Document:

<PAGE>

                                                                   EXHIBIT 10.13

                                 FIFTH AMENDMENT
                                       TO
                 SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

      THIS FIFTH AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT
(the "Amendment") made and entered into as of the 30th day of June, 2004, by and
among DIRECT GENERAL FINANCIAL SERVICES, INC., a Tennessee corporation whose
address is 1281 Murfreesboro Road, Nashville, Tennessee 37217 (f/k/a Direct
Financial Services, Inc.) ("DGFS"), DIRECT GENERAL PREMIUM FINANCE COMPANY, a
Tennessee corporation whose address is 1281 Murfreesboro Road, Nashville,
Tennessee 37217 ("DGPFC"; and collectively with DGFS the "Grantor"), and FIRST
TENNESSEE BANK NATIONAL ASSOCIATION, whose address is 165 Madison Avenue,
Memphis, Tennessee 38103, Attention: Metropolitan Division (in its agency
capacity being herein referred to as "Agent," and in its individual capacity as
"FTBNA"), as agent for itself, and for HIBERNIA NATIONAL BANK, Baton Rouge,
Louisiana ("Hibernia"), and for U. S. BANK NATIONAL ASSOCIATION, St. Louis,
Missouri ("U. S. Bank"), and for REGIONS BANK, Birmingham, Alabama ("Regions"),
and for CAROLINA FIRST BANK, Greenville, South Carolina ("Carolina First"), and
for BANK ONE, NA (Main Office -- Chicago, Illinois), Baton Rouge, Louisiana
("Bank One"), and for NATIONAL CITY BANK OF KENTUCKY, Louisville, Kentucky
("National City Bank"), and for FIFTH THIRD BANK, N.A. (TENNESSEE), Franklin,
Tennessee ("Fifth Third") (Agent, Hibernia, U. S. Bank, Regions, Carolina First,
National City Bank, Fifth Third, and Bank One collectively, the "Banks," and
each individually, a "Bank"), pursuant to the Eighth Amended and Restated Loan
Agreement dated as of October 31, 2002, as amended (the "Loan Agreement") among
Grantor, Banks and the other parties named therein.

                                Recitals of Fact

      Pursuant to that certain Seventh Amended and Restated Security Agreement
dated as of October 31, 2002, as amended by that certain First Amendment to
Seventh Amended and Restated Security Agreement dated as of March 31, 2003, as
amended by that certain Second Amendment to Seventh Amended and Restated
Security Agreement dated as of May 28, 2003, as amended by that certain Third
Amendment to the Seventh Amended and Restated Security Agreement dated as of
June 30, 2003, and as amended by that certain Fourth Amendment to Seventh
Amended and Restated Security Agreement dated as of November 26, 2003 (as
amended, the "Security Agreement"), between DGFS and the Banks, DGFS assigned
and pledged Receivables (as defined in the Loan Agreement) and other contractual
rights to the Agent for the benefit of the Banks as collateral security for all
of the Obligations (as defined in the Security Agreement) of Grantor to the
Banks.

      DGFS and the Banks are now modifying the terms and conditions of the Loan
Agreement by extending the term of the Loan and by adding DGPFC as a Borrower
under the Loan Agreement and as an additional grantor hereunder. The Grantor and
the Banks now desire to modify certain terms of the Security Agreement as
hereinafter set forth.

      NOW, THEREFORE, in consideration of the premises as set forth in the
Recitals of Fact, the mutual covenants and agreements hereinafter set out, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed by the parties as follows:

                                   Agreements

      1.    All capitalized terms used and not defined herein shall have the
meaning ascribed to them in the Loan Agreement.

      2.    To induce the Banks to enter into this Amendment, the Grantor does
hereby absolutely and unconditionally, certify, represent and warrant to the
Banks, and covenants and agrees with the Banks, that:

            (a)   It is the intention of DGPFC to, and DGPFC does hereby, pledge
      and assign a continuing security interest in the Collateral described in
      the Security Agreement to Agent as agent for itself and the Banks, to the
      extent that DGPFC has an interest in any such items of Collateral.
      References to "Grantor" in the Security Agreement shall be deemed to refer
      collectively to DGFS and DGPFC.

            (b)   All representations and warranties made by the Grantor in the
      Loan Agreement, as amended, in the Security Agreement, as amended, and in
      all other loan documents (all of which are herein sometimes called the
      "Loan Documents"), are true, correct and complete in all material respects
      as of the date of this Amendment.

            (c)   As of the date hereof and with the execution of this
      Amendment, there are no existing events, circumstances or conditions which
      constitute, or would, with the giving of notice, lapse of time, or both,
      constitute Events of Default.

<PAGE>

            (d)  There are no existing offsets, defenses or counterclaims to
      the obligations of the Grantor, as set forth in the Notes, the Security
      Agreement, the Loan Agreement, as amended, or in any other Loan Document
      executed by the Grantor, in connection with the Loan.

            (e)  The Grantor does not have any existing claim for damages
      against the Banks arising out of or related to the Loan; and, if and to
      the extent (if any) that the Grantor has or may have any such existing
      claim (whether known or unknown), the Grantor does hereby forever release
      and discharge, in all respects, the Banks with respect to such claim.

            (f)  The Loan Documents, as amended by this Amendment, are valid,
      genuine, enforceable in accordance with their respective terms, and in
      full force and effect.

