Document:

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                                                                     Exhibit 4.2

                                    SERIES A

                             CONVERTIBLE PREFERRED

                         SECURITIES PURCHASE AGREEMENT

                      BY AND AMONG DIRECT CORPORATION AND

                          SSM VENTURE PARTNERS, L.P.,

               NORO-MOSELEY PARTNERS II, L.P. AND DAVID F. BELLET

                             DATED DECEMBER 2, 1994
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                                TABLE OF CONTENTS

<TABLE>
<S>      <C>                                                                    <C>
1.       Authorization and Sale of Shares......................................  1
         1.1      Authorization................................................  1
         1.2      Sale of Shares...............................................  1
         1.3      Use of Proceeds..............................................  1

2.       The Closing...........................................................  2

3.       Representations of the Company and its Subsidiaries...................  2
         3.1      Organization and Standing....................................  2
         3.2      Subsidiaries.................................................  2
         3.3      Capitalization...............................................  3
         3.4      Stockholder List and Agreements..............................  3
         3.5      Issuance of Shares...........................................  4
         3.6      Authority for Agreement......................................  4
         3.7      Governmental Consents........................................  4
         3.8      Litigation...................................................  5
         3.9      Financial Statements.........................................  5
         3.10     Reserves and other Insurance Liabilities.....................  6
         3.11     Absence of Liabilities.......................................  6
         3.12     Taxes........................................................  7
         3.13     Property and Assets..........................................  7
         3.14     Patents and Trademarks.......................................  8
         3.15     Insurance....................................................  8
         3.16     Material Contracts and Obligations...........................  8
         3.17     Compliance...................................................  8
         3.18     Absence of Changes...........................................  9
         3.19     Employees.................................................... 10
         3.20     ERISA........................................................ 10
         3.21     Books and Records............................................ 10
         3.22     Accounts and Notes Receivable................................ 11
         3.23     "Sensitive" Payments......................................... 11
         3.24     U.S. Real Property Holding Corporation....................... 11
         3.25     Disclosures.................................................. 11

4.       Representations of the Purchasers..................................... 12
         4.1      Investment................................................... 12
         4.2      Authority.................................................... 12
         4.3      Experience................................................... 12
         4.4      Accredited Investor.......................................... 12

5.       Conditions to the Obligations of the Purchasers....................... 12
         5.1      Accuracy of Representations and Warranties................... 12
         5.2      Performance.................................................. 12
         5.3      Opinion of Counsel........................................... 13
         5.4      Other Agreements............................................. 13
         5.5      Certificates and Documents................................... 13
         5.6      Minimum Investment........................................... 14
         5.7      Compliance Certificate....................................... 14
</TABLE>

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<TABLE>
<S>      <C>                                                                    <C>
         5.8      Absence of Material Adverse Change........................... 14
         5.9      Bank Financing............................................... 14
         5.10     Other Matters................................................ 14

6.       Conditions to the Obligations of the Company.......................... 14
         6.1      Accuracy of Representations and Warranties................... 15
         6.2      Compliance Certificate........................................15

7.       Covenants of the Company.............................................. 15
         7.1      Inspection................................................... 15
         7.2      Observer Rights.............................................. 15
         7.3      Financial Statements and Other Information................... 16
         7.4      Material Changes and Litigation.............................. 17
         7.5      Key Man Insurance............................................ 18
         7.6      Right of First Refusal....................................... 18
         7.7      Auditor and Actuary.......................................... 19
         7.8      Compensation of Executive Officers and Selection of
                  President and Chief Operating Officer........................ 20
         7.9      Additional Covenants......................................... 20
         7.10     Negative Covenants........................................... 21
         7.11     Expenses of Directors and Purchaser Representatives.......... 23
         7.12     Reservation of Common Stock.................................. 23
         7.13     Disaster Recovery Plan and Implementation.................... 24
         7.14     Director and Officer Insurance............................... 24
         7.15     Stock Option Plan............................................ 24
         7.16     Interested Party Transactions................................ 24
         7.17     Termination of Covenants..................................... 24

8.       Registration Rights................................................... 24
         8.1      Certain Definitions.......................................... 24
         8.2      Sale or Transfer of Shares; Legend........................... 25
         8.3      Required Registrations....................................... 26
         8.4      Incidental Registration...................................... 28
         8.5      Registration Procedures...................................... 29
         8.6      Allocation of Expenses....................................... 30
         8.7      Indemnification and Contribution............................. 30
         8.8      Indemnification with Respect to Underwritten Offering........ 32
         8.9      Information by Holder........................................ 33
         8.10     "Stand-Off" Agreement........................................ 33
         8.11     Limitations on Subsequent Registration Rights................ 33
         8.12     Rule 144 Requirements........................................ 34
         8.13     Selection of Underwriter..................................... 34
         8.14     Mergers, Etc................................................. 34
</TABLE>

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<TABLE>
<S>      <C>                                                                    <C>
9.       Successors and Assigns................................................ 35

10.      Transfers of Certain Rights........................................... 35

11.      Confidentiality....................................................... 35

12.      Survival of Representations and Warranties............................ 36

13.      Expenses.............................................................. 36

14.      Notices............................................................... 36

15.      Brokers............................................................... 36

16.      Irrevocable Proxy..................................................... 37

17.      Entire Agreement...................................................... 37

18.      Amendments and Waivers................................................ 37

19.      Counterparts.......................................................... 37

20.      Headings.............................................................. 37

21.      Severability.......................................................... 38

22.      Governing Law......................................................... 38
</TABLE>

Exhibits

Exhibit A -.......Purchaser List

Exhibit B -.......Articles of Amendment

Exhibit C -.......Disclosure Letter

Exhibit D -.......Stockholder List

Exhibit E -.......Form of Opinion - Wyatt, Tarrant & Combs

Exhibit F -.......Form of Stockholders Agreement

Exhibit G -.......Form of Noncompetition and Confidentiality Agreement

Exhibit H -.......Form of Indemnification Agreement

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                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement is made and entered into as of this
2nd day of December, 1994, by and among Direct Corporation, a Tennessee
corporation (the "Company"), and the individuals and entities listed on Exhibit
A hereto (the "Purchasers").

         In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:

         1.       Authorization and Sale of Shares.

                  1.1      Authorization. The Company has, or before the Closing
(as defined in Section 2) will have, duly authorized the sale and issuance of
244,812 shares of its Series A Convertible Preferred Stock, no par value (the
"Series A Preferred"), having the rights, restrictions, privileges, preferences
and voting powers set forth in the Articles of Amendment to the Company's
Charter attached hereto as Exhibit B (the "Articles of Amendment"). The Company
has, or on or before the Closing will have, adopted and filed the Articles of
Amendment with the Secretary of State of the State of Tennessee.

                  1.2      Sale of Shares. Subject to the terms and conditions
of this Agreement, at the Closing the Company will sell and issue to each of the
Purchasers, and each of the Purchasers will purchase, the number of shares of
Series A Preferred set forth opposite such Purchaser's name on Exhibit A for the
                                                               ---------
purchase price of $24.51 per share. The shares of Series A Preferred being sold
under this Agreement are referred to as the "Shares". The Company's agreement
with each of the Purchasers is a separate agreement, and the sale of Shares to
each of the Purchasers is a separate sale.

                  1.3      Use of Proceeds. The Company will use the proceeds
from the sale of the Shares as follows:

                           (i)      Approximately $2.0 million of the net
proceeds will be contributed to the capital of Direct Insurance Company, to
provide increased capacity to write and retain non-standard automobile
insurance;

                           (ii)     Approximately $.8 million will be utilized
to retire intercompany receivables and payables between Direct Insurance Company
and Direct General Insurance Agency of Louisiana, Inc.;

                           (iii)    The remaining net proceeds of approximately
$3.0 million will be utilized for future acquisitions of one or more shell
property and casualty insurance companies. The
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Company has no current commitments to acquire a shell company, however, the
Company is actively evaluating possible acquisition candidates; and

                           (iv)     Until the net proceeds from the sale of the
Shares are used for such acquisitions, the Company will utilize such proceeds to
reduce subsidiary borrowings under its principal credit facility, manage
intercompany cash flow requirements and/or invest in short--term interest
bearing securities.

         2.       The Closing. The closing ("Closing") of the sale and purchase
of the Shares under this Agreement shall take place at the offices of Bass,
Berry & Sims, 2500 First American Center, 10:00 a.m. on December 2, 1994, or at
such other time, date, and place as are mutually agreeable to the Company and
special counsel to the Purchasers, but in no event later than December 30, 1994.
At the Closing, the Company will deliver to each of the Purchasers a certificate
for the number of Shares being purchased by such Purchaser, registered in the
name of such Purchaser, against payment to the Company of the purchase price
therefor, by wire transfer, check, or other method mutually acceptable to the
Company and the Purchaser. The date of the Closing is hereinafter referred to as
the "Closing Date". If at the Closing any of the conditions specified in Section
5 shall not have been fulfilled, each of the Purchasers shall, at its election,
be relieved of all of its obligations under this Agreement without thereby
waiving any other rights he or it may have reason of such failure or such
non-fulfillment.

         3.       Representations of the Company and its Subsidiaries. Subject
to and except as disclosed by the Company and its subsidiaries in Exhibit C
hereto (the "Disclosure Letter"), the Company and its subsidiaries hereby
represent and warrant to each of the Purchasers as follows:

                  3.1      Organization and Standing. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Tennessee and has full corporate power and authority to
conduct its business as presently conducted and as proposed to be conducted by
it and to enter into and perform this Agreement and to carry out the
transactions contemplated by this Agreement. The Company is duly qualified to do
business as a foreign corporation and is in good standing in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of the Company. The Company has
furnished to special counsel to the Purchasers true and complete copies of its
Charter and Bylaws, each as amended to date and presently in effect.

                  3.2      Subsidiaries. Each subsidiary of the Company has been
duly incorporated and is validly existing as a corporation under the laws of the
jurisdiction of its incorporation and is duly under the

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laws of the jurisdiction of its incorporation and is duly licensed or qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the conduct of the business or the ownership of the Company and its
subsidiaries, taken as a whole; all of the issued and outstanding shares of each
such subsidiary have been duly and validly issued and are fully paid and
nonassessable; and, except as set forth in Exhibit C, all of such shares are
owned by the Company, free and clear of any mortgage, pledge, lien, encumbrance,
claim or equity. A complete list of the Company's subsidiaries, containing the
state of incorporation, all foreign qualifications and setting forth any
minority ownership interest, is set forth in Exhibit C.

                  3.3      Capitalization. Giving effect to the filing of the
Articles of Amendment, the authorized capital stock of the Company (immediately
prior to the Closing) will consist of 10,000,000 shares of common stock, no par
value (the "Common Stock"), of which 1,007,670 shares are issued and
outstanding, and 1,000,000 shares of preferred stock, no par value (the
"Preferred Stock"); of the 1,000,000 shares of Preferred Stock authorized,
244,812 shares are authorized and constitute the Series A Preferred. Immediately
prior to the Closing, there will be no shares of Series A Preferred issued and
outstanding. All of the issued and outstanding shares of Common Stock have been
duly authorized and validly issued and are full-paid and nonassessable. Except
as set forth in Exhibit C or provided in this Agreement, (i) no subscription,
warrant, option, convertible security or other right (contingent or otherwise)
to purchase or acquire any shares of capital stock of the Company is authorized
or outstanding, (ii) the Company has no obligation (contingent or otherwise) to
issue any subscription, warrant, option, convertible security, or other such
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of the Company, and (iii) the Company
has no obligation (contingent or otherwise) to purchase, redeem, or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof. Except as provided
in this Agreement, no person or entity is entitled to (i) any preemptive or
similar right with respect to the issuance of any capital stock of the Company
or (ii) any rights with respect to the registration of any capital stock of the
Company under the Securities Act of 1933, as amended (the "Securities Act"). All
of the issued and outstanding shares of Common Stock have been offered, issued,
and sold by the Company in compliance with applicable federal and state
securities laws. To the best of the Company's knowledge, no stockholder of the
Company has granted options or other rights to purchase any shares of Common
Stock from such stockholder.

                  3.4      Stockholder List and Agreements. Attached as Exhibit
D is a true and complete list of the stockholders of the Company, showing the
number of shares of Common Stock of the Company held of record and beneficially
by each stockholder as of the date of this Agreement. Except as contemplated by
this Agreement, there are no agreements, written or oral, between the Company
and any holder of its

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capital stock, or, to the best knowledge of the Company, among any holders of
its capital stock, relating to the acquisition (including, without limitation,
rights of first refusal or preemptive rights), disposition, or voting of the
capital stock of the Company.

                  3.5      Issuance of Shares. The issuance, sale, and delivery
of the Shares in accordance with this Agreement, and the issuance and delivery
of the shares of Common Stock issuable upon conversion of the Shares, have been
duly authorized by all necessary corporate action on the part of the Company,
and all such shares have been duly reserved for issuance. The Shares when so
issued, sold and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock issuable upon
conversion of the Shares, when issued upon such conversion, will be duly and
validly issued, fully paid, and nonassessable.

                  3.6      Authority for Agreement. The execution, delivery, and
performance by the Company of this Agreement and all other agreements required
to be executed by the Company or any of its subsidiaries on or prior to Closing
pursuant to Section 5.4 (the "Ancillary Agreements"), and the consummation by
the Company of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action. This Agreement and the Ancillary
Agreements have been duly executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable in accordance with
their respective terms. The execution of and performance of the transactions
contemplated by this Agreement and the Ancillary Agreements and compliance with
their provisions by the Company and each of its subsidiaries will not violate
any provision of law and will not conflict with or result in any breach of any
of the terms, conditions, or provisions of, or constitute a default under, or
require a consent or waiver under, its Charter or Bylaws (each as amended to
date and presently in effect) or any indenture, lease, agreement (including any
governmental order, decree or consent), or other instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company or any of its
subsidiaries.

                  3.7      Governmental Consents. No consent, approval, order,
or authorization of, or registration, qualification, designation, declaration,
or filing with, any governmental authority is required on the part of the
Company or any of its subsidiaries in connection with the execution and delivery
of this Agreement, the offer, issuance, sale, and delivery of the Shares, or the
other transactions to be consummated at the Closing, as contemplated by this
Agreement,

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except such filings as shall have been made prior to and shall be effective on
and as of the Closing. Based on the representations made by each of the
Purchasers in Section 4 of this Agreement, the offer and sale of the Shares to
each of the Purchasers will be in compliance with applicable federal and state
securities laws.

                  3.8      Litigation. There is no action, suits or proceeding,
or governmental inquiry or investigation, pending, or, to the best of the
Company's knowledge, any basis therefor or threat thereof, against the Company
or any of its subsidiaries, that questions the validity of this Agreement or the
right of the Company to enter into it, or that might result, either individually
or in the aggregate, in any material adverse change in the assets, condition
(financial or otherwise), business, or prospects of the Company and its
subsidiaries, taken as a whole, nor is there any litigation pending, or, to the
best of the Company's knowledge, any basis therefor or threat thereof, against
the Company by reason of the past employment relationships of any of the
Company's employees, the proposed activities of the Company, or negotiations by
the Company with possible investors in the Company. Set forth in Exhibit C is a
list of all material pending and threatened litigation, including, but not
limited to, all claims of bad faith against the Company, Direct Insurance
Company or any other subsidiary and all claims against the Company, and
governmental inquiries or investigations relating to the Company or any of its
subsidiaries, including any consent or agreed orders currently in effect.

                  3.9      Financial Statements. Except as set forth on Exhibit
C, the Company has furnished to each of the Purchasers (i) a complete and
correct copy of the unaudited balance sheets of the Company (on a consolidated
basis) and each of its subsidiaries (the "Balance Sheets") as at September 30,
1994 (the "Balance Sheet Date"), and the related statements of operations for
the nine months then ended, compiled by the Company and its subsidiaries
(collectively, the "Interim Financial Statements"); (ii) complete and correct
copies of the audited balance sheets of Direct Insurance Company as at December
31, 1993 (the "DIC Audited Balance Sheet Date") and the related statements of
operations and cash flows for the fiscal year then ended prepared, respectively,
in accordance with generally accepted accounting principles and statutory
accounting practices prescribed or permitted by the National Association of
Insurance Commissioners and the Tennessee Department of Commerce and Insurance
(the "DIC Financial Statements"); and (iii) a complete and correct copy of the
unaudited balance sheet of Direct General Insurance Agency, Inc., a Tennessee
corporation, as at December 31, 1993 (the "DGA Balance Sheet Date") and the
related statements of operations for the fiscal year then ended (the "DGA
Financial Statements") (collectively, the Interim Financial Statements, DIC
Financial Statements and DGA Financial Statements are the "Financial
Statements"). With respect to each of the subsidiaries set forth on Exhibit C
for which no Interim Financial Statements are provided, no material activity has
occurred in any such subsidiary as of September 30, 1994. The Financial
Statements are complete and correct, are in accordance with the books and
records of the Company and its subsidiaries and present fairly the financial

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condition and results of operations of the Company and its subsidiaries, as at
the dates and for the periods indicated, and, except as set forth on Exhibit C,
have been prepared in accordance with (i) generally accepted accounting
principles consistently applied, or (ii) statutory accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
and the Tennessee Department of Commerce and Insurance. In addition, the Company
has delivered to the Purchasers a consolidated proforma balance sheet as of
September 30, 1994, reflecting the Company and its subsidiaries following the
completion of the investment provided by this Agreement prepared in accordance
with generally accepted accounting principles consistently applied, except for
certain year end audit adjustments, which in the aggregate will not be material,
and footnotes.

