EXHIBIT 10
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DONEGAL GROUP INC.
2001 EMPLOYEE STOCK PURCHASE PLAN
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As Amended May 30, 2001
SECTION 1. PURPOSE.
The Donegal Group Inc. 2001 Employee Stock Purchase Plan has been
established by Donegal Group Inc. (the "Company") for the benefit of the
eligible employees of the Company, its parent, Donegal Mutual Insurance Company
(the "Mutual Company"), and participating subsidiaries of the Company and of the
Mutual Company. 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 current market prices. This Plan
is intended to 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")
shall consist of all individuals: (i) who are full-time employees (as defined in
Section 2(b) of this Plan) of the Company, the Mutual Company or any subsidiary
(as defined in Section 425 of the Code) of the Company or the Mutual Company (a
"Participating Subsidiary"), and (ii) who have completed one month of employment
on or prior to the date on which an Enrollment Period (as hereinafter defined)
begins.
(b) A "full-time employee" is an employee of the Company, the Mutual
Company or any Participating Subsidiary who works or is scheduled to work at
least 1,000 hours during any calendar year. 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, shall be considered 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 shall not be granted any
right to purchase shares of the Class A Common Stock under this Plan to the
extent that: (i) based on such person's ownership of the Class A Common Stock at
the time the right is granted, such right, if exercised, would cause the person
to own shares of the Class A Common Stock (including shares that would be owned
if all outstanding options to purchase Common Stock held by such person 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 the
Mutual 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 the Mutual Company 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 or the Mutual Company (determined at the time the right to purchase
Class A Common Stock under this Plan is granted), for each calendar year in
which such right 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 the 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 anything to the contrary set forth in this Plan,
officers of the Company, the Mutual Company or any Participating Subsidiary who
are subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange
Act") with respect to their ownership of shares of the Class A Common Stock
("Section 16 Officers") shall 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 shall be in effect from July 1, 2001 through and including June
30, 2011. During the term of this Plan, there shall be 20 semi-annual
"Subscription Periods." Each Subscription Period shall extend from July 1
through December 31 or from January 1 through June 30, respectively, with the
first Subscription Period beginning on July 1, 2001 and the last Subscription
Period ending on June 30, 2011.
SECTION 4. ENROLLMENT AND ENROLLMENT PERIOD.
Enrollment for participation in this Plan shall take place during the
"Enrollment Period" preceding each Subscription Period, which shall be either
the period from the 1st through the 30th day of June or the period from the 1st
through the 31st day of December of each year, except that the first Enrollment
Period shall be from the 15th day through the 30th day of June, 2001. In
addition, each individual who is enrolled in the Company's 1996 Employee Stock
Purchase Plan and who is an Eligible Employee as of June 30, 2001 shall be
deemed to be enrolled automatically in this Plan effective as of the first
Subscription Period. Except as provided above regarding automatic enrollment in
this Plan as of the first Subscription Period, any person who is an Eligible
Employee and who desires to subscribe for the purchase of Common Stock must file
a subscription agreement during an Enrollment Period, and such employee's
participation in this Plan shall commence at the outset of the next Subscription
Period. Once enrolled, an Eligible Employee shall continue to participate in
this Plan for each succeeding Subscription Period until such Eligible Employee
terminates his or her participation or ceases to be an Eligible Employee. 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 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.
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SECTION 5. NUMBER OF SHARES TO BE OFFERED.
The total number of shares to be made available under this Plan is 300,000
shares of the Class A Common Stock. Such Class A Common Stock may be authorized
and unissued shares or shares issued and thereafter acquired by the Company. In
the event the total number of shares available for purchase under this Plan are
purchased prior to the expiration of this Plan, this Plan may be terminated 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 under this Plan during each Subscription Period shall be the lesser of 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 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 shall
be the closing price reported by the Nasdaq Stock Market on the applicable date;
provided, however, that the Subscription Price shall never be less than the par
value per share of the Class A Common Stock.
SECTION 7. AMOUNT OF CONTRIBUTION AND METHOD OF PAYMENT.
(a) The Subscription Price shall be payable by the Eligible Employee by
means of payroll deduction. The maximum payroll deduction shall be no more than
10% of an Eligible Employee's Base Pay (as hereinafter defined). An Eligible
Employee must authorize a minimum payroll deduction, based on such employee's
rate of 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 previously authorized to be
deducted from his or her Base Pay, provided the reduction conforms with the
minimum payroll deduction set forth in Section 7(a) of this Plan, by forwarding
to the Company a properly completed and executed written notice setting forth
the reduction in his or her payroll deduction. The change shall become effective
on a prospective basis as soon as practicable after receipt by the Company of
the change notice. A payroll deduction may be changed under this Section 7(b),
by forwarding to the Company a properly completed and executed written notice
setting forth the reduction in his or her payroll deduction only once during any
Subscription Period and shall 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 or ceases to be an
Eligible Employee. A Section 16 Officer may not change his or her rate of
contribution during a Subscription Period.
(c) "Base Pay" means the straight-time earnings or regular salary paid to
an Eligible Employee. Base Pay shall not include overtime, bonuses or other
items that are not considered to be regular compensation by the committee
administering this Plan pursuant to Section 14 of this Plan. Payroll deductions
shall commence with the first paycheck issued during the Subscription Period
and, except as set forth in Sections 9 and 10, shall 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.).