      3.    Section 2(a) of the Security Agreement, is hereby deleted in its
entirety and the following is inserted in lieu thereof:

            (a)  The full and prompt payment, when due, of the indebtedness
      (and interest thereon) evidenced and to be evidenced by those certain
      promissory notes,

                 (i)    dated as of June 30, 2004, in the principal sum of Forty
                        Million Dollars ($40,000,000.00), executed by Grantor
                        and payable to the order of First Tennessee Bank
                        National Association;

                 (ii)   dated as of June 30, 2004, in the principal sum of
                        Twenty Million Dollars ($20,000,000.00), executed by
                        Grantor and payable to the order of Hibernia;

                 (iii)  dated as of June 30, 2004, in the principal sum of
                        Thirty Million Dollars ($30,000,000.00), executed by
                        Grantor and payable to the order of U. S. Bank;

                 (iv)   dated as of June 30, 2004, in the principal sum of
                        Twenty-Five Million Dollars ($25,000,000.00), executed
                        by Grantor and payable to the order of Regions;

                 (v)    dated as of June 30, 2004, in the principal sum of
                        Fifteen Million Dollars ($15,000,000.00), executed by
                        Grantor and payable to the order of Carolina First;

                 (vi)   dated as of June 30, 2004, in the principal sum of
                        Fifteen Million Dollars ($15,000,000.00), executed by
                        Grantor and payable to the order of National City Bank;

                 (vii)  dated as of June 30, 2004, in the principal sum of Ten
                        Million Dollars ($10,000,000.00), executed by Grantor
                        and payable to the order of Fifth Third; and

                 (viii) dated as of June 30, 2004, in the principal sum of
                        Thirty-Five Million Dollars ($35,000,000.00), executed
                        by Grantor and payable to the order of Bank One,

      together with and any and all renewals, modifications, and extensions of
      any of said notes, in whole or in part; and

      4.    All terms and provisions of the Security Agreement, as heretofore
amended, which are inconsistent with the provisions of this Amendment are hereby
modified and amended to conform hereto; and, as so modified and amended, the
Security Agreement is hereby ratified, approved and confirmed. Except as
otherwise may be expressly provided herein, this Amendment shall become
effective as of the date set forth in the initial paragraph hereof.

      5.    All references in all Loan Documents (including, but not limited to,
the Notes, the Security Agreement, and the Loan Agreement) to the "Security
Agreement" shall, except as the context may otherwise require, be deemed to
constitute references to the Security Agreement as amended hereby.

                        [SEPARATE SIGNATURE PAGES FOLLOW]

<PAGE>

                                 SIGNATURE PAGE
                                       TO
       FIFTH AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

      IN WITNESS WHEREOF, the Grantor, the Banks and the Agent have caused this
Agreement to be executed by their duly authorized officers, all as of the day
and year first above written.

                           GRANTOR:

                           DIRECT GENERAL FINANCIAL SERVICES, INC., a Tennessee
                           corporation

                           By: /s/ Brian G. Moore
                               ------------------------------------------------
                               Brian G. Moore, President

                           DIRECT GENERAL PREMIUM FINANCE COMPANY, a Tennessee
                           corporation

                           By: /s/ Brian G. Moore
                               ------------------------------------------------
                               Brian G. Moore, President

                           BANKS:

                           FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                           By: /s/ Sam Jenkins
                               ------------------------------------------------
                           Title: SVP

                           HIBERNIA NATIONAL BANK

                           By: /s/  Janet Olson Rack
                               ------------------------------------------------
                           Title: Sr. Vice President

                           U. S. BANK NATIONAL ASSOCIATION

                           By: /s/  Brian Gallagher
                               ------------------------------------------------
                           Title: Vice President

                           CAROLINA FIRST BANK

                           By: /s/  Charles Chamberlain
                               ------------------------------------------------
                           Title: Executive Vice President

                       [SIGNATURE PAGE CONTINUED]

                           BANKS (continued):

                           BANK ONE, NA
                           (Main Office - Chicago, Illinois)

                           By: /s/  Robert D. Bond
                               ------------------------------------------------
                           Title: First Vice President

                           REGIONS BANK

<PAGE>

                           By: /s/  James Schmaltz
                               ------------------------------------------------
                           Title: Vice President

                           NATIONAL CITY BANK OF KENTUCKY

                           By: /s/  Kevin C. Anderson
                               ------------------------------------------------
                           Title: SVP

                           FIFTH THIRD BANK, N.A. (TENNESSEE)

                           By: /s/  David Hicks
                               ------------------------------------------------
                           Title: VP

                           AGENT:

                           FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                           By: /s/ Sam Jenkins
                               ------------------------------------------------
                           Title: SVP

<PAGE>

                                 SIXTH AMENDMENT
                                       TO
                 SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

      THIS SIXTH AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT
(the "Amendment") made and entered into as of the 3rd day of December, 2004, by
and among DIRECT GENERAL FINANCIAL SERVICES, INC., a Tennessee corporation whose
address is 1281 Murfreesboro Road, Nashville, Tennessee 37217 (f/k/a Direct
Financial Services, Inc.) ("DGFS"), DIRECT GENERAL PREMIUM FINANCE COMPANY, a
Tennessee corporation whose address is 1281 Murfreesboro Road, Nashville,
Tennessee 37217 ("DGPFC"; and collectively with DGFS the "Grantor"), and FIRST
TENNESSEE BANK NATIONAL ASSOCIATION, whose address is 165 Madison Avenue,
Memphis, Tennessee 38103, Attention: Metropolitan Division (in its agency
capacity being herein referred to as "Agent," and in its individual capacity as
"FTBNA"), as agent for itself, and for HIBERNIA NATIONAL BANK, Baton Rouge,
Louisiana ("Hibernia"), and for U. S. BANK NATIONAL ASSOCIATION, St. Louis,
Missouri ("U. S. Bank"), and for REGIONS BANK, Birmingham, Alabama ("Regions"),
and for CAROLINA FIRST BANK, Greenville, South Carolina ("Carolina First"), and
for JPMORGAN CHASE BANK, N.A. (successor by merger to Bank One, NA (Main Office
Chicago)) ("JPMorgan"), Baton Rouge, Louisiana ("Bank One"), and for NATIONAL
CITY BANK OF KENTUCKY, Louisville, Kentucky ("National City Bank"), and for
FIFTH THIRD BANK, N.A. (TENNESSEE), Franklin, Tennessee ("Fifth Third") (Agent,
Hibernia, U. S. Bank, Regions, Carolina First, National City Bank, Fifth Third,
and JPMorgan collectively, the "Banks," and each individually, a "Bank"),
pursuant to the Eighth Amended and Restated Loan Agreement dated as of October
31, 2002, as amended (the "Loan Agreement") among Grantor, Banks and the other
parties named therein.

