Document:

exv10whh

Exhibit 10(HH)

SERVICES AND AFFILIATION AGREEMENT

     THIS SERVICES AND AFFILIATION AGREEMENT (this “Agreement”) is entered into this 30th day of
October, 2009 between SOUTHERN MUTUAL INSURANCE COMPANY, a Georgia mutual fire insurance company
(“Southern Mutual”) and DONEGAL MUTUAL INSURANCE COMPANY, a Pennsylvania mutual fire insurance
company (“Donegal Mutual”) in accordance with the terms of a Surplus Note Purchase Agreement dated
as of September 8, 2009 (the “Note Purchase Agreement”) with Donegal Mutual. All capitalized terms
used herein but not defined herein shall have the respective meanings assigned to them in the Note
Purchase Agreement.

WITNESSETH:

     WHEREAS, Donegal Mutual purchased on the date hereof a surplus note (the “Surplus Note”) of
Southern Mutual in the principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000)
pursuant to the Note Purchase Agreement;

     WHEREAS, a condition precedent in the Note Purchase Agreement to Donegal Mutual’s purchase of
the Surplus Note is that Southern Mutual and Donegal Mutual enter into this Agreement to assist
Southern Mutual in reducing its expense ratio and to provide advice and assistance to the officers
and employees of Southern Mutual in connection with their conduct of the operations of Southern
Mutual;

     WHEREAS, Donegal Mutual and Southern Mutual are entering into a Quota Share Reinsurance
Agreement purchase to which Southern Mutual shall cede to, and Donegal Mutual shall assume from,
Southern Mutual up to 100% of the net written premiums of Southern Mutual; and

     WHEREAS, Southern Mutual and Donegal Mutual are also entering into a Technology License
Agreement whereby Donegal Mutual will license certain of its computer applications and systems to
Southern Mutual on the terms and conditions set forth in the Technology License Agreement;

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

     1. Effective Date. The effective date of this Agreement shall be the date of the
Closing under the Note Purchase Agreement. This Agreement shall continue in effect unless and
until terminated pursuant to Section 5.

 

 

     2. Services To Be Rendered.

          (a) In order to achieve the objectives of Southern Mutual in entering into this Agreement,
Donegal Mutual shall have the authority, subject to the ultimate authority of the Board of
Directors of Southern Mutual, to oversee all of Southern Mutual’s principal business activities
including the following operations:

               (i) 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 rates, the provision of all actuarial services
necessary or appropriate for the operation of Southern Mutual’s business, the analysis of loss
trends and reserve developments and risk concentrations and the arranging for insurance and other
reasonable risk management services in the underwriting process to protect Southern Mutual and its
properties and other assets against loss, damage and liabilities;

               (ii) Claims — the admitting, adjusting, compromising, rejection and settlement of claims
under insurance policies issued by Southern Mutual and the collection of reinsurance and
recoverables;

               (iii) 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;

               (iv) Investments — the oversight of the investment of all available funds in the name of
and
on behalf of Southern Mutual pursuant to its investment policy;

               (v) Data Processing Analysis — analysis and consultation regarding the advisability and
potential benefits of migrating Southern Mutual’s computer systems to Donegal Mutual’s computer
systems and the adaptation of Southern Mutual’s computer system so it can operate Donegal Mutual’s
WritePro® and WriteBiz® applications;

               (vi) Personnel and Professional Services — the appointment, direction, removal and
suspension, in the name of and on behalf of Southern Mutual, 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 and other consultants and
the payment to them, from the funds of Southern Mutual, of their reasonable fees for services and
reasonable expenses incurred in connection with such services;

               (vii) Financial Reporting — the analysis and reporting of actual performance to budgeted
performance, including analysis of financial results through the

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budgeted period and the preparation of all statements and reports necessary or appropriate for
Southern Mutual’s business, including reports to insurance regulatory authorities.

