Document:

exv10wnn

Exhibit (10)(NN)

AMENDED AND RESTATED TAX SHARING AGREEMENT

     THIS AMENDED AND RESTATED TAX SHARING AGREEMENT (this “Agreement”) dated as of December 1,
2010 among Donegal Group Inc., a Delaware corporation (“DGI”), Atlantic States Insurance Company, a
Pennsylvania stock casualty insurance company (“Atlantic”), Southern Insurance Company of Virginia,
a Virginia stock casualty insurance company (“Southern”), Le Mars Insurance Company, an Iowa stock
casualty insurance company (“Le Mars”), The Peninsula Insurance Company, a Maryland stock casualty
insurance company (“Peninsula”), Peninsula Indemnity Company, a Maryland stock casualty insurance
company (“PIC”), Sheboygan Falls Insurance Company, a Wisconsin stock casualty insurance company
(“SFIC”), and Michigan Insurance Company, a Michigan stock casualty insurance company (“MICO”).
Atlantic, Southern, Le Mars, Peninsula, PIC, SFIC and MICO are each referred to herein as the
“Subsidiary.”

     WHEREAS, each Subsidiary is a member of an affiliated group (the “Group”) within the meaning
of section 1504(a) of the Internal Revenue Code of 1986, as amended (the “Code”) of which DGI is
the common parent corporation and each Subsidiary has been a party to a separate tax-sharing
agreement with DGI;

     WHEREAS, DGI will continue to include each Subsidiary in its consolidated federal income tax
returns in accordance with Code sections 1501 and 1502 and wishes to enter into this Agreement so
that DGI and each Subsidiary are all parties to the same tax-sharing agreement;

     WHEREAS, the parties hereto deem it equitable that, with respect to each taxable year for
which a consolidated return is filed on behalf of the Group, each Subsidiary shall pay DGI an
amount equal to its Separate Company Tax Liability (as hereinafter defined); and

     WHEREAS, the parties wish to provide for the treatment of various other matters that may arise
as a result of the filing of consolidated returns, and the parties wish to set forth in this
Agreement the agreement between DGI and each Subsidiary with respect to the allocation and
settlement of the federal, state and local taxes of the Group with respect to each taxable period
ending on or after the date hereof during which such Subsidiary is included in the affiliated group
of which DGI is the common parent (the “Affiliation Periods”).

     NOW, THEREFORE, in consideration of the mutual covenants contained herein and intending to be
legally bound hereby, the parties agree as follows:

     1. Filing of Returns. With respect to each Affiliation Period, DGI shall file, and
each Subsidiary shall agree to join in the filing of, consolidated federal income tax returns on

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behalf of the Group. Each Subsidiary shall execute and file such consents, elections and
other documents as DGI reasonably requests with respect to the filing of the Group’s consolidated
federal income tax returns, and shall, consistently with Section 4, timely provide to DGI such
information as may be necessary for the filing of such returns or for the determination of amounts
due under this Agreement. Each Subsidiary acknowledges and agrees that the rights conferred upon
DGI in connection with the filing of the Group’s returns include, without limitation, the right to
reasonably determine the allocation of income or loss of DGI and any other subsidiary between the
last Affiliation Period and the next taxable period. Each Subsidiary shall file all federal,
state, local and foreign tax returns with respect to all periods for which such Subsidiary does not
join DGI in filing a consolidated return and the Subsidiary shall be responsible for the payment of
all taxes in connection therewith. The Subsidiary shall file any such tax returns in a manner
consistent with the manner in which DGI filed its returns for Affiliation Periods except as
required by law or to the extent any inconsistency would not adversely affect the tax returns of
the Group.

     2. Tax Payments.

          (a) Due Dates. Except as otherwise provided in this Agreement: (i) each Subsidiary
will pay to DGI the amount due DGI, as determined under Section 2(b), no later than the due date
for the filing of any federal income tax return of the Group that includes such Subsidiary, and
(ii) DGI will pay to each Subsidiary the amount due such Subsidiary, as determined under Section
2(c), no later than the due date for the filing of any federal income tax return of the Group that
includes such Subsidiary; provided, however, that no later than each estimated federal income tax
payment date of the Group for which the Group actually incurs a federal income tax liability with
respect to an Affiliation Period, each Subsidiary shall pay to DGI the greater of (i) the minimum
amount required to be paid to avoid the imposition of any penalties or additions to tax under the
Code, determined on the same basis as the total amount due for an Affiliation Period under Section
2(b) or (ii) one-fourth of the amount estimated to be payable by such Subsidiary for such taxable
year under Section 2(b). The amount of any overpayment or underpayment pursuant to this Section
2(a) shall be credited against, or added to, as the case may be, the amount otherwise required to
be paid for the period within which the amount of such overpayment or underpayment first becomes
reasonably ascertainable. The settlements may be satisfied by check, wire transfer or through
intercompany accounts as the parties may mutually agree.

          (b) Amount Due to DGI. Each Subsidiary shall pay DGI in the time and manner described
in Section 2(a) an amount equal to any Separate Company Tax Liability of that Subsidiary. The
“Separate Company Tax Liability” for any Affiliation Period shall be the amount, if any, of the
federal income tax liability, including, without limitation, liability for any penalty, fine,
additions to tax, interest, minimum tax, alternative minimum tax and other items applicable to that
Subsidiary in connection with the determination of the Subsidiary’s tax liability, which the
Subsidiary would have incurred had it filed a separate federal income

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tax return for such Affiliation Period, computed in the manner prescribed in Income Tax
Regulation section 1.1552-1(a)(2)(ii), except that no carryforward or carryback of losses or
credits shall be allowed.

