Document:

PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE AGREEMENT

                                     between

                       SOUTHERN HERITAGE INSURANCE COMPANY
                                 Duluth, Georgia

                (hereinafter collectively called the "Reinsured")

                                       and

                  The Reinsurers subscribing to the respective
                   Interests and Liabilities Contract to which
                 this Agreement is attached (hereinafter called
                                the "Reinsurer")

ARTICLE 1  BUSINESS COVERED

This Agreement, subject to the terms and conditions herein contained, is to
indemnify the Reinsured in respect of the net excess liability as herein
provided and specified which may accrue to the Reinsured as a result of any loss
or losses which may occur during the term of this Agreement under any and all
binders, policies, and contracts of insurance or reinsurance (hereinafter
referred to as "policy" or "policies") heretofore or hereafter issued or entered
into by or on behalf of the Reinsured and classified by the Reinsured as
Property, including the property portion of Multi-Peril and Automobile policies.

ARTICLE 2  TERRITORY

This Agreement shall cover wherever the Reinsured's policies cover.

ARTICLE 3  EXCLUSIONS

This Agreement shall not cover:

A.  Business classified by the Reinsured as:

(1) Overhead transmission and distribution lines and their supporting structures
other than those on or within 150 meters (or 500 feet) of the insured premises.
It is understood and agreed that public utilities extension and/or suppliers
extension and/or contingent business interruption coverages are not

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subject to this exclusion provided that these are not part of a transmitter's or
distributor's policy.

(2) Pools, Associations, or Syndicates, including State Insurance Guaranty
Associations. However, such operations which the Reinsured is obliged to cover
by reason of membership or participation in any Automobile Assigned Risk Pool,
Plan or Facility, any FAIR Plan, or any Coastal Pool are not to be excluded.
Furthermore, this exclusion shall not apply to any Inter-Company Pooling.

(3) Insurance on Growing and/or Standing Crops.

(4) Reinsurance of any kind assumed by the Reinsured, except local agency
reinsurance accepted in the normal course of business.

(5) Bridges, tunnels and art collections valued at over $150,000,000.

(6) Aviation.

(7) Insolvency Funds, as per clause attached.

(8) Flood, when written as such.

B. Extra Contractual Obligations and Loss in Excess of Original Policy Limits -
"Extra Contractual Obligations" are defined as those liabilities not covered
under any other provision of this Agreement and which arise from the handling of
any claim on business covered hereunder, such liabilities arising because of,
but not limited to, the following: failure by the Reinsured to settle within the
policy limit, or by reason of alleged or actual negligence, fraud or bad faith
in rejecting an offer of settlement or in the preparation of the defense or in
the trial of any action against its Insured or Reinsured or in the preparation
or prosecution of an appeal consequent upon such action.

The term "Loss in Excess of Original Policy Limits" shall mean a net loss of the
Reinsured which is in excess of the limit of its original policy, such loss in
excess of the limit having been incurred because of the following: failure by
the Reinsured to settle within the policy limit or by reason of alleged or
actual negligence, fraud or bad faith in rejecting an offer or settlement or in
the preparation of the defense or in the trial of any action against its Insured
or Reinsured or in the preparation or prosecution of an appeal consequent upon
such action.

C. Fidelity, Surety, Credit, Title, Insolvency and Financial Guaranty.

D. Loss or Liability excluded by the provisions of the Nuclear Incident
Exclusion Clause - Physical Damage - Reinsurance, as per clause attached hereto.

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E. War, as defined in the original policy.

F. Ocean Marine

G. Loss/or Damage/or Costs/or Expenses arising from Seepage and/or Pollution
and/or Contamination, other than Contamination from Smoke Damage. Nevertheless,
this exclusion does not preclude any payment of the cost of the removal of
debris of property damaged by a loss otherwise covered hereunder, but subject
always to a limit of 25% of the Reinsured's Property loss under the original
policy.

