AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 2002.
                                                      REGISTRATION NO. 333-
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              --------------------

                                    FORM S-8
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933
                              --------------------

                               Donegal Group Inc.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                       23-2424711
- --------------------------------             ----------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

            1195 River Road
         Marietta, Pennsylvania                            17547
- ---------------------------------------                  --------
(Address of Principal Executive Offices)                (Zip Code)

                              --------------------

                  Donegal Mutual Insurance Company 401(k) Plan
                  --------------------------------------------
                            (Full title of the plan)

                              --------------------

                               Donald H. Nikolaus
                      President and Chief Executive Officer
                               Donegal Group Inc.
                                 1195 River Road
                          Marietta, Pennsylvania 17547
                      -------------------------------------
                     (Name and address of agent for service)

                                 (717) 426-1931
                      --------------------------------------
                     (Telephone number, including area code,
                              of agent for service)

                              --------------------

                                    Copy to:
                            Kathleen M. Shay, Esquire
                                Duane Morris LLP
                                One Liberty Place
                      Philadelphia, Pennsylvania 19103-7396
                                 (215) 979-1000

                                          CALCULATION OF REGISTRATION FEE
==================================================================================================================
                                                         Proposed              Proposed
 Title of securities            Amount to be         maximum offering      maximum aggregate          Amount of
  to be registered              registered(1)       price per share(2)     offering price(2)      registration fee
- ------------------------------------------------------------------------------------------------------------------

Class A common stock, par       200,000 shares           $11.37                $2,274,000               $210
value $.01 per share
==================================================================================================================

(1)  In addition, pursuant to Rule 416(c) under the Securities Act of 1933, this
     registration statement (the "Registration Statement") also covers an
     indeterminate amount of interests to be offered or sold pursuant to the
     Donegal Mutual Insurance Company 401(k) Plan (the "Plan").

(2)  Pursuant to paragraph (h) of Rule 457, the proposed maximum offering price
     per share and the proposed maximum aggregate offering price have been
     computed on the basis of $11.37 per share, the average of the high and low
     sales prices of the Class A common stock of the Company on the Nasdaq
     National Market on May 24, 2002.

INTRODUCTORY STATEMENT PURSUANT TO GENERAL INSTRUCTION E TO FORM S-8

     The shares of Class A common stock of Donegal Group Inc. (the "Company")
being registered hereunder are reserved for offer and sale under the Donegal
Mutual Insurance Company 401(k) Plan (the "Plan"). On December 29, 1999, the
Company registered 300,000 shares of the previously authorized common stock of
the Company and an indeterminate number of interests under the Plan for offer
and sale under the Plan on Form S-8, Registration Statement No. 333-93785, under
the Securities Act of 1933, as amended (the "Securities Act"). On January 7,
2000, the Company registered an additional 300,000 shares of the previously
authorized common stock of the Company and an indeterminate number of interests
under the Plan for offer and sale under the Plan on Form S-8, Registration
Statement No. 333-94301, under the Securities Act.

     Effective as of April 19, 2001, the Company: (a) effected a one-for-three
reverse stock split of its previously authorized common stock and redesignated
that common stock as Class B common stock; and (b) declared a dividend of two
shares of Class A common stock payable on each share of Class B common stock
outstanding at the time. As a result of the reverse split and stock dividend:
(a) the number and class of shares deemed registered under Registration
Statement No. 333-93785 is 100,000 shares of Class B common stock, and the
number and class deemed registered under Registration Statement No. 333-94301 is
100,000 shares of Class B common stock; and (b) all assets thereafter invested
under the Plan in shares of the Company's capital stock are being invested in
shares of Class A common stock.

     The Company intends to file post-effective amendments to those prior two
registration statements to deregister any shares of Class B common stock that
will no longer be used for the investment of assets under the Plan. Pursuant to
General Instruction E to Form S-8, with respect to the registration of
additional securities hereunder for offer and sale under the Plan, the contents
of the Company's Registration Statement No. 333-93785 and Registration Statement
No. 333-94301 are incorporated herein by reference.

                                      II-2

                                     PART II

                 INFORMATION REQUIRED IN REGISTRATION STATEMENT

ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.

     The following material is incorporated herein by reference:

     (a) The Form 10-K Annual Report for the year ended December 31, 2001, as
filed by the Company with the Securities and Exchange Commission on March 28,
2002.

     (b) The Form 10-Q Quarterly Report for the quarter ended March 31, 2002, as
filed by the Company with the Commission on May 15, 2002.

     (c) The Form 11-K Annual Report for the year ended December 31, 2000, as
filed by the Plan with the Commission on April 26, 2002.

     (d) The description of the Company's Class A common stock set forth in the
Company's Post-Effective Amendment to Form 8-A/A Registration Statement filed by
the Company with the Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), on April 12, 2001.

     All reports or other documents filed pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Registration
Statement, in each case filed by the Company prior to the filing of a
post-effective amendment that indicates that all securities offered have been
sold or that deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this Registration Statement and to be a part
hereof from the date of filing of such reports and documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for the purposes of this
Registration Statement to the extent that a statement contained herein or in any
other subsequently filed document, which also is or is deemed to be incorporated
herein by reference, modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Registration Statement.

ITEM 4. DESCRIPTION OF SECURITIES.

     No answer to this item is required because the class of securities to be
offered is registered under Section 12 of the Exchange Act.

ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.

     The validity of the issuance of the shares of Class A common stock
registered under this Registration Statement will be passed upon for the Company
by Duane Morris LLP, Philadelphia, Pennsylvania. As of March 28, 2002, attorneys
at Duane Morris LLP who have

                                      II-3

recently provided substantive legal services for the Company beneficially owned
16,961 shares of the Company's outstanding Class A common stock, and 7,884
shares of the Company's outstanding Class B common stock, of which 5,926 shares
represent shares of Class A common stock purchasable under currently exercisable
stock options and 2,963 shares represent shares of Class B common stock
purchasable under currently exercisable stock options. In addition, Frederick W.
Dreher, a partner of Duane Morris LLP, is a director of Donegal Mutual Insurance
Company (the "Mutual Company") and is one of the members on the coordinating
committee of the boards of directors of the Company and the Mutual Company. The
Mutual Company is a holder of approximately 63.5% of the Company's Class A
common stock and 62.1% of the Company's Class B common stock.

ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     Section 145 of the General Corporation Law of the State of Delaware
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon plea of nolo
contendere or its equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was unlawful.

     In the case of an action or suit by or in the right of the corporation to
procure a judgment in its favor, Section 145 empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by reason of the fact that such
person is or was acting in any of the capacities set forth above against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that
indemnification is not permitted in respect of any claim, issue or matter as to
which such person is adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought determines upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court deems proper.

                                      II-4

     Section 145 further provides that a Delaware corporation is required to
indemnify a director, officer, employee or agent against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with any action, suit or proceeding or in defense of any claim, issue or matter
therein as to which such person has been successful on the merits or otherwise;
that indemnification provided for by Section 145 shall not be deemed exclusive
of any other rights to which the indemnified party may be entitled; that
indemnification provided for by Section 145 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer against any
liability asserted against such person and incurred by such person in any such
capacity or arising out of such person's status as such whether or not the
corporation would have the power to indemnify such person against such liability
under Section 145. A Delaware corporation may provide indemnification only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standard of conduct. Such determination is to be
made (i) by the board of directors by a majority vote of a quorum consisting of
directors who were not party to such action, suit or proceeding, or (ii) if such
a quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion or (iii)
by the stockholders.

     Article Five of the Company's By-laws provides for indemnification of
directors and officers of the Company to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as presently or hereafter in
effect. The By-laws of Donegal Mutual Insurance Company also provide that the
Mutual Company shall indemnify to the full extent authorized by law any director
or officer of Donegal Mutual Insurance Company who is made, or threatened to be
made, a party to any action or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he is or was serving
as a director, officer or employee of the Company at the request of the Mutual
Company.

     The Company provides liability insurance for directors and officers for
certain losses arising from claims or charges made against them while acting in
their capacities as directors or officers of the Company up to an aggregate of
$5,000,000 inclusive of defense costs, expenses and charges.

     In addition, as permitted by the General Corporation Law of the State of
Delaware, Article Six of the Company's Certificate of Incorporation provides
that no director of the Company shall incur personal liability to the Company or
its stockholders for monetary damages for breach of such person's fiduciary duty
as a director; provided, however, that the provision does not eliminate or limit
the liability of a director for (i) any breach of the director's duty of loyalty
to the Company or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) the
unlawful payment of dividends or unlawful purchase or redemption of stock under
Section 174 of the General Corporation Law of the State of Delaware or (iv) any
transaction from which the director derived an improper personal benefit.

                                      II-5

ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.

     No answer to this item is required because no restricted securities are to
be reoffered or resold pursuant to this Registration Statement.

ITEM 8. EXHIBITS.

     The Company hereby undertakes that it will submit or has submitted the Plan
and any amendment thereto to the Internal Revenue Service (the "IRS") in a
timely manner and has made or will make all changes required by the IRS in order
to qualify the Plan.

     (4)    Donegal Mutual Insurance Company 401(k) Plan, as amended.

     (5)    Opinion of Duane Morris LLP.

     (23.1) Consent of KPMG LLP.

     (23.2) Consent of McKonly & Asbury LLP

     (23.3) Consent of Duane Morris LLP (included with its opinion filed as
            Exhibit 5).

     (24) Power of Attorney (included on the signature pages hereto).

ITEM 9. UNDERTAKINGS.