                                Recitals of Fact

      Pursuant to that certain Seventh Amended and Restated Security Agreement
dated as of October 31, 2002, as amended by that certain First Amendment to
Seventh Amended and Restated Security Agreement dated as of March 31, 2003, as
amended by that certain Second Amendment to Seventh Amended and Restated
Security Agreement dated as of May 28, 2003, as amended by that certain Third
Amendment to the Seventh Amended and Restated Security Agreement dated as of
June 30, 2003, as amended by that certain Fourth Amendment to Seventh Amended
and Restated Security Agreement dated as of November 26, 2003, and as amended by
that certain Fifth Amendment to Seventh Amended and Restated Security Agreement
dated as of June 30, 2004 (as amended, the "Security Agreement"), between DGFS
and the Banks, DGFS and DGPFC assigned and pledged Receivables (as defined in
the Loan Agreement) and other contractual rights to the Agent for the benefit of
the Banks as collateral security for all of the Obligations (as defined in the
Security Agreement) of Grantor to the Banks.

      DGFS, DGPFC and the Banks are now modifying the terms and conditions of
the Loan Agreement by making a Swing Line Loan (as defined in the Loan
Agreement) available to the Grantor. The Grantor and the Banks now desire to
modify certain terms of the Security Agreement as hereinafter set forth.

      NOW, THEREFORE, in consideration of the premises as set forth in the
Recitals of Fact, the mutual covenants and agreements hereinafter set out, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed by the parties as follows:

                                   Agreements

      1.    All capitalized terms used and not defined herein shall have the
meaning ascribed to them in the Loan Agreement.

      2.    To induce the Banks to enter into this Amendment, the Grantor does
hereby absolutely and unconditionally, certify, represent and warrant to the
Banks, and covenants and agrees with the Banks, that:

            (a)   It is the intention of DGFS and DGPFC to, and DGFS and DGPFC
                  do hereby, pledge and assign a continuing security interest in
                  the Collateral described in the Security Agreement to Agent as
                  agent for itself and the Banks. References to "Grantor" in the
                  Security Agreement shall be deemed to refer collectively to
                  DGFS and DGPFC.

            (b)   All representations and warranties made by the Grantor in the
                  Loan Agreement, as amended, in the Security Agreement, as
                  amended, and in all other loan documents (all of which are
                  herein sometimes called the "Loan Documents"), are true,
                  correct and complete in all material respects as of the date
                  of this Amendment.

<PAGE>

            (c)   As of the date hereof and with the execution of this
                  Amendment, there are no existing events, circumstances or
                  conditions which constitute, or would, with the giving of
                  notice, lapse of time, or both, constitute Events of Default.

            (d)   There are no existing offsets, defenses or counterclaims to
                  the obligations of the Grantor, as set forth in the Notes, the
                  Security Agreement, the Loan Agreement, as amended, or in any
                  other Loan Document executed by the Grantor, in connection
                  with the Loan.

            (e)   The Grantor does not have any existing claim for damages
                  against the Banks arising out of or related to the Loan; and,
                  if and to the extent (if any) that the Grantor has or may have
                  any such existing claim (whether known or unknown), the
                  Grantor does hereby forever release and discharge, in all
                  respects, the Banks with respect to such claim.

            (f)   The Loan Documents, as amended by this Amendment, are valid,
                  genuine, enforceable in accordance with their respective
                  terms, and in full force and effect.

      3.    Section 2(a) of the Security Agreement, is hereby deleted in its
entirety and the following is inserted in lieu thereof:

            (a)   The full and prompt payment, when due, of the indebtedness
      (and interest thereon) evidenced and to be evidenced by those certain
      promissory notes,

             (i)     Dated as of December 3rd, 2004, in the principal sum of
                     Thirty Million Dollars ($30,000,000.00), executed by
                     Grantor and payable to the order of First Tennessee Bank
                     National Association;

             (ii)    dated as of June 30, 2004, in the principal sum of Forty
                     Million Dollars ($40,000,000.00), executed by Grantor and
                     payable to the order of First Tennessee Bank National
                     Association;

             (iii)   dated as of June 30, 2004, in the principal sum of Twenty
                     Million Dollars ($20,000,000.00), executed by Grantor and
                     payable to the order of Hibernia;

             (iv)    dated as of June 30, 2004, in the principal sum of Thirty
                     Million Dollars ($30,000,000.00), executed by Grantor and
                     payable to the order of U. S. Bank;

             (v)     dated as of June 30, 2004, in the principal sum of
                     Twenty-Five Million Dollars ($25,000,000.00), executed by
                     Grantor and payable to the order of Regions;

             (vi)    dated as of June 30, 2004, in the principal sum of Fifteen
                     Million Dollars ($15,000,000.00), executed by Grantor and
                     payable to the order of Carolina First;