                  3.10     Reserves and other Insurance Liabilities. The Direct
Insurance Company's reserves, including, but not limited to, loss reserves
(including loss adjustment expense reserves), loss reserves for claims incurred
but not reported (including loss adjustment expense reserves), and unearned
premiums, determined under statutory accounting practices as at September 30,
1994, as reflected in the Financial Statements, equal or exceed those required
under the insurance laws of the State of Tennessee, including interpretations
thereof by the Department of Commerce and Insurance of the State of Tennessee.
Each reserving assumption utilized by Direct Insurance Company in its
calculations of such reserves is reasonable in light of Direct Insurance
Company's experience, and no information has come to Direct Insurance Company's
attention which would cause it to believe that any such assumption should be
changed in any material respect.

                  3.11     Absence of Liabilities. Except as disclosed in
Exhibit C, the Company and its subsidiaries did not have, at the Balance Sheet
Date, any liabilities of any type that in the aggregate exceeded $250,000,
whether absolute or contingent, that were not fully reflected on the Balance
Sheets, and, since the Balance Sheet Date, neither the Company nor any of its
subsidiaries has incurred or otherwise become subject to any such liabilities or
obligations except in the ordinary course of business. In addition, except as
disclosed in Exhibit C, Direct Insurance Company and Direct General Insurance
Agency, Inc., a Tennessee corporation, respectively, did not have at the DIC and
DGA Balance Sheet Date any liabilities of any type that in the aggregate
exceeded $150,000, whether absolute or contingent, that were not fully reflected
on the DIC Audited Balance Sheet and the DGA Balance Sheet, and, since the DIC
and DGA Balance Sheet Date, neither Direct Insurance Company nor Direct General
Insurance Agency, Inc. has incurred or otherwise become subject to any such
liabilities or obligations except in the ordinary course of business.

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                  3.12     Taxes. The amount shown on the Balance Sheets as
provision for taxes is sufficient in all material respects for payment of all
accrued and unpaid federal, state, county, local, and foreign taxes for the
period then ended and all prior periods. The Company and each of its
subsidiaries has filed or has obtained presently effective extensions with
respect to all federal, state, county, local, and foreign tax returns that are
required to be filed by it, such returns are true and correct and all taxes
shown thereon to be due have been timely paid with exceptions not material to
the Company or any of its subsidiaries. Federal income tax returns of the
Company and its subsidiaries have not been audited by the Internal Revenue
Service, and no controversy with respect to taxes of any type is pending or, to
the best knowledge of the Company or any of its subsidiaries, threatened.
Neither the Company nor any of its stockholders has ever filed (a) an election
pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the
"Code"), that the Company be taxed as an S Corporation or (b) consent pursuant
to Section 341(f) of the Code relating to collapsible corporations.

                  3.13     Property and Assets. The Company and each of its
subsidiaries has good title to all of their respective properties and assets,
including all properties and assets reflected in the Balance Sheets, the DIC
Audited Balance Sheet and the DGA Balance Sheet, except those disposed of since
the date thereof in the ordinary course of business, and none of such properties
or assets is subject to any mortgage, pledge, lien, security interest, lease,
charge, or encumbrance other than those the material terms of which are
described in the Balance Sheets, the DIC Audited Balance Sheet, the DGA Balance
Sheet or in Exhibit C. The Company and its subsidiaries, taken as a whole, have
all assets and properties necessary to operate the Company and its subsidiaries
as currently operated and as necessary to operate the Company and its
subsidiaries consistent with the Company's business plan provided to the
Purchasers.

                  3.14     Patents and Trademarks. Set forth in Exhibit C is a
true and complete list of all patents, patent applications, trademarks, service
marks, trademark and service mark applications, trade names, copyrights, and
licenses presently owned or held by the Company or necessary for the conduct of
the Company's business as conducted and as proposed to be conducted, as well as
any agreement under which the Company has access to any confidential information
used by the Company in its business (the "Intellectual Property Rights"). The
Company owns, or has the right to use under the agreements or upon the terms
described in Exhibit C, all of the Intellectual Property Rights. To the best of
the Company's knowledge, the business proposed by the Company will not cause the
Company to infringe or violate any of the patents, trademarks, service marks,

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trade names, copyrights, licenses, trade secrets, or other proprietary rights of
any other person or entity.

                  3.15     Insurance. The Company maintains valid policies of
workers' compensation insurance and of insurance with respect to its properties
and business of the kinds and in the amounts (i) not less than is customarily
obtained by corporations of established reputation engaged in the same or
similar business and similarly situated, including, without limitation,
insurance against loss, damage, fire, theft, public liability, and other risks
and (ii) in the judgment of the Company's Board of Directors, reasonably
exercised, are adequate to provide the necessary protection to the Company, its
subsidiaries and its business from risks associated with its business. Set forth
in Exhibit C is a complete list of all insurance policies maintained as of the
date hereof by the Company and its subsidiaries.

                  3.16     Material Contracts and Obligations. Exhibit C sets
forth a list of all material agreements of any nature to which the Company
and/or any of its subsidiaries is a party or by which any such entity is bound,
including without limitation (a) each agreement that requires future
expenditures by the Company and/or any of its subsidiaries in excess of $100,000
or that might result in payments to the Company and/or any of its subsidiaries
in excess of $100,000, (b) all employment and consulting agreements, employee
benefit, bonus, pension, profit sharing, stock option, stock purchase, and
similar plans and arrangements, and consulting, distributor and sales
representative agreements, (c) any agreement with any stockholder, officer, or
director of the Company, or any "affiliate" or "associate" of such persons (as
such terms are defined in the rules and regulations promulgated under the
Securities Act), including, without limitation, any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity, (d) any agreement relating for the Intellectual Property Rights, and (e)
all reinsurance agreements. The Company has delivered to special counsel to the
Purchasers copies of each of the foregoing agreements. All of such agreements
and contracts are valid, binding, and in full force and effect.

                  3.17     Compliance. Except as set forth in Exhibit C, the
Company and each of its subsidiaries has materially complied with all laws,
regulations, and orders applicable to its present and proposed business and has
all permits and licenses required thereby, including, but not limited to, the
state and local laws, regulations, orders, permits and licenses in each of
Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, North Carolina and
Tennessee. There is no term or provision of any mortgage, indenture, contract,
agreement, or instrument to which the Company or any of its subsidiaries is a
party or by which it is bound, or of any provision of any state or federal
judgment, decree, order, reasonably likely to materially adversely affect, the
business, prospects, condition (financial or otherwise), affairs, or operations
of the Company or any of its subsidiaries or any of their respective properties
or assets. To the best of the Company's knowledge, no employee of the Company or
any of its

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subsidiaries is in violation of any term of any contract or covenant (either
with the Company or with another entity) relating to employment, patents,
proprietary information disclosure, non-competition, or non-solicitation.
Notwithstanding the above, to the best of the Company's knowledge, after due
inquiry, the Company and its subsidiaries have fully complied with all consent
orders and/or decrees entered into by any such party with a federal, state or
local regulatory or governmental entity.

                  3.18     Absence of Changes. Excluding the transactions
contemplated by the Exchange Offer, which was effected on December 2, 1994,
since the Balance Sheet Date, and, with respect to Direct Insurance Company and
Direct General Insurance Agency, Inc., the DIC and DGA Balance Sheet Date, there
has not been:

                           (a)      Any change in the assets, liabilities,
financial condition, or operations of the Company or any of its subsidiaries
from that reflected in the Financial Statements, except changes in the ordinary
course of business that have not been, either individually or in the aggregate,
materially adverse;

                           (b)      Any material change (individually or in the
aggregate), except in the ordinary course of business, in the contingent
obligations of the Company or any of its subsidiaries by way of guaranty,
endorsement, indemnity, warranty, or otherwise;

                           (c)      Any waiver or compromise by the Company or
any of its subsidiaries of a valuable right or of a material debt owed to it;

                           (d)      Any loans, in the aggregate not to exceed
$100,000, made by the Company or any of its subsidiaries to its employees,
officers, or directors other than travel advances made in the ordinary course of
business;

                           (e)      Any extraordinary increases in the
compensation of any of the Company's or any of its subsidiaries' employees,
officers, or directors;

                           (f)      Any declaration or payment of any dividend
or other distribution of the assets of the Company or any of its subsidiaries;

                           (g)      Any issuance or sale by the Company of any
shares of its Common Stock or other securities;

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                           (h)      To the best of the Company's knowledge, any
other event or condition of any character that has materially and adversely
affected the Company or any of its subsidiaries' business or prospects; or

                           (i)      Any agreement or commitment by the Company
or any of its subsidiaries or any of its subsidiaries to do any of the things
described in this subsection 3.18.

                  3.19     Employees. None of the employees of the Company or
any of its subsidiaries is represented by any labor union, and there is no labor
strike or other labor trouble pending with respect to the Company (including,
without limitation, any organizational drive) or, to the best knowledge of the
Company, threatened. The Company and its subsidiaries have complied in all
material respects with all applicable state and federal equal opportunity and
other laws relating to employment. No employee of the Company is or will be in
violation of any judgment, decree, or order or any term of any employment
contract, patent disclosure agreement, or other contractor agreement relating to
the relationship of any such employee with the Company or any of its
subsidiaries or any other party because of the nature of the business conducted
or to be conducted by the Company or any subsidiary thereof or the use by the
employee of his best efforts with respect to such business, except where such
violation would not result in any material adverse change in the assets,
condition (financial or otherwise), business, or prospects of the Company and
its subsidiaries, taken as a whole. Neither the Company nor any of its
subsidiaries is aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company or any of its
subsidiaries, nor does the Company nor any of its subsidiaries have a present
intention to terminate the employment of any of the foregoing. Set forth in
Exhibit C is a list of all employees or consultants (excluding all commissioned
agents) to the Company or any of its subsidiaries that have received payments
from the Company and/or its subsidiaries in the aggregate of $100,000 or more
per annum since December 31, 1992.

                  3.20     ERISA. Except as set forth in Exhibit C, the Company
does not have or otherwise contribute to or participate in any employee benefit
plan subject to the Employee Retirement Income Security Act of 1974.

                  3.21     Books and Records. Except as set forth in Exhibit C,
the minute books of the Company and each of its subsidiaries contain complete
and accurate records of all meetings and other corporate actions of their
respective stockholders and Board of Directors and committees thereof. Each of
the stock ledgers of the Company and its subsidiaries is complete and reflects
all issuances, transfers, repurchases, and cancellations of shares of capital
stock of the Company and its subsidiaries, respectively.

                                       10
<PAGE>

                  3.22     Accounts and Notes Receivable. The accounts and notes
receivable of the Company and its subsidiaries, if any, reflected in the
Financial Statements, and those acquired and accrued thereafter through the date
of Closing are, and shall be, bona fide receivables created in the ordinary
course of business and the allowances for bad debts established in respect
thereof is reasonable.

                  3.23     "Sensitive" Payments. Neither the Company, any of its
subsidiaries, any of their respective officers or directors, nor anyone acting
on behalf of any of them, has made or received any "sensitive" payments, and no
such person has or will maintain any unrecorded cash or non-cash assets out of
which any "sensitive" payments might be made. Except as provided in the next
sentence, "sensitive" payments means whether or not illegal, (i) payments to or
from government officials or employees, (ii) commercial bribes or kick-backs,
(iii) amounts paid with an understanding that rebates or refunds will be made in
contravention of the laws of any jurisdiction, either directly or through a
third party, (iv) political contributions and (v) payments or commitments
(whether made in form of commissions, payments of fees for goods or services
received or otherwise) made with the understanding or under circumstances which
would indicate that all or part thereof is to be paid by the recipient to
government officials or employees or as a commercial bribe, influence payment or
kick-back. However, "sensitive" payments shall not include contributions to
political campaigns or organizations which are permissible under federal and
state election laws.

                  3.24     U.S. Real Property Holding Corporation. The Company
is not now and has never been a "United States Real Property Holding
Corporation" as defined in Section 897(c) (2) of the Code and Section 1.897-2
(b) of the Regulations promulgated by the Internal Revenue Service.

                  3.25     Disclosures. Neither this Agreement nor any exhibit
hereto, nor any report, certificate, or instrument furnished to any of the
Purchasers or their special counsel in connection with the transactions
contemplated by this Agreement, when read together, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. The
Company knows of no information or fact that has or would have a material
adverse effect on the business, prospects, or condition (financial or otherwise)
of the Company or its subsidiaries that has not been disclosed to the Purchasers
in writing. The projections, taken as a whole, furnished to Purchasers, were
made with due care based on

                                       11
<PAGE>

assumptions which the Company believed in good faith to be reasonable as of the
date thereof. These projections were made by the Company based on assumptions
which the Company did not consider improbable or unlikely, including, but not
limited to, the performance of Direct General Insurance Agency of Louisiana,
Inc., and allocations of general expenses of the Company and its subsidiaries.

         4.       Representations of the Purchasers. Each of the Purchasers
severally and solely as to such Purchaser represents and warrants to the Company
as follows:

                  4.1      Investment. Such Purchaser is acquiring the Shares,
and the shares of Common Stock into which the Shares may be converted, for his
or its own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same; and, except as contemplated by this Agreement
and the Exhibits hereto, such Purchaser has no present or contemplated
agreement, undertaking, arrangement, obligation, indebtedness, or commitment
providing for the disposition thereof.

                  4.2      Authority. Such Purchaser has full power and
authority to enter into and to perform this Agreement in accordance with its
terms. Any Purchaser that is a corporation, partnership, or trust represents
that it has not been organized, reorganized, or recapitalized specifically for
the purpose of investing in the Company.

                  4.3      Experience. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business, and its personnel; the
officers of the Company have made available to such Purchaser any and all
written information that he or it has requested and have answered to such
Purchaser's satisfaction all inquiries made by such Purchaser; and such
Purchaser has adequate net worth and means of providing for its current needs
and contingencies to sustain a complete loss of its investment in the Company;
such Purchaser's overall commitment to investments that are not readily
marketable is not disproportionate to its net worth and such Purchaser's
investment in the Shares will not cause such overall commitment to become
excessive.

                  4.4      Accredited Investor. Each Purchaser is an Accredited
Investor within the definition set forth in Rule 501(a) of Regulation D of the
Securities Act.

         5.       Conditions to the Obligations of the Purchasers. The
obligation of each of the Purchasers to purchase Shares at the Closing is
subject to the fulfillment, or the waiver by such Purchaser, of each of the
following conditions on or before the Closing Date.

                                       12
<PAGE>

                  5.1      Accuracy of Representations and Warranties. Each
representation and warranty contained in Section 3 shall be true on and as of
the Closing Date with the same effect as though such representation and warranty
had been made on and as of that date.

                  5.2      Performance. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be performed or complied with by the Company prior to or at the Closing.

                  5.3      Opinion of Counsel. Each Purchaser shall have
received an opinion from Wyatt, Tarrant & Combs, counsel for the Company, dated
the Closing Date, addressed to the Purchasers, in the form of Exhibit E.

                  5.4      Other Agreements.

                           (a)      The Stockholders Agreement attached hereto
as Exhibit F (the "Stockholders Agreement") shall have been executed and
delivered by the Company, by each of the Purchasers, and by each of the
Stockholders (as defined therein). All such action shall have been taken as may
be necessary to elect a Board of Directors of the Company, effective upon the
Closing, in accordance with the Stockholders Agreement.

                           (b)      The Noncompetition and Confidentiality
Agreements, a form of which is attached hereto as Exhibit G (the "Noncompetition
Agreements"), shall have been executed and delivered by William Adair and Jackie
Crawford, respectively, and by the Company.

                           (c)      The Indemnity Agreements, a form of which is
attached hereto as Exhibit H (the "Indemnity Agreement") shall have been
executed and delivered by the Company and each of the Purchasers, respectively.

                  5.5      Certificates and Documents. The Company shall have
delivered to special counsel to the Purchasers:

                           (a)      The charters, as amended, of the Company and
each of its subsidiaries, in effect prior to the Closing Date, certified by the
Secretary of State of the state of their incorporation.

                           (b)      Certificates, as of the most recent
practicable dates, as to the corporate good standing of the Company and its
subsidiaries issued by the jurisdictions in which the Company or any of its
subsidiaries is conducting business or is otherwise required to qualify.

                                       13
<PAGE>

                           (c)      Bylaws of the Company and each of its
subsidiaries, certified by its Secretary or Assistant Secretary as of the
Closing Date; and

                           (d)      Resolutions of the Board of Directors of the
Company, authorizing and approving all matters in connection with this
Agreement, the Ancillary Agreements, and the transactions contemplated hereby
and thereby, certified by the Secretary or Assistant Secretary of the Company as
of the Closing Date.

                  5.6      Minimum Investment. Purchasers shall have tendered at
the Closing aggregate consideration of not less than $6,000,000 for the purchase
of Shares.