               (viii) 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;

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

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

          (b) Donegal Mutual shall use its commercially reasonable efforts to provide the services
described above and such other or additional services as Southern Mutual’s Board of Directors may
from time to time request pursuant to this Agreement in such manner as Southern Mutual’s Board of
Directors, in its business judgment, exercised in accordance with applicable law, deems necessary
or appropriate. Notwithstanding the foregoing, Southern Mutual agrees that Donegal Mutual shall
have no obligation to provide services to Southern Mutual of a quality greater than the quality of
such services that Donegal Mutual maintains for its own operations. All byproducts from the
services provided by Donegal Mutual pursuant to this Agreement shall be the property of Southern
Mutual except whereby expressly provided to the contrary in this Agreement or in the Technology
License Agreement. Donegal Mutual shall cause the services to be rendered by it to Southern Mutual
pursuant to this Agreement to be covered by Donegal Mutual’s disaster recovery plans.

          (c) Nothing in this Agreement shall constitute or be construed to be or create a partnership
or joint venture relationship between Southern Mutual and Donegal Mutual. In connection with the
performance of services under this Agreement, neither Southern Mutual nor Donegal Mutual shall make
any statement or take any action that is inconsistent with the provisions of this Section 2(c).

     3. Payment for Services.

          (a) Donegal Mutual agrees to bear the costs of the services Donegal Mutual provides pursuant
to this Services Agreement in consideration of the Quota Share Reinsurance Agreement between
Donegal Mutual and Southern Mutual. Southern Mutual shall pay from its own funds all of its own
operating costs and expenses in accordance with the Ordinary Course of Southern Mutual’s business.

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          (b) Southern Mutual shall be solely responsible 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
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 Southern Mutual, 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 Southern Mutual.

          (c) Donegal Mutual shall be solely responsible for, and shall hold harmless and indemnify
Southern Mutual, including its 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 Southern Mutual.

     4. Approval by Commissioner. Donegal Mutual and Southern Mutual agree to submit this
Agreement and any other required information and filings to the Commissioner of Insurance of the
State of Georgia (the “Commissioner”) for his review and approval in accordance with the Georgia
Insurance Code.

     5. Termination; Extension.

          (a) This Agreement shall terminate on December 31, 2014, except if extended by Southern Mutual
as provided in Section 5(b); and further provided, however, that this Agreement may be terminated
at any time prior to such date in any of the following events:

               (i) By Donegal Mutual, upon written notice to Southern Mutual, if Southern Mutual shall become
insolvent or shall become subject to any voluntary or involuntary conservatorship, rehabilitation,
receivership, reorganization, liquidation or bankruptcy case or proceeding or the surplus of
Southern Mutual is less than the minimum amount of surplus required by the laws of the State of
Georgia for the classes of insurance Southern Mutual is then transacting;

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               (ii) By Donegal Mutual, upon written notice to Southern Mutual, if the designees of Donegal
Mutual shall cease to constitute a majority of the members of the Board of Directors of Southern
Mutual;

               (iii) By Southern Mutual, upon written notice to Donegal Mutual, if Donegal Mutual shall
become insolvent or shall become subject to any voluntary or involuntary conservatorship,
receivership, reorganization, liquidation or bankruptcy case or proceeding; or

               (iv) By Southern Mutual, upon written notice to Donegal Mutual, subsequent to payment in full
of the Surplus Note.

          (b) Subject to subsection (a) of this Section 5, Southern Mutual shall have the option to
extend the term of this Agreement for one additional year upon delivery of a written notice of
extension to Donegal Mutual not later than 90 days prior to the expiration of the then current
term. Southern Mutual shall have the right to exercise the extension option for five successive
years commencing with an option to extend the scheduled termination date of December 31, 2014 to
December 31, 2015 and ending with an option to extend the termination date to December 31, 2019.

          (c) Any termination of this Agreement by Donegal Mutual pursuant to Sections 5(a)(i) or
5(a)(ii) of this Agreement shall only become effective (i) 18 months after the date on which
written notice of termination is given to Southern Mutual by Donegal Mutual and (ii) subject to the
receipt of any necessary insurance regulatory approvals.