          The Separate Company Tax Liability for a Subsidiary shall be determined by DGI, with the
cooperation and assistance of the Subsidiary, in a manner consistent with (i) general tax
accounting principles, (ii) the Code and regulations thereunder and (iii) so long as a reasonable
legal basis exists therefor, prior custom and practice. In addition, transactions or items between
DGI and a Subsidiary that are deferred under the federal income tax return shall also be deferred
for purposes of this Agreement until such time as they are restored or otherwise triggered into
income under the Code or regulations.

          (c) Amount due to a Subsidiary. In the event a Subsidiary does not have Separate
Company Tax Liability for an Affiliation Period, but instead either incurs net losses or credits
for such period, DGI shall pay the Subsidiary in the time and manner prescribed in Section 2(a) the
amount by which the Group’s federal income tax liability for such period is actually reduced by
reason of the actual use of such losses or credits attributable to the Subsidiary in the Group’s
federal income tax return.

          In the event a Subsidiary incurs any tax losses or tax credits that, as permitted under the
Code and the regulations, are carried back or forward to one or more Affiliation Periods, DGI shall
pay that Subsidiary an amount equal to the amount by which the Group’s federal income tax liability
is actually reduced by reason of the actual use of such carried over losses or credits in the
Group’s federal income tax return. Any payment from DGI to the Subsidiary required on account of
such carryover shall be paid within 15 days of the date the benefit of the carryover is realized by
DGI by reason of the receipt of a refund or credit of taxes.

          (d) Paying Agent. DGI agrees to make all required payments to the Internal Revenue
Service (“IRS”) of the consolidated federal income tax liability, if any, of the Group.

     3. Adjustments to Tax Liability.

          (a) Adjustment-Related Payments. If the consolidated federal income tax liability of
the Group or any of its members is adjusted for any taxable period for any reason other than a loss
or credit carryback to the extent already provided for in Section 2(c), whether by means of an
amended return, judicial decision, claim for refund or tax audit by the IRS, the Separate Company
Tax Liability or the amount of tax benefits realized by the Group by reason of the use of a
Subsidiary’s losses or credit shall be recomputed to give effect to such adjustment, and the amount
of any payments due under Section 2 shall be appropriately adjusted. Any additional payment
between DGI and a Subsidiary required by reason of such recomputed Separate Company Tax Liability
or Group tax refund or credit shall include an allocable share of any refunded interest received
from the IRS, if applicable,

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or deficiency interest, penalties and additions to tax, if applicable. Such allocable share
of refunded interest or deficiency interest, penalties and additions to tax shall be paid or
charged, respectively, to a Subsidiary to the extent such amount relates to (i) reduced Group tax
liability due to decreased Separate Company Tax Liability or increased Group tax refund or credit
resulting from increased use of a Subsidiary’s losses or credits, on the one hand, or (ii)
increased Group tax liability due to increased Separate Company Tax Liability or decreased Group
tax benefits arising from decreased use of a Subsidiary’s losses or credits, on the other hand.

          (b) Timing of Payments. Any payments to be paid to or by a Subsidiary under this
Section 3 shall be made on or before the earliest to occur of (i) a decision by a court of
competent jurisdiction that is not subject to further judicial review by appeal or otherwise and
that has become final, (ii) the expiration of the time for (A) filing a claim for refund or (B)
instituting suit in respect to a claim for refund disallowed in whole or in part by the IRS or for
which the IRS took no action, (iii) the execution of a closing agreement under section 7121 of the
Code or the acceptance by the IRS or its counsel of an offer in compromise under section 7122 of
the Code or any successor provisions, (iv) the expiration of 30 days after (A) IRS acceptance of a
Waiver of Restrictions on Assessment and Collection of Deficiency in Tax on Overassessment on
Internal Revenue Form 870 or 870-AD or any successor or comparable form, or (B) the expiration of
the ninety-day period after receipt of the statutory notice of deficiency resulting in immediate
assessment, unless within such 30 days DGI notifies the Subsidiary of its intent to attempt
recovery of any relevant amounts paid under the waiver by filing a timely claim for refund, (v) the
expiration of the statute of limitations with respect to the relevant period or (vi) any other
event the parties reasonably agree is a final determination of the tax liability at issue.

     4. Books and Records. DGI and each Subsidiary agree that the preparation of the
federal income and other tax returns, amended returns, claims for refund or IRS examination or
litigation relating to the foregoing may require the use of records and information that is within
the exclusive possession and control of either of DGI and the Subsidiary. DGI and each Subsidiary
will provide such records, information and assistance, which may include making employees of any of
the foregoing entities available to provide additional information and explanation material,
requested by DGI or the Subsidiary, as the case may be, during regular business hours, in
connection with any of the developments described in the preceding sentence; provided, however,
that each Subsidiary shall provide DGI with all information necessary to enable DGI to file the
Group consolidated federal income tax return for each Affiliation Period as soon as practicable,
but in no event later than five months after the last day of such Affiliation Period, and on the
date the Group federal income tax returns that include a Subsidiary are filed, DGI shall provide
that Subsidiary with those portions of such returns relating to the Subsidiary. Each of the
parties agrees that it shall retain, until the expiration of the applicable statute of limitations,
including extensions, copies of any tax returns for any Affiliation Periods and for any other
periods that might be subject to

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adjustment under this Agreement, and supporting work schedules and other records or
information, that may be relevant to the tax returns of the parties, and that it will not destroy
or otherwise dispose of such records and information without providing the other parties with a
reasonable opportunity to review and copy such records and information.

     5. Assignment. This Agreement shall not be transferable or assignable by any of the
parties without the prior written consent of the other parties. The rights and obligations
hereunder of the parties shall be binding upon and inure to the benefit of the parties and their
respective permitted successors and assigns. This Agreement shall be binding upon each corporation
in which a Subsidiary owns, directly or indirectly, stock meeting the requirements of section
1504(a)(2) of the Code, whether or not the Subsidiary owns stock in such corporation upon the
execution of this Agreement or at any time during Affiliation Periods, and the Subsidiary shall
cause each such corporation as soon as practicable to assent formally to the terms of this
Agreement. Except as herein otherwise specifically provided, nothing in this Agreement shall
confer any right or benefit upon any person or entity other than the parties and their respective
successors and permitted assigns.