                  5.7      Compliance Certificate. The Company shall have
delivered to the Purchasers a certificate, executed by the President of the
Company, dated the Closing Date, certifying to the fulfillment of the conditions
specified in subsections 5.2, 5.4 and 5.5 of this Agreement.

                  5.8      Absence of Material Adverse Change. Except as
disclosed in Exhibit C, there shall have been no material adverse change in the
business or financial condition or results of operations of the Company or any
of its subsidiaries, taken as a whole, since the Balance Sheet Date, or, with
respect to Direct Insurance Company and Direct General Insurance Agency, Inc..,
since the DIC and DGA Balance Sheet Date, and no material litigation or other
proceeding shall have been commenced or threatened by any person, including
without limitation any governmental agency, relating to any of the proposed
transactions, or against the Company or any of its subsidiaries or any of their
properties which are material to their business or operations and the Purchasers
shall have received a certificate to that affect, dated the Closing Date, signed
by Chief Executive Officer of the Company.

                  5.9      Bank Financing. On or before the Closing Date, the
Company shall have entered into a credit facility (the "Credit Facility"),
approved by the Purchasers, and provided by First Tennessee Bank, N.A., as
agent, and the other participating banks, with borrowing availability up to
$15.0 million.

                  5.10     Other Matters. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchasers and their special counsel,
and the Purchasers and their special counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.

         6.       Conditions to the Obligations of the Company. The obligations
of the Company under subsection 1.2 of this Agreement are subject to
fulfillment, on or before the Closing Date, of each of the following conditions:

                                       14
<PAGE>

                  6.1      Accuracy of Representations and Warranties. Each of
the representations and warranties of the Purchasers contained in Section 4
shall be true on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of that date.

                  6.2      Compliance Certificate. The Purchasers shall have
delivered to the Company a Certificate, executed by a duly authorized officer of
each of the Purchasers, dated the Closing Date, certifying to the fulfillment of
the conditions specified in subsection 6.1 of this Agreement.

         7.       Covenants of the Company.

                  7.1      Inspection. The Company and its subsidiaries shall
permit each Purchaser, or any authorized representative thereof, to visit and
inspect the properties of the Company and its subsidiaries, including its
corporate and financial records, and to discuss its business and finances with
officers of the Company, during normal business hours following reasonable
notice and as often as may be reasonably requested. In addition, the Company and
its subsidiaries agree to provide the Purchasers, so long as they are holders of
capital stock of the Company, copies of all information reasonably requested by
such Purchasers from the Company or its subsidiaries. All such requested
information shall be provided to the Purchasers within thirty (30) business days
of the request, unless otherwise agreed to in writing.

                  7.2      Observer Rights. The company will permit each holder
of not less than 25% of the Shares (including shares of Common Stock into which
Shares have been converted and as adjusted for stock splits, stock dividends,
and other recapitalizations), or any authorized representatives thereof, to
attend all meetings of the Board of Directors of the Company, and shall, upon
the written request of such holder, provide him or it with such notice of and
other information with respect to such meetings as are delivered to the
directors of the Company. Upon the written request of any such holder, the
Company shall notify such holder, within 10 days thereafter, of the taking of
any written action by the Board of Directors of the Company in lieu of a meeting
thereof. Any holder exercising his or its rights under this subsection, and his
or its representatives, shall maintain the confidentiality of all financial,
confidential, and proprietary information of the Company acquired by them in
exercising such rights.

                                       15
<PAGE>

                  7.3      Financial Statements and Other Information.

                           (a)      During calendar year 1996 and from year to
year thereafter, the Company will deliver to each Purchaser (as soon as
available but not later than as set forth below):

                                    (i)      within ninety (90) days after the
end of each fiscal year of the Company, audited consolidated and consolidating
balance sheets of the Company as at the end of such year and audited
consolidated and consolidating statements of income and of cash flows of the
Company for such year, certified by certified public accountants of established
national reputation selected by the Company, and prepared in accordance with
generally accepted accounting principles;

                                    (ii)     within forty-five (45) days after
the end of each fiscal quarter of the Company, unaudited consolidated and
consolidating balance sheets of the Company as at the end of such quarter,
unaudited consolidated and consolidating statements of income and of cash flows
of the Company for such fiscal quarter and for the current fiscal year to the
end of such fiscal quarter, and the comparable historical financial statements
for the corresponding prior year period;

                                    (iii)    within forty-five (45) days after
the end of each month, an unaudited consolidated balance sheet of the Company as
at the end of such month, unaudited consolidated statements of income and of
cash flows of the Company for such month and for the current fiscal year to the
end of such month, setting forth in comparative form the Company's projected
financial statements for the corresponding periods for the current fiscal year,
and the comparable historical financial statements for the corresponding prior
year period;

                                    (iv)     within three (3) days of delivery
to any regulatory entity or other third party, copies of any Company or
subsidiary financial statements or other financial information (e.g. statutory
audited and unaudited financial statements of the insurance subsidiary);

                                    (v)      as soon as available, but in any
event no later than thirty (30) days prior to commencement of each new fiscal
year (excluding fiscal year 1995), a business plan and projected financial
statements for such fiscal year;

                                    (vi)     within ten (10) days after the
discovery or notification that the Company is not in compliance with this
Agreement or any other material agreement to which the Company is a party, a
detailed statement outlining such noncompliance or default;

                                       16
<PAGE>

                                    (vii)    within ten (10) days of delivery,
such other notices, information, and data with respect to the Company as the
Company delivers to the holders of its Common Stock;

                                    (viii)   within forty-five (45) days after
the end of each fiscal quarter of the Company, an actuarial statement consistent
in form and substance to the annual actuarial statement required to be filed
with the Department of Insurance; and

                                    (ix)     within thirty (30) days after the
end of each month, the Company will provide monthly management reports and the
experience reports.

                           (b)      The foregoing financial statements shall be
prepared on a consolidated basis, unless otherwise designated. The financial
statements delivered pursuant to clauses (ii) and (iii) of paragraph (a) shall
be accompanied by a certificate of the Chief Financial Officer of the Company
stating that such statements have been prepared in accordance with generally
accepted accounting principles consistently applied (except as noted therein)
and fairly present the financial condition of the Company at the date thereof
and for the periods covered thereby. The financial statements delivered pursuant
to clause (ii) shall also be accompanied by a certificate from the Chief
Financial Officer of the Company stating whether the Company is in compliance
with this Agreement, its Charter and Bylaws, and all funded debt agreements
(including loan and security agreements and, with respect to such agreements,
whether there has been a waiver by a third party of any default under such
agreement since delivery of the previous certificate) and, with respect to all
other indentures, leases, agreements and instruments to which the Company is a
party or by which it or any of its properties is bound, that the Company is in
compliance, except where the failure to be in compliance would not result in any
material adverse effect to the assets, condition (financial or otherwise),
business, or prospects of the Company and its subsidiaries, taken as a whole.

                           (c)      During calendar year 1995, the Company shall
deliver to the Purchasers such financial and other information as the Company is
required to deliver to its lenders pursuant to the Credit Facility within the
same time periods and in such form as required by the Credit Facility. In
addition, during calendar year 1995 the Company shall provide the information
set forth in Section 7.3(a) (viii) and (ix).

                  7.4      Material Changes and Litigation. The Company shall
promptly notify the Purchasers of any material adverse change in the business,
properties, assets or condition, financial, or otherwise, of the Company or any
of its subsidiaries and of any litigation or governmental proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against the Company, or any of its subsidiaries, or against any officer,
director, key employee, or principal stockholder of the Company, which may
result in a material adverse effect upon the Company and its subsidiaries, taken
as a whole.

                                       17
<PAGE>

                  7.5      Key Man Insurance. The Company will maintain term
life insurance upon the life of William C. Adair, Jr. in an amount not less than
$5.0 million, with the proceeds payable to the Company to be used by the Company
to finance the redemption of shares of Series A Preferred required by Article 2
Paragraph A(f) of the Articles of Amendment or, if such redemption is either (i)
unnecessary because of the prior conversion or redemption of such Shares or (ii)
illegal, to be used by the Company solely for purposes deemed appropriate by the
Board of Directors. In the event William C. Adair, Jr. dies and shares of Series
A Preferred are outstanding at such time, the Company agrees to escrow the funds
payable pursuant to the term life insurance policy for a period of one year from
the date of receipt or such shorter period of time necessary to fulfill the
redemption obligations in Paragraph (f) of Article 2 of the Articles of
Amendment.

                  7.6      Right of First Refusal.

                           (a)      The Company hereby grants to each Purchaser
a right of first refusal to purchase all or any part of such Purchaser's pro
rata share of New Securities (as defined below) that the Company may, from time
to time, propose to sell and issue, subject to the terms and conditions set
forth below. A Purchaser's pro rata share, for purposes of this subsection 7.6,
shall equal a fraction, the numerator of which is the number of shares of Common
Stock then held by such Purchaser or issuable upon conversion or exercise of any
Shares, convertible securities, options, rights, or warrants then held by such
Purchaser, and the denominator of which is the total number of shares of Common
Stock then outstanding plus the total number of shares of Common Stock issuable
upon conversion or exercise of then outstanding Shares, convertible securities,
options, rights, or warrants.

                           (b)      "New Securities" shall mean any capital
stock of the Company whether now authorized or not, and rights, options, or
warrants to purchase capital stock, and securities of any type whatsoever that
are, or may become, convertible into capital stock; provided, however, that the
term "New Securities" does not include (i) the Shares issuable under this
Agreement or the shares of Common Stock issuable upon conversion of the Shares;
(ii) securities offered to the public pursuant to a Registration Statement (as
defined in subsection 8. 1); (iii) securities issued for the acquisition of
another corporation by the Company by merger, purchase of substantially all the
assets of such corporation, or other reorganization resulting in the ownership
by the Company of not less than a majority of the voting power of such
corporation; (iv) not more than 60,000 shares of Common Stock issued to
employees or consultants of the Company pursuant to a stock option plan,
employee stock purchase plan, restricted stock plan, or other employee stock
plan or agreement; or (v) securities issued as a result of any stock split,
stock dividend, or reclassification of Common Stock, distributable on a pro rata
basis to all holders of Common Stock.

                                       18
<PAGE>

                           (c)      In the event the Company intends to issue
New Securities, it shall give each Purchaser written notice of such intention,
describing the type of New Securities to be issued, the price thereof, and the
general terms upon which the Company proposes to effect such issuance. Each
Purchaser shall have thirty (30) days from the date of any such notice to agree
to purchase all or part of his or its pro rata share of such New Securities for
the price and upon the general terms and conditions specified in the Company's
notice by giving written notice to the Company stating the quantity of New
Securities to be so purchased. Each Purchaser shall have a right of
over-allotment such that if any Purchaser fails to exercise its right hereunder
to purchase its total pro rata portion of New Securities, the other Purchasers
may purchase such portion on a pro rata basis, by giving written notice to the
Company within five (5) days from the date that the Company provides written
notice to the other Purchasers of the amount of New Securities with respect to
which such nonpurchasing Purchaser has failed to exercise in full its or his
right hereunder.

                           (d)      In the event any Purchaser or Purchasers
fail to exercise the foregoing right of first refusal with respect to any New
Securities within such 30-day period (or the additional five-day period provided
for over-allotments), the Company may within 90 days thereafter sell any or all
of such New Securities not agreed to be purchased by the Purchasers, at a price
and upon general terms no more favorable to the purchasers thereof than
specified in the notice given to each Purchaser pursuant to paragraph (c) above.
In the event the Company has not sold such New Securities within such 90-day
period, the Company shall not thereafter issue or sell any New Securities
without first offering such New Securities to the Purchasers in the manner
provided above.

                           (e)      Purchaser may apportion its pro rata share
among itself and its general partners, officers, limited partners, and any other
party mutually agreed to by the Company and the Purchaser, in such proportions
as it deems appropriate.

                  7.7      Auditor and Actuary. The Company shall retain a firm
of certified public accountants of established national reputation to audit its
books and records at least annually beginning with the audit for the calendar
year 1995. In addition, the Company shall retain an actuarial firm of national
reputation to provide actuarial services to the Company beginning with the
actuarial review for the year ended December 31, 1995 and continuing thereafter.

                                       19
<PAGE>

                  7.8      Compensation of Executive Officers and Selection of
President and Chief Operating Officer.

                           (a)      The Compensation Committee of the Board of
Directors of the Company shall establish the aggregate compensation to be paid
to each of the executive officers of the Company and each of its subsidiaries.
The Company agrees to obtain the consent of a majority of the outstanding Shares
prior to implementing any compensation increase to its executive officers,
consultants or any other persons who receive in the aggregate from the Company
or its subsidiaries or affiliates more than $175,000 per annum and, with respect
to William C. Adair, Jr., more than $250,000 plus year end bonus payable in the
ordinary course of business consistent with the Company's historic practice.

                           (b)      The Company shall use its best reasonable
efforts, including but not limited to the engagement of an executive search firm
of national reputation acceptable to the Purchasers, to employ an individual as
President and Chief Operating Officer and the employment thereof shall be
subject to the consent of a majority of the outstanding Shares. In addition, any
subsequent employment of another person in such capacity shall be subject to the
consent of a majority of the outstanding Shares.

                  7.9      Additional Covenants. So long as any of the Shares
are outstanding, the Company agrees as follows:

                           (a)      The Company will promptly pay and discharge,
or cause to be paid and discharged, when due and payable, all lawful taxes,
assessments, and governmental charges or levies imposed upon the income,
profits, property, or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge, or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves therefor; and provided, further, that the Company will pay all such
taxes, assessments, charges, or levies forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security therefor.
The Company will promptly pay or cause to be paid when due, or in conformance
with customary trade terms, all other indebtedness incident to the operations of
the Company;

                           (b)      The Company will keep its properties and
those of its subsidiaries in good repair, working order, and condition,
reasonable wear and tear excepted, and from time to time make all needful and
proper repairs, renewals, replacements, additions, and improvements thereto; and
the Company will at all times comply with the provisions of all material leases
to which any of them is a party or under which any of them occupies property so
as to prevent any loss or forfeiture thereof or thereunder;

                           (c)      The Company will keep its assets that are of
an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, extended coverage, and explosion insurance in
amounts customary for companies in similar

                                       20
<PAGE>

businesses similarly situated; and the Company will maintain, with financially
sound and reputable insurers, insurance against other hazards, risks, and
liabilities to persons and property to the extent and in the manner customary
for companies in similar businesses similarly situated;

                           (d)      The Company will keep true records and books
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis;

                           (e)      The Company will comply with the
requirements of all applicable laws, rules, regulations, and orders of any
governmental authority, except to the extent such noncompliance does not
constitute a willful disregard for the law, rule, regulation or order or such
noncompliance would not result in a material adverse effect on the assets,
condition (financial or otherwise) business or prospects of the Company and its
subsidiaries, taken as a whole;

                           (f)      The Company shall maintain in full force and
effect its corporate existence, rights, and franchises and all licenses and
other rights to use patents, processes, licenses, trademarks, trade names,
service marks or copyrights owned or possessed by it or any subsidiary and
deemed by the Company to be necessary to the conduct of its business; and

                           (g)      Each of the Company's subsidiaries shall
continue to be wholly owned by the Company, except for Direct Insurance Agency
Midwest, Inc. which will continue to be 75% (or greater) owned by the Company.

                  7.10     Negative Covenants. So long as Shares are
outstanding, the Company (consistent with the provisions of the Articles of
Amendment) shall not, without the prior written consent of the holders of not
less than fifty-one percent (51%) of the outstanding Shares:

                           (a)      Authorize or issue any class or series of
stock, including, but not limited to, Convertible Securities (as defined in the
Company's Articles of Amendment to its Charter dated the date hereof, the
"Articles of Amendment"), in addition to Common Stock and Series A Preferred;

                           (b)      Authorize or issue additional shares of
Common Stock at a price per share less than the Initial Conversion Price (as
defined in the Articles of Amendment) or authorize or issue additional shares of
Series A Preferred;

                                       21
<PAGE>

                           (c)      Effect an exchange, reclassification or
cancellation of all or part of the shares of Series A Preferred;

                           (d)      Effect an exchange, or create a right of
exchange, of all or part of the shares of another class or series into the
shares of Series A Preferred;

                           (e)      Create a class or series of shares having
rights, preferences or privileges prior to or on a parity with the shares of
Series A Preferred;

                           (f)      (i) Effect a cash dividend during any of
calendar years 1995, 1996 or 1997 or (ii) effect a cash dividend during calendar
year 1998 and any year thereafter, excluding any annual cash dividend not to
exceed the lesser of $500,000 or 5% of the preceding year's net income as stated
in the audited financial statements for such year (subject to all other
limitations imposed by the Tennessee Business Corporation Act, as amended, or
other state or federal regulatory entity), or any other distribution of assets
(including cash, securities and intangible assets or other property) other than
as set forth in Paragraph 2A(b) of the Articles of Amendment; it being agreed
that to the extent any cash dividend shall be paid on any Common Stock, the
holders of Series A Preferred Stock shall participate in such dividend as though
such shares had been converted to Common Stock immediately prior to the record
date for such dividend;

                           (g)      Enter (or permit any corporation, a majority
of the voting stock of which is owned or controlled by the Company, to enter)
into debt instruments as the maker or guarantor which, in the aggregate, are in
an amount greater than $2.0 million, except any credit facility approved by the
Board of Directors to provide (i) funding for notes receivable properly
generated (in the ordinary course of business and consistent with all applicable
laws and regulations) by Direct Financial Services, Inc. and (ii) funding for
policies of insurance sold on an installment billing basis in the ordinary
course of business and consistent with all applicable laws and regulations by
any of the subsidiaries;

                           (h)      Make (or permit any corporation, a majority
of the voting stock of which is owned or controlled by the Company to make) any
loan or advance to, or own any stock or other securities of, any subsidiary or
other corporation, partnership, or other entity unless (i) it is wholly owned by
the Company, (ii) it is Direct Insurance Agency Midwest, Inc., so long as a
majority of its voting stock is controlled by the Company, or (iii) with respect
to Direct Insurance Company, if such investments are consistent with state and
federal laws and regulations applicable to such portfolio investments;.