     6. Confidentiality. Donegal Mutual agrees during the term of this Agreement and
subsequent to the termination of this Agreement to hold in confidence all documents, materials and
other information that Donegal Mutual shall have obtained about Southern Mutual during the term of
this Agreement (the “Confidential Information”).

     7. Miscellaneous.

          (a) All notices or other communications required or permitted under this Agreement shall be in
writing and shall be given by confirmed facsimile or registered mail, postage prepaid, addressed as
follows:

     if to Southern Mutual, to:

Southern Mutual Insurance Company

360 Alps Road

Athens, Georgia 30606

Attention: Allen R. Green, President

Facsimile: 706-549-7855

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     if to Donegal Mutual, to:

Donegal Mutual Insurance Company

1195 River Road

Marietta, Pennsylvania 17547

Attention: Donald H. Nikolaus, President

Facsimile: 717-426-7009

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 7(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 Commissioner 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, if any, of the parties to this
Agreement with respect to its subject matter 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 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 as expressed in
this Agreement.

          (e) This Agreement shall be governed by and construed in accordance with the laws of the State
of Georgia.

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

	 	 	 	 	 
	 	SOUTHERN MUTUAL INSURANCE COMPANY

 	 
	 	By:  	/s/ Allen R. Green
 	 
	 	 	Allen R. Green, President 	 
	 	 	 	 
	 
	 	DONEGAL MUTUAL INSURANCE COMPANY

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

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Exhibit 10(II)

TECHNOLOGY LICENSE AGREEMENT

     THIS TECHNOLOGY LICENSE AGREEMENT (this “Agreement”) is entered into this 30th day of October,
2009 between SOUTHERN MUTUAL INSURANCE COMPANY, a Georgia mutual fire insurance company (“Southern
Mutual”) and DONEGAL MUTUAL INSURANCE COMPANY, a Pennsylvania mutual fire insurance company
(“Donegal Mutual”).

WITNESSETH:

     WHEREAS, Southern Mutual, in order to obtain additional surplus and assure its future
competitive viability, entered into a Surplus Note Purchase Agreement (the “Note Purchase
Agreement”) dated as of September 8, 2009 with Donegal Mutual;

     WHEREAS, Donegal Mutual purchased on the date hereof a surplus note (the “Surplus Note”) of
Southern Mutual in the principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000)
pursuant to the Note Purchase Agreement;

     WHEREAS, a condition precedent to Donegal Mutual’s purchase of the Surplus Note is that
Southern Mutual and Donegal Mutual enter into this Agreement whereby Donegal Mutual will license
certain of its computer applications and systems to Southern Mutual on the terms and conditions set
forth in this Agreement; and

     WHEREAS, Southern Mutual and Donegal Mutual are also entering into a Services Agreement
whereby Donegal Mutual will provide advice and assistance to Southern Mutual in connection with its
on-going business operations including the IT System (as defined below);

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

     1. Definitions. In this Agreement:

          (a) “Applications” means the data processing and computer applications listed on Exhibit A to
be licensed by Donegal Mutual for use by Southern Mutual for the following purposes:

               (1) policy underwriting, issuance and administration;

               (2) claims administration;

               (3) investment management;

 

 

               (4) payroll administration;

               (5) financial and tax accounting, bookkeeping, recordkeeping and reporting, including
preparation and keeping of financial journals, ledgers, records, reports and returns relating to
all categories of cash inflows and outflows, accounts payable and receivable, income accrued or
received, expenses accrued or paid, assets and liabilities; and

               (6) general applications to support the foregoing and other aspects of Southern Mutual’s
business as mutually agreed by Southern Mutual and Donegal Mutual from time to time.

          (b) “Data” means the following three types of data:

               (1) “Form Data,” which means data used to populate Application templates to generate standard
forms such as application forms, policy forms, claims forms and financial reporting forms;

               (2) “Input Data,” which means data to be processed or used by an Application to generate
Output Data, such as the information submitted by a policy applicant; and

               (3) “Output Data,” which means data generated by processing Input Data and/or Form Data on the
Applications, such as a completed policy form.