ARTICLE 4  TERM

This Agreement shall become effective January 1, 2000 and the Reinsurer shall be
liable for all losses occurring during the term of this Agreement.

If this Agreement shall terminate while a loss covered hereunder is in progress,
subject to the other conditions of this Agreement, the Reinsurer shall indemnify
the Reinsured as if the entire loss had occurred during the time this Agreement
is in force, provided the loss covered hereunder started before the time of
termination.

ARTICLE 5  DEFINITION OF LOSS OCCURRENCE

The term "Loss Occurrence" shall mean the sum of all individual losses
occasioned by any one disaster, accident or loss or series of disasters,
accidents or losses arising out of one event which occurs within the area of one
state of the United States or province of Canada and states or provinces
contiguous thereto and to one another. However, the duration and extent of any
one "Loss Occurrence" shall be limited to all individual losses sustained by the
Reinsured occurring during any period of 168 consecutive hours arising out of
and directly occasioned by the same event except that the term "Loss Occurrence"
shall be further defined as follows:

i) As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing
collapse and water damage, all individual losses sustained by the Reinsured
occurring during any period of 72 consecutive hours and arising out of and
directly occasioned by the same event. However, the event need not be limited to
one state or province or states or provinces contiguous thereto.

ii) As regards riot, riot attending a strike, civil commotion, vandalism and
malicious mischief, all individual losses sustained by the Reinsured occurring

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during any period of 72 consecutive hours within the area of one municipality or
county and the municipalities or counties contiguous thereto arising out of and
directly occasioned by the same event. The maximum duration of 72 consecutive
hours may be extended in respect of individual losses which occur beyond such 72
consecutive hours during the continued occupation of an assured's premises by
strikers, provided such occupation commenced during the aforesaid period.

iii) As regards earthquake (the epicenter of which need not necessarily be
within the territorial confines referred to in the opening paragraph of this
article) and fire following directly occasioned by the earthquake, only those
individual fire losses which commence during the period of 168 consecutive hours
may be included in the Reinsured's "Loss Occurrence".

iv) As regards "Freeze", only individual losses directly occasioned by collapse,
breakage of glass and water damage (caused by bursting of frozen pipes and
tanks) may be included in the Reinsured's "Loss Occurrence".

Except for those "Loss Occurrences" referred to in (i) and (ii) the Reinsured
may choose the date and time when any such period of consecutive hours commences
provided that it is not earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Reinsured arising out of that
disaster, accident or loss and provided that only one such period of 168
consecutive hours shall apply with respect to one event.

However, as respects those "Loss Occurrences" referred to in (i) and (ii), if
the disaster, accident or loss occasioned by the event is of greater duration
than 72 consecutive hours, then the Reinsured may divide that disaster, accident
or loss into two or more "Loss Occurrences" provided no two periods overlap and
no individual loss is included in more than one such period and provided that no
period commences earlier than the date and time of the occurrence of the first
recorded individual loss sustained by the Reinsured arising out of that
disaster, accident or loss.

No individual losses occasioned by an event that would be covered by 72 hours
clauses may be included in any "Loss Occurrence" claimed under the 168 hours
provision.

ARTICLE 6  NET RETAINED LINES

This Agreement applies only to that portion of any insurance or reinsurance
covered by this Agreement which the Reinsured retains net for its own account,
and in calculating the amount of any loss hereunder and also in computing the
amount in excess of which this Agreement attaches, only loss or losses in

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respect of that portion of any insurance or reinsurance which the Reinsured
retains net for its own account shall be included, it being understood and
agreed that the amount of the Reinsurer's liability hereunder in respect of any
loss or losses shall not be increased by reason of the inability of the
Reinsured to collect from any other reinsurers, whether specific or general any
amounts which may have become due from them whether such inability arises from
the insolvency of such other reinsurers or otherwise.

It is understood that any Inter-Company Pooling shall be disregarded hereunder
when determining the net retained lines.