             (vii)   dated as of June 30, 2004, in the principal sum of Fifteen
                     Million Dollars ($15,000,000.00), executed by Grantor and
                     payable to the order of National City Bank;

             (viii)  dated as of June 30, 2004, in the principal sum of Ten
                     Million Dollars ($10,000,000.00), executed by Grantor and
                     payable to the order of Fifth Third; and

             (ix)    dated as of June 30, 2004, in the principal sum of
                     Thirty-Five Million Dollars ($35,000,000.00), executed by
                     Grantor and payable to the order of Bank One (now
                     JPMorgan),

      together with and any and all renewals, modifications, and extensions of
      any of said notes, in whole or in part; and

      4.    All terms and provisions of the Security Agreement, as heretofore
amended, which are inconsistent with the provisions of this Amendment are hereby
modified and amended to conform hereto; and, as so modified and amended, the
Security Agreement is hereby ratified, approved and confirmed. Except as
otherwise may be expressly provided herein, this Amendment shall become
effective as of the date set forth in the initial paragraph hereof.

<PAGE>

      5.    All references in all Loan Documents (including, but not limited to,
the Notes, the Security Agreement, and the Loan Agreement) to the "Security
Agreement" shall, except as the context may otherwise require, be deemed to
constitute references to the Security Agreement as amended hereby.

                        [SEPARATE SIGNATURE PAGES FOLLOW]

<PAGE>

                                 SIGNATURE PAGE
                                       TO
       SIXTH AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENT

      IN WITNESS WHEREOF, the Grantor, the Banks and the Agent have caused this
Agreement to be executed by their duly authorized officers, all as of the day
and year first above written.

                         GRANTOR:

                         DIRECT GENERAL FINANCIAL SERVICES, INC., a Tennessee
                         corporation

                         By: /s/  Brian G.  Moore
                             ------------------------------------------------
                             Brian G. Moore, President

                         DIRECT GENERAL PREMIUM FINANCE COMPANY, a Tennessee
                         corporation

                         By: /s/  Brian G.  Moore
                             ------------------------------------------------
                             Brian G. Moore, President

                         BANKS:

                         FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                         By: /s/  Sam Jenkins
                             ------------------------------------------------
                         Title: SVP

                         HIBERNIA NATIONAL BANK

                         By: /s/  Janet Olson Rack
                             ------------------------------------------------
                         Title: Senior Vice President

                         U. S. BANK NATIONAL ASSOCIATION

                         By: /s/  Russell S. Rogers
                             ------------------------------------------------
                         Title: Vice President

                         CAROLINA FIRST BANK

                         By: /s/  Charles Chamberlain
                             ------------------------------------------------
                         Title: Executive Vice President

                   [SIGNATURE PAGE CONTINUED]

                         BANKS (continued):

                         JPMORGAN CHASE BANK, N.A.
                         (successor by merger to Bank One, NA (Main Office
                         Chicago))

                         By: /s/ Robert D. Bond
                             ------------------------------------------------
                         Title: First Vice President

                         REGIONS BANK

<PAGE>

                         By: /s/  James Schmaltz
                             ------------------------------------------------
                         Title: Vice President

                         NATIONAL CITY BANK OF KENTUCKY

                         By: /s/  Kevin C.  Anderson
                             ------------------------------------------------
                         Title: Sr. Vice President

                         FIFTH THIRD BANK, N.A. (TENNESSEE)

                         By: /s/  David Hicks
                             ------------------------------------------------
                         Title: Vice President

                         AGENT:

                         FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                         By: Sam Jenkins
                             ------------------------------------------------
                         Title: SVP<PAGE>

                                                                   EXHIBIT 10.23

                              EMPLOYMENT AGREEMENT

      THIS AGREEMENT is hereby made and entered into as of the 20th day of May,
2003, by and between DIRECT GENERAL CORPORATION, a Tennessee corporation
("Company") and KENNETH A. COLLOM, a natural person residing in the state of
Utah ("Employee"). Company and Employee are entering into this Agreement in
order to set forth, in definitive written form, their respective rights and
obligations in what each of them intends to be a long-term, mutually beneficial
and amicable employment relationship. Consideration for this Agreement consists
of the employment of Employee, and the agreements and undertakings herein made
by the parties. The sufficiency, adequacy and receipt of said consideration are
by execution hereof acknowledged by Company and by Employee, each of which
enters into this Agreement with the intention of being bound hereby and agrees
as follows:

      1. EMPLOYMENT. Company hereby employs Employee as Executive Vice President
of Direct General Consumer Products, Inc. ("DGCP"), a wholly owned subsidiary of
Company, and Employee hereby accepts such employment.

      2. TERM. Unless terminated pursuant to paragraph 13, Employee's term of
employment as Executive Vice President of DGCP on the terms hereinafter set
forth shall be for a period of three (3) years beginning on July 1, 2003.

      3. EXCLUSIVITY. Employee shall devote all of his time during reasonable
business hours to performance of his duties under this Agreement. Nothing herein
shall restrict Employee, with the Company's prior written consent (which the
Company shall not unreasonably withhold, it being the belief of the parties that
Employee's service on a reasonable number of such boards furthers his interests
and the Company's interests) from service on charitable or civic organization
boards of directors. It is further understood that employee may be elected to
serve as an officer or director by appropriate corporate action of the Company
or any one or more of the Company's affiliates and, if elected, will so serve
without additional salary or other compensation.