          (c) “Hardware” means all computers, servers, processors, routers, communications equipment,
storage equipment and other devices, equipment, peripherals and hardware owned by, or leased or
licensed to, Donegal Mutual and used or useful in operating the Software.

          (d) “IT System” means the Applications, Hardware and Software but excludes the Data.

          (e) “Software” means the machine readable object code installed and operated on the Hardware
for the products listed on Exhibit A hereto as necessary or useful to support the Applications, as
the same may be supplemented, updated, modified or replaced by Donegal Mutual in its reasonable
discretion from time to time during the term of this Agreement.

          (f) “User Documentation” means all user documentation, manuals and other materials, whether in
paper, electronic or other form, provided by Software vendors and/or Donegal Mutual with respect to
the Applications.

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     2. IT Services and License. Upon the terms and subject to the conditions set forth in
this Agreement, Donegal Mutual will provide Southern Mutual with access to and use of the
Applications on Donegal Mutual’s IT System as follows:

          (a) Customization of Applications. Donegal Mutual and Southern Mutual agree to
establish, within 30 days from the date of this Agreement, a technology transition team consisting
of employees of Donegal Mutual and employees of Southern Mutual to facilitate the customization of
the Applications for use by Southern Mutual, with commencement of Southern Mutual’s use of the
Applications expected to occur within six months of the date of this Agreement. Southern Mutual
will continue to bear the costs of operating its own existing IT systems as so authorized.

          (b) Hosting of IT System. Donegal Mutual will host the IT System on its Hardware and
will supply all Software and Applications to Southern Mutual. Southern Mutual will supply all Form
Data to populate the Applications, and Donegal Mutual will host the Form Data on its Hardware.
Southern Mutual will be responsible for reviewing, updating and maintaining the Form Data during
the term of this Agreement.

          (c) Administration and Maintenance of IT System. Donegal Mutual will provide, or
contract with third parties to provide, all administration and maintenance of Donegal Mutual’s IT
System, including routine and emergency servicing and maintenance of Hardware and Software,
installation and testing of all updates, new versions and patches to the Software as recommended by
the vendors and/or agreed by such vendors and Donegal Mutual, routine backup of all Software and
Data files hosted on the Hardware, monitoring and implementation of security procedures.

          (d) Access to IT System. Southern Mutual and Donegal Mutual will agree to a mutually
acceptable process to allow Southern Mutual to designate and change its authorized employee users
from time to time. Authorized users may have full or partial access to Data and the IT System, and
will have designated rights to process Data on the Applications, as designated by mutual agreement
of Southern Mutual and Donegal Mutual. Authorized users who work in designated Southern Mutual
facilities will have networked access to the Applications and will also have the ability to access
certain Applications over the Internet. Southern Mutual agents who are so designated by Southern
Mutual will have comparable access to and use of Donegal Mutual’s WritePro System and WriteBiz
System and Donegal Mutual’s website as is afforded to agents of Donegal Mutual who are so
designated by Donegal Mutual.

          (e) Facilities Required. All Southern Mutual authorized users will need the
communications facilities and services and computer equipment designated in the relevant User
Documentation, which will generally include a dedicated high-speed communications link to the IT
System (to be arranged by Donegal Mutual at Southern Mutual’s cost) for networked access,
high-speed Internet access and appropriate computer systems, scanners,

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printers and other peripherals, local area networks and other hardware and software. All such
facilities will be the responsibility of Southern Mutual and not Donegal Mutual.

          (f) User Documentation. Donegal Mutual will provide Southern Mutual with such access
to User Documentation in Donegal Mutual’s possession or control relating to the Applications as is
necessary to permit use of the Applications by Southern Mutual as described in this Agreement.