ARTICLE 7  ULTIMATE NET LOSS

The term "Ultimate Net Loss" shall be understood to mean the actual loss or
losses paid or to be paid by the Reinsured under its policies, such loss or
losses to include expenses of litigation, if any, interest accrued where such
interest is part of the judgement and all other loss expenses of the Reinsured
including legal expenses and costs incurred in connection with coverage and
validity questions and legal actions connected thereto which are allocable only
to a specific claim or action on policies covered hereunder (including a pro
rata share of salaries and expenses of the Reinsured's field employees while
adjusting such claims or losses and expenses of the Reinsured's officials
incurred in connection with claims or losses, but no salaries of the Reinsured's
officials or any normal overhead charges such as rent, postal, lighting,
cleaning, heating, etc., shall be included) less proper deductions for all
recoveries (including amounts recoverable under other reinsurance except
reinsurance, if any, inuring to the benefit of the Reinsured) and salvages
actually made by the Reinsured; provided always that nothing in this Article
shall be construed to mean that losses under this Agreement are not recoverable
until the Reinsured's ultimate net loss has been ascertained.

All salvages, recoveries and payments recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the said settlement and all necessary adjustments shall be made by the
parties hereto.

ARTICLE 8  LIMIT AND RETENTION

No claim shall be made upon the Reinsurer unless and until the Reinsured shall
have first sustained an ultimate net loss in excess of $400,000 each and every
loss occurrence and then the Reinsurer shall be liable for the ultimate net loss
sustained by the Reinsured in excess of $400,000 in respect of each such loss
occurrence. The limit of liability of the Reinsurer in respect of any one such
loss

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occurrence shall be $2,600,000.

It is further warranted that the Reinsurer shall not be liable hereunder until
two or more risks are involved in any one loss occurrence. The Reinsured shall
be the sole judge of what constitutes one risk.

ARTICLE 9  RATE AND PREMIUM

The Reinsured shall pay to the Reinsurer during the term of this Agreement
premium calculated by applying a rate of 3.00% to the Gross Net Earned Premium
Income of the Reinsured during such term in respect of business the subject
matter of this Agreement.

The term "Gross Net Earned Premium Income" as used herein shall be understood to
mean gross premiums earned by the Reinsured less premiums paid for reinsurances
which inure to the benefit of this Agreement. For purposes hereof, 90% of the
Reinsured's original premium in respect of Homeowners and Farmowners and 80% in
respect of Commercial Multiple Peril Policies, where the premium is indivisible,
shall be considered subject matter premium.

As soon as practicable after each year, the Reinsured shall submit a statement
showing the actual premium due for the term calculated in accordance with the
first paragraph of this Article, and the debtor party shall remit to the other.

ARTICLE 10 CURRENCY

All premiums and losses paid under this Agreement shall be made in United States
currency.

ARTICLE 11 NOTICE OF LOSS AND LOSS SETTLEMENTS

In the event of a loss occurrence which either results in or appears to be of
serious enough nature as probably to result in a loss involving this Agreement,
the Reinsured shall give notice as soon as reasonably practicable to the
Reinsurer and the Reinsured shall keep the Reinsurer advised of all subsequent
developments in connection therewith.

The Reinsurer agrees to abide by the loss settlements of the Reinsured, such
settlements to be considered as satisfactory proof of loss, and amounts falling
to the share of the Reinsurer shall be immediately payable to the Reinsured by
them upon reasonable evidence of the amount paid or to be paid by the Reinsured.

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ARTICLE 12 ACCESS TO RECORDS

The Reinsurer, by its duly appointed representatives, shall have the right at
any reasonable time, to examine all papers in the possession of the Reinsured
referring to business effected hereunder.

ARTICLE 13 STATISTICS

The Reinsured shall furnish the Reinsurer such quarterly and annual statistics
as may be necessary to comply with statutory requirements and in such form as
may be mutually agreed upon.

ARTICLE 14 ERRORS AND OMISSIONS

Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made. Such delay, omission or error shall
be rectified immediately upon discovery.

