with or into another corporation, or a Change in Control, each
outstanding Award shall be assumed or an equivalent option or right
substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation.

     In the event that the successor corporation refuses to assume or substitute for the Award, the
Participant shall fully vest in and have the right to exercise his or her Awards as to all Shares
covered thereby, including Shares as to which such Awards would not otherwise be vested or
exercisable. All restrictions on Restricted Stock or other vesting criteria will lapse, as
determined by the Board. In addition, if an Award becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a Change in Control, the Administrator shall notify the
Participant in writing or electronically that the Award shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Award shall terminate upon the
expiration of such period.

11

 

     For the purposes of this subsection (c), an Award shall be considered assumed if, following
the merger or Change in Control, the Award confers the right to purchase or receive, for each Share
subject to the Award immediately prior to the merger or Change in Control, the consideration
(whether stock, cash, or other securities or property); provided, however, that if such
consideration received in the merger or Change in Control is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of the Award, for each
Share subject to such Award, to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders of Common Stock in
the merger or Change in Control.

     Notwithstanding anything in this Section 15(c) to the contrary, an Award that vests, is earned
or paid-out upon the satisfaction of one or more Performance Goals, will not be considered assumed
if the Company or its successor modifies any of such Performance Goals without the Participant’s
consent; provided, however, a modification to such Performance Goals only to reflect the successor
corporation’s post-Change in Control corporate structure will not be deemed to invalidate an
otherwise valid Award assumption.

     16. No Effect on Employment or Service. Neither the Plan nor any Award shall confer
upon a Participant any right with respect to continuing the Participant’s relationship as a Service
Provider with the Company, nor shall they interfere in any way with the Participant’s right or the
Company’s right to terminate such relationship at any time, with or without cause.

     17. Date of Grant. The date of grant of an Award shall be, for all purposes, the date
on which the Administrator makes the determination granting such Award, or such other later date as
is determined by the Administrator. Notice of the determination shall be provided to each
Participant within a reasonable time after the date of such grant.

     18. Conditions Upon Issuance of Shares.

	 	(a)	 	Legal Compliance. Shares shall not be issued pursuant to the exercise
of an Award unless the exercise of such Award and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with
respect to such compliance.
	 
	 	(b)	 	Investment Representations. As a condition to the exercise of an
Award, the Company may require the person exercising such Award to
represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required.

     19. Inability to Obtain Authority. The inability of the Company to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of
any liability in respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

     20. Reservation of Shares. The Company, during the term of this Plan, will at all
times reserve and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

     21. Withholding Taxes.

	 	(a)	 	Cash. Whenever cash is to be paid pursuant to an Award, the Company
shall have the right to deduct therefrom an amount sufficient to
satisfy any federal, state and local withholding tax requirements
related thereto.
	 
	 	(b)	 	Shares. Whenever Shares are to be delivered pursuant to an Award, the
Company shall have the right to require the Participant to remit to
the Company in cash an amount sufficient to satisfy any federal, state
and local withholding tax requirements related thereto. With the
approval of the Administrator, in its sole discretion, a Participant
may satisfy the foregoing requirement by electing to have the Company
withhold from delivery Shares having a value equal to the amount of
tax to be withheld. Such Shares shall be valued at their Fair Market
Value on the date as of which the amount of tax to be withheld is
determined. Fractional share amounts shall be settled in cash
contemporaneously with the settlement or exercise of the Award. Such a
withholding election may be made with respect to all or any portion of
the Shares to be

12

 

	 	 	 	delivered pursuant to an Award. All elections by a
Participant to have Shares withheld for these purposes shall be made
in such form and under such conditions as the Administrator may deem
necessary or advisable.

     22. Notification of Election Under Section 83(b) of The Code. If any Participant
shall, in connection with the acquisition of Shares under the Plan, make the election permitted
under Section 83(b) of the Code (i.e., an election to include in gross income in the year of
transfer the amounts specified in Section 83(b)), such Participant shall notify the Company of such
election within ten (10) days of filing notice of the election with the Internal Revenue Service,
in addition to any filing and notification required pursuant to regulations issued under the
authority of Code Section 83(b).

     23. Escrow. Each share of Restricted Stock issued pursuant to the terms of the Plan
which has not vested shall be held in escrow pursuant to the terms of the Award Agreement. The
Company may retain the certificates representing the Restricted Stock in the Company’s possession
until such time as all conditions and/or restrictions applicable to such Shares have been
satisfied.