      4. DUTIES AND RESPONSIBILITIES. Employee will render services customarily
performed by and consistent with the title of Executive Vice President.
Employee's duties and responsibilities will include (but not by way of
limitation) those set forth on Exhibit "A" to this Agreement and he shall use
his good faith and diligent efforts to perform such duties and responsibilities
set forth on Exhibit "A" hereto and such other duties and responsibilities as
the Board of Directors or Chief Executive Officer shall prescribe. As used
throughout this Agreement, the terms "Board of Directors" or "Board" and the
terms "Chief Executive Officer" or "CEO" shall mean the Board or CEO of DGCP or,
so long as acting in a manner that is consistent with the best interests of
DGCP, such terms may also mean the Board or CEO of Company.

      5. ANNUAL BASE SALARY. During the term of Employee's employment hereunder,
DGCP or an affiliate of DGCP will pay Employee a base salary of One Hundred and
Seventy-Five Thousand Dollars ($175,000.00) per year, payable as nearly as
practical in equal installments and with the frequency then used by the Company
in paying its and its affiliates' other full-time employees. The Board of
Directors or the Compensation Committee of the Board of Directors of the Company
shall annually review such base salary and may increase or decrease such annual
base salary, but shall not decrease it to less than $175,000.00. It is intended
by the parties that base salary and other compensation herein provided shall
compensate Employee for all services rendered as Executive Vice President of
DGCP and any other position he may serve as director or officer of the Company
and its affiliates.

      6. RELOCATION EXPENSES. Company shall pay up to Twenty-Five Thousand
Dollars ($25,000.00) (less any applicable federal or state withholding, FICA or
Medicare tax deductions and other applicable employment related deductions) to
Employee as reimbursement for "Loss", if any, sustained as a consequence of the
sale of Employee's Utah home located at 1649 Harvey Road, Fruit Heights, Utah
84037 ("Utah Home"). "Loss" (if any) as used herein shall be computed as
follows: the ultimate selling price for which Employee and his spouse sell said
property, less: 1) the original purchase price paid to purchase the Utah Home by
Employee and his spouse (if applicable); and 2) real estate agent commissions
actually paid by Employee upon the ultimate sale of said property. If Employee
realizes a gain on the sale of said property based on this computation then no
sums shall be due and owing for "Loss" pursuant to this paragraph 6.

      Additionally, Company agrees to pay up to twenty seven hundred ($2,700)
dollars toward employee's monthly mortgage payment on the home Employee
purchases in the metropolitan area of Nashville for up to twelve months (12) or
until Employee sells his Utah Home, whichever occurs first. Employee agrees to
reimburse Company in full for all of said mortgage payments paid by Company
immediately upon the sale of Employee's Utah Home.

      Finally, Company agrees to pay up to fifteen thousand dollars ($15,000) in
moving expenses to relocate Employee to the metropolitan area of Nashville,
Tennessee. Moving expenses are limited to the packing and shipping of Employee's
household goods and furnishings located in his Utah Home to the metropolitan
area of Nashville, Tennessee.

<PAGE>

      7. STOCK OPTIONS. Subject to the discretion and approval of the Board of
Directors of the Company or the Compensation Committee of said Board (referred
to in this Agreement as the "Compensation Committee"), upon an initial public
offering of the common stock of the Company ("IPO") during the term of
Employee's employment hereunder, the Company will grant to Employee Incentive
Stock Options ("ISOs") for the purchase of Two Thousand and Five Hundred (2,500)
shares of common stock of the Company. The per share exercise price for said
ISOs shall be equal to the initial offering price per share at the time of the
IPO. The vesting schedule and other terms of said ISOs shall be determined by
the Company's Board of Directors or the Compensation Committee, and shall be
determined in accordance with the terms of the Company's recently adopted 2003
Equity Incentive Plan.

      8. EMPLOYEE AND FRINGE BENEFITS. During the term of this Agreement,
Company or an affiliate shall:

            (a) Provide Employee the opportunity to participate in the same
medical, health, hospitalization and other insurance coverage and retirement
plans in which Company or its affiliates provide to their other full-time
employees the opportunity to participate;

            (b) allow Employee to take Paid Time Off (which includes vacation
days) in the same manner as is provided for other senior officers of the Company
and its affiliates;

            (c) reimburse Employee for reasonable out-of-pocket expenses he
incurs on behalf of himself, DGCP or the Company in connection with his
performance of his duties and responsibilities of his employment under this
Agreement, subject to the applicable reimbursement policy in effect at the time;
and

            (d) provide Employee with a Company vehicle in the same manner as is
provided for other senior officers of the Company or its affiliates.

      9. INCENTIVE COMPENSATION.

      (a) First Year. The Board of Directors or the Compensation Committee
            shall, during Employee's first year of employment as Executive Vice
            President of DGCP as hereunder set forth, no later than the last day
            of each of the months of October and March, pay Employee Twenty-Five
            Thousand Dollars ($25,000.00) (said sum shall be subject to the
            usual and customary federal and state withholding, FICA and Medicare
            tax deductions, and other applicable employment related deductions)
            as an executive bonus compensation.

      (b) Annually. After such first year of employment, the Board of
            Directors or the Compensation Committee shall, annually consider,
            but not be obligated to pay, an incentive payment to Employee to be
            paid in one lump sum, payable promptly after action by the Board or
            Compensation Committee and subject to a maximum of fifty percent
            (50%) of Employee's base annual salary. In framing its decision on
            the amount of incentive compensation to be paid to Employee, if any,
            the Board or Compensation Committee shall take into account
            Employee's performance of the duties and responsibilities listed on
            Exhibit "A" hereto, his contribution toward the attainment of the
            Company's or DGCP's objectives as may be determined from time to
            time by the Board of Directors or Chief Executive Officer, which
            objectives may be established in connection with any executive cash
            bonus plan adopted by the Board of Directors or Compensation
            Committee under the 2003 Equity Incentive Plan or otherwise, and the
            Company's profitability. No incentive compensation shall become
            payable hereunder until and unless the Board of Directors or the
            Compensation Committee shall award it.