          (g) Training. At the conclusion of the customization of Applications pursuant to
Section 2(a), Donegal Mutual will provide initial training for Southern Mutual personnel at the
facilities of Southern Mutual as mutually agreed by Southern Mutual and Donegal Mutual and Donegal
Mutual shall bear the expenses of providing training to Southern Mutual’s personnel.

          (h) Form Data and Input Data. Southern Mutual will bear all responsibility for
generating and inputting all Form Data and Input Data onto the IT System.

          (i) Output Data. Donegal Mutual will use commercially reasonable efforts to ensure
that the IT System is capable of generating Output Data using the Form Data and Input Data supplied
by Southern Mutual.

          (j) Data Transfers, Storage and Retrieval. All electronic files will reside on
Donegal Mutual’s servers at facilities owned or controlled by Donegal Mutual. In appropriate
circumstances, cached or downloaded files may reside at Southern Mutual’s facilities on a temporary
or permanent basis.

          (k) Customer Support. Donegal Mutual will provide Southern Mutual’s authorized users
with access to and use of its help desk resources for the same purposes and at the same service
levels and hours as those made available to employees of Donegal Mutual.

          (l) Southern Mutual, for purposes of its customer privacy policy, hereby acknowledges that the
Donegal Mutual employees providing the services described in this Agreement constitute a
third-party insurance service provider and are authorized to have access to nonpublic personal
financial information of the policyholders of Southern Mutual in order to perform their
responsibilities under this Agreement.

          (m) Donegal Mutual shall use its best efforts to provide the services described above and such
other or additional services as Southern Mutual’s Board of Directors may from time to time request
pursuant to this Agreement in such manner as Southern Mutual’s Board of Directors, in its business
judgment, exercised in accordance with applicable law, deems necessary or appropriate.
Notwithstanding the foregoing, Southern Mutual agrees that Donegal Mutual shall have no obligation
to provide services to Southern Mutual of a quality greater than the quality of such services that
Donegal Mutual maintains

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for its own operations. Donegal Mutual shall include the services to be rendered by it to
Southern Mutual pursuant to this Agreement in Donegal Mutual’s disaster recovery plans.

     3. Financial Arrangements.

          (a) In consideration of the Quota Share Reinsurance Agreement between Southern Mutual and
Donegal Mutual, Donegal Mutual shall not charge Southern Mutual for the license and support to be
provided pursuant to Section 2 of this Agreement.

          (b) Southern Mutual will pay from its own funds all of its own operating costs and expenses.

          (c) Southern Mutual will be solely responsible for, and will 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
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 Southern Mutual, 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 Southern Mutual.

          (d) Donegal Mutual will be solely responsible for, and will hold harmless and indemnify
Southern Mutual, including its 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 any failure of Donegal Mutual
to obtain all required legal rights to use the IT System as described in Section 4(b) of this
Agreement and to obtain all required licenses necessary for that use, 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 Southern Mutual.

     4. Intellectual Property Rights.

          (a) Donegal Mutual and/or its licensors/vendors will retain ownership of all rights in the IT
System, including the Southern Mutual customization work product for the Applications. All access
to and use by Southern Mutual of the IT System hereunder will be a

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revocable license limited to the scope and purposes enumerated in this Agreement, and Southern
Mutual will acquire no other rights in the aforesaid items under this Agreement. Notwithstanding
the foregoing, Southern Mutual will retain a non-exclusive license to customization work product
for the Applications.

          (b) Donegal Mutual has the full legal right to use the IT System and to provide the
Applications in accordance with this Agreement and to obtain all required licenses for that use.
The provision of the Applications and the use of the IT System and any other material or services
provided or licensed to Southern Mutual under this Agreement will not infringe upon the proprietary
rights of any Third Party.

          (c) Southern Mutual will own all rights in the Form Data and Input Data.

          (d) Output Data may comprise derivative works that include elements of Input Data, Form Data
and the Applications or Software. Any tangible copies embodying Output Data can be used and
retained by Southern Mutual but retention of those rights does not imply ownership of the IT
System.