     24. Shareholder Approval; Term. The Plan became effective on May 12, 2005 and shall expire at
a date ten (10) years from this date unless terminated earlier under Section 25 of the Plan.
Notwithstanding the foregoing, the expiration of this Plan shall have no effect the rights of
Participants under Awards previously granted to them, and all unexpired Awards shall continue in
force and operation after termination of the Plan except as they may lapse or be terminated by
their own terms and conditions.

     25. Amendment and Termination of the Plan.

	 	(a)	 	Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.
	 
	 	(b)	 	Shareholder Approval. The Company shall obtain shareholder approval of
any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
	 
	 	(c)	 	Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Participant, unless mutually agreed otherwise between the Participant
and the Administrator, which agreement must be in writing and signed
by the Participant and the Company. Termination of the Plan shall not
affect the Administrator’s ability to exercise the powers granted to
it hereunder with respect to Awards granted under the Plan prior to
the date of such termination.

          26. Compliance with Section 409A of the Code

This Plan is intended to be exempt from Section 409A of the Code and, to the maximum extent
permitted by law, shall be interpreted, administered and operated consistent with this intent.
Nothing in this Plan should be construed as a guarantee of any particular tax treatment to a
Participant.

13EX-10.7

 

Exhibit 10.7

DIAMOND HILL INVESTMENT GROUP, INC.

AMENDED AND RESTATED

2006 PERFORMANCE-BASED COMPENSATION PLAN

l.00      PURPOSE

This Plan was established effective March 31, 2006 (“Effective Date”) to foster and promote the
Company’s long-term financial success and to increase shareholder value [1] by providing
Participants an opportunity to earn incentive compensation if specified objectives are met, [2] by
enabling the Company to attract and retain the services of outstanding persons upon whose judgment,
interest and dedication the successful conduct of the Company’s business is largely dependent and
[3] by maximizing the deduction of compensation paid to Participants.

The Plan is hereby amended and restated effective [January 1, 2008].

2.00       DEFINITIONS

When used in this Plan, the following words, terms and phrases will have the meanings given to them
in this section unless another meaning is expressly provided elsewhere in this document. When
applying these definitions, the form of any word, term or phrase will include any of its other
forms.

Act. The Securities Exchange Act of 1934, as amended.

Affiliate. Any entity related to the Company through application of rules prescribed under Treas.
Reg. §1.162-27(c)(1)(ii).

Board. The Company’s Board of Directors or similar governing body.

Code. The Internal Revenue Code of 1986, as amended.

Change in Control. The occurrence of any of the following events:

[1] Any “person” [as used in Act §§13(d) and 14(d)] becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Act), directly or indirectly, of Company securities
representing 50 percent or more of the total voting power represented by the Company’s then
outstanding voting securities;

[2] The consummation of the sale or disposition by the Company of all or substantially all
of the Company’s assets;

[3] A change in the composition of the Board occurring within a two-year period, as a result
of which fewer than a majority of the directors are Incumbent Directors; or

[4] The consummation of a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting

1

 

securities of the Company outstanding immediately prior to the merger or consolidation
continuing to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or any entity related through common control to the
surviving entity) at least 50 percent of the total voting power represented by the voting
securities of the Company, the surviving entity or any entity related through common control
to the surviving entity outstanding immediately after such merger or consolidation.

Committee. The Board’s Compensation Committee which also constitutes a “compensation committee”
within the meaning of Treas. Reg. §1.162-27(c)(4). The Committee will be comprised of at least
three persons [1] each of whom is [a] an outside director, as defined in Treas. Reg.
§1.162-27(e)(3)(i) and [b] a “non-employee” director within the meaning of Rule 16b-3 under the Act
and [2] none of whom may receive remuneration from the Company or any Affiliate in any capacity
other than as a director, except as permitted under Treas. Reg. §1.162-27(e)(3)(ii).

Company. Diamond Hill Investment Group, Inc., an Ohio corporation, and any successor to it.

Disability or Disabled. A Participant’s inability due to illness, accident or otherwise to perform
his duties for the period of time during which benefits are payable to the Participant under the
Company’s Short-Term Disability Plan, as determined by an independent physician selected by the
Committee and reasonably acceptable to the Participant (or to his or her legal representative).