                           (i)      Make (or permit any corporation, a majority
of the voting stock of which is owned or controlled by the Company, to make) any
loan(s) or advance(s) which, in the aggregate, are greater than $100, 000 to any
person (s), including, without limitation, any employee or director of the
Company or any subsidiary, except advances and similar expenditures in the
ordinary course of business or under

                                       22
<PAGE>

the terms of an employee stock or option plan approved by the Board of
Directors;

                           (j)      (i) Enter into any merger, share exchange,
business combination or consolidation (or permit any corporation, a majority of
the voting stock of which is owned or controlled by the Company, to enter into
any such transaction, excluding a transaction between wholly-owned subsidiaries
of the Company) with any other corporation or other entity, (ii) sell, lease, or
otherwise dispose of all or substantially all of its properties or assets, (iii)
acquire all or substantially all of the properties or assets of any other
corporation or entity, except no vote of the holders of the Series A Preferred
shall be required for any acquisition by the Company or its subsidiaries in
which (y) the aggregate consideration paid (including the assumption of
liabilities) does not exceed $2.0 million; and (z) the transaction involves the
acquisition of a business or assets of a business constituting the same business
being conducted by the Company as of the time of the acquisition, or (iv)
liquidate, dissolve or wind up the Company's affairs; or

                           (k)      Amend the Company's Charter in any way if
such amendment would cancel or adversely change, alter or affect the preferences
or rights (including, without limitation, the conversion privilege, the
redemption privilege or the liquidation preference) of the Series A Preferred.

                  7.11     Expenses of Directors and Purchaser Representatives.
The Company shall promptly reimburse in full each director of the Company who is
not an employee of the Company and who was elected as a director solely or in
part by the holders of Series A Preferred for all of his reasonable
out-of-pocket expenses incurred in attending each meeting of the Board of
Directors of the Company, any committee thereof of which the director is a
member or otherwise acting on behalf of the Company or its subsidiaries. In
addition, the Company agrees to promptly reimburse in full each Purchaser
representative, not a director, for all reasonable out-of-pocket expenses
incurred in attending any meetings of, or performing any functions (as requested
by the Company) on behalf of, the Company; provided, however, that the Company
will not be required to reimburse more than two (2) such Purchaser
representatives for attendance at a meeting or the performance of such functions
unless requested by the Company to attend such meeting or perform such function
or unless otherwise approved by an officer of the Company.

                  7.12     Reservation of Common Stock. The Company shall
reserve and maintain a sufficient number of shares of Common Stock for issuance
upon conversion of all of the outstanding Shares.

                                       23
<PAGE>

                  7.13     Disaster Recovery Plan and Implementation. The
Company agrees to use its best effort to prepare a disaster recovery plan
satisfactory to the Purchasers to be presented to the Board of Directors on or
before March 31, 1995 and, upon approval by the Board of Directors, to implement
such plan promptly thereafter.

                  7.14     Director and Officer Insurance. The Company shall
obtain, and maintain thereafter, a policy of insurance covering the Company's
directors and officers for actions they may take in such capacities. The policy
of insurance shall be in an amount and underwritten by a firm acceptable to the
Board of Directors and the Purchasers, such acceptance by the Purchasers shall
not be unreasonably withheld.

                  7.15     Stock Option Plan. The Company shall not authorize
more than 60,000 shares of Common Stock or other securities for issuance under
any stock incentive plan.

                  7.16     Interested Party Transactions. Neither the Company
nor any of its subsidiaries shall enter into any transaction with any of the
Company's or its subsidiaries' officers, directors or shareholders or affiliates
thereof, unless the terms of such transaction are no less favorable than those
which could be obtained from unaffiliated parties and such transactions are
approved by a majority of the disinterested members of the Company's Board of
Directors.

                  7.17     Termination of Covenants. The covenants of the
Company contained in this Section 7 shall terminate, and be of no further force
or effect, upon the closing date of a Registration Statement (as defined in
subsection 8.1) covering the Company's first public offering of Common Stock,
resulting in gross proceeds to the Company of at least $10,000,000, at a price
to the public per share of Common Stock of at least two and one-half (2.5) times
the Current Conversion Price (as defined in the Articles of Amendment and as
adjusted for stock splits, stock dividends, recapitalization and similar events)

         8.       Registration Rights.

                  8.1      Certain Definitions. As used in this Section 8 and
elsewhere in this Agreement, the following terms shall have the following
respective meanings:

         "Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.

                                       24
<PAGE>

         "Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).

         "Registration Expenses" means the expenses described in subsection 8.6.

         "Registrable Shares" means (i) the shares of Common Stock issued or
issuable upon conversion of the Shares, (ii) any shares of Common Stock acquired
by the Purchasers pursuant to subsection 7.6 hereof and any shares of Common
Stock issuable upon the conversion or exercise of capital stock or other
securities of the Company acquired by the Purchasers pursuant to subsection 7.6
hereof, and (iii) any other shares of Common Stock of the Company issued in
respect of such shares (because of stock splits, stock dividends,
reclassification, recapitalization, or similar events); provided, however, that
shares of Common Stock that are Registrable Shares shall cease to be Registrable
Shares (y) upon any sale pursuant to a Registration Statement, Section 4(1) of
the Securities Act, or Rule 144 under the Securities Act, or (z) upon any sale
in any manner to a person or entity that, by virtue of Section 10 of this
Agreement, is not entitled to the rights provided by this Section 8. Wherever
reference is made in this Agreement to a request or consent of holders of a
certain percentage of Registrable Shares, the determination of such percentage
shall include shares of Common Stock issuable upon conversion of the Shares even
if such conversion has not yet been effected.

         "Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.

         "Shares" shall have the meaning specified in subsection 1.2.

         "Stockholders" means the Purchasers and any persons or entities to whom
the rights granted under this Section 8 are transferred by any Purchasers, their
successors or assigns pursuant to Section 10 hereof.

                  8.2      Sale or Transfer of Shares; Legend.

                           (a)      The Shares and the Registrable Shares and
shares issued in respect of the Shares or the Registrable Shares shall not be
sold or transferred unless either (i) they first shall have been registered
under the Securities Act, or (ii) the Company first shall have been furnished
with an opinion of legal counsel, reasonably satisfactory to the Company, to the
effect that such sale or transfer is exempt from the registration requirements
of the Securities Act.

                                       25
<PAGE>

                           (b)      Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
Purchaser that is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner, if the transferee agrees in writing to
be subject to the terms of this Section 8 to the same extent as if he were an
original Purchaser hereunder, or (ii) a transfer made in accordance with Rule
144 or Rule 144A under the Securities Act.

                           (c)      Each certificate representing the Shares and
the Registrable Shares and shares issued in respect of the Shares or the
Registrable Shares shall bear a legend substantially in the following form:

                  THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
                  NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
                  1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR
                  OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
                  UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER
                  SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO
                  THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
                  REGISTRATION IS NOT REQUIRED.

         The foregoing legend shall be removed from the certificates
representing any Registrable Shares, at the request of the holder thereof, at
such time as they become eligible for resale pursuant to Rule 144(k) under the
Securities Act. No representation contained elsewhere herein or in any document
executed in connection with the transactions contemplated hereby shall be
construed to preclude the Purchasers from effecting at any time a resale of any
of the shares (or the underlying Common Stock upon conversion of the Shares)
pursuant to the provisions of Rule 144A. If requested by the Purchaser (or
Purchasers), the Company shall use its best efforts to permit the shares (or
underlying Common Stock) to be designated PORTAL securities in accordance with
the rules and regulations adopted by the National Association of Securities
Dealers, Inc. relating to trading in the PORTAL Market.

                           (d)      The Company agrees, upon the request of any
Purchaser, to make available to such Purchaser and to any prospective transferee
of any Shares or Registrable Shares of such Purchaser the information concerning
the Company described in Rule 144A(d) (4) under the Securities Act.

                  8.3      Required Registrations.

                           (a)      At any time after the closing of the
Company's first underwritten public offering of shares of Common Stock pursuant
to a Registration Statement, a Stockholder or Stockholders holding in the
aggregate at least 50% of the Registrable Shares may request, in writing, that
the Company effect the registration on Form S-1, Form S-2, or Form S-3, as
applicable, (or any successor form) of Registrable Shares owned by such
Stockholder or Stockholders having an aggregate offering price of at least
$3,000,000 (based on the then current

                                       26
<PAGE>

market price or fair value). If the holders initiating the registration intend
to distribute the Registrable Shares by means of an underwriting, they shall so
advise the Company in their request. In the event such registration is
underwritten, the right of other Stockholders to participate shall be
conditioned on such Stockholders' participation in such underwriting. Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all Stockholders. Such Stockholders shall have the
right, by giving written notice to the Company within thirty (30) days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Shares as such Stockholders may request in such notice of
election; provided that if the underwriter (if any) managing the offering
determines in good faith that, because of marketing factors, all of the
Registrable Shares requested to be registered by all Stockholders may not be
included in the offering, then all Stockholders who have requested registration
shall participate in the offering pro rata based upon the number of Registrable
Shares that they have requested to be so registered. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration,. on Form S-1, Form S-2 or Form S-3 (or any successor form), of all
Registrable Shares that the Company has been requested to so register.

                           (b)      The Company shall not be required to effect
more than two registrations pursuant to paragraph (a) above. In addition, the
Company shall not be required to effect any registration (other than on Form S-3
or any successor form relating to secondary offerings) within six (6) months
after the effective date of any other Registration Statement of the Company.

                           (c)      If at the time of any request to register
Registrable Shares pursuant to this subsection 8.3, the Company is engaged or
has fixed plans to engage within thirty (30) days of the time of the request in
a registered public offering as to which the Stockholders may include
Registrable Shares pursuant to subsection 8.4 or is engaged in any other
activity that, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of six months from the
effective date of such offering or the date of commencement of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any two year period.

                                       27
<PAGE>

                  8.4      Incidental Registration.

                           (a)      Whenever the Company proposes to file a
Registration Statement (other than pursuant to subsection 8.3) at any time and
from time to time, it will, prior to such filing, give written notice to all
Stockholders of its intention to do so and, upon the written request of a
Stockholder or Stockholders given within thirty (30) days after the Company
provides such notice (which request shall state the intended method of
disposition of such Registrable Shares), the Company shall use its best efforts
to cause all Registrable Shares that the Company has been requested by such
Stockholder or Stockholders to register to be registered under the Securities
Act to the extent necessary to permit their sale or other disposition in
accordance with the intended methods of distribution specified in the request of
such Stockholder or Stockholders; provided that the Company shall have the right
to postpone or withdraw any registration effected pursuant to this subsection
8.4 without obligation to any Stockholder.

                           (b)      In connection with any offering by the
Company under this subsection 8.4 involving an underwriting, the Company shall
not be required to include any Registrable Shares in such offering unless the
holders thereof accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (provided that such terms must be
consistent with this Agreement), and then only in such quantity as will not, in
the good faith opinion of the underwriters, jeopardize the success of the
offering by the Company. If in the opinion of the managing underwriter the
registration of all, or part of, the Registrable Shares that the holders have
requested to be included would materially and adversely affect such public
offering, then the Company shall be required to include in the underwriting only
that number of Registrable Shares, if any, that the managing underwriter
believes may be sold without causing such adverse effect; provided that (i) in
no event shall the number of Registrable Shares included in the offering be
reduced below 25% of the total number of shares of Common Stock (giving effect
to the conversion into Common Stock of all securities convertible thereunto)
included in the offering, and (ii) no persons or entities other than the
Company, the Stockholders and persons or entities holding registration rights
granted in accordance with Section 8.11 hereof shall be permitted to include
securities in the offering. If the number of Registrable Shares to be included
in the underwriting in accordance with the foregoing is less than the total
number of shares that the holders of Registrable Shares have requested to be
included, then the holders of Registrable Shares who have requested registration
and other holders of shares of Common Stock entitled to include shares of Common
Stock in such registration shall participate in the underwriting pro rata based
upon their total ownership of shares of Common Stock of the Company (giving
effect to the conversion into Common Stock of all securities convertible
thereunto). If any holder would thus be entitled to include more shares than
such holder requested to be registered, the excess shall be allocated among
other requesting holders pro rata based upon their total ownership of
Registrable Shares.

                                       28
<PAGE>

                  8.5      Registration Procedures. If and whenever the Company
is required by the provisions of this Agreement to use its best efforts to
effect the registration of any of the Registrable Shares under the Securities
Act, the Company shall:

                           (a)      file with the Commission a Registration
Statement with respect to such Registrable Shares and use its best efforts to
cause that Registration Statement to become and remain effective;

                           (b)      as expeditiously as possible prepare and
file with the Commission any amendments and supplements to the Registration
Statement and the prospectus included in the Registration Statement as may be
necessary to keep the Registration Statement effective, in the case of a firm
commitment underwritten public offering, until each underwriter has completed
the distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or one hundred twenty (120) days after the effective date thereof;

                           (c)      as expeditiously as possible furnish to each
selling Stockholder such reasonable numbers of copies of the prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as the selling Stockholders may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares owned by the selling Stockholder; and

                           (d)      as expeditiously as possible use its best
efforts to register or qualify the Registrable Shares covered by the
Registration Statement under the securities or Blue Sky laws of such states as
the selling Stockholders shall reasonably request, and do any and all other acts
and things that may be necessary or desirable to enable the selling Stockholders
to consummate the public sale or other disposition in such states of the
Registrable Shares owned by the selling Stockholder; provided, however, that the
Company shall not be required in connection with this paragraph (d) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction.

         If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.

                                       29
<PAGE>

                  8.6      Allocation of Expenses. The Company will pay all
Registration Expenses of all registrations under this Agreement; provided,
however, that if a registration under Section 8.3 is withdrawn at the request of
the Stockholders requesting such registration (other than as a result of
information concerning the business or financial condition of the Company that
is made known to the Stockholders after the date on which such registration was
requested) and if the requesting Stockholders elect not to have such
registration counted as a registration requested under subsection 8.3, the
requesting Stockholders shall pay the Registration Expenses of such registration
pro rata in accordance with the number of their Registrable Shares included in
such registration. For purposes of this Section, the term "Registration
Expenses" shall mean all expenses incurred by the Company in complying with this
Section 8, including, without limitation, all registration and filing fees,
exchange listing fees, printing expenses, fees, and expenses of counsel for the
Company and the fees and expenses of one counsel selected by the selling
Stockholders to represent the selling Stockholders, state Blue Sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration, but excluding underwriting discounts, selling commissions,
and the fees and expenses of selling Stockholders' own counsel (other than the
counsel selected to represent all selling Stockholders).

                  8.7      Indemnification and Contribution. In the event of any
registration of any of the Registrable Shares under the Securities Act pursuant
to this Agreement, the Company will indemnify and hold harmless the seller of
such Registrable Shares, each underwriter of such Registrable Shares, and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act or the Exchange Act against any losses, claims, damages,
or liabilities, joint or several, to which such seller, underwriter, or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities or Blue Sky laws, or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus, or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse such seller, underwriter, and each such controlling
person for any legal or any other expenses reasonably incurred by such seller,
underwriter, or controlling person in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage, or liability arises out of or is based upon any untrue statement
or omission made in such Registration Statement, preliminary prospectus, or
final prospectus, or any such amendment or supplement, in reliance upon and in
conformity with

                                       30
<PAGE>

information furnished to the Company, in writing, by or on behalf of such
seller, underwriter, or controlling person specifically for use in the
preparation thereof.

         In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities, joint or several, to which the Company, such directors
and officers, underwriter, or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws, or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment, or
supplement; provided, however, that the obligations of such Stockholders
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold in connection with such registration.

         Each party entitled to indemnification under this subsection 8.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 8. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the

                                       31
<PAGE>

claimant or plaintiff to such Indemnified Party of a release from all liability
in respect of such claim or litigation, and no Indemnified Party shall consent
to entry of any judgment or settle such claim or litigation without the prior
written consent of the Indemnifying Party.

         In order to provide for just and equitable contribution to joint
liability under the Securities Act or otherwise, in any case in which either (i)
any holder of Registrable Shares exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 8.7 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 8.7 provides for indemnification in such case, or (ii) contribution
may be required on the part of any such selling Stockholder or any such
controlling person in circumstances for which indemnification is provided under
this Section 8.7; then, in each such case, the Company and such Stockholder will
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (after contribution from others) in such proportions so that
such holder is responsible for the portion represented by the percentage that
the public offering price of its Registrable Shares offered by the Registration
Statement bears to the public offering price of all securities offered by such
Registration Statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the proceeds to it of all
Registrable Shares sold by it pursuant to such Registration Statement, and (B)
no person or entity guilty of fraudulent misrepresentation, within the meaning
of Section 11(f) of the Securities Act, shall be entitled to contribution from
any person or entity who is not guilty of such fraudulent misrepresentation.