ARTICLE 15 TAXES

In consideration of the terms under which this Agreement is issued, the
Reinsured undertakes not to claim any deduction in respect of the premium hereon
when making tax returns other than Income or Profits Tax returns to any State or
Territory or the District of Columbia.

ARTICLE 16 FEDERAL EXCISE TAX

(Applies only to those Reinsurers, excepting Underwriters at Lloyd's, London and
other Reinsurers exempt from the Federal Excise Tax, who are domiciled outside
the United States of America.)

The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax the percentage specified by United States law of the premium payable hereon
to the extent such premium is subject to Federal Excise Tax.

In the event of any return of premium becoming due hereunder the Reinsurer will
deduct the percentage specified by United States law from the amount of the
return and the Reinsured or its agent should take steps to recover the Tax from
the U.S. Government.

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ARTICLE 17 LOSS RESERVES

(This Clause is applicable to any Reinsurer who does not qualify for credit by
states having jurisdiction over the Reinsured.)

At annual intervals (or more frequently as determined by the Reinsured, but not
more frequently than quarterly) the Reinsured will submit to the Reinsurer a
statement showing the proportion of losses, as defined below, applicable to the
Reinsurer.

The Reinsurer will apply for, and secure delivery thereof to the Reinsured, a
clean, irrevocable and unconditional Letter of Credit in an amount equal to the
Reinsurer's share of said losses. The Letter of Credit shall be issued by a
United States bank which is a member of the Federal Reserve System and which is
acceptable to the Insurance Departments of such states.

If, as of a statement date, the Reinsurer's share of losses under this Agreement
shall exceed the then available balance of the Letter of Credit, the Reinsurer
shall, within thirty (30) days after receiving such statement, secure delivery
to the Reinsured of an amendment to the clean, irrevocable and unconditional
Letter of Credit increasing the balance of the Letter of Credit available by the
amount of such difference.

If the Reinsurer's share of losses under this Agreement shall be less than the
then available balance of the Letter of Credit, the Reinsured shall, within
thirty (30) days after receipt of written request of Reinsurer, release such
excess amount by agreeing to consent to an amendment to the Letter of Credit
reducing the balance of the Letter of Credit available by the amount of such
excess.The Reinsured undertakes to use and apply any amounts which it may draw
upon the Letter of Credit, without diminution because of the insolvency of the
Reinsured or Reinsurer, notwithstanding any other provision in this contract,
only for one or more of the following purposes:

(1) To pay or reimburse itself for the Reinsurer's share of losses paid by the
Reinsured for which the Reinsurer is obligated to reimburse the Reinsured, if
not otherwise paid by the Reinsurer.

(2) To obtain a cash deposit of the Reinsurer's share under this contract of
losses, if the clean, irrevocable and unconditional Letter of Credit is not
renewed at least thirty (30) days before the expiration thereof, and the
Reinsurer shall continue thereafter to have a share in such losses.

(3) To pay any other amounts the Reinsured claims are due under this reinsurance
contract.

The Reinsured will immediately return to the Reinsurer any amounts drawn down
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on the Letter of Credit that are subsequently determined not to be due.

The term "losses" as used in this Article shall include:

     losses and allocated loss adjustment expenses paid by the Reinsured but not
     recovered (in proportion) from the Reinsurer,

     reserves for losses reported and outstanding, and allocated loss adjustment
     expenses.

ARTICLE 18 ARBITRATION

As a precedent to any right of action hereunder, if any dispute shall arise
between the Reinsured and the Reinsurer with reference to the interpretation of
this Agreement or their rights with respect to any transaction involved, whether
such dispute arises before or after termination of this Agreement, such dispute
upon the written request of either party, shall be submitted to three
arbitrators, one to be chosen by each party, and the third by the two so chosen.
If either party refuses or neglects to appoint an arbitrator within thirty days
after the receipt of written notice from the other party requesting it to do so,
the requesting party may appoint two arbitrators. If the two arbitrators fail to
agree in the selection of a third arbitrator within thirty days of their
appointment, each of them shall name two, of whom the other shall decline one
and the decision shall be made by drawing lots. All arbitrators shall be
disinterested active or retired executive officers of insurance or reinsurance
companies or Underwriters at Lloyd's, London not under the control of either
party to this Agreement.

