HARLEYSVILLE GROUP INC.
YEAR 2000 DIRECTORS' STOCK OPTION PROGRAM
APPROVED BY BOARD OF DIRECTORS
FEBRUARY 24, 1999
HARLEYSVILLE GROUP INC.
YEAR 2000 DIRECTORS' STOCK OPTION PROGRAM
APPROVED BY BOARD OF DIRECTORS
FEBRUARY 24, 1999
T A B L E O F C O N T E N T S
I. INTRODUCTION...................................................1
A. Purpose of the Program.................................1
B. Definitions............................................1
II. PROGRAM ADMINISTRATION.........................................2
A. Administration.........................................2
B. Participation..........................................3
C. Maximum Number of Shares Available.....................3
D. Adjustments............................................3
E. Registration Conditions................................3
F. General Provisions.....................................4
III. STOCK OPTIONS..................................................4
A. Price..................................................4
B. Amount and Timing of Grants............................4
C. Exercisability of Options..............................5
D. Period.................................................5
E. Exercise Procedures....................................5
F. Payment................................................5
G. Termination of Service.................................5
H. Retirement, Disability or Death........................5
IV. MISCELLANEOUS PROVISIONS.......................................6
A. Amendment, Suspension and Termination of Program.......6
B. Government and Other Regulations.......................6
C. Other Compensation Plans and Programs..................6
D. Transferability........................................6
E. Withholding Taxes......................................6
F. Construction of Program................................6
G. Unfunded Program.......................................6
H. Pronouns, Singular and Plural..........................6
I. Effective Dates........................................7
J. Limitation of Rights...................................7
HARLEYSVILLE GROUP INC.
YEAR 2000 DIRECTORS' STOCK OPTION PROGRAM
I. INTRODUCTION
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A. PURPOSE OF THE PROGRAM: Harleysville Group Inc. (the "Company) has
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established the Program to further its long-term financial success
by offering stock options to non-employee Directors of the Company
and of its parent, Harleysville Mutual Insurance Company, whereby
such Directors can share in achieving and sustaining such success.
The Program also provides a means to attract and retain the
Directors needed to achieve the Company's and the Parent's long-
term growth and profitability objectives. No more option grants
shall be made after May 1999 under the 1995 Directors' Stock
Option Program.
B. DEFINITIONS: When used in the Program, the following terms shall
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have the meanings set forth below:
"Award(s)" shall mean Non-Qualified Stock Options made under the
Program.
"Board" shall mean the Board of Directors of the Company and the
Board of Directors of the Parent.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Harleysville Group Inc., a Delaware
corporation, and any successor in a reorganization or similar
transaction.
"Committee" shall mean the Compensation & Personnel Development
Committee of the Board of Directors, which shall administer the
Program. The Committee shall be composed of at least two persons
who are from time to time appointed to serve by the Board of the
Company.
"Common Stock" shall mean the common stock of the Company, par
value of $1.00 per share, and may be either stock previously
authorized but unissued, or stock reacquired by the Company.
"Director" shall mean a member of the Board of Directors of the
Company or a member of the Board of Directors of the Parent.
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Year 2000 Directors' Stock Option Program
Page No. 2
"Disability" shall mean the inability of a Participant to perform
the services normally rendered due to any physical or mental
impairment that can be expected to be of either permanent or
indefinite duration, as determined by the Committee on the basis
of appropriate medical evidence, and that results in the
Participant's Termination of Service.
"Fair Market Value" shall mean with respect to a given day, the
closing price of Common Stock, as reported by such responsible
reporting service as the Committee may select, or if there were no
transactions in the Common Stock on such day, then the last
preceding day on which transactions took place. The foregoing
notwithstanding, the Committee may determine the Fair Market Value
in such other manner as it may deem more appropriate for Program
purposes or as is required by applicable laws or regulations.
"1995 Program" shall mean the 1995 Directors' Stock Option
Program.