          (e) Southern Mutual and Donegal Mutual will coordinate their respective trade secret
protection, privacy and information security policies so as to ensure each complies with (i) all
applicable laws and regulations, (ii) all applicable contractual commitments to third parties and
(iii) best business practices.

          (f) Southern Mutual shall not, and shall not permit any of its employees, to disclose, whether
orally, in writing or electronically, any confidential information regarding the IT System to any
person except authorized employees of Southern Mutual and Donegal Mutual.

          (g) Donegal Mutual agrees that its employees performing the services contemplated by this
Agreement shall not disclose any nonpublic personal financial information about the policyholders
of Southern Mutual in violation of applicable law and the customer privacy policy of Southern
Mutual.

     5. Risk Allocations.

          (a) Southern Mutual will be responsible for accuracy and entry of all Input Data and Form
Data. Southern Mutual will ensure that all its access control representatives and authorized users
do not use the IT System or any Data held on the IT System (i) for any unlawful purpose, (ii) in
any manner that may cause harm to the IT System or any data residing on the IT System, (iii) to
provide services for any other business (whether for a fee or not) as a service bureau or otherwise
or (iv) for any purpose other than to operate the Applications for Southern Mutual.

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          (b) Both Southern Mutual and Donegal Mutual will implement commercially reasonable security
procedures.

          (c) Except as expressly set forth in this Agreement, neither Donegal Mutual nor Southern
Mutual makes any representation or warranty to the other, express or implied, including, without
limitation, any warranty of description, merchantability or fitness for a particular purpose.

          (d) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT OR ELSEWHERE TO THE CONTRARY, IN NO EVENT WILL
EITHER PARTY HAVE ANY LIABILITY UNDER THIS AGREEMENT OR OTHERWISE IN RESPECT OF THE SERVICES AND
LICENSES THAT ARE THE SUBJECT OF THIS AGREEMENT FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL,
COLLATERAL, EXEMPLARY, PUNITIVE, ENHANCED, SPECIAL OR OTHER SIMILAR DAMAGES OF ANY KIND OR NATURE
WHATSOEVER, INCLUDING LOST PROFITS TO THE OTHER PARTY FROM FUTURE BUSINESS OPPORTUNITIES, LOSS OF
USE OR REVENUE, LOSS OF SAVINGS OR LOSSES BY REASON OF THE COST OF CAPITAL, WHETHER OR NOT THE
OTHER PARTY HAS BEEN ADVISED OF, OR OTHERWISE MIGHT OR SHOULD HAVE ANTICIPATED, THE POSSIBILITY OR
LIKELIHOOD OF SUCH DAMAGES.

          (e) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, EXCEPT FOR CLAIMS, DAMAGES,
LIABILITIES AND EXPENSES AS DESCRIBED IN SECTION 3(e) OF THIS AGREEMENT, THE AGGREGATE LIABILITY OF
EITHER PARTY TO THE OTHER PARTY UNDER THIS AGREEMENT FOR ANY REASON AND UPON ALL CLAIMS OR CAUSES
OF ACTION WILL BE LIMITED TO A MAXIMUM OF THE AGGREGATE AMOUNT OF THE FEES AND EXPENSES PAID OR
PAYABLE BY SOUTHERN MUTUAL TO DONEGAL MUTUAL UNDER THIS AGREEMENT. THE LIMITATION OF LIABILITY SET
FORTH IN THIS SECTION 5(e) APPLIES TO ALL CAUSES OF ACTION OR CLAIMS IN THE AGGREGATE, INCLUDING
BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION OR ANY
OTHER LEGAL OR EQUITABLE GROUNDS, EXCEPT FOR CLAIMS, DAMAGES, LIABILITIES AND EXPENSES AS DESCRIBED
IN SECTION 3(e) OF THIS AGREEMENT.