The Arbitrators shall interpret the Agreement and make their decision with
regard to the custom and usage of the insurance and reinsurance business. They
shall issue their decision in writing based upon a hearing in which evidence may
be introduced without following strict rules of evidence, but in which cross
examination and rebuttal shall be allowed. They shall make their award with a
view to effecting the general purpose of this Agreement in a reasonable manner
rather than in accordance with a literal interpretation of the language.

The decision in writing of any two arbitrators, when filed with the parties
hereto, shall be final and binding on both parties. Judgment may be entered upon
the final decision of the arbitrators in any court having jurisdiction. Each
party shall bear the expense of its own arbitrator and shall jointly and equally
bear with the other party the expense of the third arbitrator and of the
arbitration. Said arbitration shall take place in Marietta, Pennsylvania unless
some other place is mutually agreed upon by the Reinsured and the Reinsurer.

ARTICLE 19 WRITTEN AGREEMENT

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There are no other agreements between the Reinsurer and the Reinsured regarding
the reinsurance provided by this Agreement, including but not limited to
agreements which directly or indirectly guarantee a profit under this Agreement
for either party.

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                        INSOLVENCY FUNDS EXCLUSION CLAUSE

This Agreement excludes all liability of the Company arising, by contract,
operation of law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed; which provides for
any assessment of or payment or assumption by the Company of part or all of any
claim, debt, charge, fee, or other obligation of an insurer, or its successors
or assigns, which has been declared by any competent authority to be insolvent,
or which is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.

NOTES: Wherever used herein the terms:

"Company" shall be understood to mean "Company", "Reinsured", "Reassured" or
whatever other term is used in the attached reinsurance contract to designate
the reinsured company or companies.

"Agreement" shall be understood to mean "Agreement", "Contract", "Policy" or
whatever other term is used to designate the attached reinsurance document.

"Reinsurers" shall be understood to mean "Reinsurers", "Underwriters" or
whatever other term is used in the attached reinsurance contract to designate
the reinsurer or reinsurers.

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                       NUCLEAR INCIDENT EXCLUSION CLAUSE -
                          PHYSICAL DAMAGE - REINSURANCE

1. This Reinsurance does not cover any loss or liability accruing to the
Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.

2. Without in any way restricting the operation of paragraph (1) of this Clause,
this Reinsurance does not cover any loss or liability accruing to the Reinsured,
directly or indirectly and whether as Insurer or Reinsurer, from any insurance
against Physical Damage (including business interruption or consequential loss
arising out of such Physical Damage) to:

I.   Nuclear reactor power plants including all auxiliary property on the site,
or

II.  Any other nuclear reactor installation, including laboratories handling
radioactive materials in connection with reactor installations, and "critical
facilities" as such, or

III. Installations for fabricating complete fuel elements or for processing
substantial quantities of "special nuclear material", and for reprocessing,
salvaging, chemically separating, storing or disposing of "spent" nuclear fuel
or waste materials, or

IV.  Installations other than those listed in paragraph (2) III above using
substantial quantities of radioactive isotopes or other products of nuclear
fission.

3. Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate

(a) where Reinsured does not have knowledge of such nuclear reactor power plant
or nuclear installation, or

(b) where said insurance contains a provision excluding coverage for damage to
property caused by or resulting from radioactive contamination, however caused.
However on and after 1st January 1960 this sub-paragraph (b) shall only apply
provided the said radioactive contamination exclusion provision has been
approved by the Governmental Authority having jurisdiction thereof.