     The Company hereby undertakes:

     (a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

          (i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

          (ii) To reflect in any prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which is registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;

                                      II-6

          (iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;

     Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this Item 9
do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Company pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.

     (b) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offer
thereof; and

     (c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

     The Company hereby further undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

     The Company hereby further undertakes that, insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

                                      II-7

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Marietta, Pennsylvania on May 31, 2002.

                                   DONEGAL GROUP INC.

                                   By:/s/ Donald H. Nikolaus
                                      ------------------------------------------
                                       Donald H. Nikolaus, President and
                                       Chief Executive Officer

     Know all men by these presents, that each person whose signature appears
below constitutes and appoints Donald H. Nikolaus and Ralph G. Spontak, and each
or either of them, as such person's true and lawful attorneys-in-fact and
agents, with full power of substitution, for such person, and in such person's
name, place and stead, in any and all capacities to sign any or all amendments
or post-effective amendments to this Registration Statement, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them or their substitutes, may lawfully do or cause to be done
by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.

                                                                                 
Signature                                        Title                                 Date
- ---------                                        -----                                 ----

/s/ Donald H. Nikolaus                           President, Chief Executive            May 31, 2002
- --------------------------------------------     Officer and a Director
Donald H. Nikolaus                               (principal executive officer)

/s/ Ralph G. Spontak                             Senior Vice President, Chief          May 31, 2002
- --------------------------------------------     Financial Officer and
Ralph G. Spontak                                 Secretary (principal financial
                                                 and accounting officer)

                                      II-8

/s/ Philip H. Glatfelter, II                     Chairman of the Board and a           May 31, 2002
- --------------------------------------------     Director
Philip H. Glatfelter, II

/s/ Patricia A. Gilmartin                        Director                              May 31, 2002
- --------------------------------------------
Patricia A. Gilmartin

/s/ C. Edwin Ireland                             Director                              May 31, 2002
- --------------------------------------------
C. Edwin Ireland

/s/ R. Richard Sherbahn                         Director                              May 31, 2002
- --------------------------------------------
R. Richard Sherbahn

                                                 Director                              May   , 2002
- --------------------------------------------
Thomas J. Finley, Jr.

/s/ Robert S. Bolinger                           Director                              May 31, 2002
- --------------------------------------------
Robert S. Bolinger

                                                 Director                              May   , 2002
- -------------------------------------------
John J. Lyons

                                      II-9

THE PLAN. Pursuant to the requirements of the Securities Act of 1933, the
administrator of the Plan has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Marietta,
Pennsylvania on May 31, 2002.

                                    DONEGAL MUTUAL
                                    INSURANCE COMPANY 401(k) PLAN

                                    By:/s/ Donald H. Nikolaus
                                       -----------------------------------------
                                       Donald H. Nikolaus, Trustee

                                    By:/s/ Ralph G. Spontak
                                       -----------------------------------------
                                       Ralph G. Spontak, Trustee

                                    By:/s/ Daniel J. Wagner
                                       -----------------------------------------
                                       Daniel J. Wagner, Trustee

                                     II-10

                                  EXHIBIT INDEX
                                  -------------

 Exhibit No.                        Exhibit Description
 -----------                        -------------------

   (4)           Donegal Mutual Insurance Company 401(k) Plan, as amended.

   (5)           Opinion of Duane Morris LLP.

   (23.1)        Consent of KPMG LLP.

   (23.2)        Consent of McKonly & Asbury LLP.

   (23.3)        Consent of Duane Morris LLP (included with its opinion filed
                 as Exhibit 5).

   (24)          Power of Attorney (included on the signature pages hereto).

                                                                     EXHIBIT 4

                 DONEGAL MUTUAL INSURANCE COMPANY 401(K) PLAN

                                                                  Issue Date:
                                                                  May 1, 2002

                                TABLE OF CONTENTS
                                -----------------

                                                                          Page
                                                                          ----

ARTICLE I         DEFINITIONS.............................................   1

      Section     1.1   Parties...........................................   1
                  1.2   Important Dates...................................   3
                  1.3   Service and Compensation..........................   3
                  1.4   Miscellaneous.....................................   5
                  1.5   Construction......................................   6

ARTICLE II        PARTICIPATION...........................................   6

      Section     2.1   Eligibility for Participation.....................   6
                  2.2   Continuing Participation..........................   6
                  2.3   Reemployment After Termination of
                        Employment........................................   6

ARTICLE III       CONTRIBUTIONS...........................................   6

      Section     3.1   Employer's Matching Contribution..................   6
                  3.2   Payment of Employer Matching
                        Contributions.....................................   7
                  3.3   Return of Contributions...........................   7
                  3.4   Participant's Salary Reduction
                        Election..........................................   7
                  3.5   Participant Withdrawals...........................   8
                  3.6   Limitations on Participant's Salary
                        Reduction Election or Elective Deferrals...........  9
                  3.7   Limitations on Employee Contributions
                        and Matching Employer Contributions...............  11
                  3.8   Limitations on Contributions and Benefits.........  13
                  3.9   Distribution of Excess Deferrals..................  14
                  3.10  Excess Contributions..............................  14
                  3.11  Employee Rollover Contributions...................  16
                  3.12  Direct Rollovers Permitted........................  16
                  3.13  Reemployment After Distribution...................  17

ARTICLE IV        PARTICIPANTS' ACCOUNTS..................................  18

      Section     4.1   Individual Accounts...............................  18
                  4.2   Valuation of the Trust............................  18
                  4.3   Adjustments and Allocations to
                        Accounts..........................................  18
                  4.4   Self-Directed Accounts............................  19
                  4.5   Investment in Employer Stock......................  20

                                      (1)

ARTICLE V         PAYMENT OF BENEFITS.....................................  22

      Section     5.1   Vesting...........................................  22
                  5.2   Retirement........................................  23
                  5.3   Age 59-1/2........................................  23
                  5.4   Disability........................................  23
                  5.5   Death.............................................  23
                  5.6   Termination of Employment Prior to
                        Retirement, Disability or Death...................  24
                  5.7   Limitation on Distributions.......................  24
                  5.8   Distribution upon Retirement,
                        Disability, Death or Other Termination
                        of Employment.....................................  24
                  5.9   Distributions of $5,000 or Less...................  26
                  5.10  Additional Distribution Restrictions..............  26

ARTICLE VI              FIDUCIARY RESPONSIBILITY..........................  27

      Section     6.1   Named Fiduciary...................................  27
                  6.2   Allocation of Fiduciary Responsibility............  27
                  6.3   Service in More than One Capacity.................  27
                  6.4   Employment of Advisers............................  27
                  6.5   Compensation of Fiduciaries and
                        Advisers..........................................  27
                  6.6   Liability of Fiduciaries .........................  27

ARTICLE VII           PLAN ADMINISTRATION.................................  28

      Section     7.1   Plan Committee....................................  28
                  7.2   Duties and Powers of the Plan Committee...........  28
                  7.3   Claims Procedure..................................  29
                  7.4   Records and Reports...............................  29
                  7.5   Application and Forms for Benefits................  29

ARTICLE VIII      AMENDMENT, MERGER AND TERMINATION
                  OF THE PLAN.............................................  30

      Section     8.1   Amendment and Termination.........................  30
                  8.2   Action by Employer................................  31
                  8.3   Effect of Termination.............................  31
                  8.4   Partial Termination...............................  31
                  8.5   Manner of Distribution............................  31
                  8.6   Merger............................................  31
                  8.7   Successor Employer................................  32

                                      (2)

ARTICLE IX        TOP-HEAVY PROVISIONS AND DEFINITIONS....................  32

      Section     9.1   Top-Heavy Plan Definitions........................  32
                  9.2   Effective Date....................................  34
                  9.3   Minimum Contribution Requirements.................  34
                  9.4   Maximum Compensation Limitation...................  35
                  9.5   Adjustment to Section 415 Limits..................  35
                  9.6   Remedial Provisions...............................  35
                  9.7   Top Heavy Vesting Schedule .......................  35

ARTICLE X             MISCELLANEOUS.......................................  36

      Section     10.1  Non-Guarantee of Employment.......................  36
                  10.2  Non-Alienation of Benefits........................  36
                  10.3  Facility of Payment...............................  37
                  10.4  Exclusive Benefit.................................  37
                  10.5  No Reversion......................................  37
                  10.6  Effect of Social Security Benefits................  38
                  10.7  Titles............................................  38
                  10.8  Severability......................................  38
                  10.9  Applicable Law....................................  38
                  10.10 Initial Qualification.............................  38
                  10.11 Plan Designation..................................  38

ARTICLE XII       MONEY PURCHASE PENSION PLAN ACCOUNT

Section           11.1  General............................................ 38
                  11.2  Money Purchase Pension Benefit..................... 38
                  11.3  Participants' Accounts............................. 39
                  11.4  Determination and Distribution of Benefits......... 39

                                      (3)

                                   ARTICLE I

                                  DEFINITIONS

     Whenever used herein, the following words shall have the meaning set forth
below, unless otherwise clearly required by the context.

     1.1  Parties
          -------

          (a) "Employer" means Donegal Mutual Insurance Company, a Pennsylvania
     corporation, and any successor.

          (b) "Plan Committee" or "Committee" means the Committee established by
     the Employer to administer the Plan as set forth in Article VII hereof.

          (c) "Trustee" means the corporation, individual or individuals
     appointed by the Employer to hold and administer the assets of the Trust.