          (f) Donegal Mutual will not be held responsible or incur any liability for any delay or
failure in performance of any part of this Agreement to the extent that such delay or failure
results from causes beyond its control, including fire, flood, explosion, war, labor dispute,
embargo, government requirement, civil or military authority, natural disasters or other similar
types of situations. If such a situation occurs, Donegal Mutual will give prompt notice to
Southern Mutual and Donegal Mutual will use commercially reasonable efforts to resume performance,
to the extent possible, as soon as practical after the cessation of the situation. This Section
5(f) will not relieve Southern Mutual of its obligation

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to pay all fees and expenses that are due Donegal Mutual but may be the basis for a delay in
payment.

     6. Miscellaneous Provisions.

          (a) This Agreement is effective on the Closing Date (as defined in the Note Purchase
Agreement) and will terminate on December 31, 2014, except if extended by Southern Mutual as
provided in Section 6(b); provided, however that this Agreement may be terminated at any time prior
to such date in any of the following events:

               (i) By Donegal Mutual, upon written notice to Southern Mutual, if Southern Mutual becomes
insolvent or becomes subject to any voluntary or involuntary conservatorship, rehabilitation,
receivership, reorganization, liquidation or bankruptcy case or proceeding or the surplus of
Southern Mutual is less than the minimum amount of surplus required by the laws of the State of
Georgia for the classes of insurance Southern Mutual is then transacting;

               (ii) By Donegal Mutual, upon written notice to Southern Mutual, if the designees of Donegal
Mutual cease to constitute a majority of the members of the Board of Directors of Southern Mutual;

               (iii) By Southern Mutual, upon written notice to Donegal Mutual, if Donegal Mutual becomes
insolvent or becomes subject to any voluntary or involuntary conservatorship, receivership,
reorganization, liquidation or bankruptcy case or proceeding;

               (iv) By Southern Mutual, upon written notice to Donegal Mutual, subsequent to payment in full
of the Surplus Note; or

               (v) By Donegal Mutual or Southern Mutual, upon written notice to the other, upon the
termination of the Services Agreement in accordance with its terms. Termination of this Agreement
pursuant to this section 6(a)(v) shall be effective on the same date as the termination of the
Services and Affiliation Agreement becomes effective.

          (b) Subject to Section 6(a), Southern Mutual shall have the option to extend the term of this
Agreement for one additional year upon delivery of a written notice of extension to Donegal Mutual
not later than 90 days prior to the expiration of the then current term. Southern Mutual will have
the right to exercise the extension option for five successive years commencing with an option to
extend the scheduled termination date of December 31, 2014 to December 31, 2015 and ending with an
option to extend the termination date to December 31, 2019.

          (c) Any termination of this Agreement by Donegal Mutual pursuant to Sections 6(a)(i), 6(a)(ii)
or 6(a)(v) of this Agreement shall only become effective after (i) 18 months after written notice
of such termination is given to Southern Mutual by Donegal

-8-

 

Mutual and (ii) subject to the receipt of any necessary insurance regulatory approvals and
filings.

          (d) Donegal Mutual agrees that upon termination or expiration of this Agreement for any
reason, Donegal Mutual will exercise commercially reasonable efforts and cooperation to effect an
orderly and efficient transition to a successor provider of Applications.

          (e) Southern Mutual will be responsible for any federal, state or local income, excise, ad
valorem, sales or use taxes imposed with respect to the services and license made available or
provided under this Agreement other than any tax that may be imposed on the income of Donegal
Mutual.

          (f) Donegal Mutual will arrange for all Data residing on its Hardware to be covered by any
insurance coverage it maintains for other data residing on its Hardware, and the incremental cost
of such coverage will be for the account of Southern Mutual.

          (g) All notices or other communications required or permitted under this Agreement shall be
given in writing and shall be given by confirmed facsimile or registered mail, postage prepaid,
addressed as follows:

          if to Southern Mutual, to:

Southern Mutual Insurance Company

360 Alps Road

Athens, Georgia 30606

Attention: Allen R. Green, President

Facsimile: 706-549-7855

          if to Donegal Mutual, to:

Donegal Mutual Insurance Company

1195 River Road

Marietta, Pennsylvania 17547

Attention: Donald H. Nikolaus, President

Facsimile: 717-426-7009

Such notice will be given at such other address or to such other representative as a party to this
Agreement may furnish pursuant to this Section 6(g) to the other party to this Agreement.