4. Without in any way restricting the operations of paragraphs (1), (2) and (3)
hereof, this Reinsurance does not cover any loss or liability by radioactive

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contamination accruing to the Reinsured, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.

5. It is understood and agreed that this Clause shall not extend to risks using
radioactive isotopes in any form where the nuclear exposure is not considered by
the Reinsured to be the primary hazard.

6. The term "special nuclear material" shall have the meaning given it in the
Atomic Energy Act of 1954, or by any law amendatory thereof.

7.  Reinsured to be sole judge of what constitutes:
    (a)  substantial quantities, and
    (b)  the extent of installation, plant or site.

NOTE: Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that

(a) all policies issued by the Reinsured on or before 31st December 1957 shall
be free from the application of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs whereupon all the provisions
of this Clause shall apply.

(b) with respect to any risk located in Canada policies issued by the Reinsured
on or before 31st December 1958 shall be free from the application of the other
provisions of this Clause until expiry date or 31st December 1960 whichever
first occurs whereupon all the provisions of this Clause shall apply.

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                                      INDEX

CLAUSE                                                     ARTICLE

BUSINESS COVERED ....................................         1
TERRITORY ...........................................         2
EXCLUSIONS ..........................................         3
TERM ................................................         4
DEFINITION OF LOSS OCCURRENCE .......................         5
NET RETAINED LINES ..................................         6
ULTIMATE NET LOSS ...................................         7
LIMIT AND RETENTION .................................         8
RATE AND PREMIUM ....................................         9
CURRENCY ............................................        10
NOTICE OF LOSS AND LOSS SETTLEMENTS .................        11
ACCESS TO RECORDS ...................................        12
STATISTICS ..........................................        13
ERRORS AND OMISSIONS ................................        14
TAXES ...............................................        15
FEDERAL EXCISE TAX ..................................        16
LOSS RESERVES .......................................        17
ARBITRATION .........................................        18
WRITTEN AGREEMENT ...................................        19FIRST AMENDMENT AND WAIVER
                                     TO THE
                     AMENDED AND RESTATED CREDIT AGREEMENT

                               DONEGAL GROUP INC.

                         Dated as of December 31, 1999

     This FIRST AMENDMENT AND WAIVER TO THE AMENDED AND RESTATED CREDIT
AGREEMENT dated as of December 31, 1999 (the "First Amendment") is between
DONEGAL GROUP INC., (the "Borrower"); the Banks and other financial institutions
that have executed the signature pages hereto (together with their successors
and assigns, individually, a "Bank" and collectively, the "Banks"); and FLEET
NATIONAL BANK, as Agent for the Banks (in such capacity, together with its
successors in such capacity, the "Agent").

     The Borrower and the Banks entered into an Amended and Restated Credit
Agreement dated as of July 27, 1998 (the "Credit Agreement"). The Borrower and
the Banks wish to amend the Credit Agreement, to amend, among other things,
certain financial covenants and to waive a default with respect to Borrower's
failure to comply with Section 6.11 of the Credit Agreement. Capitalized terms
used herein but not defined shall have the meanings assigned to them in the
Credit Agreement. Accordingly, the Borrower and the Banks agree as follows:

     Section 1. Amendments to the Credit Agreement. Effective as of the
effective date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 3 hereof, the Credit Agreement is hereby amended
as follows:

     (a) Section 6.10 (Minimum Statutory Surplus of Insurance Subsidiaries) of
the Credit Agreement is deleted in its entirety and replaced with the following:

     "Section 6.10. Minimum Statutory Surplus of Insurance Subsidiaries. As of
     the end of any fiscal quarter, permit the Combined Statutory Surplus to be
     less than an amount equal to the sum of (a) $85,000,000 plus (b) 50% of any
     cumulative positive Combined Statutory Net Income, after dividends to the
     Borrower, for each fiscal quarter, commencing with the quarter ended
     December 31, 1999, plus (c) any contributions to surplus made by the
     Borrower to any Insurance Subsidiary, from Revolving Loans, during each
     fiscal quarter, commencing with the quarter ended December 31, 1999, plus
     (d) 50% of any contributions to surplus made by the Borrower to any
     Insurance Subsidiary, other than from Revolving Loans, during each fiscal
     quarter, commencing with the quarter ended December 31, 1999."