          (d) "Employee" means any individual employed by the Employer or
an affiliated Employer, except that such term does not include:

              (i)  Any Leased Employee as defined herein and

              (ii) Any Employee who is hired as a temporary employee and whose
          employment is to be of limited duration generally not in excess of six
          (6) months.

     Leased Employee means any person (other than an Employee of the Recipient)
who pursuant to an agreement between the Recipient and any other person
("Leasing Organization") has performed services for the Recipient or for the
Recipient and related persons determined in accordance with IRC Section
414(n)(6) on a substantially fulltime basis for a period of at least one year,
and such services are performed under the Recipient's primary direction or
control. For purposes of the preceding sentence Recipient means the Employer as
defined herein.

          (e) "Participant" means an Employee who has satisfied the eligibility
     requirements and has entered the plan as provided in Article II.

          (f) "Beneficiary" or "Designated Beneficiary" means a person or
     persons (natural or otherwise) designated by a Participant to receive any
     death benefit payable under this plan. If there is no such designation, or
     if the designated person or persons predecease the Participant, Beneficiary
     shall mean the surviving spouse, surviving children, surviving parents or
     estate of the Participant, in the order listed.

          (g) "Plan" means the Donegal Mutual Insurance Company 401(k) Plan as
     set forth herein and as it may be amended in the future.

          (h) "Trust" or "Trust Agreement" means the Donegal Mutual Insurance
     Company 401(k) Plan Trust established by the Employer.

          (i) "Affiliated Employer" means the Employer, and any trade or
     business (whether or not incorporated) which is under common control (as
     defined in Section 414(c) of the Code) with the Employer; an organization
     (whether or not incorporated) which is a member of an affiliated service
     group (as defined in Section 414(m) of the Code) which includes the
     Employer; and any other entity required to be aggregated with the Employer
     pursuant to regulations under Section 414(o) of the Code.

          (j) 'Highly Compensated Employee' means an Employee who performs
     services during the determination year and is described in one or more of
     the following groups:

              1.   An Employee who is a 5% owner, as defined in Section
                   416(i)(1)(A)(iii), at anytime during the determination year
                   or the preceding year.

              2.   An Employee who received compensation during the preceding
                   year in excess of $80,000 (indexed in accordance with IRC
                   Section 415(d)).

              3.   If the Employer so elects, an Employee who is in the top
                   paid group during the preceding year as such term is defined
                   in IRC Section 414(q).

          For purposes of this paragraph:

                   (1)  Compensation is compensation within the meaning of IRC
                        Section 415(c)(3) including elective or salary
                        reduction contributions to a cafeteria plan, cash or
                        deferred arrangement or tax sheltered annuity and
                        elective amounts that are not includable in the gross
                        income of an Employee by reason of Section 132(f)(4) of
                        the Code

                   (2)  Employers aggregated under IRC Sections (415)(b), (c),
                        (m), or (o) are treated as a single employer.

                   (3)  Highly Compensated Employee includes a former employee
                        who was separated from service for the Employer prior
                        to the determination year and was a Highly Compensated
                        Employee for the year of the termination or for any
                        determination year in or after the date on which he
                        attains age 55.

          (k) "Non-Highly Compensated Employee" means an Employee of the
     Employer who is not a Highly Compensated Employee.

                                      -2-

     1.2  Important Dates
          --------------

          (a) "Effective Date" means January 1, 1998, the date on which the
     provisions of the Plan became effective.

          (b) "Plan Year" means the calendar year.

          (c) "Anniversary Date" means the last day of each Plan Year after the
     Effective Date.

          (d) "Limitation Year" means the Plan Year.

     1.3  Service and Compensation
          ------------------------

          (a) "Hour of Service" means:

              (1) Each hour for which an Employee is paid, or entitled to
          payment, for the performance of duties for the Employer. These hours
          shall be credited to the Employee for the computation period in which
          the duties are performed; and

              (2) Each hour for which an Employee is paid, or entitled to
          payment, by the Employer on account of a period of time during which
          no duties are performed (irrespective of whether the employment
          relationship has terminated) due to vacation, holiday, illness,
          incapacity (including disability), layoff, jury duty, military duty or
          leave of absence. No more than 501 Hours of Service shall be credited
          under this paragraph for any single continuous period (whether or not
          such period occurs in a single computation period). Hours under this
          paragraph shall be calculated and credited pursuant to Section
          2530,200(b)2 of the Department of Labor Regulations which are
          incorporated herein by reference; and

              (3) Each hour for which back pay, irrespective of mitigation of
          damages, is either awarded or agreed to by the Employer. The same
          Hours of Service shall not be credited both under paragraph (1) or
          paragraph (2), as the case may be, and under this paragraph (3). These
          hours shall be credited to the Employee for the computation period or
          periods to which the award or agreement pertains rather than the
          computation period in which the award, agreement or payment is made.

              (4) For absences beginning on or after the first day of the Plan
          Year, solely for purposes of determining whether a One-Year Break in
          Service for participation and vesting purposes has occurred in a Plan
          Year (or other computation period), an Employee who is on Maternity or
          Paternity Leave shall receive credit for the Hours of Service which
          would otherwise have been credited to such Employee but for such
          absence, or in any case in which such Hours cannot be determined, 8
          Hours of Service per day of such absence. No more than 501 Hours of
          Service shall be credited under this paragraph for any single absence
          due to Maternity or Paternity Leave. The Hours of Service credited
          under this paragraph shall be credited only (i) in the Plan Year (or
          other computation period) in which the absence begins if the crediting
          is necessary to prevent a One-Year Break in Service in that period, or
          (ii) in any other case, in the immediately following Plan Year (or
          other computation period).

                                      -3-

          (b) "One-Year Break in Service" means a Plan Year during which an
     Employee fails to complete at least 500 Hours of Service. For purposes of
     Section 2.1, the relevant eligibility computation period shall be
     substituted for the Plan Year.

          (c) "Years of Service" means

              (1) For purposes of eligibility to participate, as provided in
          Section 2.1.

              (2) Years of Service credited prior to a period of consecutive
          One-Year Breaks in Service shall not be credited if the number of
          consecutive One-Year Breaks in Service during such period before the
          Employee earns any vested benefit in Employer contributions under the
          Plan equals or exceeds the greater of (A) five (5), or (B) the
          aggregate number of Years of Service before such period.

              (3) An Employee's Years of Service shall include Years of Service
          with the Employer and with other businesses under common control which
          includes the Employer and with other members of an affiliated service
          group which includes the Employer.

          (d) "Compensation" means the total taxable compensation paid to an
     Employee by the Employer during the Plan Year except as hereinafter
     provided. Any bonus, payments under any Employee incentive plan, disability
     payments, taxable fringe benefits, non-taxable fringe benefits, amounts
     realized from the exercise of stock options, or when restricted stock (or
     property) held by the Employee either becomes freely transferable or is no
     longer subject to a substantial risk of forfeiture, and amounts realized
     from the sale, exchange or other disposition of stock options shall not be
     considered compensation. The foregoing notwithstanding, compensation shall
     include any elective contributions made by the Employer that are not
     includable in the Employee's gross income under Code Sections 125,
     132(f)(4), 402(g)(3), 402(h), 403(b) or any compensation deferred under
     Code Section 457(b).

     Compensation shall include all compensation (as defined above) which is
actually paid to the Employee during the applicable Plan Year, including the
Plan Year in which the Employee becomes a Participant. Compensation shall be
limited for all purposes to $160,000 as adjusted from time to time in accordance
with Code Section 401(a)(17).

          (e) "Authorized Leave of Absence" means any absence authorized by the
     Employer under the Employer's standard personnel practices provided that
     all persons under similar circumstances must be treated alike in the
     granting of such Authorized Leaves of Absence and provided further that the
     Employee returns within the period of authorized absence. In the event of
     absence due to service in the Armed Forces of the United States, (1) such
     absence shall be considered an Authorized Leave of Absence provided that
     the Employee returns to employment with the Employer within the period
     provided by law, and (2) credit for Hours of Service shall be given to the
     extent required by law.

                                      -4-

          (f) "Employment Commencement Date" means the first day on which an
     Employee completes an Hour of Service for the Employer.

          (g) "Maternity or Paternity Leave" means an absence from work:

              (1) By reason of pregnancy of the Participant;

              (2) By reason of the birth of a child of the Participant;

              (3) By reason of the placement of a child with the Participant in
          connection with the adoption of such child by the Participant; or

              (4) For purposes of caring for such child, for a period beginning
          immediately after such birth or placement.

In approving such leave, the Plan Committee may require the Participant to
furnish such timely information as it may reasonably require to establish that
the reason for the absence from work is for one of the reasons set forth above
and the number of days for which there was such absence.

     1.4  Miscellaneous
          -------------

          (a) "Disability" means a condition which renders a Participant unable
     to engage in any substantial gainful activity by reason of any medically
     determinable physical or mental impairment which can be expected to result
     in death or to be of a long, continued and indefinite duration. The Plan
     Committee may require such proof of Disability as it deems necessary, and
     may require a Participant to be examined by a physician of its own
     choosing.

          (b) "Participant's Elective Deferral" or "Participant's Elective
     Contribution" means as to each Participant the amount of the Participant's
     salary reduction election made pursuant to Section 3.4 during the Plan Year
     by the Employee and allocated to the Participant's Elective Deferral
     Account.

          (c) "Employer Matching Contribution" means any contribution to the
     Plan made by the Employer for the Plan Year and allocated to a
     Participant's Employer Matching Contribution Account by reason of the
     Participant's Elective Deferrals.