"Non-Qualified Stock Option" or "NQSO" shall mean a right to
purchase the Company's Common Stock which is not intended to
comply with the terms and conditions for an incentive stock
option, as set forth in Section 422A of the Code, or such other
sections of the Code as may be in effect from time to time.
"Parent" shall mean Harleysville Mutual Insurance Company.
"Participant" shall mean an active member of the Board who is not
an officer or full-time salaried employee of the Company or of the
Parent.
"Program" shall mean the Company's Year 2000 Directors' Stock
Option Program.
"Termination of Service" shall mean a cessation of the
Participant's Board service for any reason.
II. PROGRAM ADMINISTRATION
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A. ADMINISTRATION: The Program shall be administered by the
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Committee. Subject to the express provisions of the Program, the
Committee shall have authority to interpret the Program, to
prescribe, amend and rescind rules and regulations relating to the
Program and to make all other determinations deemed necessary or
advisable in the implementation and administration of the Program;
provided, however, that the Committee shall have no discretion
with respect to the eligibility or selection of Directors to
receive options under the Program, the number of shares of stock
subject to any such options under the Program, or the purchase
price thereunder, and provided further that the Committee shall
not have the authority to take any action or make any
determination that would materially increase the benefits accruing
to Participants under the Program. The determination of the
Committee in the administration of the Program, as described
herein, shall be final, conclusive and binding upon all persons
including, without limitation,
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Year 2000 Directors' Stock Option Program
Page No. 3
the Company, its stockholders and the persons granted options
under the Program. The Secretary of the Company shall be
authorized to implement the Program in accordance with its terms
and to take such action of a ministerial nature as shall be
necessary to effectuate the intent and purposes thereof.
B. PARTICIPATION: All current and future non-employee active
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Directors of the Company and the Parent who hold office at any
time between the May 2000 Board Meeting and the May Board Meeting
in 2004 shall be eligible to participate in the Program. Non-
employee Directors as of the May 2000 Board of Directors Meeting
shall automatically participate in the Program. Future non-
employee Directors, including an employee Director who becomes a
non-employee Director, will automatically participate in the
Program as of the date of the first May meeting of the Board of
Directors following election to the Board of Directors, or at the
first May Board of Directors meeting after becoming a non-employee
Director (whether or not newly elected to the Board) at or prior
to the May 2004 Board of Directors meeting.
C. MAXIMUM NUMBER OF SHARES AVAILABLE: The maximum number of shares
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for which options may be granted under the Program is 123,500,
subject to adjustment as provided under Article II, Paragraph D,
of the Program. The shares made available are comprised of all
shares not issued under the 1990 Directors' Stock Option Program
and 1995 Directors' Stock Option Program, with any additional
amount of shares concurrently necessary, up to a maximum of
123,500, to be made available through a reduction in the amount of
total shares reserved for the Company' s Equity Incentive Plan
approved in 1997.
Stock options which expire or are terminated, cancelled or
forfeited in accordance with the Program shall again be available
for Award under the Program.
D. ADJUSTMENTS: In the event of stock dividends, stock splits,
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re-capitalizations, mergers, consolidations, combinations,
exchanges of shares, spin-offs, liquidations, reclassifications or
other similar changes in the capitalization of the Company, the
number of shares of Common Stock available for grant under this
Program shall be adjusted proportionately, and the number of
shares, and the option price of outstanding stock options shall be
similarly adjusted. Also, in instances where another business
entity is acquired by the Company or its Parent, and the Company
or its Parent has assumed outstanding option grants under a prior
existing plan of the acquired entity, similar adjustments are
permitted at the discretion of the Board of the Company. In the
event of any other change affecting the Common Stock reserved
under the Program, such adjustment, if any, as may be deemed
equitable by the Committee, shall be made to give proper effect to
such event.