Employee. Any person employed by the Company or any Affiliate, with the status of employment
determined based upon such factors as are deemed appropriate by the Committee in its discretion,
subject to any requirements of the Code. Neither service solely as a Board member nor payment of
fees for services as a Board Member will be sufficient to constitute “employment” by the Company.

Incumbent Director. Any persons who either [1] are members of the Board as of the Effective Date
or [2] are elected or nominated for election to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of that election or nomination (but will not
include an individual whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of persons to the Board).

Participant. Any Employee who has met the requirements described in Section 3.00.

Participation Agreement. The form that the Committee and each Participant must complete within the
period described in Section 3.02.

Payment Date. The date the Committee establishes for the payment of any amount due under this
Plan. The Payment Date may be no later than the 15th day of the third month beginning
after the end of the calendar year or the Company’s fiscal year (whichever is later) during which
or with which the applicable Performance Cycle ends.

Performance Criteria. The business criteria listed in Section 4.01[2].

2

 

Performance Cycle. The period over which the Committee will apply the Performance Criteria to
establish the amount (if any) payable under this Plan to each Participant. No Performance Cycle
may be shorter than a full calendar quarter.

Plan. This Plan, the Diamond Hill Investment Group, Inc. Amended and Restated 2006
Performance-Based Compensation Plan.

Retirement. Termination of a Participant’s employment at or after age 60.

Stock. The common shares, without par value, of the Company.

3.00      PARTICIPATION

3.01 Designation of Participants. Subject to Section 3.02, the Committee may designate any
Employee to participate in this Plan. The Committee will send each Participant a Participation
Agreement specifying [1] the Performance Criteria that must be met if he or she is to receive an
amount at the end of the Performance Cycle and [2] the basis on which that amount will be
calculated. However, preparing and sending a Participation Agreement under this section and
signing and returning a Participation Agreement as required under Section 3.02 need not be
completed within the period described in Section 4.01[5].

3.02 Retroactive Loss of Eligibility. Any Employee who has been designated as a Participant must
complete and return a signed Participation Agreement to the Committee within 60 days after
receiving that form from the Committee. If this is not done, the Employee will not be eligible to
receive any amount under this Plan and his or her eligibility will be revoked retroactively as of
the beginning of the applicable Performance Cycle.

4.00       ADMINISTRATION

4.0l Performance Criteria.

[1] For each Performance Cycle, the Committee will [a] establish the amount that each
Participant will receive if applicable Performance Criteria are met and [b] develop the
Performance Criterion or Performance Criteria that will be applied to determine the amount
payable under the Plan. The amount payable under the Plan may be stated as a specific
dollar amount, a percentage (the sum of all of which may not be larger than 100 percent) of
an aggregate amount allocable to all or specified groups of Participants or in any other
objectively determinable manner. Also, [c] the amount payable may be stated as a target
bonus due if applicable Performance Criteria or Performance Criterion are met and in larger
or smaller increments if the Performance Criteria or Performance Criterion are exceeded or
partially met and [d] the amount payable may not be increased solely due to another
Participant’s termination of employment or eligibility during a Performance Cycle.

[2] The Performance Criteria to be applied to determine the amount due under the Plan will
be based upon (or derived from) one or more of the following factors:

3

 

[a] Operating profit margins;

[b] Earnings per share (i.e., net income divided by a weighted average number of shares of Stock outstanding and dilutive common equivalent shares deemed
outstanding);

[c] Net income;

[d] Investment performance of the Company’s investment strategies;

[e] Operating Income (i.e., income from operations excluding unusual items);

[f] Calculation of the Company’s intrinsic value;

[g] Return on equity (i.e., net income divided by average shareholders’ equity);

[h] Return on sales (i.e., operating income before incentive compensation divided by
revenue); and

[i] Revenue (i.e., net sales).

[3] Different Performance Criteria may be applied to individual Participants or to groups of
Participants and, as specified by the Committee, may be based on the results achieved [a]
separately by the Company or any Affiliate, [b] any combination of the Company and one or
more Affiliates or [c] any combination of segments, products or divisions of the Company and
one or more Affiliates.