                  8.8      Indemnification with Respect to Underwritten
Offering. In the event that Registrable Shares are sold pursuant to a
Registration Statement in an underwritten offering pursuant to

                                       32
<PAGE>

subsection 8.3(a), the Company agrees to enter into an underwriting agreement
containing customary representations and warranties with respect to the business
and operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including without
limitation customary provisions with respect to indemnification by the Company
of the underwriters of such offering.

                  8.9      Information by Holder. Each holder of Registrable
Shares included in any registration shall furnish to the Company such
information regarding such holder and the distribution proposed by such holder
as the Company may request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this Section
8.

                  8.10     "Stand-Off" Agreement. Each Stockholder, if requested
by the Company and an underwriter of Common Stock or other securities of the
Company, shall agree not to sell or otherwise transfer or dispose of any
Registrable Shares or other securities of the Company held by such Stockholder
for a specified period of time (not to exceed 120 days) following the effective
date of a Registration Statement; provided, that:

                           (a)      such agreement shall only apply to the first
such Registration Statement covering Common Stock of the Company to be sold on
its behalf to the public in an underwritten offering; and

                           (b)      all Stockholders holding not less than the
number of shares of Common Stock held by such Stockholder (including shares of
Common Stock issuable upon the conversion of Shares, or other convertible
securities, or upon the exercise of options, warrants or rights) and all
officers and directors of the Company enter into similar agreements.

         Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the Registrable Shares or other securities subject to the
foregoing restriction until the end of the standoff period.

                  8.11     Limitations on Subsequent Registration Rights. The
Company shall not, without the prior written consent of Stockholders holding at
least 51% of the Registrable Shares, enter into any agreement (other than this
Agreement) with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder (a) to include
securities of the Company in any registration filed under subsection 8.3 or 8.4
or (b) to make a demand registration.

                                       33
<PAGE>

                  8.12     Rule 144 Requirements. After the earliest of (i) the
closing of the sale of securities of the Company pursuant to a Registration
Statement, (ii) the registration by the Company of a class of securities under
Section 12 of the Exchange Act, or (iii) the issuance by the Company of an
offering circular pursuant to Regulation A under the Securities Act, the Company
agrees to:

                           (a)      comply with the requirements of Rule 144(c)
under the Securities Act with respect to current public information about the
Company;

                           (b)      use its best efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements); and

                           (c)      furnish to any holder of Registrable Shares
upon request (i) a written statement by the Company as to its compliance with
the requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other reports and documents of the Company
as such holder may reasonably request to avail itself of any similar rule or
regulation of the Commission allowing it to sell any such securities without
registration.

                  8.13     Selection of Underwriter. In the case of any
registration effected pursuant to this Section 8, the Company shall have the
right to designate the managing underwriter in any underwritten offering,
subject to the approval of the holders of a majority of the Registrable Shares
requested to be included in such offering, which approval shall not be
unreasonably withheld.

                  8.14     Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation, or reorganization in which the
Company shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation, or reorganization, agree
in writing to assume the obligations of the Company under this Section 8, and
for that purpose references hereunder to "Registrable Shares" shall be deemed to
be references to the securities that the Stockholders would be entitled to
receive in exchange for Registrable Shares under any such merger, consolidation,
or reorganization; provided, however, that the provisions of this Section 8
shall not apply in the event of any merger, consolidation, or reorganization in
which the Company is not the surviving corporation if all Stockholders are
entitled to receive in exchange for their Registrable Shares consideration
consisting solely of (i) cash, (ii) securities of the acquiring corporation that
may be immediately sold to the public without registration under the Securities
Act, or (iii) securities of the acquiring corporation that

                                       34
<PAGE>
the acquiring corporation has agreed to register within 90 days of completion of
the transaction for resale to the public pursuant to the Securities Act.

         9.       Successors and Assigns. Except as provided in Section 10, the
provisions of this Agreement shall be binding upon, and inure to the benefit of,
the respective successors, assigns, heirs, executors, and administrators of the
parties hereto.

         10.      Transfers of Certain Rights.

                           (a)      The rights granted to a Purchaser under
subsection 7.3, subsection 7.6, and Section 8 may be transferred by such
Purchaser to another Purchaser, to any affiliate of the Company or to any person
or entity acquiring at least twenty-five percent (25%) of the Shares or
Registrable Shares; provided, however, that the Company is given written notice
by the transferee at the time of such transfer stating the name and address of
the transferee and identifying the securities with respect to which such rights
are being assigned.

                           (b)      Transferees. Any transferee (other than a
Purchaser) to whom rights under subsection 7.3, subsection 7.6, or Section 8 are
transferred shall, as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the
obligations imposed upon Purchasers under Section 11, subsection 7.6, or Section
8, as the case may be, to the same extent as if such transferee were a Purchaser
hereunder.

                           (c)      Subsequent Transferees. A transferee to whom
rights are transferred pursuant to this Section 10 may not again transfer such
rights to any other person or entity, other than as provided in (a) or (b)
above.

                           (d)      Partners and Stockholders. Notwithstanding
anything to the contrary herein, any Purchaser that is a partnership or
corporation may transfer rights granted to such Purchaser under subsection 7.3,
subsection 7.6, or Section 8 to any partner or stockholder thereof to whom
Shares are transferred pursuant to subsection 8.2 and who delivers to the
Company an opinion of counsel as to the transfer of such securities under
applicable state and federal securities laws and a written instrument in
accordance with subparagraph (b) above. In the event of such transfer, such
partner or stockholder shall be deemed a Purchaser for purposes of this Section
10 and may again transfer such rights to any other person or entity that
acquires Shares from such partner or stockholder, in accordance with, and
subject to, the provisions of subparagraphs (a), (b), and (c) above.

         11.      Confidentiality. Each Purchaser agrees that he or it will keep
confidential and will not disclose or divulge any confidential, proprietary, or
secret information that such Purchaser may obtain from the Company pursuant to
financial statements, reports, and other materials submitted by the Company to
such Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted

                                      35
<PAGE>

hereunder, unless such information is known, or until such information becomes
known, to the public; provided, however, that a Purchaser may disclose such
information (i) to its attorneys, accountants, consultants, and other
professionals to the extent necessary to obtain their services in connection
with its investment in the Company, (ii) to any prospective purchaser of any
Shares from such Purchaser as long as such prospective purchaser agrees in
writing to be bound by the provisions of this Section, or (iii) to any affiliate
of such Purchaser or to a partner, shareholder or subsidiary of such Purchaser.

         12.      Survival of Representations and Warranties. All agreements,
representations, and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.

         13.      Expenses. The Company shall pay all of the costs, fees, and
expenses of the Purchasers (including, but not limited to, the costs, fees and
expenses of Bass, Berry & Sims, special counsel to the Purchasers) incurred in
connection with the preparation of and entering into this Agreement and the
closing of the transactions contemplated hereby.

         14.      Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:

         If to the Company, at 905 East Trinity Lane, Nashville, Tennessee
37207, Attention: President, or at such other address or addresses as may have
been furnished in writing by the Company, to the Purchasers, with a copy to
Adair and Sheuerman, 4171 Lamar Avenue, Memphis, Tennessee 38118, Attn: Tammy
Adair;

         If to a Purchaser, at his or its address set forth on Exhibit A, or at
such other address or addresses as may have been furnished to the Company in
writing by such Purchaser, with a copy to Bass, Berry & Sims, 2500 First
American Center, Nashville, Tennessee 37238, Attn: Howard H. Lamar III.

         Notices provided in accordance with this Section 14 shall be deemed
delivered upon personal delivery or three business days after deposit in the
mail.

         15.      Brokers. The Company and each Purchaser (i) represents and
warrants to the other parties hereto that he or it has retained no finder or
broker in connection with the transactions contemplated by

                                       36
<PAGE>

this Agreement, and (ii) will indemnify and save the other parties harmless from
and against any and all claims, liabilities or obligations with respect to
brokerage or finders' fees or commissions, or consulting fees in connection with
the transactions contemplated by this Agreement asserted by any person on the
basis of any statement or representation alleged to have been made by such
indemnifying party.

         16.      Irrevocable Proxy. As a condition to the execution and
performance under this Agreement, the Company has required that Noro-Moseley
Partners II, L.P. irrevocably appoint SSM Venture Partners, L.P. as its proxy
with respect to the voting rights associated with Section 7.10(a) only;
therefore, Noro-Moseley Partners II, L.P. hereby appoints SSM Venture Partners,
L.P. as its proxy, only to the extent and scope of the voting rights contained
in Section 7.10(a), and such appointment is irrevocable and coupled with an
interest and such appointment shall continue for a period of five years from the
date of this Agreement.

         17.      Entire Agreement. This Agreement and the Ancillary Agreements
referenced herein, collectively embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and thereof
and supersedes all prior agreements and understandings relating to such subject
matter.

         18.      Amendments and Waivers. Except as otherwise expressly set
forth in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least 67% of the Shares; provided
Section 8 may be amended with the consent of the holders of less than all
Registrable Shares only in a manner that affects all Registrable Shares in the
same fashion and no condition set forth in Section 6 may be waived with respect
to any Purchaser who does not consent thereto. Any amendment or waiver effected
in accordance with this Section 18 shall be binding upon each holder of any
Shares (including shares of Common Stock into which such Shares have been
converted), each future holder of all such securities, and the Company. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision.

         19.      Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         20.      Headings. The headings of the sections, subsections, and
paragraphs of this Agreement have been added for convenience only and shall not
be deemed to be a part of this Agreement.

                                       37
<PAGE>

         21.      Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision.

         22.      Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee, excluding that
body of laws pertaining to conflicts of laws.

                                       38
<PAGE>

         IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the day and year first above written.

                                    DIRECT CORPORATION:

                                    /s/Jacqueline C. Adair
                                    --------------------------------------------
                                    Title: President

                                    PURCHASERS:

                                    SSM VENTURE PARTNERS, L.P.

                                    By: SSM Corporation, as General
                                        Partner of SSMI, L.P., as
                                        General Partner of SSM Venture
                                        Partners, L.P.

                                    By: /s/R. Wilson Orr III
                                        ----------------------------------------
                                        R. Wilson Orr III, Vice
                                        President

                                    NORO-MOSELEY PARTNERS, L.P.

                                    By: Its General Partner,
                                        Moseley & Company II

                                    By: /s/Jack R. Kelly
                                        ----------------------------------------
                                        Jack R. Kelly, General
                                        Partner

                                    DAVID F. BELLET - TRUSTEE
                                    PROFIT SHARING PLAN - DLJSC -
                                    CUSTODIAN
                                    FBO DAVID F. BELLET

                                    /s/David F. Bellet
                                    --------------------------------------------
                                    David F. Bellet

                                      39

<PAGE>
                                    AMENDMENT
                                       TO
                          SECURITIES PURCHASE AGREEMENT

        THIS AMENDMENT is made and entered into this 25th day of November 1996,
by and among Direct General Corporation, f/k/a Direct Corporation, a Tennessee
corporation (the "Company"), and SSM Venture Partners, L.P., Noro-Moseley
Partners II, L.P. and David F. Bellett - Trustee Profit Sharing Plan - DLJSC
Custodian (the "Purchasers").

                                W I T N E S S E T H:

        WHEREAS, the Company and the Purchasers entered into that certain
Securities Purchase Agreement as of December 2, 1994 (the "Purchase Agreement");

        WHEREAS, in order to facilitate the issuance and sale of a newly
designated Series B Convertible Preferred Stock, without par value (the "Series
B Preferred"), by the Company to Eldon Capital Partners, L.P. and Eldon Capital
Partners (International), L.P. (collectively referred to herein as the "Eldon
Investors"), the Company at the Purchasers desire to amend the Purchase
Agreement as provided herein; and

        WHEREAS, in connection with the investment by the Eldon Investors in the
Series B Preferred, the Company and the Purchasers also desire to amend the
Company's Charter as provided herein.

        NOW, THEREFORE, each of the parties hereto hereby agrees as follows:

        1. Section 7.3(a) of the Purchase Agreement shall be deleted in its
entirety and replaced with the following:

        "(a) The Company will maintain, and will cause each of its subsidiaries
        to maintain, a system of accounting established and administered in
        accordance with generally accepted accounting principles, and will
        accrue, and will cause each of its subsidiaries to accrue, all such
        liabilities as shall be required by generally accepted accounting
        principles. The Company will deliver (in duplicate) to each holder of
        any Shares purchased pursuant to this Agreement:

                (i) within 150 days after the end of the fiscal year ending
        December 31, 1996, and within 90 days after the end of each fiscal year
        of the Company thereafter, an unqualified audit of the Company and its
        subsidiaries on a consolidated and consolidating basis, as of the close
        of such fiscal year, including a balance sheet and statement of income
        and surplus, with notes thereon, together with the unqualified audit
        report and opinion of Ernst & Young, LLP or other "Big Six" independent
        public accountant, showing the financial condition of the Company and
        its subsidiaries at the close of such year and the results of operations
        during such year,

<PAGE>

        such financial statements to be prepared in accordance with generally
        accepted accounting principles;

                (ii) within 65 days after the end of each fiscal year of Direct
        Insurance Company and any other property, casualty insurance company
        wholly-owned, directly or indirectly, by the Company (an "Affiliated
        Insurer"), unaudited financial statements prepared on the basis of
        statutory accounting practices prescribed or permitted by the National
        Association of Insurance Commissions and the Department of Insurance of
        the applicable jurisdiction ("Statutory Accounting Basis") in the form
        required to be filed with the Tennessee Commissioner of Commerce and
        Insurance, or, with respect to any other state, the administrative head
        of the department of such state charged with responsibility for
        regulations of insurance companies (the "Commissioner").

                (iii) in the case of fiscal year ending December 31, 1996 only,
        within 90 days after the end of such fiscal year of the Company
        unaudited, consolidated and consolidating financial statements of the
        Company;

                (iv) within 150 days after the end of each fiscal year of each
        Affiliated Insurer an audit of such Affiliated Insurer and its
        subsidiaries, as prescribed by its state of domicile, as of the close of
        such fiscal year, together with the audit report and opinion of such
        "Big Six" independent public accountant, showing the financial condition
        of such Affiliated Insurer of its subsidiaries at the close of such year
        and the results of operations during such year, such financial
        statements to be prepared on the Statutory Accounting Basis and to
        contain no qualifications which are unacceptable to the Purchasers;

                (v) within forty-five (45) days after the end of the first three
        fiscal quarters of each fiscal year of the Company, financial statements
        of the Company, such financial statements to include an income statement
        and balance sheet, certified as accurate by an officer of the Company;

                (vi) within forty-five (45) days after the end of each fiscal
        quarter, quarterly financial statements for each Affiliated Insurer
        prepared on a Statutory Accounting Basis, in the form required to be
        filed with the Commissioner;

                (vii) as soon as available after the end of each month, monthly
        management information reports generated in the ordinary course of the
        business, detailing among other things gross premiums written and loss
        experience for such month;

                (viii) promptly upon receipt thereof, copies of all reports
        submitted to the Company by independent public accountants in connection
        with each annual, interim or special audit of the books of the Company
        or any of its subsidiaries made by such

                                       2
<PAGE>

        accountants, including, without limitation, the comment letter submitted
        by such accountants to management in connection with their annual audit;

                (ix) immediately upon any executive officer of the Company
        obtaining knowledge of any condition or event which constitutes a
        default under this Agreement, an Officer's Certificate describing the
        same and the period of existence thereof and what action the Company has
        taken, is taking and proposes to take with respect thereto;

                (x) immediately upon any principal officer of the Company or any
        other officer of the Company involved in its financial administration
        obtaining knowledge of the occurrence of any (i) "reportable event", as
        such term is defined in section 4043 of ERISA, or (ii) "prohibited
        transaction", as such term is defined in Section 4975 of the Internal
        Revenue Code, in connection with any employee pension benefit plan of
        the Company or any trust created thereunder, a written notice specifying
        the nature thereof, what action the Company has taken, is taking and
        proposes to take with respect thereto, and, when known, any action taken
        or threatened by the Internal Revenue Service or the Pension Benefit
        Guaranty Corporation with respect thereto; and

                (xi) with reasonable promptness, such other financial reports
        and information and data with respect to the Company or any of its
        subsidiaries as from time to time may be reasonably requested.

        2. Section 7.3(b) of the Purchase Agreement shall be amended by deleting
entirely the first two sentences of such section, and by deleting "(ii)" in the
third sentence of such section and replacing it with "(v)."

        3. Section 7.3(c) of the Purchase Agreement shall be deleted in its
entirety.

        4. Section 7.5 of the Purchase Agreement shall be deleted in its
entirety and replaced with the following:

        "The Company will use its best efforts to obtain and maintain term life
        insurance upon the lives of each of William C. Adair, Jr. and James R.
        Tuerff in a amount not less than $1.0 million for each policy, with
        proceeds payable to the Company to be used by the Company first to cover
        the costs of replacing either such person as an employee of the Company
        and second for purposes deemed appropriate by the Board of Directors of
        the Company."