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SECTION 8. PURCHASE OF SHARES.
The Company shall maintain on its books for recordkeeping purposes only a
"Plan Account" in the name of each Eligible Employee who authorized a payroll
deduction (a "participant"). At the close of each pay period, the amount
deducted from the participant's Base Pay shall be credited to the participant's
Plan Account. No interest shall be paid by the Company on any Plan Account
balance in any circumstance. As of the last day of each Subscription Period, the
amount then in the participant's Plan Account shall be divided by the
Subscription Price for such Subscription Period as determined pursuant to
Section 6 above, and the participant's Plan Account shall be credited with the
number of whole shares that results. Fractional shares shall not be credited
hereunder. Share certificates shall be issued and delivered to each participant
within a reasonable time thereafter. Any amount remaining in a participant's
Plan Account shall be carried forward to the next Subscription Period, but shall
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, such participant shall be
deemed to have withdrawn from this Plan pursuant to Section 9 of this Plan.
If the number of shares subscribed for during any Subscription Period
exceeds the number of shares available for purchase under this Plan, the
remaining shares available for purchase shall be allocated 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 participant's Plan Account
shall be credited with the maximum number of shares permissible, and the
remaining amounts shall be refunded to Participants 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 receipt of a notice
of withdrawal, the amount credited to the participant's Plan Account shall be
refunded in cash without interest thereon. No further payroll deductions shall
be made 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
shall 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, shall not become effective until the
Subscription Period that commences after the date written notice of such
withdrawal is received by the Company.
SECTION 10. SEPARATION FROM EMPLOYMENT.
Separation from employment for any reason, including death, disability or
retirement (as hereinafter defined) shall be treated 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
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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.
Any cash balance in the Plan Account after such purchase shall be refunded in
cash to the participant, or in the event of the participant's death to the
participant's beneficiary without interest thereon. A transfer of employment
among the Company, the Mutual Company or any Participating Subsidiary or a
change in status that causes an employee to no longer be an Eligible Employee
shall not be treated as a separation from employment. As used in this Section
10, "retirement" means a termination of 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 shall be
void, provided that a participant may acquire the shares of Class A Common Stock
subscribed to under this Plan in the name 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 shall be transferable by the participant otherwise than by will or by
the laws of descent and distribution, and such subscription rights shall be
exercisable, during the participant's lifetime, only by the participant.
SECTION 12. ADJUSTMENT OF AND CHANGES IN THE 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 the Class A Common Stock or of another class of the Company's stock),
spin-off or combination of shares, appropriate adjustments shall be made by the
Committee appointed pursuant to Section 14 of this Plan in the aggregate number
and kind of shares that are reserved for sale under this Plan.
SECTION 13. AMENDMENT OR DISCONTINUANCE OF THIS PLAN.
The Board of Directors of the Company (the "Board") shall have the right to
amend, modify or terminate this Plan at any time without notice, provided that
no participant's existing rights are adversely affected thereby and provided
further that, without the approval of the stockholders of the Company in
accordance with applicable law and regulations, no such amendment shall 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 shall be sold is determined, or change the class of employees
eligible to participate in this Plan.
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SECTION 14. ADMINISTRATION.
This Plan shall be administered by a committee to be appointed by the Board
consisting of three employees of the Company. 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 Board shall be final and
conclusive on all persons. Any interpretation or construction of any provision
of this Plan by the committee shall be final and conclusive on all persons
absent contrary action by the Board.
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.
Such designation of a beneficiary may be changed by the participant at any time
upon written notice. Upon the death of a participant and upon receipt by the
committee 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 shall 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
shall deliver such cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), 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 shall, 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.
SECTION 16. EMPLOYEES' RIGHTS.
Nothing contained in this Plan shall prevent the Company, the Mutual
Company or any Participating Subsidiary from terminating any employee's
employment. No employee shall have any rights as a stockholder of the Company by
reason of participation in this Plan unless and until certificates representing
the shares of Class A Common Stock for which the participant has subscribed
shall have been issued and delivered by the Company.
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SECTION 17. USE OF FUNDS.
All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions. Any account established for a
participant shall 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 herein for convenience only and are not to serve as a
basis for interpretation or construction of this Plan.
SECTION 20. APPLICABLE LAW.
This Plan shall 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 intent of the Company that this Plan
comply in all respects with the requirements of Rule 16b-3, that any ambiguities
or inconsistencies in the construction of this Plan be interpreted to give
effect to such intention and that if this Plan shall not so comply, whether on
the date of adoption or by reason of any later amendment to or interpretation of
Rule 16b-3, the provisions of this Plan shall be deemed to be automatically
amended so as to bring them into full compliance with such rule.
SECTION 22. APPROVAL OF STOCKHOLDERS.
Prior to June 30, 2001, this Plan shall be submitted for approval by the
stockholders of the Company in accordance with applicable law and regulations.
Subscriptions for the purchase of shares under this Plan shall be subject to the
condition that this Plan shall be approved by the stockholders of the Company
prior to such date in the manner contemplated by Section 423(b)(2) of the Code.
If not so approved prior to such date, this Plan shall terminate, all
subscriptions hereunder shall be cancelled and be of no further force or effect
and all participants shall be entitled to the prompt refund in cash, without
interest, of all sums previously deducted from their compensation pursuant to
this Plan.
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