     6. Disputes. Any dispute concerning the interpretation of this Agreement or amount of
payment due under this Agreement shall be resolved by DGI’s regular independent registered public
accounting firm for federal income tax matters, whose judgment shall be conclusive and binding on
the parties and who shall act in consultation with DGI’s tax counsel.

     7. Tax Controversies. If any party receives notice of a tax examination, audit or
challenge involving amounts subject to this Agreement, such party shall timely notify the other
parties of the information and shall provide the other parties a written copy of any relevant
letters, forms or schedules received from the IRS or otherwise in its possession and shall provide
notice and information relating to all material proceedings in connection therewith. In any audit
conference or other proceeding with the IRS or in any judicial proceedings concerning the
determination of the federal income tax liabilities of the Group or any of its members, including
any Subsidiary, the Group and each of its members shall be represented by persons selected by DGI.
Except as otherwise expressly provided in Section 6, the settlement and terms of settlement of any
issues relating to such proceeding shall be in the sole discretion of DGI, and each Subsidiary
hereby appoints DGI as its agent for the purpose of proposing and concluding any such settlement.
Notwithstanding anything to the contrary in this Agreement, in no event shall DGI be obligated to
file any amended returns or claims for refund with respect to Affiliation Periods.

     8. State and Local Taxes. To the extent appropriate, all provisions of this Agreement
shall apply with the same force and effect to any state or local income tax liabilities that are
computed on a combined, consolidated or unitary method; provided, however, that appropriate
adjustments shall be made to the provisions hereof, including computation of Separate Company Tax
Liability, with respect to any period within an

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Affiliation Period during which a Subsidiary or a Subsidiary’s items were not included on a
return of DGI or other members of the Group, or were included on a return of members of the Group
other than DGI.

     9. Indemnity. If any party to this Agreement other than DGI is required to pay tax to
the IRS or any state taxing authority in excess of its Separate Company Tax Liability as determined
hereunder, such party shall be entitled to reimbursement of the excess liability payment from the
party to whom the excess is properly allocable under this Agreement.

     10. Miscellaneous.

          (a) Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated unless such invalidity or
unenforceability would frustrate the essential purposes of the parties in entering into this
Agreement. In the event that any such term, provision, covenant or restriction is held to be
invalid, void or unenforceable, the parties hereto shall use their best efforts to find and employ
an alternate means to achieve the same or substantially the same result as that contemplated by
such term, provision, covenant or restriction.

          (b) Parties in Interest. Except as otherwise specifically provided, nothing in this
Agreement expressed or implied is intended to confer any right or benefit upon any person, firm or
corporation other than the parties and their respective successors and permitted assigns.

          (c) Change of Law. If, due to any change in applicable law or regulations or the
interpretation thereof by any court of law or other governing body having jurisdiction subsequent
to the date of this Agreement, performance of any provision of this Agreement or any transaction
contemplated thereby shall become impracticable or impossible, the parties shall use their
commercially reasonable efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.

          (d) Confidentiality. Subject to any contrary requirement of law and the right of each
party to enforce its rights hereunder in any legal action, each party agrees that it shall keep
strictly confidential, and shall cause its employees and agents to keep strictly confidential, any
information which it or any of its agents or employees may acquire pursuant to, or in the course of
performing its obligations under, any provision of this Agreement; provided, however, that such
obligation to maintain confidentiality shall not apply to information which (i) at the time of
disclosure was in the public domain not as a result of acts by the receiving party or (ii) was in
the possession of the receiving party at the time of disclosure.

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          (e) Counterparts. For the convenience of the parties, any number of counterparts of
this Agreement may be executed by the parties hereto, and each such executed counterpart shall be,
and shall be deemed to be, an original instrument.

          (f) Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania, without regard to its conflict of law
provisions.

          (g) Effect of Agreement. This Agreement shall supersede any other tax sharing
arrangement or agreement in effect between the parties. Nothing in this Agreement is intended to
change or otherwise affect any election made by or on behalf of the Group with respect to the
calculation of earnings and profits under section 1552 of the Code.

          (h) Interest. Any payment required to be made hereunder and not made when due shall
bear interest at the rate per annum determined, from time to time, by the prevailing average rate
earned on the investments of the party required to make payment.

          (i) Term of Agreement. This Agreement shall become effective as of the date hereof
and shall continue, unless earlier terminated by mutual agreement of the parties, until the
expiration of the applicable statute of limitations, including extensions, for the Affiliation
Period (the “Final Date”); provided that the provisions of Sections 1, 2 and 3 shall continue to
apply after the Final Date only to the extent they deal with matters relevant to tax periods that
end on or before such Final Date or that begin prior to and end after such Final Date.

          (j) Modifications. This Agreement may be modified or amended only pursuant to an
instrument in writing executed by all the parties hereto.

          (k) Entire Agreement. This Agreement constitutes the entire agreement among the
parties relating to the allocation of the consolidated and combined tax liabilities of the Group
between or among the parties.