                                       3
<PAGE>

        5. Section 7.7 of the Purchase Agreement shall be amended by adding the
following to the last sentence of such section:

        "; provided, however, that such actuarial firm may be the same firm as
        the firm of certified public accountants referred to in this Section
        7.7."

        6. Section 8.3(b) of the Purchase Agreement shall be amended by deleting
the first sentence of such Section 8.3(b) in its entirety and replacing such
sentence with the following:

        "The Company shall not be required to effect more than two registrations
        pursuant to paragraph (a) above, except that, as to any registration,
        the Company will not be deemed to have effected such registration for
        the purposes of this paragraph (b) unless, in the case of a registration
        initiated by any Stockholder or Stockholders, such registration shall
        have permitted the Stockholders to dispose of at least the lesser of (i)
        50% of the Registrable Shares or (ii) 75% of the Registrable Shares
        which such Stockholder or Stockholders shall have requested to be
        included in such registration. Furthermore, the Company shall be deemed
        to have effected a registration pursuant to paragraph (a) above if, in
        the case of a registration initiated by any security holder of the
        Company other than a Stockholder, such registration shall have permitted
        the Stockholders pursuant to Section 8.4 hereof to dispose of at least
        50% of the Registrable Shares."

        7. Section 8.4(b) of the Purchase Agreement shall be amended by deleting
the second sentence of such Section 8.4(b) in its entirety and replacing such
sentence with the following:

        "If in the opinion of the managing underwriter the registration of all,
        or part of, the Registrable Shares that the holders have requested to be
        included would materially and adversely affect such public offering,
        then the Company shall be required to include in the underwriting only
        that number of Registrable Shares, if any, that the managing underwriter
        believes may be sold without causing such adverse effect."

        In addition, each of the Purchasers hereby consents to (i) the creation
and authorization by the Company of the Series B Preferred, having the rights,
preferences and privileges contained in the Certificate of Designation attached
as Exhibit A hereto, (ii) the issuance and sale of such Series B Preferred to
the Eldon Investors in accordance with the Preferred Stock Purchase Agreement
between the Company and the Eldon Investors attached as Exhibit B hereto, (iii)
the issuance and sale to Eldon Capital, Incorporated, by the Company, of a
warrant to purchase shares of Common Stock, without par value, of the Company in
accordance with the Common Stock Purchase Warrant attached as Exhibit C hereto
and (iv) the amendment of the Company's Charter through the filing by the
Company of (a) the Amended and Restated Charter of the Company in the form
attached hereto as Exhibit 17 (particularly as such Amended and Restated Charter
alters the preferences or rights of the Purchasers as holders of the Company's
Series A Preferred) and (b) the Certificate of Designation authorizing the
Series B Preferred attached as Exhibit E hereto.

                                       4
<PAGE>

        Furthermore, each of the Purchasers hereby waives its right of first
refusal set forth in Section 7.6 of the Purchase Agreement to purchase its pro
rata share of the Series B Preferred and the Common Stock issuable upon exercise
of the Common Stock Purchase Warrant.

        All defined terms used and not otherwise defined herein shall have the
meaning given to them in the Purchase Agreement.

                                       5
<PAGE>

        IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date set forth above.

                               DIRECT GENERAL CORPORATION

                               By:  /s/ James R. Tuerff
                                    --------------------------------------------

                               Its: President and Chief Executive Officer
                                    --------------------------------------------

                               PURCHASERS:

                               SSM VENTURE PARTNERS, L.P.

                               By:  SSM Corporation, as General Partner of SSM,
                                    L.P., as General Partner of SSM Venture
                                    Partners, L.P.

                               By:  /s/ R. Wilson III
                                    --------------------------------------------

                               NORO-MOSELEY PARTNERS II, L.P.

                               By:  Its General Partner,
                                    Moseley & Corn any II

                               By:  /s/ Jack R. Kelly
                                    --------------------------------------------

                               David F. Bellet - Trustee
                               Profit Sharing Plan - DLJSC - Custodian
                               FBO David F. Bellet

                               /s/ David F. Bellet
                               -------------------------------------------------
                               David F. Bellet

                                       6<PAGE>
                                                                   Exhibit 10.10

                  PRIVATE PASSENGER AUTOMOBILE EXCESS CESSIONS
                              REINSURANCE CONTRACT

                                    issued to

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING

                            DIRECT INSURANCE COMPANY

                        DIRECT GENERAL INSURANCE COMPANY

                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA

                                       and

                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI

   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF

                            THE DIRECT GENERAL GROUP

<PAGE>

                  PRIVATE PASSENGER AUTOMOBILE EXCESS CESSIONS
                              REINSURANCE CONTRACT

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

ARTICLE                                                                     PAGE
-------                                                                     ----
<S>        <C>                                                              <C>
           Preamble.........................................................  2

   1       Business Reinsured...............................................  2

   2       Cover............................................................  3

   3       Commencement and Termination.....................................  4

   4       Territory........................................................  4

   5       Exclusions.......................................................  5

   6       Premium..........................................................  7

   7       Definitions......................................................  7

   8       Extra Contractual Obligations....................................  8

   9       Net Retained Lines...............................................  9

  10       Notice of Loss and Loss Settlements..............................  9

  11       Offset........................................................... 10

  12       Currency......................................................... 11

  13       Loss and Unearned Premium Reserve Funding........................ 11

  14       Taxes............................................................ 13

  15       Federal Excise Tax............................................... 13

  16       Inspection....................................................... 14

  17       Delay, Omission or Error......................................... 14

  18       Insolvency....................................................... 14

  19       Arbitration...................................................... 15

  20       Service of Suit.................................................. 16

  21       Intermediary..................................................... 17

  22       Mode of Execution................................................ 17

  23       Company Signature................................................ 18

ATTACHMENTS:

           Nuclear Incident Exclusion Clause - Liability -
             Reinsurance - U.S.A............................................ 19
</TABLE>

                                     1 of 23

<PAGE>

                  PRIVATE PASSENGER AUTOMOBILE EXCESS CESSIONS
                              REINSURANCE CONTRACT

                                (the "Contract")

                                    issued to

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING

                            DIRECT INSURANCE COMPANY

                        DIRECT GENERAL INSURANCE COMPANY

                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA

                                       and

                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI

   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF

                            THE DIRECT GENERAL GROUP

                          (collectively the "Company")

                                       by

                 THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE
                     INTERESTS AND LIABILITIES AGREEMENT(S)
                  ATTACHED TO AND FORMING PART OF THIS CONTRACT

                                (the "Reinsurer")

                                    ARTICLE 1

BUSINESS REINSURED

This Contract is to indemnify the Company in respect of the net excess liability
as a result of any loss or losses which are ascribed to an Underwriting Year
hereunder on Policies, endorsements and/or other evidences of liability covering
Private Passenger Automobile Liability Business written or renewed by or on
behalf of the Company, subject to the terms and conditions herein contained.

                                     2 of 23

<PAGE>

                                    ARTICLE 2

COVER

A.      In respect of cessions to this Contract, the Reinsurer shall be liable
        in respect of each and every loss, each and every Policy, each and every
        coverage, for the Ultimate Net Loss (including Extra Contractual
        Obligations) in excess of the applicable compulsory and/or financial
        responsibility primary automobile liability limits which are further
        subject to the following minimum limits:

<TABLE>

<S>                                              <C>
        Automobile Bodily Injury Liability       $10,000 per person/$20,000 per occurrence
        Property Damage Liability                $5,000 per occurrence
        Uninsured/Underinsured Motorists
          Bodily Injury Liability                $10,000 per person/$20,000 per occurrence

        Uninsured/Underinsured Motorists
          Property Damage Liability              $5,000 per occurrence
          Personal Injury Protection             Statutory Coverages
          Medical Payments                       $10,000 per person

</TABLE>

B.      The Reinsurer's limit of liability shall be the difference between the
        applicable compulsory and/or financial responsibility or minimum primary
        automobile liability limits as referenced above and the actual Policy
        limits as respects each and every loss, each and every Policy, each and
        every coverage, subject to maximum Policy limits as follows:

<TABLE>

<S>                                              <C>
        Automobile Bodily Injury Liability       $100,000 per person/$300,000 per occurrence
        Property Damage Liability                $100,000 per occurrence
        Uninsured/Underinsured Motorists
          Bodily Injury Liability                $100,000 per person/$300,000 per occurrence

        Uninsured/Underinsured Motorists
          Property Damage Liability              $100,000 per occurrence
          Personal Injury Protection             Statutory Coverages
          Medical Payments                       $10,000 per person

</TABLE>

C.       The Company shall be permitted to carry underlying quota share
         reinsurance on business covered by this Contract, recoveries from which
         shall be disregarded for purposes of determining Ultimate Net Loss
         hereunder.

                                     3 of 23

<PAGE>

                                    ARTICLE 3

COMMENCEMENT AND TERMINATION

A.      This Contract shall become effective at 12:01 a.m., Central Standard
        Time, January 1, 2002, and shall remain in full force and effect until
        terminated as provided in the following paragraph.

B.      Either the Company or the Reinsurer shall have the right to terminate
        this Contract as of 12:01 a.m., Central Standard Time, any January 1, by
        giving 90 days' prior notice in writing via either certified or
        registered mail, return receipt requested.

C.      In the event of termination of this Contract, the Reinsurer shall
        continue to cover all Policies coming within the scope of this Contract,
        including those written or renewed during the period of notice, until
        the natural expiration or anniversary of such Policies, whichever occurs
        first, but in no event longer than 12 months plus odd time, not to
        exceed 15 months, from the date of termination.

D.      Notwithstanding the foregoing, in the event the Company is required by
        statute, regulation or by order of any court or regulatory authority to
        (i) continue a Policy or Policies subject hereto in force, (ii) renew
        the coverage under a Policy or Policies through the issuance of a
        renewal Policy or Policies, or (iii) accept new insurance business,
        after termination the Reinsurer agrees to extend reinsurance coverage
        hereunder with respect to such Policy or Policies until the Company may
        legally cancel, nonrenew or otherwise eliminate its liability under such
        Policy or Policies.

E.      Upon termination, the Company, at its option, may elect to terminate the
        Reinsurer's liability for all losses occurring subsequent to
        termination.

F.      The Reinsurer shall return to the Company a portfolio representing the
        unearned premium reserve under this Contract appropriate to the mode of
        termination.

                                    ARTICLE 4

TERRITORY

This Contract shall cover wherever the Company's original Policies cover but is
limited to losses occurring on Policies issued to insureds located in the United
States of America and its territories and possessions.

                                     4 of 23

<PAGE>

                                    ARTICLE 5

EXCLUSIONS

A.      This Contract shall not apply to and specifically excludes the following
        perils, risks and classes of business:

        1.      As regards interests which at time of Loss or damage are on
                shore, no liability shall attach hereto in respect of any Loss
                or damage which is occasioned by war, invasion, hostilities,
                acts of foreign enemies, civil war, rebellion, insurrection,
                military or usurped power, or marital law or confiscation by
                order of any government or public authority. This War Exclusion
                Clause shall not, however, apply to interests which at time of
                loss or damage are within the territorial limits of the United
                States of America (comprising the fifty States of the Union, the
                District of Columbia, and including bridges between the U.S.A.
                and Mexico provided they are under United States ownership),
                Canada, St. Pierre and Miquelon, provided such interests are
                insured under Policies, endorsements or binders containing a
                standard war or hostilities or warlike operations exclusion
                clause.

        2.      Loss or liability excluded by the Nuclear Incident Exclusion
                Clauses - Liability - Reinsurance - U.S.A. attached to this
                Contract.

        3.      Pools, Associations and Syndicates, except losses from Assigned
                Risk Plans or similar plans are not excluded. It is further
                agreed that business ceded to the North Carolina Reinsurance
                Facility is excluded hereunder.

        4.      Reinsurance except for Agency and Intra Group Company
                Reinsurance.

        5.      Mortgage Impairment Insurance or other similar covers, however
                styled.

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

        7.      Products Liability, Professional Malpractice Liability,
                Directors' & Officers' Liability, Securities and Exchange
                Commission Liability, Workers' Compensation and Employers'
                Liability.

                                     5 of 23

<PAGE>

        8.      Loss arising out of the ownership, maintenance or use of any
                vehicle, the principal use of which is:

                (a)     As a public or livery conveyance;

                (b)     Emergency vehicles;

                (c)     Drive yourself motor vehicles available for leasing
                        periods of less than six months;

                (d)     Automobiles used in speed contests and races;

                (e)     Motorcycles.

        9.      Commercial Automobile Physical Damage and Liability business.

        10.     Private Passenger Automobile Physical Damage business.

        11.     Accidental Death, Towing and Rental Reimbursement, and Life
                Insurance when written as such.

        12.     Coverages written in conjunction with Motor Club memberships,
                Accident Hospital Indemnity, Vehicle Protection Plans or Travel
                Protection Plans.

        13.     Losses arising from seepage and pollution, provided, however,
                that this exclusion will not apply, if and when a court
                invalidates the Company's pollution liability exclusion
                notwithstanding that such liability was intended to be excluded
                from coverage.

B.      In the event the Company becomes bound on an excluded risk without its
        knowledge, either as a result of an existing insured extending its
        operations or through an inadvertent error by an agent, the exclusions
        hereunder, other than exclusions 1, 2, 4, 6 and 13, shall be suspended
        with respect to such insured risk until 30 days after an underwriting
        supervisor of the Company acquires knowledge thereof and until the
        Company can legally cancel or terminate its coverage of such risk.

C.      Business which is beyond the terms, conditions or limitations of this
        Contract may be submitted to the Reinsurer for special acceptance
        hereunder and such business, if accepted by the Reinsurer, shall be
        subject to all of the terms, conditions and limitations of this Contract
        except as modified by the special acceptance.

                                     6 of 23

<PAGE>

                                    ARTICLE 6

PREMIUM

A.      The Company shall pay to the Reinsurer 72.5% of the Subject Net Premium
        Written with respect to business cessions made under this Contract
        within 30 days after the end of each calendar month.

B.      As respects financed premiums, which includes premiums financed by the
        Company, the Company shall cede full Policy term premiums. As respects
        installment premiums; i.e., premiums which are collected under an
        installment payment plan, the Company shall cede the premiums as they
        are earned.

C.      Within 30 days following the end of each month, the Company shall
        prepare and submit to the Reinsurer a bordereau report summarizing all
        cessions hereunder during the month.

D.      Within 60 days following the end of each Underwriting Year, the Company
        shall furnish the Reinsurer with any other information which the
        Reinsurer may require for their Annual Convention Statement which may be
        reasonably available to the Company.

                                    ARTICLE 7

DEFINITIONS

A.      The term "Private Passenger Automobile Liability Business" as used in
        this Contract shall mean all insurances and reinsurances written by the
        Company and classified as private passenger automobile liability.

B.      The term "Ultimate Net Loss" as used in this Contract shall mean the
        actual loss (including 100%, up to the Policy limit, of any Extra
        Contractual Obligations as defined in the Extra Contractual Obligations
        Article) paid by the Company or for which the Company becomes liable to
        pay (such loss to include interest accrued prior to judgment when such
        interest is made part of the judgment, but to exclude all other interest
        and expenses which shall be handled in accordance with the Notice of
        Loss and Loss Settlements Article), but salvages and all recoveries,
        including recoveries under all reinsurances which inure to the benefit
        of this Contract (whether recovered or not), shall be first deducted
        from such loss to arrive at the amount of liability attaching hereunder.

        As respects any Claim-Specific Declaratory Judgment Expenses, Ultimate
        Net Loss shall also include as loss, declaratory judgment expenses where
        there is no loss other than declaratory judgment expenses arising out of
        any claim hereunder. All other claim-specific declaratory judgment
        expense shall be handled in accordance with the Notice of Loss and Loss
        Settlements Article.

                                     7 of 23

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        All salvages, recoveries or payments recovered or received subsequent to
        loss settlements hereunder shall be applied as if recovered or received
        prior to the aforesaid settlement, and all necessary adjustments shall
        be made by the parties hereto.

        For purposes of this definition, the phrase "becomes liable to pay"
        shall mean the existence of a judgment which the Company does not intend
        to appeal, or a release has been obtained by the Company, or the Company
        has accepted a proof of loss.

        Nothing in this clause shall be construed to mean that losses are not
        recoverable hereunder until the Company's Ultimate Net Loss has been
        ascertained.

C.      The term "Subject Net Premium Written" as used in this Contract shall
        mean the gross premium written applying to the limits of liability in
        excess of minimum primary automobile liability limits as described in
        the Cover Article on business the subject of this Contract, less returns
        and cancellations and less written premium income paid for reinsurances
        which would inure to the benefit of this Contract. Subject net written
        premium income shall not include premium finance income, billing fees
        and Policy fees, collected by the Company in connection with business
        covered hereunder, regardless of whether these fees are taxed as premium
        by the jurisdiction in question.

D.      The term "Policy" as used in this Contract shall mean any binder,
        policy, or contract of insurance issued, accepted or held covered
        provisionally or otherwise, by or on behalf of the Company.