          (d) "ERISA" means Public Law No. 93-406, the Employees Retirement
     Income Security Act of 1974, as amended from time to time.

          (e) "Code" or "IRC" means the Internal Revenue Code of 1986 and
     amendments thereto.

          (f) "Forfeiture" means that portion of a Participant's account that is
     not vested and occurs on the earlier of:

              (1) The distribution of the entire vested portion of a
          Participant's account, or

                                      -5-

              (2) The last day of the Plan Year in which the Participant incurs
          five consecutive one year breaks in service.

          (g) USERRA Compliance. Notwithstanding any provision of this Plan to
     the contrary, contributions, benefits and service credit with respect to
     qualified military service will be provided in accordance with Section 414
     (u) of the Code.

     1.5  Construction. Words used herein in the masculine include the feminine,
          ------------
in the singular include the plural and in the plural include the singular,
unless the context indicates otherwise.

                                   ARTICLE II

                                  PARTICIPATION

     2.1  Eligibility for Participation. Each Employee who is employed by the
          -----------------------------
Employer on the Effective Date shall eligible to become a Participant as of that
date. Each other Employee shall be eligible to become a Participant as of the
first day of the month immediately succeeding the month in which the Employee
commences employment with the Employer. An Employee becomes a Participant by
filing with the Plan Committee a salary reduction election in accordance with
Section 3.4 hereof in the form prescribed by the Committee.

     2.2  Continuing Participation.
          ------------------------

          (a) The Participant shall continue to be a Participant until he incurs
     a One-Year Break in Service. Participation shall cease as of the last day
     of the Plan Year during which such event occurs.

          (b) During a period of Authorized Leave of Absence, an Employee shall
     not be deemed to have incurred a One-Year Break in Service. In the event
     that an Employee is laid off, such layoff shall be treated as an Authorized
     Leave of Absence, to the extent that the Employer's personnel policies so
     provide, or in the absence of any such policies, for a period of one year
     from the date of layoff.

     2.3  Reemployment After Termination of Employment. Upon the reemployment of
          --------------------------------------------
any Employee who was a Participant such Employee again shall become a
Participant on the first day of the month coincident with or next following his
completion of at least one Hour of Service. All of an Employee's Years of
Service with the Employer shall be credited except Years of Service which are
disregarded under Section 1.3(c)(2).

                                   ARTICLE III

                                  CONTRIBUTIONS

     3.1  Employer's Matching Contribution. The Employer shall contribute
          --------------------------------
annually on behalf of each Participant an amount equal to the sum of (a) 100% of
each Participant's Elective Deferrals for the Plan Year not in excess of 3% of
the Participant's Compensation for the Plan Year and (b) 50% of each
Participant's Elective Deferrals in excess of 3% of the Participant's
Compensation, but not in excess of 9% of the Participant's Compensation for the
Plan year ("Matching Contribution").

                                      -6-

     3.2  Payment of Employer Matching Contributions. The Employer shall pay its
          ------------------------------------------
matching contribution to the Plan within thirty (30) days of the end of each
month and under all circumstances the Employer's matching contribution must be
paid not later than the last date, including extensions thereof for filing it
income tax return for the Plan Year with respect to which the matching
contribution is made.

     3.3  Return of Contributions. In no event shall any Employer
          -----------------------
Contributions revert to or be recoverable by the Employer, unless:

          (a) the contribution is made by reason of a mistake of fact, in which
     case it shall be returned within one (1) year after the payment of the
     contribution, or,

          (b) the contribution is conditioned upon qualification of the Plan
     under Section 401 of the Code and if the Plan does not initially so
     qualify, it shall be returned to the Employer within one (1) year after the
     date of denial of qualification.

     All contributions are conditioned upon the deductibility of the
contribution under Section 404 of the Code. To the extent the deduction is
disallowed, the contribution shall be returned within one (1) year after the
disallowance of the deduction.

     3.4  Participant's Salary Reduction Election.
          ---------------------------------------

          (a) Each Participant may make an Elective Contribution to the Plan and
     to the extent he elects to reduce or forego an increase in his
     Compensation, the amount by which his compensation is reduced shall be
     treated as the Participant's Elective Contribution and be allocated to that
     Participant's elective account. The amount of the Elective Contribution may
     not be less than 1% nor more than 15% of the Participant's Compensation as
     elected by the Participant in units of one (1) percentage point on forms
     provided by the Plan Committee, which may limit the amount of the
     Participant's Elective Contribution at any time if it determines that such
     limitation is necessary to satisfy the requirement with IRC Section 401(k).

          (b) The balance in each Participant's Elective Account shall be fully
     vested at all times and shall not be subject to forfeiture for any reason.

          (c) A Participant may not make withdrawals from his Elective Account
     prior to his attaining age 59-1/2, except in the event of disability,
     retirement, termination of employment or hardship as provided in Section
     3.5. Distributions made pursuant to this Section shall be deemed to be made
     as of the last day of the preceding accounting quarter and the
     Participant's Elective Account shall be reduced accordingly.

                                      -7-

          (d) The Employer shall pay all Participants' Elective Contributions
     accumulated through payroll deduction to the Trustee with reasonable
     promptness and in all events before the end of the succeeding month
     following such payroll deductions.

          (e) A Participant may change or terminate his deferral election as
     provided in subparagraph (a) by giving thirty (30) days' written notice of
     such change or termination to the Plan Committee or its designee and such
     change or termination shall be effective as of the first pay period
     coincident with or next following the expiration of said thirty (30)-day
     period. A Participant who has terminated or not commenced making Elective
     Contributions pursuant to paragraph (a) above may commence or reinstate his
     deferral election upon thirty (30) days' written notice to the Plan
     Committee or its designee and the Participant's Elective Contributions
     shall commence with the first pay period commencing on or after the
     expiration of the thirty (30)-day period.

          (f) A Participant who has taken a hardship distribution as provided in
     Section 3.5 hereof shall have his salary reduction election terminated as
     of the date of the hardship distribution and shall not be eligible to
     reinstate that election until after the first anniversary date of that
     distribution. Additionally, the Participant's Elective Contributions for
     the taxable year immediately following the taxable year of the hardship
     distribution may not exceed the applicable limit on Elective Deferrals
     under Code Section 402(g) less the Participant's Elective Contributions for
     the year in which the Participant received the hardship distribution.

     3.5  Participant Withdrawals.
          -----------------------

          (a) Participant's Elective Deferral Account. A Participant may not
              ---------------------------------------
     withdraw any amount attributable to his Elective Deferrals prior to the
     Participant's retirement, death, disability, separation from service or
     attainment of age 59-1/2 except in the case of hardship as provided herein.
     Upon application to the Plan Committee for a withdrawal based on hardship,
     the Plan Committee shall make a determination of the existence of hardship.
     If the Plan Committee determines that a hardship exists with respect to the
     Participant, the Participant may withdraw up to 100 percent of his vested
     interest in the Participant's Elective Deferral Account, but not in excess
     of the amount requested by the Participant in his initial application.
     Withdrawal of amounts less than the total amount in the Participant's
     Elective Deferral Account shall be in units of $1,000 with a minimum
     withdrawal of $1,000. The Plan Committee shall implement the foregoing by
     such rules, regulations, forms and procedures as to which the Plan
     Committee seems appropriate, provided always that participants similarly
     situated be treated uniformly. Hardship withdrawals may be made from
     Participant's Elective Deferrals only, excluding withdrawal of any income
     earned by Participant's Elective Deferrals.

          (b) Participant's Employer Matching Contribution Account. A
              ----------------------------------------------------
     Participant may not withdraw any amount attributable to his Employer
     Matching Contribution Account prior to the Participant's retirement, death,
     disability, separation from service, or attainment of age 59-1/2.

                                      -8-

          (c) Hardship Provisions. A distribution because of hardship will be
              -------------------
     made only if the Participant has an immediate and heavy financial need
     which may not be satisfied from other assets of the Participant. A
     distribution is deemed to be on account of an immediate and heavy financial
     need only if the distribution is for:

              1. Expenses for medical care described in Section 213(d) of the
          Code previously incurred by the Participant, the Participant's spouse
          or any dependents of the Participant or necessary for those persons to
          obtain medical care described in Section 213(d);

              2. Costs directly related to the purchase of a principal
          residence for the Participant (excluding mortgage payments);

              3. Payment of tuition, related educational fees, and room and
          board expenses for the next twelve (12) months of post-secondary
          education for the Participant or the Participant's spouse, children or
          dependents; or

              4. Payments necessary to prevent the eviction of a Participant
          from the Participant's principal residence or foreclosure on the
          mortgage of that residence.

          (d) A distribution is deemed necessary to satisfy an immediate and
     heavy financial need of a Participant if all of the following are
     satisfied:

              1. The distribution is not in excess of the amount of the
          immediate and heavy financial need of the Participant which may
          include amounts necessary to pay the federal, state or local income
          taxes and penalties reasonably anticipated as a result of the
          distribution.

              2. The Participant has obtained all distributions other than
          hardship distributions and all non-taxable (at the time of the loan)
          loans currently available under all Plans maintained by the Employer.

              3. The Plan and all other plans maintained by the Employer limit
          the Participant's elective contributions for the next taxable year to
          the applicable limit under Section 402(g) of the Code for that year
          minus the Employee's elective contributions for the year of the
          hardship distribution.

              4. The Participant is prohibited under the terms of the Plan or
          an otherwise legally enforceable agreement from making elective
          contributions and Employee contributions to the Plan and all other
          plans maintained by the Employer for at least twelve (12) months after
          receipt of the hardship distribution.