          (l) Notices. All notices, consents, requests, instructions, approvals and other
communications provided for herein shall be validly given, made or served, if in writing and
delivered personally, by e-mail or reputable national delivery service to:

          DGI:

1195 River Road

Marietta, PA 17547

Attention: Chief Executive Officer

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Atlantic:

1195 River Road

Marietta, PA 17547

Attention: Chief Executive Officer

Southern:

1195 River Road

Marietta, PA 17547

Attention: Chief Executive Officer

Le Mars:

1195 River Road

Marietta, PA 17547

Attention: Chief Executive Officer

Peninsula:

1195 River Road

Marietta, PA 17547

Attention: Chief Executive Officer

PIC:

1195 River Road

Marietta, PA 17547

Attention: Chief Executive Officer

SFIC:

511 Water Street

Sheboygan Falls, WI 53085

Attention: Chief Executive Officer

MICO:

1700 East Beltline N.E., Suite 100

Grand Rapids, MI 49525

Attention: Chief Executive Officer

or to such other address as any party may have furnished to the other parties

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in writing in accordance with this Section 13(l).

     IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be executed by their
duly authorized officers as of December 1, 2010.

	 	 	 	 	 	 	 	 	 	 	 

	SOUTHERN INSURANCE COMPANY
OF VIRGINIA	 	DONEGAL GROUP INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Donald H. Nikolaus
	 	 	 	By:
	 	/s/ Donald H. Nikolaus	 	 
	 

	 	 

Donald H. Nikolaus 

Chief Executive Officer
	 	 
	 	 	 	 

Donald H. Nikolaus
 Chief Executive Officer
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	LE MARS INSURANCE COMPANY	 	 	 	ATLANTIC STATES INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Daniel J. Wagner
	 	 	 	By:
	 	/s/ Jeffrey D. Miller	 	 
	 

	 	 

Daniel J. Wagner, Senior Vice
President and Treasurer
	 	 
	 	 	 	 

Jeffrey D. Miller, Senior Vice President
and Chief Financial Officer
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	SHEBOYGAN FALLS INSURANCE
COMPANY	 	THE PENINSULA INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Lee F. Wilcox
	 	 	 	By:
	 	/s/ G. Eric Crouchley, III	 	 
	 

	 	 

Lee F. Wilcox, President
	 	 
	 	 	 	 

G. Eric Crouchley, III, President
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	PENINSULA INDEMNITY COMPANY	 	 	 	MICHIGAN INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ G. Eric Crouchley, III
	 	 	 	By:
	 	/s/ Ermil L. Adamson	 	 
	 

	 	 

G. Eric Crouchley, III,
President
	 	 
	 	 	 	 

Ermil L. Adamson, President
	 	 

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Exhibit (10)(OO)

AMENDED AND RESTATED SERVICES ALLOCATION AGREEMENT

     THIS AMENDED AND RESTATED SERVICES ALLOCATION AGREEMENT (this “Agreement”) dated as of the 1st
day of December 2010 among DONEGAL GROUP INC., a Delaware corporation (“DGI”), ATLANTIC STATES
INSURANCE COMPANY, a Pennsylvania stock casualty insurance company (“Atlantic States”), SOUTHERN
INSURANCE COMPANY OF VIRGINIA, a Virginia stock casualty insurance company (“Southern”), LE MARS
INSURANCE COMPANY, an Iowa stock casualty insurance company (“Le Mars”), THE PENINSULA INSURANCE
COMPANY, a Maryland stock casualty insurance company (“Peninsula”), PENINSULA INDEMNITY COMPANY, a
Maryland stock casualty insurance company (“PIC”), SHEBOYGAN FALLS INSURANCE COMPANY, a Wisconsin
stock property and casualty insurance corporation (“SFIC”) and MICHIGAN INSURANCE COMPANY, a
Michigan stock casualty insurance corporation (“MICO,” and, together with Atlantic States,
Southern, Le Mars, Peninsula, PIC and SFIC, the “Insurance Subsidiaries”) and DONEGAL MUTUAL
INSURANCE COMPANY, a Pennsylvania mutual fire insurance company (“Donegal Mutual”).

WITNESSETH:

     WHEREAS, DGI, Donegal Mutual and the Insurance Subsidiaries other than MICO entered into an
Amended and Restated Services Allocation Agreement dated as of October 15, 2009 (the “Prior
Agreement”); and

     WHEREAS, Donegal Mutual, DGI and the Insurance Subsidiaries believe it is appropriate to amend
Appendix A to the Prior Agreement effective as of 12:01 a.m. on December 1, 2010 by entering into
this Agreement; and

     WHEREAS, the Boards of Directors of Peninsula and PIC have authorized Peninsula and PIC to
enter into this Agreement, subject to the filing of a Form D with respect thereto with the
Insurance Administration of the State of Maryland (the “Administration”) and the absence of any
disapproval thereof by the Administration; and

     WHEREAS, the Board of Directors of MICO have authorized MICO to enter into this Agreement,
subject to the filing of a Form D with respect thereto with the Office of Financial and Insurance
Regulation of the State of Michigan (the “OFIR”) and the absence of any disapproval thereof by the
OFIR;

     NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained and
intending to be legally bound hereby, Donegal Mutual, DGI and the Insurance Subsidiaries agree as
follows:

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     I. Effective Date. The effective date of this Agreement shall be 12:01 a.m. on
December 1, 2010 (the “Effective Date”). This Agreement shall continue in effect unless and until
terminated pursuant to Section IV.

     II. Services To Be Provided.

          A. Donegal Mutual agrees to provide employees who shall perform the services described in
Section II.D. for and on behalf of and in the name of Atlantic States, and Donegal Mutual and
Atlantic States agree that all of the costs and expenses of Donegal Mutual in providing those
services and employees to Atlantic States shall be allocated between Donegal Mutual and Atlantic
States in proportion to their respective participation from time to time under the Proportional
Reinsurance Agreement dated as of September 29, 1986 and most recently amended as of March 1, 2008
between Donegal Mutual and Atlantic States.