     (b) Section 6.11 (Minimum Statutory Surplus of Donegal Mutual) of the
Credit Agreement is deleted in its entirety and replaced with the following:

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     "Section 6.11. Minimum Statutory Surplus of Donegal Mutual. As of the end
     of any fiscal quarter, permit the Statutory Surplus of Donegal Mutual to be
     less than an amount equal to the sum of (a) $50,000,000 plus (b) 50% of any
     cumulative positive Statutory Net Income of Donegal Mutual for each fiscal
     quarter, commencing with the fiscal quarter ended December 31, 1999."

     Section 2. Waivers. The Banks waive any Event of Default which would result
from the Borrower's failure to comply with that certain financial covenant under
Section 6.11 of the Credit Agreement as of the fiscal quarter ended September
30, 1999. The foregoing waiver is effective only for said Event of Default and
shall not entitle Borrower to any future waiver in similar or other
circumstances.

     Section 3. Conditions of Effectiveness. This First Amendment shall become
effective as of December 31, 1999 when, and only when, the Banks shall have
received a counterpart of this First Amendment duly executed by the Borrower and
the payment of an amendment fee (in immediately available funds) as follows: (a)
Fleet National Bank, $25,000; and (b) Credit Lyonnais New York Branch, $15,000.

     Section 4. Representations and Warranties of the Borrower. Borrower
represents as follows:

     (a) The execution, delivery and performance by the Borrower of this First
Amendment is within Borrower's corporate powers, have been duly authorized by
all necessary corporate action and does not and will not (a) require any consent
or approval of the shareholders of Borrower; (b) contravene Borrower's charter
or by-laws; (c) violate any provision of, or require any filing, registration,
consent or approval under, any law, rule, regulation (including without
limitation, Regulations U and X), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to and binding
upon Borrower; (d) result in a breach of or constitute a default or require any
consent under any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which Borrower is a party or by which it or
its properties may be bound or affected; or (e) result in, or require, the
creation or imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature upon or with respect to
any of the properties now owned or hereafter acquired by Borrower; and (f)
Borrower is not in default under any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or any such indenture,
agreement, lease or instrument.

     (b) No authorization or approval or other action by a governmental
authority or regulatory body or other Person, and no notice to or filing with
such authority or body or Person by any Person is required for the due
execution, delivery and performance by Borrower of this First Amendment.

     (c) This First Amendment has been duly executed and when delivered by the
Borrower will constitute the legal, valid and binding obligations of the
Borrower enforceable against Borrower in accordance with its terms, except to
the extent that such enforcement may be limited by applicable bankruptcy,
insolvency and other similar laws affecting creditors' rights generally and by
general principles of equity.

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     (d) The representations and warranties contained in Article 4 of the Credit
Agreement are correct on and as of the date hereof as though made on and as of
the date hereof.

     (e) No Event of Default has occurred and is continuing (except those that
have been waived pursuant to Section 2 of this First Amendment) or would result
from the signing of this First Amendment or the transactions contemplated
hereby.

     (f) Since the date of the last financial statements furnished to the Banks,
there has occurred no event which would have a Materially Adverse Effect.

     (g) There are no actions, suits or proceedings or investigations (other
than routine examinations performed by insurance regulatory authorities) pending
or, as far as the Borrower can reasonably foresee, threatened against or
affecting the Borrower or any of its Subsidiaries, or any property of any of
them before any court, governmental agency or arbitrator, which if determined
adversely to the Borrower or any Subsidiary would in any one case or in the
aggregate, have a Materially Adversely Effect, or affect Borrower's ability to
perform its obligations under this First Amendment.