E. REGISTRATION CONDITIONS:
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1. Unless issued pursuant to a registration statement under the
Securities Act of 1933, as amended, no shares shall be
issued to a Participant under the Program unless the
Participant represents and agrees with the Company that such
shares are being acquired for investment and not with a view
to the resale or distribution thereof, or such other
documentation as may be
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Year 2000 Directors' Stock Option Program
Page No. 4
required by the Company, unless in the opinion of counsel to
the Company such representation, agreement or documentation
is not necessary to comply with such Act.
2. Any restriction on the resale of shares shall be evidenced
by an appropriate legend on the stock certificate.
3. The Company shall not be obligated to deliver any Common
Stock until it has been listed on each securities exchange
on which the Common Stock may then be listed or until there
has been qualification under or compliance with such federal
or state laws, rules or regulations as the Company may deem
applicable. The Company shall use reasonable efforts to
obtain such listing, qualification and compliance.
F. GENERAL PROVISIONS: Each Award under the Program shall be
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subject to the requirement that if at any time the Committee
shall determine that (i) the listings, registrations or
qualifications of the shares of Common Stock subject or related
thereto upon any securities exchange or under any state or
federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the recipient of an
Award with respect to the disposition of shares of Common Stock
is necessary or desirable as a condition of or in connection with
the granting of such Award or the issuance or purchase of shares
of Common Stock thereunder, such Award shall not be consummated
in whole or in part unless such listing, registration,
qualification, consent, approval, or agreement shall have been
effected or obtained free of any conditions not acceptable to the
Committee.
III. STOCK OPTIONS
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All stock options granted to Participants under the Program shall be
Non-Qualified Stock Options and evidenced by a Notice of Award which
shall be subject to applicable provisions of the Program, and such
other provisions as the Committee may adopt, including the following
provisions:
A. PRICE: The option price per share shall be one hundred percent
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(100%) of the Fair Market Value of a share of Common Stock at the
close of business on the date of grant.
B. AMOUNT AND TIMING OF GRANTS: An incumbent Director shall receive
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a grant of 2,500 Non-Qualified Stock Options at the Year 2000 May
Board Meeting and a grant of 2,500 options at each May Board
Meeting thereafter for four successive years until and including
the May 2004 Board Meeting, except that if an incumbent Director
has options under the 1995 Program that vest in the same year as
an award of options under this Program then the amount of shares
awarded in that year shall be reduced by the number of shares that
vest that year under the 1995 Program. For Directors first elected
after May 2000, or for an employee Director becoming a non-
employee Director after May 2000, he or she shall receive a grant
of 2,500 options at the first May Board Meeting following election
or an employee
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Year 2000 Directors' Stock Option Program
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Director becoming a non-employee Director and a grant of 2,500
options at each May Board Meeting thereafter occurring in or
before May 2004. No options shall be granted under this Program
after May 2004.
In the event that at a May Board meeting there are insufficient
shares remaining in the Program on which to grant 2,500 options to
each Director otherwise entitled to receive options, then the
remaining shares shall be divided by the number of Participants
and options shall be granted to the Participants in an amount
equal to the whole number so determined.
C. EXERCISABILITY OF OPTIONS: All options vest and are
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exercisable as of the day of grant.
D. PERIOD: Stock options shall have a term of ten years from
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the date of grant and shall expire at 5:00 p.m. on the tenth
anniversary of the grant, subject to earlier expiration or
termination as set forth herein.
E. EXERCISE PROCEDURES: A stock option, or portion thereof,
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shall be exercised by delivery of a written notice of
exercise to the Secretary of the Company, and payment of the
full price of the shares being purchased.
F. PAYMENT: The price of an exercised stock option, or portion
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thereof, may be paid:
1. in cash or by check, bank draft or money order payable
to the order of the Company, or
2. through the delivery of shares of the Company's Common
Stock owned by the Participant, having an aggregate
Fair Market Value as determined on the date of exercise
equal to the option price, or
3. by a combination of both 1 and 2 above.