          B. Donegal Mutual agrees to provide employees who shall, directly or indirectly, perform the
services described in Section II.D. for and on behalf of DGI and the Insurance Subsidiaries other
than Atlantic States, and DGI and the Insurance Subsidiaries other than Atlantic States, agree
either to reimburse Donegal Mutual or to allocate among Donegal Mutual, on the one hand, and DGI
and the Insurance Subsidiaries other than Atlantic States, on the other hand, the costs and
expenses of Donegal Mutual in providing such services and employees to DGI and the Insurance
Subsidiaries other than Atlantic States.

          C. Donegal Mutual, DGI and the Insurance Subsidiaries agree that the fundamental purposes of
this Agreement are (i) to secure the provision of the services described in Section II.D. to DGI
and the Insurance Subsidiaries and (ii) to assure that Donegal Mutual receives appropriate payments
from DGI and the Insurance Subsidiaries so that Donegal Mutual has no net cost for providing the
services and employees, or, in the case of Atlantic States, for providing Atlantic States’
proportionate share of such services and employees as described in Section II.A., pursuant to this
Agreement. Exhibit A to this Agreement provides specific but non-exclusive guidelines as to how
such allocations and reimbursements shall be calculated and settled, and Exhibit A may be amended
from time to time by the mutual agreement of Donegal Mutual, DGI and the Insurance Subsidiaries.

          D. The services are as follows:

               1. Underwriting — the development, implementation and administration of policies relating to
underwriting and the acceptance of risks, the maintenance of underwriting manuals and guidelines
and services relating to the development of insurance products and rates, the provision of all
actuarial services necessary or appropriate for the operation of the Insurance Subsidiaries, the
analysis of loss trends and reserve developments and risk concentrations and the arranging for
insurance, loss control

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and other reasonable risk management services in the underwriting process to protect the
Insurance Subsidiaries and their respective properties and other assets against loss, damage and
liabilities;

               2. Claims — the admitting, adjusting, compromising, rejection and settlement of claims under
insurance policies issued by the Insurance Subsidiaries and the collection of reinsurance and
recoverables;

               3. Reinsurance — the review, negotiation, monitoring and coordination of all reinsurance
contracts and placements, including the determination of the amounts, terms, types and structure of
reinsurance to be obtained and the selection of the reinsurers;

               4. Investments — the investment of all available funds in the name of DGI and the Insurance
Subsidiaries pursuant to their respective investment policies, and the management of the respective
investments of DGI and the Insurance Subsidiaries;

               5. Information Services — the purchase and maintenance of computer hardware and software
systems and the creation, implementation and maintenance of computer programs utilized within those
systems. Such systems shall include, but not be limited to, accounting and bookkeeping systems,
automated underwriting and policy issuance systems, claims processing systems, premium billing
systems, electronic imaging systems, Internet web systems and storage and processing systems for
maintaining information to enable the preparation and analysis of daily, weekly and monthly
reports;

               6. Personnel and Professional Services — the appointment, direction, removal and suspension,
in the name of DGI and the Insurance Subsidiaries, of employees and agents, including the
determination of the appropriate levels thereof, and the ongoing review and analysis of
professional services, including the retention of counsel, accountants, actuaries and other
consultants;

               7. Financial Reporting — the analysis and reporting of actual performance to budgeted
performance, including analysis of financial results through the budgeted period and the
preparation of all statements and reports necessary or appropriate for the respective businesses of
DGI and the Insurance Subsidiaries, including reports to insurance regulatory authorities and the
Securities and Exchange Commission;

               8. Tax Administration — the ordinary and necessary tax administration services for income
taxes, premium taxes, sales and use taxes, franchise and similar taxes and any other taxes
incurred;

               9. Accounting Services — the providing of routine accounting and bookkeeping services
relating to cash, cash equivalents, receivables, supplies and other inventory items, fixed assets
and other asset accounting, accounts payable, notes payable,

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other trade payables, payroll and payroll taxes, other general ledger items, accounting
services relating to investments and the reconciliation of all bank accounts;

               10. Policyholder Services — the maintenance of policyholders’ customer relation services and
the maintenance of policyholder information, including names, addresses, policy anniversary dates
and premiums due;

               11. Internal Audit and Compliance Services — the providing of internal audit and compliance
services to obtain an ongoing independent and objective evaluation of the internal control systems
designed to provide reasonable assurance regarding the efficiency and effectiveness of operations,
the reliability of financial reporting and compliance with applicable laws and regulations;

               12. Actuarial Services — the providing of actuarial services including review and analysis of
claims reserving assumptions, historical claims experience and trends such as reserving patterns,
loss payments, pending levels of unpaid claims and product mix, as well as court decisions,
economic conditions and public attitudes; and

               13. Marketing, Sales and Advertising Services — the creation and development of marketing,
sales and advertising programs, media and agency co-op promotional materials to further increase
brand awareness and promote the sales of insurance products and services.

          E. Donegal Mutual shall use its best efforts to provide the services described above and such
other or additional services as DGI or the Insurance Subsidiaries may from time to time request
pursuant to this Agreement. Notwithstanding the foregoing, DGI and the Insurance Subsidiaries
agree that Donegal Mutual shall have no obligation to provide services to DGI and the Insurance
Subsidiaries of a quality greater than the quality of such services that Donegal Mutual maintains
for its own operations.

          F. Donegal Mutual shall, within 90 days after the expiration of each calendar year during the
term of this Agreement, furnish the Boards of Directors of DGI and the Insurance Subsidiaries with
a written report as to the allocations and reimbursements between Donegal Mutual, on the one hand,
and DGI and the Insurance Subsidiaries, on the other hand, during such year as shall be sufficient,
(i) in the discretion of the disinterested members of the Boards of Directors of DGI and the
Insurance Subsidiaries, to provide a commercially reasonable basis to reach the conclusion that the
transactions between Donegal Mutual, on the one hand, and DGI and the Insurance Subsidiaries, on
the other hand, have been fair to DGI and its stockholders under prevailing circumstances and (ii)
as shall be sufficient in the discretion of the disinterested members of Donegal Mutual’s Board of
Directors, to provide a commercially reasonable basis to reach the conclusion that the transactions
between Donegal Mutual, on the one hand, and DGI and the Insurance

-4-

 

Subsidiaries, on the other hand, have been fair to Donegal Mutual and its policyholders under
prevailing circumstances.