     3.6  Limitations on Participant's Salary Reduction Election or Elective
          ------------------------------------------------------------------
Deferrals.
- ---------

          (a) Maximum Amount of Elective Deferrals. No Employee shall be
              ------------------------------------
     permitted to have Elective Deferrals made under this Plan during any
     calendar year in excess of $7,000.00 multiplied by the Adjustment Factor
     for such year as provided by the Secretary of the Treasury.

                                      -9-

          (b) Average Actual Deferral Percentages.
              -----------------------------------

              (1) The Average Actual Deferral Percentage for Eligible
          Participants who are Highly Compensated Employees for the Plan Year
          shall not exceed the Average Actual Deferral Percentage for Eligible
          Participants who are Non-Highly Compensated Employees for the Plan
          Year multiplied by 1.25; or

              (2) The Average Actual Deferral Percentage for Eligible
          Participants who are Highly Compensated Employees for the Plan Year
          shall not exceed the Average Actual Deferral Percentage for Eligible
          Participants who are Non-Highly Compensated Employees for the Plan
          Year multiplied by 2, provided that the Average Actual Deferral
          Percentage for Eligible Participants who are Highly Compensated
          Employees does not exceed the Average Actual Deferral Percentage for
          Eligible Participants who are Non-Highly Compensated Employees by more
          than two (2) percentage points, or such lesser amount as the Secretary
          of the Treasury shall prescribe to prevent the multiple use of this
          alternative limitation with respect to any Highly Compensated
          Employee.

          (c) Definitions. For purposes of this Section 3.6 the following
              -----------
     definitions shall be used:

              (1) "Actual Deferral Percentage" ("ADP") shall mean the ratio
          (expressed as a percentage), of Elective Deferrals on behalf of each
          Eligible Participant for the Plan Year to such Eligible Participant's
          Compensation for the Plan Year. For this purpose, Elective Deferrals
          shall be taken into account only to the extent they relate to
          Compensation that either will be received by the Participant in the
          Plan Year, but for the deferral election, or which is attributable to
          services performed by the Participant in the Plan Year and will be
          received by the Participant within 2 1/2 months after the close of the
          Plan Year but for the deferral election. Further, Elective Deferrals
          shall be taken into account only if they are allocated to the
          Participant's Account within the Plan Year to which they relate. An
          Elective Deferral is considered allocated within the Plan Year if the
          allocation is not contingent upon the Participant's performance of
          services or continued participation in the Plan after the allocation
          date and the Elective Deferral is actually paid to the trust not later
          than 12 months after the Plan Year to which the contribution relates.

              (2) "Average Actual Deferral Percentage" shall mean the average
          (expressed as a percentage) of the Actual Deferral Percentage of all
          Eligible Participants as a group.

              (3) "Eligible Participant" shall mean any Employee of the
          Employer who is otherwise authorized under the terms of the Plan to
          have Elective Deferrals allocated to his account for the Plan Year.

              (4) "Excess Contributions" are defined in IRC Section
          401(k)(8)(b) and are determined and distributed as provided in Section
          3.10 hereof.

                                      -10-

          (d) Special Rules.
              -------------

              (1) For purposes of this Section 3.6, the Actual Deferral
          Percentage for any Eligible Participant who is a Highly Compensated
          Employee for the Plan Year and who is eligible to have Elective
          Deferrals allocated to his account under two or more Plans or
          arrangements described in Section 401(k) of the Code that are
          maintained by the Employer or an Affiliated Employer shall be
          determined as if all such Elective Deferrals were made under a single
          arrangement.

              (2) For purposes of distributing Excess Contributions, the amount
          of Excess Contributions that may be distributed to a Highly
          Compensated Employee for a Plan Year shall be reduced by the amount of
          excess deferrals previously distributed to the Highly Compensated
          Employee for his or her taxable year ending with or within such Plan
          Year.

              (3) A Participant's Elective Contributions which are returned as
          provided in (c)(4) above shall not be taken into account in
          determining the amount of Matching Contributions to be made for the
          Participant's benefit for the year. To the extent Matching
          Contributions have already been made with respect to the Elective
          Contributions, such Matching Contributions shall be distributed to the
          Participant at the same time as the Elective Contributions are
          returned or recharacterized, provided however, that to the extent the
          Participant does not have a vested interest in such Matching
          Contributions, the Participant shall forfeit such Matching
          Contributions.

              (4) For purposes of determining the ADP for the Non Highly
          Compensated Employees for any determination year, the Plan shall rely
          on look-back year data. For this purpose, determination year means the
          Plan Year with respect to which the ADP or ACP is being calculated and
          look-back means the Plan Year immediately preceding the determination
          year.

              (5) The ADP test will be conducted using the Prior Year testing
          method; provided that the Employer may at any time amend the Plan to
          change to the current year testing method, but only with the prior
          permission of the Secretary of the Treasury or his delegate. For the
          first year of operation of the qualified cash or deferred arrangement
          under this Plan, the ADP of non-highly compensated Employees shall be
          deemed to be 3%.

     3.7  Limitations on Employee Contributions and Matching Employer
          ------------------------------------------------------------
Contributions.
- -------------

          (a) Contribution Percentage. The Average Contribution Percentage
              -----------------------
     ("ACP") for Eligible Participants who are Highly Compensated Employees for
     the Plan Year shall not exceed the Average Contribution Percentage for
     Eligible Participants who are Nonhighly Compensated Employees for the Plan
     Year multiplied by 1.25; or

     The Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Eligible Participants who are Nonhighly Compensated
Employees the Plan Year multiplied by 2, provided that the Average Contribution
Percentage for Eligible Participants who are Highly Compensated Employees does
not exceed the Average Contribution Percentage for Eligible Participants who are
Nonhighly Compensated Employees by more than two (2) percentage points or such
lesser amount as the Secretary of the Treasury shall prescribe to prevent the
multiple use of this alternative limitation with respect to any Highly
Compensated Employee.

                                      -11-

          (b) Definitions. For purposes of this Section 3.7 the following
              -----------
     definitions shall apply.

              (1) "Average Contribution Percentage" shall mean the average
          (expressed as a percentage) of the Contribution Percentages of the
          Eligible Participants in a group.

              (2) "Contribution Percentage" shall mean the ratio (expressed as
          a percentage), of the sum of the Employee Contributions and Matching
          Contributions made on behalf of each Eligible Participant for the Plan
          Year to such Eligible Participant's Compensation for the Plan Year.

              (3) "Eligible Participant" shall mean any employee of the
          Employer who is otherwise authorized under the terms of the plan to
          have Employee Contributions or Matching Contributions allocated to his
          account for the Plan Year.

          (c) Special Rules.
              -------------

              (1) For purposes of this section 3.7, the Contribution Percentage
          for any Eligible Participant who is a Highly Compensated Employee for
          the Plan Year and who is eligible to receive Matching contributions,
          or Elective Deferrals allocated to his account under two or more plans
          described in Section 401(a) of the Code or arrangements described in
          Section 401(k) of the Code that are maintained by the Employer or an
          Affiliated Employer shall be determined as if all such contributions
          and Elective Deferrals were made under a single plan.

              (2) In the event that this plan satisfies the requirements of
          Section 410(b) of the Code only if aggregated with one or more other
          plans, or if one or more other plans satisfy the requirements of
          Section 410(b) of the Code only if aggregated with this plan, then
          this Section 3.7 shall be applied by determining the Contribution
          Percentages of Eligible Participants as if all such plans were a
          single plan.

                                      -12-

          (d) Excess Aggregate Contributions.
              ------------------------------

              (i) Excess Aggregate Contributions for a Highly-Compensated
          Employee will be determined by reducing the Actual Contribution Ratio
          (ACR) of the Highly-Compensated Employee with the highest ACR to the
          extent necessary to satisfy the Actual Contribution Percentage ("ACP")
          test or to cause such ratio to equal the ACR of the Highly-Compensated
          Employee with the next highest ratio. This process will be repeated
          until the ACP test is satisfied. In no event will Excess Aggregate
          Contributions remain unallocated or be allocated to a suspense account
          for allocation in the future Plan Year. The amount of the Excess
          Aggregate Contributions shall be distributed first to the
          Highly-Compensated Employee with the highest dollar amounts of
          Matching Contributions or Elective Contributions taken into account in
          computing the ACP in an amount equal to the lesser of such total
          Excess Aggregate Contributions or the amount necessary to cause the
          amount of such Employee's Matching Contributions to equal the amount
          of the Matching Contributions taken into account in computing the ACP
          of the Highly Compensated Employee with the next highest dollar amount
          of Matching Contributions taking into account in computing the ACP.
          This process will be repeated until the aggregate amount required to
          be distributed is so distributed. Income on such Excess Aggregate
          Contributions shall be distributed in accordance with the applicable
          Treasury Regulations. Distribution of Excess Aggregate Contributions
          will be made after the close of the Plan Year to which the
          contributions relate but within twelve months after the close of such
          Plan Year. Such distributions shall be treated as Employer
          contributions for purposes of Code Sections 401(a)(4), 404 and 415.
          Notwithstanding the foregoing, to the extent a Participant receives a
          distribution of Excess Aggregate Contributions which relate to
          Matching Contributions in which the Participant does not have a vested
          interest, such portion of the Excess Aggregate Contribution shall be
          forfeited.

              (ii) The amount of Excess Aggregate Contributions for a Plan Year
          will be determined only after first determining the Excess
          Contributions that are treated as Employee contributions because of
          recharacterization for the Plan Year.