G. TERMINATION OF SERVICE: In the event of the Termination of
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Service on the Board by a Director, other than by reason of
retirement, Disability or death as set forth in paragraph H
hereof, the then outstanding options of such Director may be
exercised within one hundred twenty days after such
termination, or on their stated expiration date, whichever
occurs first. For purposes of this Program, the term "by
reason of retirement" shall mean mandatory retirement at age
72 pursuant to Board policy.
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Year 2000 Directors' Stock Option Program
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H. RETIREMENT, DISABILITY OR DEATH: In the event of Termination of
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Service by reason of retirement (as defined above) or death, or
Disability of a Director, the Director or his/her guardian or
legal representative may exercise all options within two years
after such retirement, death or Disability, or on their stated
expiration date, whichever occurs first.
IV. MISCELLANEOUS PROVISIONS
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A. AMENDMENT, SUSPENSION AND TERMINATION OF PROGRAM: The Board of
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Directors may suspend or terminate the Program or revise or amend
it in any respect whatsoever; provided, however, that without
approval of the stockholders, no revision or amendment shall
change the selection or eligibility of Directors to receive
options under the Program, the number of shares of stock subject
to any such options of the Program, the purchase price thereunder,
or materially increase the benefits accruing to Participants under
the Program.
B. GOVERNMENT AND OTHER REGULATIONS: The obligation of the Company to
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issue Awards under the Program shall be subject to all applicable
laws, rules and regulations, and to such approvals by any
government agencies as may be required.
C. OTHER COMPENSATION PLANS AND PROGRAMS: The Program shall not
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be deemed to preclude the implementation by the Company or
its Parent of other compensation plans or programs which may
be in effect from time to time.
D. TRANSFERABILITY: No right or interest of any Participant in any
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Award under the Program shall be (a) assignable or transferable,
except by will or the laws of descent and distribution or a valid
beneficiary designation made in accordance with procedures
established by the Committee, and (b) liable for, or subject to,
any lien, obligation or liability.
E. WITHHOLDING TAXES: The Company shall have the right to require a
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payment from a Participant to cover applicable withholding for any
federal, state or local taxes, if any. The Company reserves the
right to offset such tax payment from any other funds which may be
due the Participant by the Company.
F. CONSTRUCTION OF PROGRAM: The interpretation of the Program and the
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application of any rules implemented hereunder shall be determined
in accordance with the laws of the Commonwealth of Pennsylvania.
G. UNFUNDED PROGRAM: The Program shall be unfunded, and the Company
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shall not be required to segregate any assets which may at any
time be represented by Awards. Any liability of the Company to any
person with respect to an Award under this Program shall be based
solely upon any obligations which may be created by this Program;
no such obligation of the Company shall be deemed to be secured by
any pledge or other encumbrance on any property of the Company.
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Year 2000 Directors' Stock Option Program
Page No. 7
H. PRONOUNS, SINGULAR AND PLURAL: The masculine may be read as
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feminine, the singular as plural, and the plural as singular as
necessary to give effect to the Program.
I. EFFECTIVE DATES: The Program will become effective on approval
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by stockholders. The Program and all outstanding Awards shall
remain in effect until all outstanding Awards have been exercised
or repurchased, have expired or have been cancelled.
J. LIMITATION OF RIGHTS:
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1. No Right to Continue as a Director: Neither the Program, nor
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the granting of an option nor any other action taken pursuant
to the Program, shall constitute or be evidence of any
agreement or understanding, express or implied, that the
Director has a right to continue as a Director for any period
of time, or at any particular rate of compensation.
2. No Share Owners' Rights for Options: A Director who has been
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granted options shall have no rights as a share owner with
respect to the shares covered by options granted hereunder
until the date of the issuance of a stock certificate
therefor, and no adjustment will be made for dividends or
other rights for which the record date is prior to the date
such certificate is issued.