          G. Nothing in this Agreement shall constitute or be construed to be or create a partnership or
joint venture relationship between DGI and the Insurance Subsidiaries, on the one hand, and Donegal
Mutual, on the other hand, and Donegal Mutual’s status under this Agreement shall be that of an
independent contractor. In connection with the performance of services under this Agreement,
neither DGI, the Insurance Subsidiaries nor Donegal Mutual shall make any statement or take any
action that is inconsistent with the provisions of this Section II.G. It is understood and agreed
that the management, control and direction of the operations and policies of DGI and the Insurance
Subsidiaries shall remain at all times under the exclusive control of the respective Boards of
Directors of DGI and the Insurance Subsidiaries.

          H. In the event that an issue or question arises in the future as to how this Agreement should
be interpreted or whether the provisions of this Agreement should or should not apply in a
particular set of circumstances as to a particular transaction between Donegal Mutual and DGI or
one of the Insurance Subsidiaries, the issue or question shall be referred, upon the request of any
of Donegal Mutual, DGI or the Insurance Subsidiary, for resolution to the Coordinating Committee
maintained by the Boards of Directors of Donegal Mutual and DGI, and the decision of the
Coordinating Committee with respect to such issue or question shall be final and binding on Donegal
Mutual, DGI and the Insurance Subsidiaries.

     III. Books and Records.

          A. Donegal Mutual shall keep accurate records and accounts of all services provided pursuant
to this Agreement. Such records and accounts shall be maintained in accordance with sound business
practices and shall be subject to such systems of internal control as are required by law. All
records and accounts shall be available for inspection by DGI, the Insurance Subsidiaries and their
respective representatives, including DGI’s independent registered public accounting firm, at any
time upon request during commercially reasonable hours.

          B. All such records and accounts maintained by Donegal Mutual for DGI and the Insurance
Subsidiaries under Section III.A. of this Agreement shall be the sole property of DGI and the
Insurance Subsidiaries, subject to the examination rights of insurance and other applicable
regulatory authorities.

          C. DGI and the Insurance Subsidiaries, as the case may be, shall be solely responsible,
severally and not jointly, for, and shall hold harmless and indemnify Donegal Mutual, including its
successors, officers, directors, employees, agents and affiliates, from and against all losses,
claims, damages, liabilities and expenses, including any and all

-5-

 

reasonable expenses and attorneys’ fees and disbursements incurred in investigating, preparing
or defending against any litigation or proceeding, whether commenced or threatened, or any other
claim whatsoever, whether or not resulting in any liability, suffered, incurred, made, brought or
asserted by any person not a party to this Agreement in connection with Donegal Mutual’s provision
of services to DGI and the Insurance Subsidiaries, unless such loss, claim, damage, liability or
expense results from the negligence, willful misconduct or fraud of Donegal Mutual or its officers,
directors, employees, agents or affiliates or any other person engaged by Donegal Mutual to provide
services to DGI and the Insurance Subsidiaries.

          D. Donegal Mutual shall be solely responsible for, and shall hold harmless and indemnify DGI
and the Insurance Subsidiaries, as the case may be, including their respective successors,
officers, directors, employees, agents and affiliates, from and against all losses, claims,
damages, liabilities and expenses, including any and all reasonable expenses and attorneys’ fees
and disbursements incurred in investigating, preparing or defending against any litigation or
proceeding, whether commenced or threatened, or any other claim whatsoever, whether or not
resulting in any liability, suffered, incurred, made, brought or asserted by any person not a party
to this Agreement resulting from the negligence, willful misconduct or fraud of Donegal Mutual or
its officers, directors, employees, agents or affiliates or any other person engaged by Donegal
Mutual to provide services to DGI and the Insurance Subsidiaries.

     IV. Termination. This Agreement shall have a term that initially expires on December
31, 2015, provided, however, that, on each December 31 after the Effective Date of this Agreement,
the term of this Agreement shall be extended by one year so that upon each such automatic renewal
this Agreement shall have a then current term of five years; provided, however, that this Agreement
may be terminated at any time prior to its then termination date in any of the following events,
subject, in all events, to the receipt of any necessary insurance regulatory filings or actions:

          A. By Donegal Mutual, upon 180 days prior written notice to DGI and the Insurance
Subsidiaries, if a Change of Control (as defined in this Agreement) of DGI shall have occurred. As
used herein, “Change of Control” shall mean (i) the acquisition of shares of DGI by any “person” or
“group,” as such terms are used in Rule 13d-3 under the Securities Exchange Act of 1934 as now or
hereafter amended, in a transaction or series of transactions that result in such person or group
directly or indirectly becoming the beneficial owner of 25% or more of the voting power of DGI’s
common stock after the Effective Date of this Agreement, (ii) the consummation of a merger or other
business combination after which the holders of voting common stock of DGI do not collectively own
60% or more of such voting common stock of the entity surviving such merger or other business
combination, (iii) the sale, lease, exchange or other transfer in a transaction or series of
transactions of all or substantially all of the assets of DGI, but excluding therefrom the sale and
reinvestment of

-6-

 

the investment portfolio of DGI and the Insurance Subsidiaries or (iv) as the result of or in
connection with any cash tender offer or exchange offer, merger or other business combination, sale
of assets or contested election of directors or any combination of the foregoing transactions
specified in clauses (i), (ii), (iii) and (iv), each, a “Transaction,” the persons who constituted
a majority of the members of the Board of Directors of DGI on the date of this Agreement and
persons whose election as members of the Board of Directors of DGI was approved by such members
then still in office or whose election was previously so approved after the Effective Date of this
Agreement but before the event that constitutes a Change of Control, no longer constitute such a
majority of the members of the Board of Directors of DGI then in office. A Transaction shall be
deemed to constitute a Change in Control only upon the consummation of the Transaction.