      10. USE OF EMPLOYEE'S NAME, ETC. Employee hereby grants the Company and
its affiliates the right during the term of this Agreement to make use of, and
to permit others to make use of the, Employee's name, pictures, photographs, and
other likenesses, and voice, in connection with the advertising, publicity and
exploitation of any Company or affiliate's products, or in connection with the
use or implementation of any of the Employee's services hereunder or the
proceeds thereof. The right to use any of the foregoing shall continue as a
non-exclusive and non-compensable right for one (1) year after termination of
Employee's employment with Company by Employee's resignation or termination of
such employment by Company for cause, and for six (6) months following
termination of Employee's employment by the Company without cause; provided,
however, in such event, Company shall not, directly or indirectly, represent
Employee as endorsing any product or service without the Employee's written
consent, which shall not be unreasonably withheld.

      11. INSURANCE. Employee shall cooperate with the Company if it applies
for, in its own name or otherwise, but at its expense, keyman life, health,
accident or other insurance covering Employee, and acknowledges that the Company
may do so for any amount that it deems desirable. Unless otherwise agreed,
Employee and his family will have no right, title or interest in or to such
insurance. Employee shall, if requested, assist the Company in procuring such
insurance by submitting from time to time to the

<PAGE>

customary medical, physical and other examinations, and by signing such
applications, statements and other instruments as insurer may require.

      12. RECORDS. Upon termination of this Agreement, Employee shall not be
entitled to keep or preserve any record, document or other instrument of
Company, or any copy thereof, or any other property owned or leased by Company
or any affiliate and shall return all such property to the Company.

      13. TERMINATION.

      (a) For Cause. Company may terminate employment of Employee "for cause"
upon the occurrence of any of the following:

            (i)   Employee's refusal to perform, or failure to perform, in a
                  normal business manner those duties assigned to him by the
                  Board of Directors or by the Chief Executive Officer;

            (ii)  Employee's failure or refusal to obey and comply with the
                  instructions, rules and regulations of Company or any
                  affiliate as promulgated in good faith by the Chief Executive
                  Officer or Board of Directors respecting the operations of
                  Company or any affiliate; or

            (iii) Employee's engaging in any unlawful conduct in connection with
                  his duties of employment with Company or any affiliate, or any
                  acts of dishonesty in connection therewith, conviction of a
                  felony, or of a misdemeanor involving moral turpitude.

      If Employee's employment terminates "for cause" as described above then
this Agreement shall terminate and Employee shall receive base compensation
accrued through the date of termination.

      (b) Death or Disability. This Agreement shall terminate without other or
further liability of any party hereto upon the death or permanent disability of
Employee. As herein used, the term "permanent disability" shall mean physical or
mental impairment of Employee to such an extent that he is thereby unable to
perform his normal duties and obligations under this Agreement for a period of
one hundred and twenty (120) cumulative days during any twelve (12) month
period.

      (c) Resignation. This Agreement shall terminate upon Employee's voluntary
resignation without other or further liability of any party hereto, except for
and to the extent that specific provisions hereof contemplate their survival
following termination.

      (d) Without Just Cause. In addition to the foregoing, Company may
terminate employment of Employee at any time "without just cause". Termination
"without just cause" means termination of Employee's employment by Company that
is initiated by Company and is not for one of the above-enumerated reasons. If,
during the first twenty nine (29) months of the term of employment hereunder,
Employee is terminated "without just cause", then he shall receive a lump sum
severance payment of one hundred thousand dollars ($100,000), less the usual and
customary applicable federal and state withholding, FICA and Medicare tax
deductions, and other applicable employment related deductions. If termination
"without just cause" occurs thereafter Employee shall receive continuation of
his base salary for the then remainder of the Agreement's term or $100,000 (less
the usual and customary applicable withholding, FICA and Medicare tax
deductions, and other applicable employment related deductions), whichever is
less.

      (e) Effect of Termination on Employee or Fringe Benefits. Upon termination
of this Agreement for any reason, the Company's obligation to provide any
employee or fringe benefits provided for herein shall cease, although Employee
shall retain any rights provided for in any employee benefit plan document,
which includes, but is not limited to, accrued Paid Time Off, if any.

      14. INVENTIONS AND CREATIONS. Employee agrees that all inventions,
discoveries, improvements, ideas and other contributions (herein called
collectively "Inventions") whether or not patented or patentable, copyrighted or
copyrightable, or otherwise protectable in law, which are conceived, made,
developed or acquired by Employee, either individually or jointly, during his
employment with the Company or any affiliate and which relate in any manner to
the business of the Company or any affiliate, shall belong to the Company or
appropriate affiliate, and by execution hereof Employee assigns and transfers to
the Company his entire right, title and interest in the Inventions.

      15. REMEDIES. Employee acknowledges that legal remedies for the breach of
this Agreement would be inadequate and that in addition to other remedies
provided by law or equity, upon a breach by Employee of any of the covenants
contained in this Agreement, the Company or appropriate affiliate shall be
entitled to an injunction against Employee prohibiting any further breach of
this Agreement.

      16. AMENDMENT AND ASSIGNMENT. This Agreement may be amended only by a
writing signed by both parties hereto. This Agreement, and the rights, duties
and obligations shall not be assignable by Employee because the services to be
rendered

<PAGE>

hereunder are unique and personal. There is no prohibition on assignment by
Company to one of its affiliates, and its rights, duties and obligations
hereunder shall be binding upon, and inure to the benefit of, Company and its
successors and assigns.