     3.8  Limitations on Contributions and Benefits.
          -----------------------------------------

          (a) Definition of Annual Additions. For purposes of the Plan,
              ------------------------------
     "Annual Addition" shall mean the amounts allocated to a Participant's
     account during the limitation year that constitute:

              (1)  Employer Contributions,
              (2)  Employee Contributions,
              (3)  Forfeitures, and
              (4)  Amounts described in Sections 415(l)(1) and 419A(d)(2) of the
          Code.

          (b) Maximum Annual Addition. The maximum annual addition that may be
              -----------------------
     contributed or allocated to a Participant's account under the Plan for any
     limitation year shall not exceed the lesser of

              (1)  the Defined Contribution Dollar Limitation, or

              (2)  Twenty-five (25%) percent of the Participant's compensation,
          within the meaning of Section 415(c)(3) of the Code for the Limitation
          Year.

          (c) Special Rules. The compensation limitation referred to in
              -------------
     subsection (b)(2) shall not apply to:

              (1)  Any contribution for medical benefits (within the meaning of
          Section 419A(f)(2) of the Code) after separation from service which is
          otherwise treated as an Annual Addition, or

              (2)  Any amount otherwise treated as an Annual Addition under
          Section 415(l)(1) of the Code.

                                      -13-

          (d) Definitions. For purposes of Section 3.8,
              -----------

               (1) Defined Contribution Dollar Limitation means $30,000.00 or,
          if greater, 1/4 of the defined benefit dollar limitation set forth in
          Section 415(b)(1) of the Code as in effect for the Limitation Year.

               (2) Limitation Year means the calendar year.

          (e) Limitations if Participant in More Than One Plan. The foregoing
              ------------------------------------------------
     limitations of this Section 3.8 shall apply to the Annual Additions to this
     Plan and all Annual Additions made to all other defined contribution plans
     whether terminated or ever maintained by the Employer or a Related Employer
     in which the Participant is or was a Participant.

     3.9  Distribution of Excess Deferrals.
          --------------------------------

          (a) In General. Notwithstanding any other provision of the Plan,
              ----------
     Excess Deferral Amounts for any Plan Year and the income allocable thereto
     shall be distributed no later than April 15 of the next succeeding year to
     Participants who claim such Allocable Excess Deferral Amounts for the
     calendar year.

          (b) Definitions. For purposes of this Section 3.9, "Excess Deferral
              -----------
     Amount" means the amount of Elective Deferrals for a calendar year that the
     Participant allocates to this Plan pursuant to the claim procedure set
     forth in Section 3.9(c).

          (c) Claims. The Participant's claim shall be in writing and be
              ------
     submitted to the Plan Committee no later than March 1 of the next
     succeeding year. It shall specify the Participant's Excess Deferral Amount
     for the preceding calendar year and be accompanied by the Participant's
     written statement that if such amounts are not distributed, such Excess
     Deferral Amount, when added to amounts deferred under other plans or
     arrangements described in Section 401(k), 408(k) or 403(b) of the Code,
     will exceed the limit imposed on the Participant by Section 402(g) of the
     Code for the year in which the deferral occurred.

          (d) Maximum Distribution Amount. The Excess Deferral Amount
              ---------------------------
     distributed to a Participant with respect to a calendar year shall be
     adjusted for income and, if there is a loss allocable to the Excess
     Deferral, shall in no event be less than the lesser of the Participant's
     account under the Plan or the Participant's Elective Deferrals for the Plan
     Year.

     3.10 Excess Contributions.
          --------------------

          (a) In General. Excess Contributions as defined in IRC Section
              ----------
     401(k)(8)(B) and the income allocable thereto (as provided in paragraph (c)
     hereof) shall be distributed no later than the March 15th of the next
     succeeding Plan Year to the Highly-Compensated Employees as provided
     herein. The amount of Excess Contributions to be distributed shall be
     determined by reducing the Elective Deferral amount of the Highly
     Compensated Employee having the highest Elective Deferral amount for such
     year to the higher of (1), the level at which the ADP test is passed by the
     Plan without the reduction of the ADP of any other Highly Compensated
     Employees or (2) the ADP of the Highly Compensated Employee having the next
     highest Elective Deferral amount. If this process does not satisfy the ADP
     test for the Plan, this process as described in the preceding sentence
     shall be repeated at the progressively descending elective deferral amount
     levels among Highly Compensated Employees until the ADP test is satisfied,
     or until the aggregate of excess Elective Deferral amounts has been
     refunded, whichever is the first to occur. All excess contributions must be
     corrected by the close of the Plan Year following the Plan Year for which
     they were made.

                                      -14-

          (b) Election to Treat As Employee Contributions. Any amount required
              -------------------------------------------
     to be distributed to a Participant by paragraph (a) hereof shall, at the
     election of the Participant and to the extent provided in Treasury
     Regulations, be retained in the Plan as a Voluntary Employee Contribution
     and treated as an amount distributed to the Participant and then
     contributed as such a Voluntary Employee Contribution. Any excess
     contributions recharacterized as Employee Contributions pursuant to the
     preceding sentence shall nevertheless remain subject to the same
     nonforfeitability requirements and distribution limitations as apply to
     Elective Contributions.

          (c) Excess Aggregate Contributions. Excess Aggregate Contributions in
              ------------------------------
     the amount allocable thereto (as provided in paragraph (d) hereof shall be
     distributed no later than the March 15th of the next succeeding Plan Year
     to the Highly-Compensated Participants on the basis of the respective
     portions of such amounts attributable to each of such Participants. Excess
     Aggregate Contributions means the amount described in Section 401(m)(6)(B)
     of the Code.

     The foregoing notwithstanding, the amount of Excess Contributions to be
distributed shall be reduced by Excess Deferrals (ss.3.9) previously distributed
for the taxable year ending in the same Plan Year and Excess Deferrals to be
distributed for a taxable year will be reduced by Excess Contributions
previously distributed or recharacterized for the Plan Year beginning in such
taxable year.

          (d) Determination of Income. The income allocable to Excess
              -----------------------
     Contributions and Excess Aggregate Contributions shall be determined by
     computing both the income for the Plan Year with respect to which the
     excess amounts relate and the income for the period between the end of that
     year and the date of distribution ("the gap"). The income allocable to such
     excess amounts will be equal to the sum of the income allocable to the
     Participant's account containing the excess amounts for the applicable year
     and the income allocable to such account for the gap period multiplied by a
     fraction, the numerator of which is the excess amount and the denominator
     of which is the closing balance as of the end of the applicable year. Until
     provided otherwise by Treasury Regulations, such distribution shall be made
     without reduction for net losses.

          (e) Limitations on Multiple Use of Alternative Limitation. The
              -----------------------------------------------------
     alternative method of compliance with IRC Sections 401(k) and 401(m) shall
     be limited as provided in Treas. Reg. Section 1.401(m)-(2)(b). In the event
     a multiple use of the alternative limitation occurs, correction of such use
     with respect to the affected Highly-Compensated Employees shall be
     accomplished by reducing the Actual Deferral Percentage of the
     Highly-Compensated Employees and such reduction shall be treated as an
     Excess Contribution subject to the provisions of this Section 3.10.

                                      -15-

     3.11 Employee Rollover Contributions.
          -------------------------------

          (a) An Employee eligible to participate in the Plan, whether or not a
     Participant, may transfer to the Plan within the time period and in the
     manner prescribed in paragraph (c) below and pursuant to procedures
     promulgated by the Plan Committee, a rollover amount as defined in
     paragraph (b) below, provided that such rollover amount shall be subject in
     all respects to this section 3.11. The rollover amount shall be credited to
     a Rollover Account maintained for that Employee/Participant. That Account
     shall share in the income allocations of the trust fund as provided in
     section 4.3(d) hereof, but it shall not share in Employer contributions nor
     any other allocations under section 4.3. Upon the termination of the
     Participant's employment with the Employer, for whatever reason, the total
     balance in the Rollover Account shall be distributed in the same manner as
     the balances in the Participant's other accounts in accordance with Article
     V hereof.

          (b) For purposes of this section, rollover amount means as to any
     Employee, an "eligible rollover distribution" as defined in Section
     402(c)(4) of the Code. Rollover amount does not include hardship
     withdrawals as defined in Code Section 401(k)(2)(B)(i)(IV).

          (c) Rollover amounts must be transferred to this Plan on or before the
     sixtieth (60th) day following the Employee's receipt of the rollover
     amount. The Employee may authorize the Plan Committee to obtain the
     rollover amount from the transferor plan directly. As a condition precedent
     to being permitted to transfer a rollover amount to the Plan, the Employee
     shall comply with such requirements and complete such forms as the Plan
     Committee reasonably believes are necessary to insure that any amount it
     authorizes the Trustee to accept constitutes a rollover amount as defined
     in Section 402(c)(4) of the Code.

          (d) The foregoing notwithstanding, in determining whether the
     distribution to be received as a rollover is being received from a
     qualified plan, the Plan Committee shall be entitled to rely on the
     representations of the Employee as provided in the Treasury Regulations
     that the distributing plan is a qualified plan. Regardless of whether it is
     ultimately determined that such distributing plan is or is not a qualified
     plan, the acceptance of such contribution shall not be a grounds for
     disqualification of the Plan. Nevertheless, if the Plan Committee
     determines at any time that any amount accepted as a rollover amount
     pursuant to this section, for whatever reason, was not eligible for such
     classification or otherwise did not qualify as a rollover amount, the
     Committee shall direct the Trustees to pay to the Employee/Participant or
     his designated beneficiary the total amount accepted as a rollover amount
     plus all earnings and increments in value thereon from the date of
     acceptance to the date of such distribution. The Plan Committee shall
     authorize the Trustees or other payor to withhold from such distribution
     any taxes as required by law and to submit such information documents to
     the taxing authorities as required by law.