          B. By DGI and the Insurance Subsidiaries, upon 30 days prior written notice to Donegal Mutual,
if Donegal Mutual shall have become insolvent or shall have become subject to any voluntary or
involuntary conservatorship, receivership, reorganization, liquidation or bankruptcy case or
proceeding.

          C. By Donegal Mutual, DGI and the Insurance Subsidiaries at any time by mutual written
agreement.

          D. The aforesaid respective rights of termination of DGI, the Insurance Subsidiaries and
Donegal Mutual may be exercised without prejudice to any other remedy to which DGI, the Insurance
Subsidiaries or Donegal Mutual, as the case may be, is entitled in law or in equity.

     V. Miscellaneous.

          A. All notices, communications and deliveries under this Agreement shall (i) be made in
writing, signed by the party making the same to the address as specified below, (ii) specify the
section of this Agreement pursuant to which such notice is given and (iii) be deemed to be given if
delivered in person, on the date delivered, or if sent by facsimile, on the date sent (if the party
giving the notice, or its employee or agent, has no reason to believe that the facsimiled notice
was not made or received), or if sent by Federal Express or some other overnight express courier
with costs paid, on the date delivered to such express courier:

-7-

 

     if to DGI, to:

Donegal Group Inc.

1195 River Road

Marietta, Pennsylvania 17547

Attention: President

Facsimile: 717-426-7009

     if to Donegal Mutual, to:

Donegal Mutual Insurance Company

1195 River Road

Marietta, Pennsylvania 17547

Attention: President

Facsimile: 717-426-7009

     if to Atlantic States, to:

Atlantic States Insurance Company

1195 River Road

Marietta, Pennsylvania 17547

Attention: Chief Executive Officer

Facsimile: 717-426-7009

     if to Southern, to:

Southern Insurance Company of Virginia

1195 River Road

Marietta, Pennsylvania 17547

Attention: Chief Executive Officer

Facsimile: 717-426-7009

     if to Le Mars, to:

Le Mars Insurance Company

1195 River Road

Marietta, Pennsylvania 17547

Attention: Chief Executive Officer

Facsimile: 717-426-7009

-8-

 

     if to Peninsula and/or PIC, to:

The Peninsula Insurance Company

1195 River Road

Marietta, Pennsylvania 17547

Attention: Chief Executive Officer

Facsimile: 717-426-7009

     if to SFIC, to:

Sheboygan Falls Insurance Company

511 Water Street

Sheboygan Falls, Wisconsin 53085

Attention: Chief Executive Officer

Facsimile: 920-467-3364

     if to MICO, to:

Michigan Insurance Company

1700 East Beltline N.E., Suite 100

Grand Rapids, MI 49525

Attention: President

Facsimile: 616-447-9603

Such notice shall be given at such other address or to such other representative as a party to this
Agreement may furnish pursuant to this Section V.A. to the other party to this Agreement.

          B. No assignment, transfer or delegation, whether by merger or other operation of law or
otherwise, of any rights or obligations under this Agreement shall be made by a party to this
Agreement without the prior written consent of the other party to this Agreement and, if required
by applicable law, the Pennsylvania Commissioner of Insurance and any other insurance regulatory
authority having jurisdiction over this Agreement. This Agreement shall be binding upon the
parties hereto and their respective permitted successors and assigns.

          C. This Agreement constitutes the entire agreement of the parties to this Agreement with
respect to its subject matter, supersedes all prior agreements, including the Prior Agreement, and
may not be amended except in writing signed by the party to this Agreement against whom the change
is asserted. The failure of any party to this Agreement at any time or times to require the
performance of any provision of this Agreement shall in

-9-

 

no manner affect the right to enforce the same and no waiver by any party to this Agreement of
any provision or breach of any provision of this Agreement in any one or more instances shall be
deemed or construed either as a further or continuing waiver of any such provision or breach or as
a waiver of any other provision or breach of any other provision of this Agreement.

          D. In case any one or more of the provisions contained herein shall, for any reason, be held
to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or provisions had never been
contained herein unless the deletion of such provision or provisions would result in such a
material change as to cause continued performance of this Agreement as contemplated herein to be
unreasonable or materially and adversely frustrate the objectives of the parties in originally
entering into this Agreement as expressed in the Recitals to this Agreement.

          E. This Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.

-10-

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first
above written.

	 	 	 	 	 	 	 	 	 	 	 

	DONEGAL MUTUAL INSURANCE COMPANY	 	 	 	DONEGAL GROUP INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Jeffrey D. Miller
	 	 	 	By:
	 	/s/ Donald H. Nikolaus	 	 
	 

	 	 

Jeffrey D. Miller, Senior Vice President

and Chief Financial Officer
	 	 
	 	 	 	 

Donald H. Nikolaus, President

and Chief Executive Officer
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	ATLANTIC STATES INSURANCE COMPANY	 	 	 	SOUTHERN INSURANCE COMPANY
OF VIRGINIA
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Donald H. Nikolaus
	 	 	 	By:
	 	/s/ Donald H. Nikolaus	 	 
	 

	 	 

Donald H. Nikolaus, President

and Chief Executive Officer
	 	 
	 	 	 	 

Donald H. Nikolaus, President

and Chief Executive Officer
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	LE MARS INSURANCE COMPANY	 	 	 	THE PENINSULA INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Donald H. Nikolaus
	 	 	 	By:
	 	/s/ G. Eric Crouchley, III	 	 
	 

	 	 