     (h) No information, exhibit or report furnished in writing by or on behalf
of the Borrower or any officer or director of Borrower to the Banks in
connection with the negotiation of, or pursuant to the terms of, this First
Amendment contained when made any material misstatement of fact or omitted to
state a materially fact necessary to make the statements contained therein not
misleading.

     Section 4. Reference to and Effect on the Credit Agreement and Revolving
Notes.

     (a) Upon the effectiveness of this First Amendment, on and after the date
hereof, each reference in the Credit Agreement to this "Agreement", "hereunder",
"hereof", "herein" or words of like import and each reference in the Revolving
Notes shall mean and be a reference to the Credit Agreement as amended hereby.

     (b) Except as specifically amended above, the Credit Agreement shall remain
in full force and effect and is hereby ratified and confirmed.

     (c) The execution, delivery and effectiveness of this First Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Bank under the Credit Agreement, nor constitute a waiver
of any provision of the Credit Agreement.

     Section 5. Costs, Expenses and Taxes. The Borrower agrees to pay on demand
all costs and expenses of the Banks in connection with the preparation,
execution and delivery of this First Amendment and the other instruments and
documents to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent with respect
thereto and with respect to advising the Banks as to its rights and
responsibilities hereunder and thereunder. In addition, the Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this First Amendment and the other
instruments and documents to be delivered hereunder, and agrees to

                                      -3-
<PAGE>

save the Banks harmless from and against any and all liabilities with respect to
or resulting from any delay in paying or omission to pay such taxes.

     Section 6. Execution in Counterparts. This First Amendment may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument.

     Section 7. Governing Law. This First Amendment shall be governed by, and
construed in accordance with, the laws of the State of Connecticut.

                  [Remainder Of Page Intentionally Left Blank]

                                      -4-
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.

                                        BORROWER:

                                        DONEGAL GROUP, INC.

                                        By: /s/ Ralph G. Spontak
                                            ----------------------------------
                                             Name: Ralph G. Spontak
                                             Title: Sr. V.P. / Secretary

                                        AGENT:

                                        FLEET NATIONAL BANK, as Agent

                                        By:
                                            ----------------------------------
                                             Name:
                                             Title:

                                        BANKS:

                                        FLEET NATIONAL BANK

                                        By:
                                            ----------------------------------
                                             Name:
                                             Title:

                                        CREDIT LYONNAIS NEW YORK
                                        BRANCH

                                        By:
                                            ----------------------------------
                                             Name:
                                             Title:

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.

                                        BORROWER:

                                        DONEGAL GROUP, INC.

                                        By:
                                            ----------------------------------
                                             Name:
                                             Title:

                                        AGENT:

                                        FLEET NATIONAL BANK, as Agent

                                        By: /s/ Holly A. O'Neill
                                            ----------------------------------
                                             Name: Holly A. O'Neill
                                             Title: Loan Officer

                                        BANKS:

                                        FLEET NATIONAL BANK

                                        By: /s/ Holly A. O'Neill
                                            ----------------------------------
                                             Name: Holly A. O'Neill
                                             Title: Loan Officer

                                        CREDIT LYONNAIS NEW YORK
                                        BRANCH

                                        By:
                                            ----------------------------------
                                             Name:
                                             Title:

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.

                                        BORROWER:

                                        DONEGAL GROUP, INC.

                                        By:
                                            ----------------------------------
                                             Name:
                                             Title:

                                        AGENT:

                                        FLEET NATIONAL BANK, as Agent

                                        By:
                                            ----------------------------------
                                             Name:
                                             Title:

                                        BANKS:

                                        FLEET NATIONAL BANK

                                        By:
                                            ----------------------------------
                                             Name:
                                             Title:

                                        CREDIT LYONNAIS NEW YORK
                                        BRANCH

                                        By: /s/ Sebastian Rocco
                                            ----------------------------------
                                             Name: Sebastian Rocco
                                             Title: Senior Vice President

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