          (e) Under all circumstances and at all times the Employee/Participant
     shall be 100% vested in the balance of the Employee's Rollover Account.

     3.12 Direct Rollovers Permitted
          --------------------------

          (a) Notwithstanding any provision of the Plan to the contrary that
     would otherwise limit a distributee's election under this Section, a
     distributee may elect, at the time and in the manner prescribed by the
     Committee, to have any portion of an eligible rollover distribution paid
     directly to an eligible retirement plan specified by the distributee in a
     direct rollover.

                                      -16-

          (b) Definitions.

               1. Eligible rollover distribution: An eligible rollover
          distribution is any distribution of all or any portion of the balance
          to the credit of the distributee, except that an eligible rollover
          distribution does not include: any distribution that is one of a
          series of substantially equal periodic payments (not less frequently
          than annually) made for the life (or life expectancy) of the
          distributee or the joint lives (or joint life expectancies) of the
          distributee and the distributee's designated beneficiary, or for a
          specified period of ten years or more; any distribution to the extent
          such distribution is required under Section 401(a)(9) of the Code; and
          the portion of any distribution that is not includible in gross income
          (determined without regard to the exclusion for net unrealized
          appreciation with respect to employer securities).

               2. Eligible retirement plan: An eligible retirement plan is an
          individual retirement account described in Section 408(a) of the Code,
          an individual retirement annuity described in Section 408(b) of the
          Code, an annuity plan described in Section 403(a) of the Code, or a
          qualified trust described in Section 401(a) of the Code, that accepts
          the distributee's eligible rollover distribution. However, in the case
          of an eligible rollover distribution to the surviving spouse, an
          eligible retirement plan is an individual retirement account or
          individual retirement annuity.

               3. Distributee: A distributee includes an Employee or former
          Employee. In addition, the Employee's or former Employee's surviving
          spouse and the Employee's or former Employee's spouse or former spouse
          who is the alternate payee under a qualified domestic relations order,
          as defined in Section 414(p) of the Code, are distributees with regard
          to the interest of the spouse or former spouse.

               4. Direct rollover: A direct rollover is a payment by the Plan to
          the eligible retirement plan specified by the distributee.

     3.13 Reemployment after Distribution. If any former Participant shall be
          -------------------------------
re-employed by the Employer before incurring five consecutive 1 year Breaks in
Service, and such former Participant had received a distribution of his entire
vested interest prior to his re-employment, his forfeited account shall be
reinstated only if he repays the full amount distributed to him before the
earlier of five years after (1) the first date on which the Participant is
subsequently re-employed by the Employer, or (2) the close of the first of five
consecutive 1 year Breaks in Service commencing after the distribution. If a
distribution occurs for any reason other than a separation from service, the
time for repayment may not end earlier than five years after the date of
separation. In the event the former Participant does repay the full amount
distributed to him, the undistributed portion of the Participant's Account must
be restored in full, unadjusted by any gains or losses occurring subsequent to
the Anniversary Date coinciding with or preceding his termination. The source
for such reinstatement shall first be any forfeitures occurring during the year.
if such source is insufficient, then the Employer shall contribute an amount
which is sufficient to restore any such forfeited Account. Additionally, the
Employer shall establish a separate account for the Participant's interest in
the Plan at the time of the distribution and at any time during which the
Participant's vested percentage in that account can increase that vested portion
will equal or exceed an amount determined by applying the following formula
where "x" equals the amount: x = P (ab) + (r x d) - (r x d). "P" is the vested
percentage; "ab" is the account balance; "d" is the amount of the distribution;
and "r" is the ratio of the account balance at the relevant time to the account
balance after the distribution.

                                      -17-

                                   ARTICLE IV

                             PARTICIPANTS' ACCOUNTS

     4.1  Individual Accounts. The Plan Committee shall establish and maintain
          -------------------
for each Participant (or Beneficiary of a deceased Participant) an Elective
Deferral Account and Employer Matching Contribution Account. Credits and charges
shall be made to each such Account in the manner hereinafter described. The
maintenance of Accounts is for accounting purposes only, and a segregation of
the assets of the Trust to each Account shall not be required.

     4.2  Valuation of the Trust. The Trust shall be valued by the Trustees on
          ----------------------
the Anniversary Date in each Plan Year. Such valuation shall be made on the
basis of the fair market value of all property held in Trust. Any contribution
made on account of a particular Plan Year but received by the Trustees after the
end of such Plan Year shall be treated as having been made on the Anniversary
Date.

     4.3  Adjustments and Allocations to Accounts. At the end of each Plan Year,
          ---------------------------------------
the Accounts of each Participant (or Beneficiary of a deceased Participant)
shall be adjusted in the following order:

          (a) decreased by any amounts distributed to or for the benefit of the
     Participant (or Beneficiary of a deceased Participant);

          (b) increased by the contributions made by or on behalf of the
     Participant to his account not previously so allocated;

          (c) increased by the Employer's matching contribution which shall be
     allocated to each Participant's Employer matching contribution account to
     the extent not previously so allocated; and

          (d) increased by the income of the Trust in proportion to the account
     balances in each such account on the last day of each calendar quarter in
     proportion to the balances of all such accounts on the same day prior to
     the income allocation provided herein.

                                      -18-

          (e) The foregoing notwithstanding, if as a result of a reasonable
     error in estimating a Participant's Plan Compensation, or a reasonable
     error in determining the amount of a Participant's Elective Deferrals, the
     annual additions for a Participant for a particular Plan Year would cause
     the limitations of Code Section 415 applicable to that Participant for that
     Plan Year to be exceeded, such excess amounts shall not be deemed to be
     annual additions to that Participant's account and shall not increase that
     Participant's account, but rather shall be removed from that Participant's
     account and be used to reduce the Employer contributions for the next
     Limitation Year (Plan Year) and succeeding Limitation Years, if necessary,
     for that Participant if that Participant is covered by the Plan as of the
     end of the Limitation Year. If the Participant is not covered by the Plan
     as of the end of the Limitation Year, then such excess must be held
     unallocated in a suspense account for that Limitation Year and allocated
     and reallocated in the next Limitation Year to all remaining Participants
     and such excess amounts must be used to reduce the Employer contributions
     for such Limitation Years. No such excess amounts may be distributed to
     Participants or former participants.

     4.4  Self-Directed Accounts.
          ----------------------

          (a) Each Participant shall direct the Trustees as to how all or any
     portion of the Participant's Account shall be invested in accordance with
     such rules and regulations that permit a Participant the opportunity to
     exercise control over the assets in his individual account and provide an
     opportunity to choose, from a broad range of investments, the manner in
     which some or all of such assets are invested. The Trustees shall implement
     such Participant instructions except as provided in paragraph (c) below.
     All rules and regulations shall be applied consistently and uniformly to
     all Participants similarly situated.

          (b) The Trustees shall make available to each Participant the
     opportunity to choose from at least three diversified categories of
     investments (including look-through investments) and to transfer all or any
     portion of the Participant's Account between and among such investments no
     less frequently than quarterly annually. In addition to investment
     directions which may be given pursuant to paragraph (d) below, a
     Participant may invest in any of the look-through investment vehicles as
     selected by the Trustees. All of the information concerning such
     investments shall be made available to a Participant upon request to the
     Trustees by distribution of the prospectuses and other information
     concerning such look-through investments as is provided to the Trustees.
     Effective January 1, 2000, up to 100 percent of Plan assets may be invested
     in Qualifying Employer Securities. Moreover, as of such date, each
     Participant may direct the investment of all or a portion of the
     Participant's Account in Qualifying Employer Securities which consist of
     Employer Stock. The duties of the Employer and Trustees concerning such
     investment and the rights of Participants concerning an investment in
     Employer Stock are set forth in Section 4.5 below.

          (c) The Trustees shall not honor investment directions which, if
     implemented would not be in accordance with the Plan documents to the
     extent the Plan documents are consistent with Title I of ERISA; would cause
     the Plan to maintain an indicia of ownership of any Plan assets outside of
     the United States; would jeopardize the Plan's tax qualified status under
     the Internal Revenue Code; would result in a prohibited transaction as
     described in ERISA Section 406, or in IRC Section 4975; could result in a
     loss in excess of the Participant's Account balance; or, would generate
     income taxable to the Plan.

                                      -19-

          (d) In addition to the look-through investment vehicles available to
     the Participant under paragraph (b) above, a Participant may select any
     other investment, subject to the limitations of paragraph (c) and subject
     to the Participant bearing the expenses of carrying out the Participant's
     instructions in purchasing such investments, all of which shall be detailed
     in writing by the Trustees to the Participant to the extent known and, if
     there are expenses which are unknown that fact shall be in writing on forms
     supplied by the Trustees and shall be signed by the Participant and
     witnessed by a Trustee.

          (e) Under no circumstances shall the ability of a Participant to
     direct the investment of the amounts credited to his Account be interpreted
     to allow the Participant to invest such Accounts directly or to ever take
     possession of all or any portion of his Account, except as specifically
     provided by this Plan. All funds while held in the Trust are part of the
     trust fund and are managed exclusively by the Trustees subject to this
     Section 4.5.