      17. CONFIDENTIAL INFORMATION. Effective the date of Employee's employment
hereunder, Employee has entered into that certain Confidentiality Agreement of
even date herewith and shall comply with said Confidentiality Agreement in
accordance with its terms as related to its subject matter.

      18. NONCOMPETITION. Employee acknowledges that he has specialized
knowledge and experience in the Company's or its affiliates' business, that his
reputation and contacts within the industry are considered to be of great value
to the Company, and that if his knowledge, experience, reputation or contacts
are used to compete with the Company or any of its affiliates, then serious and
irreparable harm would be caused to the Company or its affiliates.

      (a) Restrictions.

      (i) Employee's Resignation. Except as otherwise provided below, if
Employee voluntary resigns his employment with the Company or DGCP, Employee,
shall not, during the term of this Agreement and for a period of TWENTY-FOUR
(24) MONTHS thereafter, without prior written consent of the Company, directly
or indirectly own, manage operate, finance, join, control or participate in the
ownership, management, operation, financing or control of, or be connected with
as an officer, director, employee, partner, principal, agent, representative,
consultant or otherwise, any business or enterprise principally engaged in
providing property/casualty insurance on nonstandard automobile risks or the
financing of premiums thereof; provided that this restriction shall apply only
with respect to the states in which the Company or its affiliates are providing
any such services at the time this Agreement is terminated. During such
TWENTY-FOUR (24) MONTH PERIOD, Employee shall not solicit any employee of the
Company or its affiliates to leave his/her employment with the Company or such
affiliate. Nothing herein shall prevent Employee's acquiring, for investment
purposes, equity interests in any such business or enterprise so long as (i) no
such equity interest exceeds five percent (5%) of the investee's business or
enterprise's equity and (ii) Employee does not have any relationship with such
investee's business or enterprise that is otherwise restricted by this
paragraph.

      (ii) Termination Other Than Resignation. If Employee is terminated "for
cause", "without just cause" or for any other reason other than employee's
voluntary resignation, Employee shall not, during the term of this Agreement and
for a period of SIX (6) MONTHS thereafter, without prior written consent of the
Company, directly or indirectly own, manage operate, finance, join, control or
participate in the ownership, management, operation, financing or control of, or
be connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise, any business or enterprise principally
engaged in providing property/casualty insurance on nonstandard automobile risks
or the financing of premiums thereof; provided that this restriction shall apply
only with respect to the states in which this Company or its affiliates are
providing any such services at the time this Agreement is terminated. For a
period of TWELVE (12) MONTHS after such termination, Employee shall not solicit
any employee of the Company, including any affiliate of the Company) to leave
his/her employment with the Company. Nothing herein shall prevent Employee's
acquiring, for investment purposes, equity interests in any such business or
enterprise so long as (i) no such equity interest exceeds five percent (5%) of
the investee's business or enterprise's equity and (ii) Employee does not have
any relationship with such investee's business or enterprise that is otherwise
restricted by this paragraph.

            (b) Remedies For Breach. The parties hereto recognize that the
services to be rendered under this Agreement by Employee are of a special and
unique character; and in the event the Employee shall violate any of the
restrictions set forth in this Section 18, then Company may, in any court of
competent jurisdiction, obtain damages for any breach of this Agreement, enforce
the specific performance hereof, or enjoin Employee from performing any
prohibited act hereunder. Nothing herein contained shall be construed to prevent
Company's election of any such remedy in law or in equity in the event of the
breach of this Section 18 by Employee.

            (c) Judicial Modification and Severability. If any provision of
Section 18 shall be held to be invalid or unenforceable, the remaining
provisions hereof shall nevertheless continue to be valid and enforceable as
though the invalid or unenforceable parts had not been included herein. In the
event the terms of this Section 18 relating to duration, subject matter, or
territory shall be declared by a court of competent jurisdiction to exceed the
maximum duration, subject matter, or territory, such court deems reasonable and
enforceable, then the provision(s) deemed unenforceable shall be amended to
reflect the maximum duration, subject matter or territory which shall be
enforceable.

      19. APPLICABLE LAW. This Agreement is subject to and not in abrogation of
the applicable laws of the United States of America and shall be construed and
enforced in accordance with the laws of the State of Tennessee.

      20. INDEMNITY. To the extent permitted by law and the Company's or DGCP's
charter and bylaws, the Company will indemnify the Employee against any claim or
liability including, but not limited to, any claim regarding the use by Company
or any affiliate of the Employee's name or likeness and will hold the Employee
harmless from and pay any expenses (including, without

<PAGE>

limitation, legal fees and court costs), judgments, fines, penalties,
settlements and other amounts arising out of or in connection with any act or
omission of the Employee performed or made in good faith on behalf of the
Company or any affiliate pursuant to this Agreement. The Company or any
affiliate will not be obligated to pay the Employee's legal fees and related
charges of counsel during any period that the Company or an affiliate furnished,
at its expense, counsel to defend the Employee; but any counsel furnished by the
Company or affiliate must be reasonably satisfactory to the Employee.

      21. BINDING EFFECT. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto, and to the affiliates of the Company, and their
respective heirs, successors, assigns, and personal legal representatives.

      22. SEVERABILITY. In addition to the applicability of Section 18(c)
hereof, should any other provision of this Agreement be determined to be
invalid, illegal or unenforceable by a court of competent jurisdiction, then
such provision shall be amended by the parties hereto so as to make it valid,
legally enforceable but keeping it as close to its original meaning as possible.
The invalidity, illegality or unenforceability of any such provisions shall not
affect, in any manner, the other provisions herein contained which shall remain
in full force and effect.