          (h) No assignment, transfer or delegation, whether by merger or other operation of law or
otherwise, of any rights or obligations under this Agreement will be

-9-

 

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 Commissioner of Insurance of the State of Georgia
and any other insurance regulatory authority having jurisdiction over this Agreement. This
Agreement will be binding upon the parties hereto and their respective permitted successors and
assigns.

          (i) This Agreement constitutes the entire agreement of the parties to this Agreement with
respect to its subject matter, supersedes all prior agreements, if any, of the parties to this
Agreement with respect to its subject matter 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 will
in 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 will 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.

          (j) 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 as expressed in
this Agreement.

          (k) This Agreement will be governed by and construed in accordance with the laws of the State
of Georgia.

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

	 	 	 	 	 
	 	SOUTHERN MUTUAL INSURANCE COMPANY

 	 
	 	By:  	/s/ Allen R. Green
 	 
	 	 	Allen R. Green, President 	 
	 	 	 	 
	 
	 	DONEGAL MUTUAL INSURANCE COMPANY

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

-10-

 

	 	 	 	 	 

EXHIBIT A

	 	 	 
	Network Software:
	 	 
	 
	 	 
	ImageRight

	 	Electronic Document Imaging
	Allenbrook

	 	Commercial Underwriting and Policy Issuance
	www.donegalgroup.com

	 	Internet Web Site Functionality
	WritePro

	 	Personal Lines Automated Underwriting and Policy
Issuance System (Proprietary)
	WriteBiz

	 	Commercial Lines Automated Underwriting and
Policy Issuance System (Proprietary)
	SCSI (JBIAS)

	 	Report Ordering Software Utilized in WritePro
Application
	Cold Fusion Web Software

	 	Web Site Development Tool
	Oracle

	 	Database Management
	Cognos

	 	Database Report Writing Tool
	Polk

	 	Vehicle Identification Number Database
	Map Info

	 	Mapping Software used in WritePro
	Mapquest

	 	Location Software used for the Website Agency
Locater
	Transall

	 	Print Software used within Allenbrook
	Group1, PC Finalist

	 	Address Verification Software
	CITRIX

	 	Remote Access
	CA, Allenbrook Interface

	 	Interfaces Allenbrook to the Mainframe
Applications
	Quest Reporter

	 	Report Writing Tool used in WritePro
	Blue Cod Products

	 	Add-on Products to the Allenbrook Application
	Phoenix Direct

	 	Agency Front-End to Allenbrook
	ACORD AL3

	 	Industry-Standard Interface used in Data
Transmission to and from Agency Systems
	ISO, PPC Location, WP

	 	Software used to Code Property Protection Classes
in WritePro
	SQL for WritePro

	 	Programming Language used in WritePro
	Guidewire Claims Center

	 	Claims Management
	ADP

	 	Payroll
	Great Plains Dynamics

	 	General Ledger and Accounts Payable
	Sungard EPS

	 	Investment Accounting

A-1

 

	 	 	 
	Mainframe Software:
	 	 
	 
	 	 
	CA QA Hyperstation

	 	Mainframe Quality Assurance Management
	Docucorp

	 	Policy Document Maintenance
	CSC V7

	 	Policy Management and Billing System
	BCMS

	 	Account Billing System
	IBM VM

	 	Mainframe Operating System Software
	IBM System Software

	 	Mainframe Operating System Software
	CA System Software

	 	Mainframe Operating System Software
	MacKinney

	 	Mainframe Operating System Software
	Finalist

	 	Address Verification Software
	CompuWare System Software

	 	Mainframe Operating System Software
	Polk

	 	Vehicle Identification Number Database
	Solimar

	 	Mainframe Interface to ImageRight

A-2

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