[4] The Committee will make appropriate adjustments to reflect the effect on any Performance
Criteria of any Stock dividend or Stock split, recapitalization (including, without
limitation, the payment of an extraordinary dividend), merger, consolidation, combination,
spin-off, distribution of assets to shareholders, exchange of shares or similar corporate
change. This adjustment to the Performance Criteria will be made [a] to the extent the
Performance Criteria are based on Stock, [b] as of the effective date of the event and [c]
for the Performance Cycle in which the event occurs. Also, the Committee will make a
similar adjustment to any portion of Performance Criteria that is not based on Stock but
which is affected by an event having an effect similar to those just described.

[5] Performance Criteria will be established before the outcome is substantially certain but
in no event later than the earlier of:

[a] 90 days after the beginning of the applicable Performance Cycle; or

[b] The expiration of 25 percent of the applicable Performance Cycle.

4.02 Certification. As of the end of each Performance Cycle, the Committee will certify the extent
to which each Participant has or has not met his or her Performance Criteria and the

4

 

amount (if any) due to each Participant. However, regardless of any other Plan provision, during
any calendar year, no Participant may receive more than $5,000,000 through this Plan. Also, no
amount will be paid under this Plan (and no substitute amount will be paid under any other
arrangement) if the conditions imposed by the Committee have not been met.

4.03 Administration. The Committee is responsible for administering the Plan. In addition to the
duties described elsewhere in this Plan, the Committee, by majority action, may [1] prescribe,
amend and rescind rules and regulations relating to the Plan, [2] provide for conditions deemed
necessary or advisable to protect the interests of the Company and [3] interpret the Plan and
supply any missing terms needed to administer the Plan. Determinations, interpretations or other
actions made or taken by the Committee under the provisions of this document will be final, binding
and conclusive for all purposes and upon all persons.

4.04 Reduction. Regardless of any other provision of this Plan:

[1] The amount due under the Plan will be reduced to the extent required to comply with any
applicable law or regulation affecting its payment and may be reduced, at the Committee’s
discretion, to discharge any liability owed to the Company by the Participant; and

[2] In its sole discretion and for any reason (or for no reason), the Committee may
unilaterally reduce any amount otherwise due under this Plan even if that action occurs
during the Performance Cycle or after the Performance Cycle has been completed.

5.00      EFFECT OF TERMINATION OF EMPLOYMENT DURING PERFORMANCE CYCLE; CHANGE IN CONTROL

5.01 Effect of Termination of Employment During Performance Cycle for Reasons Other Than
Retirement, Death or Disability. Except as provided in Section 5.02 and subject to any other Plan
term, employment contract or other agreement between the Company and the Participant, a Participant
who terminates employment before the end of a Performance Cycle or after the end of a Performance
Cycle but before the Payment Date will forfeit all right to receive any amount under this Plan
other than amounts due on account of any Performance Cycle that ended before his or her termination
(e.g., if the Committee has not then valued or distributed amounts earned during a Performance
Cycle that ended before the Participant terminated).

5.02 Effect of Retirement, Death or Disability During Performance Cycle. Subject to any other Plan
term, employment contract or other agreement between the Company and the Participant, a Participant
who Retires, dies or becomes Disabled:

[1] After the end of a Performance Cycle but before the Payment Date, will be entitled to
receive the full amount otherwise payable on the Payment Date.

[2] During a Performance Cycle, will receive a prorated distribution at the end of the
Performance Cycle during which he or she Retired, died or became
Disabled. The

5

 

amount of
this distribution will be calculated at the end of the Performance Cycle by applying the
following procedure:

[a] As of the end of the Performance Cycle during which the affected Participant
Retired, died or became Disabled, the Committee will apply the Performance Criteria
to measure the portion of the amount that otherwise would have been due to the
Participant had he or she not terminated. This calculation will be made in the
manner described in (and subject to) Section 4.00 and will be made as if the
Retired, deceased or Disabled Participant had remained actively employed throughout
the Performance Cycle.

[b] The Committee then will multiply the amount produced under Section 5.02[2][a] by
a fraction, the numerator of which is the number of whole calendar months during
which the Retired, deceased or Disabled Participant was actively employed during the
Performance Cycle and the denominator of which is the number of whole calendar
months in the Performance Cycle.

[c] Then, the Committee will direct the Company to distribute the amount calculated
in the form and at the time described in Section 6.00 to, as appropriate, the
Retired or Disabled Participant or to the beneficiary of the deceased Participant.