Donald H. Nikolaus, President

and Chief Executive Officer
	 	 
	 	 	 	 

G. Eric Crouchley III, President
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	PENINSULA INDEMNITY COMPANY	 	 	 	SHEBOYGAN FALLS INSURANCE
COMPANY
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ G. Eric Crouchley, III
	 	 	 	By:
	 	/s/ Lee F. Wilcox	 	 
	 

	 	 

G. Eric Crouchley III, President
	 	 
	 	 	 	 

Lee F. Wilcox, Chief Executive Officer
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	MICHIGAN INSURANCE COMPANY	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Ermil L. Adamson	 	 	 	 	 	 	 	 
	 

	 	 

Ermil L. Adamson, President
	 	 
	 	 	 	 
	 	 

-11-

 

EXHIBIT A

Amended and Restated

Services Allocation Agreement

Allocation and Reimbursement Guidelines

The following information sets forth allocation and reimbursement guidelines to be followed for the
calculation and settlement of amounts pursuant to the Agreement.

1. Personnel Costs.

     Personnel Costs as used in this Exhibit A shall be defined to include salaries and payroll tax
expense. Calculation and settlement of allocations and reimbursements of personnel costs shall be
performed as follows:

     (a) For DGI and the Insurance Subsidiaries other than Atlantic States receiving services from
Donegal Mutual employees, DGI and the Insurance Subsidiaries shall reimburse Donegal Mutual for the
direct costs of the employees performing such services. Donegal Mutual may also recover an
administration fee to cover its costs of services rendered to maintain records and process payroll
for DGI and the Insurance Subsidiaries.

     (b) Atlantic States shall reimburse Donegal Mutual for its proportionate share of Donegal
Mutual’s personnel costs, after subtracting direct reimbursements from DGI and the Insurance
Subsidiaries other than Atlantic States as described in Paragraph 1(a), in accordance with the
following allocation methods:

	 	(i)	 	Underwriting and general personnel costs shall be allocated in
proportion to Donegal Mutual’s and Atlantic States’ respective participation
under the Proportional Reinsurance Agreement.
	 
	 	(ii)	 	Claim personnel costs shall be allocated in proportion to Donegal
Mutual’s and Atlantic States’ respective average claim reserves and loss
payments
	 
	 	(iii)	 	Investment personnel costs shall be allocated in proportion to
Donegal Mutual’s and Atlantic States’ respective average invested assets,
excluding 50% of the average value of Donegal Mutual’s investment in
subsidiaries and affiliates. Such costs shall include the proportionate amount
of personnel costs for individuals who perform duties related to Donegal
Mutual’s and Atlantic States’ investment portfolios.

A-1

 

	 	(iv)	 	Information technology and operational services personnel costs
shall be allocated proportionately to the allocations calculated in (i) through
(iii) above to reflect the provision of information technology and operational
services to each of the respective functions.

     (c) Donegal Mutual shall provide to DGI and the Insurance Subsidiaries periodic calculations
of amounts pursuant to Paragraphs 1(a) and (b), and DGI and the Insurance Subsidiaries shall
reimburse Donegal Mutual in the normal course of business, generally within 30 days of receipt of
such calculations.

2. Information Services.

     To the extent that Donegal Mutual purchases and maintains the computer hardware and software
systems required to service the business underwritten by Donegal Mutual and one or more of the
Insurance Subsidiaries, calculation and settlement of allocations and reimbursements for such
services shall be performed as follows:

     (a) The estimated purchase price and development costs of computer hardware and software
systems required to provide such services shall be divided by the number of years those systems are
reasonably expected to serve the respective information services requirements of Donegal Mutual,
DGI and one or more of the Insurance Subsidiaries. Such estimated annual cost shall then be
allocated to the respective companies based upon their proportionate net written premiums in the
year prior to the establishment of the allocation amounts.

     (b) The Insurance Subsidiaries shall reimburse Donegal Mutual for the amounts so allocated on
a monthly basis.

3. Miscellaneous Expenses.

     (a) DGI and the Insurance Subsidiaries other than Atlantic States shall reimburse Donegal
Mutual for miscellaneous direct and allocated expenses including, but not limited to, postage,
in-house printing services and insurance purchased by Donegal Mutual on their behalf. DGI and the
Insurance Subsidiaries shall reimburse Donegal Mutual such allocation amounts in the normal course
of business, generally within 30 days of receipt of such allocations.

     (b) Atlantic States shall reimburse Donegal Mutual on a monthly basis for its proportionate
share of Donegal Mutual’s expenses other than information systems depreciation expense, real estate
depreciation and any other expenses for services solely benefiting Donegal Mutual and after
subtracting direct reimbursements from DGI and the Insurance Subsidiaries other than Atlantic
States as described in Paragraph 3(a) in accordance with the following allocation methods:

A-2

 

	 	(i)	 	Underwriting and general expenses allocated to the underwriting
function shall be allocated in proportion to the respective participation of
Donegal Mutual and Atlantic States under the Proportional Reinsurance Agreement.
	 
	 	(ii)	 	Claim adjusting expenses and general expenses allocated to the
claim function shall be allocated in proportion to the respective average claim
reserves and loss payments of Donegal Mutual and Atlantic States.
	 
	 	(iii)	 	General expenses allocated to the investment function shall be
allocated in proportion to the respective average invested assets of Donegal
Mutual and Atlantic States, excluding 50% of the average value of Donegal
Mutual’s investment in subsidiaries and affiliates.

4. Timing of Payments.

     The parties to the Agreement agree that all funds collected by Donegal Mutual on behalf of DGI
and the Insurance Subsidiaries shall be held in a fiduciary capacity and all intercompany balances
arising under the Agreement shall be paid within 30 days of the end of the calendar month in which
such transactions occur, unless a different time of payment is expressly specified in the
Agreement.

A-3

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