E.      The term "Underwriting Year" as used in this Contract shall mean those
        Policies with inception, renewal or anniversary dates during each 12
        month period commencing with each January 1, and all premium
        attributable to, and all loss arising out of such Policies from such
        inception, renewal or anniversary dates until expiration, cancellation,
        or next anniversary, whichever occurs first, shall be ascribed to the
        Underwriting Year.

                                    ARTICLE 8

EXTRA CONTRACTUAL OBLIGATIONS

A.      This Contract shall protect the Company, subject to a cession being made
        hereon, and subject to the Reinsurer's limit of liability based on
        cessions permitted under this Contract appearing in the Cover Article of
        this Contract, where the loss includes any extra contractual obligations
        as provided for in the definition of Ultimate Net Loss. "Extra
        Contractual Obligations" are defined as those liabilities not covered
        under any other provision of this Contract and which arise from handling
        of any claim on business covered hereunder, such liabilities arising
        because of, but not limited to, the following: failure by the Company to
        settle within the Policy limit, or by reason of alleged or actual
        negligence, fraud or bad faith in rejecting an offer of settlement or in
        the preparation of the defense or in the trial of any action against its
        insured or in the preparation or prosecution of an appeal consequent
        upon such action.

                                     8 of 23

<PAGE>

B.      The date on which any Extra Contractual Obligation is incurred by the
        Company shall be deemed, in all circumstances, to be the date of the
        original loss.

C.      Notwithstanding anything stated herein, the Contract shall not apply to
        any Extra Contractual Obligation incurred by the Company as a result of
        any final legal adjudication of fraudulent and/or criminal act by any
        officer or director of the Company acting individually, or collectively,
        or in collusion with any individual or corporation, or any other
        organization, or party involved in the presentation, or defense of
        settlement of any claim covered hereunder.

                                    ARTICLE 9

NET RETAINED LINES

A.      This Contract applies only to that portion of any Policy which the
        Company retains net for its own account (prior to deduction of any
        underlying reinsurance specifically permitted in this Contract), and in
        calculating the amount of any loss hereunder and also in computing the
        amount or amounts in excess of which this Contract attaches, only loss
        or losses in respect of that portion of any Policy which the Company
        retains net for its own account shall be included.

B.      The amount of the Reinsurer's liability hereunder in respect of any loss
        or losses shall not be increased by reason of the inability of the
        Company to collect from any other reinsurer(s), whether specific or
        general, any amounts which may have become due from such reinsurer(s),
        whether such inability arises from the insolvency of such other
        reinsurer(s) or otherwise.

C.      Nothing herein shall in any manner create any obligations or establish
        any rights against the Reinsurer in favor of any third party or any
        persons not parties to this Contract.

                                   ARTICLE 10

NOTICE OF LOSS AND LOSS SETTLEMENTS

A.      The Company shall advise the Reinsurer promptly of all claims which in
        the opinion of the Company may involve the Reinsurer and of all
        subsequent developments on these claims which may materially affect the
        position of the Reinsurer.

B.      The Reinsurer agrees to abide by the loss settlements of the Company,
        provided that retroactive extension of Policy terms or coverages made
        voluntarily by the Company and not in response to court decisions
        (whether such court decision is against the Company or other companies
        affording the same or similar coverages) shall not be covered under this
        Contract.

                                     9 of 23

<PAGE>

C.      When so requested the Company shall afford the Reinsurer an opportunity
        to be associated with the Company, at the expense of the Reinsurer, in
        the defense of any claim or suit or proceeding involving this
        reinsurance and the Company shall cooperate in every respect in the
        defense of such claim, suit or proceeding.

D.      The Reinsurer shall pay its share of loss settlements immediately upon
        receipt of proof of loss from the Company.

E.      All investigation, adjustment, legal expense, (including interest other
        than interest accrued prior to judgment which is made part of the
        judgment), and Claim-Specific Declaratory Judgment Expenses, incurred by
        the Company (except office expenses and salaries of officials and
        employees not classified as loss adjusters) shall be divided between the
        Company and the Reinsurer in proportion to their respective shares of
        the Ultimate Net Loss. Such expenses shall be in addition to the limits
        stated in the Cover Article. However, if a verdict, judgment or award is
        reversed or reduced, the Company and the Reinsurer shall share expenses
        incurred in securing such reversal or reduction or recovery in the
        proportion that each benefits from the reversal. Expenses incurred up to
        the time of the original loss, verdict, judgment or award shall be
        shared in proportion to what would have been each party's share.

F.      The term "Claim-Specific Declaratory Judgment Expenses," as used in this
        Contract shall mean all expenses incurred by the Company in connection
        with declaratory judgment actions brought to determine the Company's
        defense and/or indemnification obligations that are allocable to
        specific Policies and claims subject to this Contract. Declaratory
        judgment expenses shall be deemed to have been incurred by the Company
        on the date of the original loss (if any) giving rise to the declaratory
        judgment action. Declaratory judgment expenses incurred by the Company
        in an action that results in a loss to the Company shall be combined
        with loss expense and shall be apportioned between the Company and the
        Reinsurer in proportion to their respective interests as finally
        determined.

                                   ARTICLE 11

OFFSET

The Company and the Reinsurer shall have the right to offset any balance or
balances (whether on account of premiums or losses) due from one party to the
other under the terms of this Contract. However, in the event of the insolvency
of any party hereto, offsets shall be allowed in accordance with the statutes
and/or regulations of the state having jurisdiction over the insolvency.

                                    10 of 23

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                                   ARTICLE 12

CURRENCY

The currency to be used for all purposes of this Contract shall be United States
of America currency.

                                   ARTICLE 13

LOSS AND UNEARNED PREMIUM RESERVE FUNDING

A.      This Article applies only to a reinsurer who does not qualify for full
        credit with any insurance regulatory authority having jurisdiction over
        the Company's reserves.

B.      The Company agrees, in respect of its Policies or bonds falling within
        the scope of this Contract, that when it files with its insurance
        regulatory authority, or sets up on its books liabilities as required by
        law, it will forward to the Reinsurer a statement showing the proportion
        of such liabilities applicable to the Reinsurer. The "Reinsurer's
        Obligations" shall be defined as follows:

        1.      unearned premium (if applicable);

        2.      known outstanding losses that have been reported to the
                Reinsurer and Loss Adjustment Expense relating thereto;

        3.      losses and Loss Adjustment Expense paid by the Company but not
                recovered from the Reinsurer;

        4.      losses incurred but not reported and Loss Adjustment Expense
                relating thereto, where the Company has submitted the
                calculation for said amount to the Reinsurer and the Reinsurer's
                agreement is not unreasonably withheld.

C.      The Reinsurer's Obligations shall be funded by funds withheld, cash
        advances, trust agreement or a Letter of Credit (LOC). The Reinsurer
        shall have the option of determining the method of funding provided it
        is acceptable to the insurance regulatory authorities having
        jurisdiction over the Company's reserves.

D.      When funding by an LOC, the Reinsurer agrees to apply for and secure
        timely delivery to the Company of a clean, irrevocable and unconditional
        LOC issued by a bank and containing provisions acceptable to the
        insurance regulatory authorities having jurisdiction over the Company's
        reserves in an amount equal to the Reinsurer's Obligations. Such LOC
        shall be issued for a period of not less than one year, and shall be
        automatically extended for one year from its date of expiration or any
        future expiration date unless 30 days (or such other time period as may
        be required by insurance regulatory authorities), prior to any
        expiration date the issuing bank shall notify the Company by certified
        or

                                    11 of 23

<PAGE>

        registered mail that the issuing bank elects not to consider the LOC
        extended for any additional period.

E.      The Reinsurer and Company agree that any funding provided by the
        Reinsurer pursuant to the provisions of this Contract may be drawn upon
        at any time, notwithstanding any other provision of this Contract, and
        be utilized by the Company or any successor, by operation of law, of the
        Company including, without limitation, any liquidator, rehabilitator,
        receiver or conservator of the Company, for the following purposes,
        unless otherwise provided for in a separate trust agreement:

        1.      to reimburse the Company for the Reinsurer's Obligations, the
                payment of which is due under the terms of this Contract and
                that has not been otherwise paid;

        2.      to make refund of any sum that is in excess of the actual amount
                required to pay the Reinsurer's Obligations under this Contract
                (or in excess of 102% of Reinsurer's Obligations, if funding is
                provided by a trust agreement);

        3.      to fund an account with the Company for the Reinsurer's
                Obligations. Such cash deposit shall be held in an interest
                bearing account separate from the Company's other assets, and
                interest thereon not in excess of the prime rate shall accrue to
                the benefit of the Reinsurer. Any taxes payable on accrued
                interest shall be paid out of the assets in the account that are
                in excess of the Reinsurer's Obligations (or in excess of 102%
                of Reinsurer's Obligations, if funding is provided by a trust
                agreement). If the assets are inadequate to pay taxes, any taxes
                due shall be paid by the Reinsurer;

        4.      to pay the Reinsurer's share of any other amounts the Company
                claims are due under this Contract.

F.      If the amount drawn by the Company is in excess of the actual amount
        required for 1. or 3., or in the case of 4., the actual amount
        determined to be due, the Company shall promptly return to the Reinsurer
        the excess amount so drawn. All of the foregoing shall be applied
        without diminution because of insolvency on the part of the Company or
        the Reinsurer.

G.      The issuing bank shall have no responsibility whatsoever in connection
        with the propriety of withdrawals made by the Company or the disposition
        of funds withdrawn, except to ensure that withdrawals are made only upon
        the order of properly authorized representatives of the Company.

H.      Fifty days prior to the end of each calendar quarter, the Company shall
        prepare a specific statement of the Reinsurer's Obligations for the sole
        purpose of amending the LOC or other method of funding, in the following
        manner:

        1.      If the statement shows that the Reinsurer's Obligations exceed
                the balance of the LOC as of the statement date, the Reinsurer
                shall, within 30 days after receipt of the statement, secure
                delivery to the Company of an amendment to the LOC increasing
                the amount of credit by the amount of such difference. Should
                another method of

                                    12 of 23

<PAGE>

                funding be used, the Reinsurer shall, within the time period
                outlined above, increase such funding by the amount of such
                difference.

        2.      If, however, the statement shows that the Reinsurer's
                Obligations are less than the balance of the LOC (or less than
                102% of Reinsurer's Obligations if funding is provided by a
                trust agreement), as of the statement date, the Company shall,
                within 30 days after receipt of written request from the
                Reinsurer, release such excess credit by agreeing to secure an
                amendment to the LOC reducing the amount of credit available by
                the amount of such excess credit. Should another method of
                funding be used, the Company shall, within the time period
                outlined above, decrease such funding by the amount of such
                excess.

                                   ARTICLE 14

TAXES

In consideration of the terms under which this Contract is issued, the Company
undertakes not to claim any deduction of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or to the District of Columbia.

                                   ARTICLE 15

FEDERAL EXCISE TAX

A.      The Company will be liable for taxes (except Federal Excise Tax) on
        premiums reported to the Reinsurer hereunder.

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

C.      The Reinsurer has agreed to allow for the purpose of paying the Federal
        Excise Tax 1% of the premium payable hereon to the extent such premium
        is subject to Federal Excise Tax.

D.      In the event of any return of premium becoming due hereunder, the
        Reinsurer will deduct 1% from the amount of the return, and the Company
        or its agent should take steps to recover the Tax from the U.S.
        Government.

                                    13 of 23

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                                   ARTICLE 16

INSPECTION

The Company shall place at the disposal of the Reinsurer at all reasonable times
and with reasonable notice to the Company, and the Reinsurer shall have the
right to inspect, through their authorized representatives, all books, records
and papers of the Company in connection with any reinsurance hereunder or claims
in connection herewith.

                                   ARTICLE 17

DELAY, OMISSION OR ERROR

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

                                   ARTICLE 18

INSOLVENCY

A.      All references to the insolvency of the Company herein are also
        applicable to the insolvency of each and every insurance carrier
        collectively referred to as the "Company."

B.      In the event of the insolvency of the Company, reinsurance under this
        Contract shall be payable by the Reinsurer on the basis of the liability
        of the Company under Policy or Policies reinsured without diminution
        because of the insolvency of the Company, to the Company or to its
        liquidator, receiver, or statutory successor except as provided by
        Section 4118(a) of the New York Insurance Law or except when the
        Agreement specifically provides another payee of such reinsurance in the
        event of the insolvency of the Company or when the Reinsurer with the
        consent of the direct insured or insureds has assumed such Policy
        obligations of the Company as direct obligations of the Reinsurer to the
        payees under such Policies and in substitution for the obligations of
        the Company to such payees.

C.      It is agreed, however, that the liquidator or receiver or statutory
        successor of the insolvent Company shall give written notice to the
        Reinsurer of the pendency of a claim against the insolvent Company on
        the Policy or Policies reinsured within a reasonable time after such
        claim is filed in the insolvency proceeding and that during the pendency
        of such claim, the Reinsurer may investigate such claim and interpose,
        at their own expense, in the proceeding when such claim is to be
        adjudicated, any defense or defenses which it may deem available to the
        Company or its liquidator or receiver or statutory successor. The
        expense thus incurred by the Reinsurer shall be chargeable, subject to
        court approval, against the insolvent Company as part of the expense of
        liquidation to the extent of a

                                    14 of 23

<PAGE>

        proportionate share of the benefit which may accrue to the Company
        solely as a result of the defense undertaken by the Reinsurer.

D.      When two or more reinsurers are involved in the same claim and a
        majority in interest elect to interpose defense to such claim, the
        expense shall be apportioned in accordance with the terms of this
        Contract as though such expense had been incurred by the insolvent
        Company.

E.      Should the Company go into liquidation or should a receiver be
        appointed, the Reinsurer shall be entitled to deduct from any sums which
        may be due or may become due to the Company under this reinsurance
        agreement any sums which are due to the Reinsurer by the Company under
        this reinsurance agreement and which are payable at a fixed or stated
        date as well as any other sums due the Reinsurer which are permitted to
        be offset under applicable law.

                                   ARTICLE 19

ARBITRATION

A.      As a condition precedent to any right of action hereunder, any
        irreconcilable dispute between the parties to this Contract will be
        submitted for decision to a board of arbitration composed of two
        arbitrators and an umpire meeting at a site in Nashville, Tennessee.

B.      Arbitration shall be initiated by the delivery of a written notice of
        demand for arbitration by one party to the other within a reasonable
        time after the dispute has arisen.

C.      The members of the board of arbitration shall be active or retired
        disinterested officials of insurance or reinsurance companies, or
        Underwriters at Lloyd's, London, not under the control or management of
        either party to this Contract. Each party shall appoint its arbitrator
        and the two arbitrators shall choose an umpire before instituting the
        hearing. If the respondent fails to appoint its arbitrator within four
        weeks after being requested to do so by the claimant, the latter shall
        also appoint the second arbitrator. If the two arbitrators fail to agree
        upon the appointment of an umpire within four weeks after their
        nominations, each of them shall name three, of whom the other shall
        decline two, and the decision shall be made by drawing lots.

D.      The claimant shall submit its initial brief within 45 days from
        appointment of the umpire. The respondent shall submit its brief within
        45 days thereafter and the claimant may submit a reply brief within 30
        days after filing of the respondent's brief.

E.      The board shall make its decision with regard to the custom and usage of
        the insurance and reinsurance business. The board shall issue its
        decision in writing based upon a hearing in which evidence may be
        introduced without following strict rules of evidence but in which
        cross-examination and rebuttal shall be allowed. The board shall make
        its decision within 60 days following the termination of the hearings
        unless the parties consent to an extension.

                                    15 of 23

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        The majority decision of the board shall be final and binding upon all
        parties to the proceeding. Judgment may be entered upon the award of the
        board in any court having jurisdiction.

F.      Each party shall bear the expense of its own arbitrator and shall
        jointly and equally bear with the other party the expense of the umpire
        and of the arbitration.

                                   ARTICLE 20

SERVICE OF SUIT

A.      This Article applies if the reinsurer is not domiciled in the United
        States of America and/or is not authorized in any State, Territory or
        District of the United States where authorization is required by
        insurance regulatory authorities.

B.      It is agreed that in the event of the failure of the Reinsurer hereon to
        pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
        request of the Company, will submit to the jurisdiction of a court of
        competent jurisdiction within the United States. Nothing in this Clause
        constitutes or should be understood to constitute a waiver of the
        Reinsurer's right to commence an action in any court of competent
        jurisdiction in the United States, to remove an action to a United
        States district court or to seek a transfer of a case to another court
        as permitted by the laws of the United States or of any state in the
        United States.

C.      It is further agreed that service of process in such suit may be made
        upon Messrs. Mendes & Mount, 750 Seventh Avenue, New York, New York
        10019-6829 and that in any suit instituted against the Reinsurer upon
        this Contract, the Reinsurer will abide by the final decision of such
        court or of any appellate court in the event of an appeal.

D.      The above-named are authorized and directed to accept service of process
        on behalf of the Reinsurer in any such action, suit or proceeding
        instituted by or on behalf of the Company or any beneficiary hereunder
        arising suit and/or upon the request of the Company to give a written
        undertaking to the Company that they will enter a general appearance
        upon the Reinsurer's behalf in the event such a suit shall be
        instituted.