      23. WAIVER. No failure by the Company, DGCP, or other affiliate to insist
upon the strict performance of any term or condition of this Agreement or to
exercise any right or remedy available to it will constitute a waiver. No breach
or default of any provision of this Agreement will be waived, altered or
modified, and neither the Company nor any affiliate will waive any of its
rights, except by a written instrument executed by the Company or such
affiliate. No waiver of any breach or default will affect or alter any term or
condition of this Agreement, and such term or condition will continue in full
force and effect with respect to any other then existing or subsequent breach or
default thereof.

      24. MISCELLANEOUS.

            (a) Notices. All notices under or in connection with this Agreement
      shall be in writing and may be delivered personally or sent by mail,
      courier, electronic mail, fax, or other written means of communication to
      the parties at their addresses set forth below, or to such other addresses
      and fax numbers as to which notice is given:

                (i) if to the COMPANY:

                    Direct General Corporation
                    Attention: William Adair, CEO
                    2813 Business Park Drive, Building I
                    Memphis, Tennessee 38118
                    Fax:(901) 541-3382

                    WITH COPY TO:
                    Attn: Ronald F. Wilson, General Counsel
                    Direct General Corporation
                    1281 Murfreesboro Road
                    Nashville, Tennessee 37217
                    Fax: (615) 366-3722

                (ii) if to the EMPLOYEE:

                    Kenneth A. Collom
                    1649 Harvey Road
                    Fruit Heights, Utah 84037

            Notice will be deemed given on receipt.

            (b) Headings. Section headings are for purposes of convenient
      reference only and will not affect the meaning or interpretation of any
      provision of this Agreement.

            (c) Merger Clause. This Agreement, its Exhibit(s), and the
      Confidentiality Agreement referred to in Section 17 hereof, constitute the
      entire agreement of the parties with respect to employment matters and
      supersedes any and all prior agreements or understandings between them, as
      related to Employee's employment. This Agreement is not intended to amend,
      and does not amend, any document referred to in it.

<PAGE>

      25. ARBITRATION. Any dispute, controversy or claim arising between the
parties hereto concerning the terms of this Agreement, other than with respect
to Section 18 hereof, shall be determined by binding arbitration in accordance
with the then-current rules and regulations promulgated by the American
Arbitration Association.

      26. FURTHER ASSURANCES. The parties hereto shall execute such other and
further documents, and take such further actions, as may be reasonably necessary
in order to carry out the intentions of this Agreement.

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

                                         DIRECT GENERAL CORPORATION

 /s/ Michele Anglin                      By: /s/  Tammy R. Adair
-------------------------------             ------------------------------------
Witness: Michele Anglin                  Name: Tammy R. Adair
                                         Title: Executive Vice President

                                         EMPLOYEE:

 /s/  Tracy J. Collom                    By: /s/ Kenneth A. Collom
-------------------------------              -----------------------------------
Witness: Tracy J. Collom                     KENNETH A. COLLOM

<PAGE>

                                   EXHIBIT "A"

                     EMPLOYEE'S DUTIES AND RESPONSIBILITIES

DUTIES AND RESPONSIBILITIES OF EXECUTIVE VICE PRESIDENT OF DIRECT GENERAL
CONSUMER PRODUCTS, INC. ("DGCP"), INCLUDE, WITHOUT LIMITATION, THE FOLLOWING:

1.    DEVELOPMENT AND IMPLEMENTATION OF NEW PRODUCTS. Development and
      implementation of New Products and Services to be offered by DGCP or any
      of its affiliates as directed by the Chief Executive Officer or the Board
      of Directors.

      a.    Implementation. Implementation shall include, but is not limited to,
            all phases of introducing any new product or service into existing
            offices of DGCP or its affiliates for consumer consumption.

      b.    Development. Development shall include, but is not limited to, the
            research and test marketing of new products, and the recommendation
            of such products to the CEO and Board of Directors for their
            approval. Employee shall be responsible for ascertaining the
            marketability of such new products or services to the customers and
            potential customers of the Company and its affiliates.

      c.    Procurement from Vendors. Employee shall, if requested, participate
            in transaction and contract negotiations with providers or vendors
            of such new products or services.

      d.    Regulatory Compliance. Employee will consult with the Company's
            legal staff and assist with all aspects of regulatory compliance for
            any new products and services, including licensing applications,
            forms approval, and negotiations with regulatory authorities.

2.    ADMINISTRATIVE OVERSIGHT AND PERSONNEL MANAGEMENT. As requested by the
      Chief Executive Officer or as directed by the Board of Directors, assist
      in the on-going oversight of insurance agency operations or other
      operations of DGCP or its affiliates, whether such operations are related
      to new products or services or otherwise. Such oversight responsibilities
      may include the hiring, training, and development of subordinate
      employees, particularly as related to new products and services.

3.    SYSTEMS DEVELOPMENT. As requested by the Chief Executive Officer, in
      consultation with the Company's programming and systems engineers and/or
      accounting and finance personnel, assist with the design and development
      of data, accounting and financial systems that will support the sale,
      servicing, and financial and regulatory reporting as related to new
      products and services.

4.    SECONDARY AND DEVELOPING RESPONSIBILITIES. Although Employee's primary
      focus shall be related to developing and implementing new products and
      services, from time to time, as the business needs of the Company grow and
      develop, and as requested by the Chief Executive Officer or the Board of
      Directors, Employee, in his capacity as Executive Vice President of DGCP
      or an executive officer of an affiliate of DGCP, may be asked to perform
      other duties and responsibilities for the Company and its subsidiaries
      that are not currently foreseen and not specifically identified on this
      Exhibit A.

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