5.03 Effect of Change in Control. Unless otherwise specified in a separate agreement between the
Company and the Participant (including the Participation Agreement):

[1] Within 60 days after the completion of a Change in Control, the Company will distribute
to each Participant the maximum amount that could have been earned for the Performance Cycle
during which (or ending coincident with) the Change in Control occurs, multiplied by a
fraction which is the number of whole months between the beginning of that Performance Cycle
and the date of the Change in Control and the denominator of which is the number of whole
months included in that Performance Cycle. This distribution will be made whether or not
the Performance Criteria for that Performance Cycle have been met and whether or not the
pending Performance Cycle has been completed.

[2] Subject to any other written agreement to the contrary between the Company and the
Participant which implicitly or explicitly encompasses this Plan, if the sum of the payments
described in this section and those provided under all other plans, programs or
agreements between the Participant and the Company or any Subsidiary generate a loss of
deduction under Code §280G or an excise tax under Code §4999, the Company will reduce the
amounts paid to the Participant under this Plan so that his or her total “parachute payment”
as defined in Code §280G(b)(2)(A) under this and any all other plans, programs or agreements
between the Participant and the Company or Subsidiary will be $1.00 less than the amount
that would generate a loss of deduction under Code §280G and an excise tax under Code §4999.

6

 

5.04 Noncompetition Covenant. As a condition of participating in this Plan, each Participant
agrees that for a period of one year following his or her termination of employment with the
Company and all Affiliates (or any other period specified in another written agreement between the
Company and the Participant addressing a similar covenant), he or she will not:

[1] Own, manage, control or participate in the ownership, management or control of, or be
employed or engaged by or otherwise affiliated or associated as an employee, officer,
director, consultant, independent contractor or otherwise with, any other corporation,
limited liability company, partnership, proprietorship, firm, association, or other business
entity which is a registered investment adviser; provided, however, that the ownership of
not more than one percent of the stock of any publicly traded corporation shall not be
deemed a violation of this covenant;

[2] Employ, assist in employing, or otherwise associate in the business of providing
investment advice, with any present or former employee, officer or agent of the Company or
any Affiliate; and

[3] Induce any person who is an employee, officer or agent of the Company or any Affiliate
to terminate said relationship.

If a Participant breaches the covenant set forth in this section, the term of the covenant will be
extended by the period of the duration of such breach and the covenant.

The restrictions on competition provided in this section may be enforced by the Company and/or any
successor to the Company, by an action to recover payments made under this Plan, an action for
injunction, and/or an action for damages. The provisions of this section constitute an essential
element of this Plan, without which the Company would not have entered into this Plan or allowed
the Participant to become a Participant. Notwithstanding any other remedy available to the Company
at law or at equity, the Company and the Participant agree that the Company or any successor to the
Company, will have the right, at any and all times, to seek injunctive relief in order to enforce
the terms and conditions of this section.

If the scope of any restriction contained in this Paragraph 8 is too broad to permit enforcement of
such restriction to its fullest extent, then such restriction will be enforced to the maximum
extent permitted by law, and the Executive hereby consents and agrees that such scope may be
judicially modified accordingly in any proceeding brought to enforce such restriction.

6.00      FORM AND TIME OF DISTRIBUTION

Subject to Section 8.04 and except as provided in Section 5.03, the amount determined by applying
the procedures described in Sections 4.00 and 5.00 will be distributed in a lump sum no later than
the Payment Date established by the Committee for that Performance Cycle. Also, no additional
amount will be due on account of the period during the end of the applicable Performance Cycle and
the payment date. The distribution will be made in cash or shares of Stock as specified in the
Participation Agreement. Any shares of Stock earned under this Plan will be issued as “Stock
Grants” through the Diamond Hill Investment Group, Inc. 2005

7

 

Employee and Director Equity Incentive
Plan (subject to the terms and limitations imposed on Share Grants under that plan) or comparable
forms of grant under any successor plan.