E.      Further, pursuant to any statute of any state, territory or district of
        the United States which makes provision therefor, the Reinsurer hereon
        hereby designates the superintendent, commissioner or director of
        insurance or other officer specified for that purpose in the statute or
        his successor or successors in office as its true and lawful attorney
        upon whom may be served any lawful process in any out of this Contract,
        and hereby designates the above-named as the person to whom the said
        officer is authorized to mail such process or a true copy thereof.

                                    16 of 23

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                                   ARTICLE 21

INTERMEDIARY

Guy Carpenter & Company, Inc., is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All communications
(including notices, statements, premiums, return premiums, commissions, taxes,
losses, loss adjustment expense, salvages, and loss settlements) relating
thereto shall be transmitted to the Company or the Reinsurer through Guy
Carpenter & Company, Inc., 3600 Minnesota Drive, Suite 400, Edina, Minnesota
55435. Payments by the Company to the Intermediary shall be deemed payment to
the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed
payment to the Company only to the extent that such payments are actually
received by the Company.

                                   ARTICLE 22

MODE OF EXECUTION

A.      This Contract may be executed by:

        1.      An original written ink signature of paper documents.

        2.      An exchange of facsimile copies showing the original written ink
                signature of paper documents.

        3.      Electronic signature technology employing computer software and
                a digital signature or digitizer pen pad to capture a person's
                handwritten signature in such a manner that the signature is
                unique to the person signing, is under the sole control of the
                person signing, is capable of verification to authenticate the
                signature and is linked to the document signed in such a manner
                that if the data is changed, such signature is invalidated.

B.      The use of any one or a combination of these methods of execution shall
        constitute a legally binding and valid signing of this Contract. This
        Contract may be executed in one or more counterparts, each of which,
        when duly executed, shall be deemed an original.

                                    17 of 23

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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its
duly authorized representative(s) this 27th day of September, in the year of
2002.

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING

                            DIRECT INSURANCE COMPANY

                        DIRECT GENERAL INSURANCE COMPANY

                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA

                                       and

                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI

   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF

                            THE DIRECT GENERAL GROUP

/s/ J. Todd Hagely
------------------------------------
J. Todd Hagely
Vice President - Finance & Treasurer
Direct Insurance Company
Direct General Insurance Company
Direct General Insurance Company of Louisiana
Direct General Insurance Company of Mississippi

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NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A.

(1)     This reinsurance does not cover any loss or liability accruing to the
        Reassured as a member of, or subscriber to, any association of insurers
        or reinsurers formed for the purpose of covering nuclear energy risks or
        as a direct or indirect reinsurer of any such member, subscriber or
        association.

(2)     Without in any way restricting the operation of paragraph (1) of this
        Clause it is understood and agreed that for all purposes of this
        reinsurance all the original policies of the Reassured (new, renewal and
        replacement) of the classes specified in Clause II of this paragraph (2)
        from the time specified in Clause III in this paragraph (2) shall be
        deemed to include the following provision (specified as the Limited
        Exclusion Provision):

        LIMITED EXCLUSION PROVISION.*

        I.      It is agreed that the policy does not apply under any liability
                coverage, to

                           injury, sickness, disease, death or destruction

                           bodily injury or property damage

                with respect to which an insured under the policy is also an
                insured under a nuclear energy liability policy issued by
                Nuclear Energy Liability Insurance Association, Mutual Atomic
                Energy Liability Underwriters or Nuclear Insurance Association
                of Canada, or would be an insured under any such policy but for
                its termination upon exhaustion of its limit of liability.

        II.     Family Automobile Policies (liability only), Special Automobile
                Policies (private passenger automobiles, liability only),
                Farmers Comprehensive Personal Liability Policies (liability
                only), Comprehensive Personal Liability Policies (liability
                only) or policies of a similar nature; and the liability portion
                of combination forms related to the four classes of policies
                stated above, such as the Comprehensive Dwelling Policy and the
                applicable types of Homeowners Policies.

        III.    The inception dates and thereafter of all original policies as
                described in II above, whether new, renewal or replacement,
                being policies which either

                (a)     become effective on or after 1st May, 1960, or

                (b)     become effective before that date and contain the
                        Limited Exclusion Provision set out above;

                provided this paragraph (2) shall not be applicable to Family
                Automobile Policies, Special Automobile Policies, or policies or
                combination policies of a similar nature, issued by the
                Reassured on New York risks, until 90 days following approval of
                the

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                Limited Exclusion Provision by the Governmental Authority having
                jurisdiction thereof.

(3)     Except for those classes of policies specified in Clause II of paragraph
        (2) and without in any way restricting the operation of paragraph (1) of
        this Clause, it is understood and agreed that for all purposes of this
        reinsurance the original liability policies of the Reassured (new,
        renewal and replacement) affording the following coverages:

                Owners, Landlords and Tenants Liability, Contractual Liability,
                Elevator Liability, Owners or Contractors (including railroad)
                Protective Liability, Manufacturers and Contractors Liability,
                Product Liability, Professional and Malpractice Liability,
                Storekeepers Liability, Garage Liability, Automobile Liability
                (including Massachusetts Motor Vehicle or Garage Liability)

        shall be deemed to include, with respect to such coverages, from the
        time specified in Clause V of this paragraph (3), the following
        provision (specified as the Broad Exclusion Provision):

        BROAD EXCLUSION PROVISION.*

        It is agreed that the policy does not apply:

        I.      Under any Liability Coverage, to

                injury, sickness, disease, death or destruction

                bodily injury or property damage

                (a)     with respect to which an insured under the policy is
                        also an insured under a nuclear energy liability policy
                        issued by Nuclear Energy Liability Insurance
                        Association, Mutual Atomic Energy Liability Underwriters
                        or Nuclear Insurance Association of Canada, or would be
                        an insured under any such policy but for its termination
                        upon exhaustion of its limit of liability; or

                (b)     resulting from the hazardous properties of nuclear
                        material and with respect to which (1) any person or
                        organization is required to maintain financial
                        protection pursuant to the Atomic Energy Act of 1954, or
                        any law amendatory thereof, or (2) the insured is, or
                        had this policy not been issued would be, entitled to
                        indemnity from the United States of America, or any
                        agency thereof, under any agreement entered into by the
                        United States of America, or any agency thereof, with
                        any person or organization.

        II.     Under any Medical Payments Coverage, or under any Supplementary
                Payments Provision relating to

                      immediate medical or surgical relief

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<PAGE>

                        first aid,

                to expenses incurred with respect to

                        bodily injury, sickness, disease or death

                        bodily injury

                resulting from the hazardous properties of nuclear material and
                arising out of the operation of a nuclear facility by any person
                or organization.

        III.    Under any Liability Coverage, to

                        injury, sickness, disease, death or destruction

                        bodily injury or property damage

                resulting from the hazardous properties of nuclear material, if

                (a)     the nuclear material (1) is at any nuclear facility
                        owned by, or operated by or on behalf of, an insured or
                        (2) has been discharged or dispersed therefrom;

                (b)     the nuclear material is contained in spent fuel or waste
                        at any time possessed, handled, used, processed, stored,
                        transported or disposed of by or on behalf of an
                        insured; or

                (c)     the

                                injury, sickness, disease, death or destruction

                                bodily injury or property damage

                        arises out of the furnishing by an insured of services,
                        materials, parts or equipment in connection with the
                        planning, construction, maintenance, operation or use of
                        any nuclear facility, but if such facility is located
                        within the United States of America, its territories or
                        possessions or Canada, this exclusion (c) applies only
                        to

                                injury to or destruction of property at such
                                nuclear facility.

                                property damage to such nuclear facility and any
                                property thereat.

        IV.     As used in this endorsement:

                "HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
                properties; "NUCLEAR MATERIAL" means source material, special
                nuclear material or byproduct material; "SOURCE MATERIAL",
                "SPECIAL NUCLEAR MATERIAL", and "BYPRODUCT MATERIAL" have the

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                meanings given them in the Atomic Energy Act of 1954 or in any
                law amendatory thereof; "SPENT FUEL" means any fuel element or
                fuel component, solid or liquid, which has been used or exposed
                to radiation in a nuclear reactor; "WASTE" means any waste
                material (1) containing byproduct material other than the
                tailings or wastes produced by the extraction or concentration
                of uranium or thorium from any ore processed primarily for its
                source material content and (2) resulting from the operation by
                any person or organization of any nuclear facility included
                under the first two paragraphs of the definition of nuclear
                facility; "NUCLEAR FACILITY" means

                (a)     any nuclear reactor,

                (b)     any equipment or device designed or used for (1)
                        separating the isotopes of uranium or plutonium, (2)
                        processing or utilizing spent fuel, or (3) handling,
                        processing or packaging waste,

                (c)     any equipment or device used for the processing,
                        fabricating or alloying of special nuclear material if
                        at any time the total amount of such material in the
                        custody of the insured at the premises where such
                        equipment or device is located consists of or contains
                        more than 25 grams of plutonium or uranium 233 or any
                        combination thereof, or more than 250 grams of uranium
                        235,

                (d)     any structure, basin, excavation, premises or place
                        prepared or used for the storage or disposal of waste,

                and includes the site on which any of the foregoing is located,
                all operations conducted on such site and all premises used for
                such operations; "nuclear reactor" means any apparatus designed
                or used to sustain nuclear fission in a self-supporting chain
                reaction or to contain a critical mass of fissionable material;

                With respect to injury to or destruction of property, the word
                "injury" or "destruction" includes all forms of radioactive
                contamination of property; "property damage" includes all forms
                of radioactive contamination of property.

        V.      The inception dates and thereafter of all original policies
                affording coverages specified in this paragraph (3), whether
                new, renewal or replacement, being policies which become
                effective on or after 1st May, 1960, provided this paragraph (3)
                shall not be applicable to

                (i)     Garage and Automobile Policies issued by the Reassured
                        on New York risks, or

                (ii)    statutory liability insurance required under Chapter 90,
                        General Laws of Massachusetts,

                until 90 days following approval of the Broad Exclusion
                Provision by the Governmental Authority having jurisdiction
                thereof.

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<PAGE>

(4)     Without in any way restricting the operation of paragraph (1) of this
        Clause, it is understood and agreed that paragraphs (2) and (3) above
        are not applicable to original liability policies of the Reassured in
        Canada and that with respect to such policies this Clause shall be
        deemed to include the Nuclear Energy Liability Exclusion Provisions
        adopted by the Canadian Underwriters' Association or the Independent
        Insurance Conference of Canada.

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*NOTE. THE WORDS PRINTED IN ITALICS IN THE LIMITED EXCLUSION PROVISION AND IN
THE BROAD EXCLUSION PROVISION SHALL APPLY ONLY IN RELATION TO ORIGINAL LIABILITY
POLICIES WHICH INCLUDE A LIMITED EXCLUSION PROVISION OR A BROAD EXCLUSION
PROVISION CONTAINING THOSE WORDS.

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NOTES:  Wherever used herein the terms:

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

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

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

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<PAGE>
                       INTERESTS AND LIABILITIES AGREEMENT
                                (the "Agreement")

                                     of the

                           QBE REINSURANCE CORPORATION
                          (the "Subscribing Reinsurer")

                                 as respects the

                  PRIVATE PASSENGER AUTOMOBILE EXCESS CESSIONS
                              REINSURANCE CONTRACT
                                (the "Contract")

                            issued to and executed by

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING

                            DIRECT INSURANCE COMPANY

                        DIRECT GENERAL INSURANCE COMPANY

                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA

                                       and

                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI

   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF

                            THE DIRECT GENERAL GROUP
                          (collectively the "Company")

The Subscribing Reinsurer agrees that its share in the interests and liabilities
of the "Reinsurers" as set forth in the Contract attached hereto shall be for
40.00%.

The share of the Subscribing Reinsurer in the interests and liabilities of the
Reinsurers in respect of said Contract shall be separate and apart from the
shares of such other subscribing reinsurers, if any, in respect of said
Contract. The interests and liabilities of the Subscribing Reinsurer shall not
be joint with those of such other subscribing reinsurers, and in no event shall
the Subscribing Reinsurer participate in the interests and liabilities of such
other subscribing reinsurers.

This Agreement shall be effective at 12:01 a.m., Central Standard Time, January
1, 2002, subject to the termination provisions of the Commencement and
Termination Article of the Contract.

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<PAGE>

IN WITNESS WHEREOF, the Subscribing Reinsurer has caused this Agreement to be
executed by its duly authorized representative as follows:

on this 30th day of September, in the year of 2002.

                           QBE REINSURANCE CORPORATION

                             /s/ Dennis R. Johnson
--------------------------------------------------------------------------------
                                 Vice President

Market Reference Number:

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING

                            DIRECT INSURANCE COMPANY

                        DIRECT GENERAL INSURANCE COMPANY

                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA

                                       AND

                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI

   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF

                            THE DIRECT GENERAL GROUP

                  PRIVATE PASSENGER AUTOMOBILE EXCESS CESSIONS
                              REINSURANCE CONTRACT

                                     2 of 2
<PAGE>

                       INTERESTS AND LIABILITIES AGREEMENT
                                (the "Agreement")

                                     of the

                            SCOR REINSURANCE COMPANY
                          (the "Subscribing Reinsurer")

                                 as respects the

                  PRIVATE PASSENGER AUTOMOBILE EXCESS CESSIONS
                              REINSURANCE CONTRACT
                                (the "Contract")

                            issued to and executed by

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING

                            DIRECT INSURANCE COMPANY

                        DIRECT GENERAL INSURANCE COMPANY

                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA

                                       AND

                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI

   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF

                            THE DIRECT GENERAL GROUP

                          (collectively the "Company")

The Subscribing Reinsurer agrees that its share in the interests and liabilities
of the "Reinsurers" as set forth in the Contract attached hereto shall be for
60.00%.

The share of the Subscribing Reinsurer in the interests and liabilities of the
Reinsurers in respect of said Contract shall be separate and apart from the
shares of such other subscribing reinsurers, if any, in respect of said
Contract. The interests and liabilities of the Subscribing Reinsurer shall not
be joint with those of such other subscribing reinsurers, and in no event shall
the Subscribing Reinsurer participate in the interests and liabilities of such
other subscribing reinsurers.

This Agreement shall be effective at 12:01 a.m., Central Standard Time, January
1, 2002, subject to the termination provisions of the Commencement and
Termination Article of the Contract.

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<PAGE>

IN WITNESS WHEREOF, the Subscribing Reinsurer has caused this Agreement to be
executed by its duly authorized representative as follows:

on this 27th day of September, in the year of 2002.

                            SCOR REINSURANCE COMPANY

                             /s/ Marushka Stefanova
--------------------------------------------------------------------------------
                               ASSISTANT SECRETARY

Market Reference Number: TOO9078

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING

                            DIRECT INSURANCE COMPANY

                        DIRECT GENERAL INSURANCE COMPANY

                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA

                                       AND

                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI

   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF

                            THE DIRECT GENERAL GROUP

                  PRIVATE PASSENGER AUTOMOBILE EXCESS CESSIONS
                              REINSURANCE CONTRACT

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<PAGE>

                                 ADDENDUM NO. 1

                                     to the

                  PRIVATE PASSENGER AUTOMOBILE EXCESS CESSIONS
                              REINSURANCE CONTRACT
                                (the "contract")

                                    issued to

                            THE DIRECT GENERAL GROUP
                        Nashville, Tennessee, including
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                 DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                      and
                DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   and/or any other companies that are now or may hereafter become members of
                            THE DIRECT GENERAL GROUP
                         (collectively, the "company")

Effective January 1, 2002, this Contract shall be amended as follows:

1. Paragraph E of the Insolvency Article shall be deleted from this Contract.

2. The following Article shall be added to and made part of this Contract:

                                   ARTICLE 23

        ENTIRE CONTRACT

        This Contract embodies the entire agreement and understanding between
        the Company and the Reinsurer relating to the subject matter hereof
        during the term of this Contract. Unless otherwise specifically provided
        herein, this Contract may be amended, modified or waived only by an
        instrument in writing signed by the Company and each subscribing
        reinsurer that is affected by such amendment, modification or waiver.

Effective January 1, 2003, with respect to Policies allocated to Underwriting
Years commencing on or after that date, paragraph A of the Premium Article shall
read as follows and not as heretofore:

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<PAGE>

        A.      The Company shall pay to the Reinsurer 73.5% of the Subject Net
                Premium Written with respect to business cessions made under
                this Contract within 30 days after the end of each calendar
                month.

All other terms and conditions of this Contract shall remain unchanged.

IN WITNESS WHEREOF, the Company has caused this Addendum to be executed by its
duly authorized representative(s) this 28th day of March, 2003.

                            THE DIRECT GENERAL GROUP
                         NASHVILLE, TENNESSEE, INCLUDING
                            DIRECT INSURANCE COMPANY
                        DIRECT GENERAL INSURANCE COMPANY
                  DIRECT GENERAL INSURANCE COMPANY OF LOUISIANA
                                       AND
                 DIRECT GENERAL INSURANCE COMPANY OF MISSISSIPPI
   AND/OR ANY OTHER COMPANIES THAT ARE NOW OR MAY HEREAFTER BECOME MEMBERS OF
                            THE DIRECT GENERAL GROUP

                               /s/ J. Todd Hagely
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