7.00      AMENDMENT, MODIFICATION AND TERMINATION OF PLAN

The Board or the Committee may terminate, suspend or amend the Plan at any time without shareholder
approval except to the extent that shareholder approval is required to satisfy applicable
requirements imposed by [1] applicable requirements of the Code or [2] any securities exchange or
electronic quotation system on which the Company’s securities are listed or quoted. Also, no Plan
amendment may [3] result in the loss of a Committee member’s status as a “non-employee director” as
defined in Rule 16b-3 under the Act, or any successor rule or regulation, with respect to any
employee benefit plan of the Company or [4] without the consent of the affected Participant
adversely affect his or her ability to earn any amount for which Performance Criteria were
established before the amendment, modification or termination of the Plan. Nothing in this section
(or any other Plan provision) will restrict the Company’s right to amend the Plan and any
Participation Agreement without any additional consideration to affected Participants to the extent
necessary to avoid penalties arising under Code §409A, even if those amendments reduce, restrict or
eliminate rights granted under the Plan or Participation Agreement (or both) before those
amendments.

8.00      MISCELLANEOUS

8.01 Assignability. Except as provided in Section 8.02, no Participant may transfer, alienate,
pledge, hypothecate, transfer or otherwise assign his or her rights to receive a distribution under
the Plan to any other person and any attempt to do so will be void.

8.02 Beneficiary Designation. Each Participant may from time to time name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any amount under the Plan
will be paid as provided in Section 5.02. Each designation must be made on a form acceptable to
the Committee and will be effective only after it is delivered to the Committee. In the absence of
any beneficiary designation, amounts remaining unpaid at the Participant’s death will be paid to
the deceased Participant’s surviving spouse, if any, or otherwise to his or her estate. The
Participant (and his or her beneficiary) and not the Company or the Committee is responsible for
keeping the Committee apprised of the beneficiary’s address. Also, neither the Company nor the
Committee is required to search for any beneficiary beyond sending a registered letter to the
beneficiary at the latest address given to it by the Participant or beneficiary.

8.03 No Guarantee of Employment or Participation. Nothing in the Plan will interfere with or limit
in any way the right of the Company or any Subsidiary to terminate any Participant’s
employment at any time, nor confer upon any Participant any right to continue in the employ of the
Company or any Subsidiary. Also, [1] receipt of an amount for any Performance Cycle is no
guarantee that a Participant will receive a similar (or any) amount for any subsequent Performance
Cycle and [2] establishment of Performance Criteria for any Performance Cycle is no guarantee that
identical or similar criteria will be established for any subsequent Performance Cycle.

8

 

8.04 Tax Withholding. Upon distributing any amount under the Plan, the Company will withhold an
amount sufficient to satisfy federal, state and local income and employment tax withholding
requirements imposed on the amount of any distribution under the Plan.

8.05 Indemnification. Each person who is or has been a member of the Committee or of the Board
will be indemnified and held harmless by the Company against and from any loss, cost, liability or
expense that may be imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit or proceeding to which he or she may be made a party or in
which he or she may be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof, with the Company’s
approval, or paid by him or her in satisfaction of any judgment in any such action, suit or
proceeding against him or her, provided he or she gives the Company an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle and defend it on his
or her own behalf. The foregoing right of indemnification is not exclusive and is independent of
any other rights of indemnification to which such persons may be entitled under the Company’s Code
of Regulations, by contract, as a matter of law or otherwise.

8.06 No Limitation on Compensation. Nothing in the Plan is to be construed to limit the right of
the Company to establish other plans or to pay compensation to its employees, in cash or property,
in a manner not expressly authorized under this document.

8.07 Governing Law. The Plan, and all agreements under it, will be construed in accordance with
and governed by the laws of the State of Ohio.

8.08 Resolution of Disputes.

[1] Any controversy of claim arising out of, or relating to, this Plan will be settled by
arbitration in the city of Columbus, Ohio, in accordance with the Rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrator or arbitrators
may be entered in any court of competent jurisdiction.

[2] If the Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Participant is entitled to that payment, the payment will be
increased to reflect an interest equivalent for the period of delay, compounded annually,
equal to the prime or base lending rate used by The Huntington National Bank and in effect
as of the date the payment was first due.

[3] The costs of arbitration will be borne solely by the person by whom they are incurred.

Any disputed payments shall be addressed consistent with Treasury Regulation § 1.409A-3(g).

8.09 Term of Plan. The Plan became effective [on March 31, 2006]. The Plan will expire no later
than the first annual meeting of the Company’s shareholders that occurs in the fifth year following
the year in which the Company’s shareholders approve this Plan.

9

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