          (f) It is specifically intended that the Plan qualify as an ERISA
     404(c) Plan. The Plan Committee is the identified plan fiduciary to accept
     Participant's investment choices and to distribute such investment
     information. The Plan Committee may designate all or a portion of this
     responsibility to others provided such designation is communicated in
     writing to the Participants. To the extent the Plan does qualify as an
     ERISA 404(c) Plan, with respect to each Participant the Plan fiduciaries
     may be relieved of liability for any losses which are the direct and
     necessary result of investment choices made by the Participant or the
     Participant's beneficiary. A Participant may change the allocation of his
     contribution and account balances at least once in any three months. Each
     Participant shall have the opportunity to give investment instructions to
     the Plan Committee or its designee and will obtain written conformation of
     such instructions. Under no circumstances is any person, including any
     member of the Plan Committee, or any employee of the Employer, authorized
     to distribute to a Participant information concerning any investment that
     is not contained in a prospectus or otherwise made available pursuant to
     all applicable laws regulating the sale and investment of securities and
     other property.

     4.5  Investment in Employer Stock.
          ----------------------------

          (a) Definitions.

              (i)   Employer Stock means the common stock of Donegal Group Inc.,
          the majority-owned subsidiary of the Employer, as traded on the Nasdaq
          National Market. Employer Stock which shall be acquired under the Plan
          shall be purchased on the open market, but the Trustees reserve the
          power to acquire such Employer Stock directly from Donegal Group Inc.
          Effective September 1, 2001, Employer Stock shall be limited to the
          Class A common stock of Donegal Group, Inc. and shall not include the
          Class B common stock of Donegal Group, Inc.

              (ii)  Qualifying Employer Security means an Employer Security
          which is a stock or a marketable obligation (within the meaning of
          Sections 407(d) and 407(e) of ERISA) of the Employer or of its
          majority-owned subsidiary, Donegal Group Inc. The Employer Securities
          which are Qualifying Employer Securities under the Plan shall be
          limited to Employer Stock (within the meaning of Section 4.5(a)(i)).

                                      -20-

              (iii) Employer Security means an employer security (as such term
          is defined in Section 407(d)(1) of ERISA) issued by the Employer or by
          an affiliate (as such term is defined by Section 407(d)(7) of ERISA)
          of the Employer.

              (iv)  Custodian means Reliance Trust Company, a Georgia
          corporation. Custodian is an "investment manager" as defined in
          Section 3(39) of ERISA with respect to Employer Stock.

              (v)   Record Keeper means TransAmerica. The Record Keeper will
          maintain all records of the Participants' accounts with respect to
          investments in Employer Stock.

          (b) Purchase and Sale of Employer Stock.

              (i)  A Participant may direct the Trustee to invest all or a
          specified portion of the Participant's Elective Contributions and
          Employer Matching Contributions made on his behalf in Employer Stock.
          Such direction shall be made on forms supplied by the Trustees and
          maintained by the Record Keeper and in accordance with such procedures
          as the Plan Committee may establish. Notwithstanding anything to the
          contrary contained in this Plan or the Trust Agreement, the Trustees
          shall, upon receipt of a Participant's direction to invest in Employer
          Stock in accordance with this Section, direct the Custodian to
          purchase shares of Employer Stock upon the receipt by the Custodian of
          contributions from the employees unless such purchase is prohibited by
          applicable law. Such purchases shall be made pursuant to a
          nondiscretionary purchasing program developed by the Custodian to
          effect such purchases in an orderly manner without disruption of the
          market for such stock or may purchase Employer Stock directly from
          Donegal Group Inc. and, in either event, in accordance with Section
          408(e) of ERISA and other applicable law.

              (ii) If a Participant's vested interest in the Participant's
          Accounts or a portion thereof is to be distributed on account of the
          Participant's retirement, disability, death, termination of
          employment, pursuant to a hardship withdrawal, withdrawal of a
          rollover contribution or as a result of a qualified domestic relations
          order or because of the minimum distribution rules, the Trustees will
          direct the Custodian to sell the Participant's shares of Employer
          Stock or distribute such stock in kind, at the election of the
          Participant or the Participant's designated beneficiary. If the
          Participant elects to take a cash distribution, the amount of cash to
          be distributed to the Participant attributable to the Participant's
          shares of Employer Stock will be determined in accordance with Section
          4.5(d). Notwithstanding the foregoing, the Custodian may net out
          transactions internally (so as not to be both a buyer and a seller on
          the open market) at the prices as determined by the Custodian under
          Section 4.5(d).

          (c) Voting of Shares. Notwithstanding anything to the contrary
     contained in this Plan or the Trust Agreement, whenever any proxies or
     consents are solicited from shareholders, each Participant (or designated
     beneficiary in the case of deceased Participant) whose account contains
     Employer Stock will have the right to direct the Trustees, in writing, as
     to the voting of such shares. The Trustees or the Custodian will use their
     best efforts to distribute or cause to be distributed in a timely manner to
     each Participant or designated beneficiary a copy of the proxy solicitation
     material sent to shareholders, together with a form addressed to the
     Trustees or the Custodian containing confidential, written instructions as
     to the manner in which said shares will be voted. If the instructions are
     sent to the Custodian, the Custodian must communicate the instructions to
     the Trustees. Upon receipt of such instructions, the Trustees will vote
     said shares as instructed. Shares of Employer Stock as to which the
     Trustees do not receive instructions will be voted by the Trustees in the
     proportion to the voting of shares with respect to which instructions are
     received. Each Participant (or designated beneficiary) will be entitled to
     one vote for each full share of Employer Stock allocated to the
     Participant's accounts. Fractional shares of Employer Stock will not be
     permitted to vote.

                                      -21-

          (d) Valuation. Employer Stock will be valued as of any business day of
     each Plan Year at the closing price for such stock on the Nasdaq National
     Market on the date on which such valuation is being made or under such
     other method of determining fair market value as shall be authorized by the
     Code, or the rules or regulations thereunder, and adopted by the Custodian.
     Any dividends received on Employer Stock will be reinvested and become part
     of the Participant's Accounts. The Record Keeper will maintain adequate
     records of the cost basis of Employer Stock for each Participant's account.
     The Record Keeper may from time to time modify its accounting procedures to
     achieve equitable and nondiscriminatory allocations among the Matching
     Contribution Accounts of Participants in accordance with the provisions of
     this Plan and the requirements of applicable law.

          (e) Named Fiduciary Status/Confidentiality. Each Participant or
     designated beneficiary shall be deemed to be a named fiduciary within the
     meaning of Section 402(a) of ERISA with respect to the voting of the shares
     of Employer Stock as to which such Participant or designated beneficiary
     has the right of direction. Directions received from Participants or
     designated beneficiaries by the Trustees or the Custodian with respect to
     the acquisition, holding, disposition or voting of Employer Stock shall be
     held in strict confidence and shall not be divulged or released to any
     person, including employees, officers or directors of the Employer, to the
     extent required by and in accordance with Section 404(c) of ERISA, except
     if disclosure is otherwise required by applicable law, and except to the
     extent necessary for the operation of the Plan, such directions may be
     relayed by the Trustees to the Record Keeper or auditor for the Plan, which
     Record Keeper or auditor is not the Employer.

          (f) Transition Rule. A Participant who has purchased through the Plan
     and has had allocated to his account Class B common stock of Donegal Group,
     Inc. shall be permitted to retain such stock in the Participant's account
     and such stock shall be included in the term "Qualified Employer
     Securities". Should such Class B common stock of Donegal Group, Inc. be
     sold or otherwise disposed of from the Participant's account, a Participant
     may not replace such stock with stock other than the Class A common stock
     of Donegal Group, Inc.

                                   ARTICLE V

                              PAYMENT OF BENEFITS

     5.1  Vesting and Forfeitures.
          -----------------------

          (a) Elective Deferral Account - A Participant shall be 100% vested at
     all times in the amounts held in this account.

                                      -22-

          (b) Employer Matching Contribution Account - A Participant will be
     100% vested in the amounts held in this account after the completion of
     three (3) Years of Service:

          (c) Except as provided above, for purposes of this Plan, the word
     "Accounts" shall mean both a Participant's Elective Deferral Account and
     the Employer Matching Contribution Account.

          (d) All forfeitures arising under this Plan shall be applied to the
     restoration of any accounts of Participants who are reemployed during the
     Plan Year as required by this Plan and forfeitures remaining, if any, will
     be applied toward the Employer's Matching Contribution for the Plan Year in
     which the forfeitures occurred. If there are any forfeitures remaining
     unapplied after the application of the preceding sentence, they will be
     applied to the Matching Contribution accounts of the Participants remaining
     in the Plan in proportion to their compensation for that Plan Year.

     5.2  Retirement. A Participant shall reach Normal Retirement Age upon
          ----------
attaining age 65 and Early Retirement Age upon attaining age 55 and may retire
as of the first day of the month coincident with or following his attainment of
such ages as the Participant elects, which day shall be called the Participant's
Retirement Date. A Participant shall have a nonforfeitable right to the balances
in his Accounts upon attainment of Early or Normal Retirement Age. A Participant
may remain actively employed by the Employer after his Normal Retirement Date,
subject to any written mandatory retirement policy of the Employer. He shall
continue to be a Participant in the Plan as long he remains so employed by the
Employer, and he may retire or be retired in accordance with any such written
mandatory retirement policy of the Employer, as of the first day of any month
after his Normal Retirement Date. A Participant who retires under this section
shall be entitled to distribution of his entire Accounts balance at the time and
in the manner provided by Section 5.8.

     5.3  Age 59-1/2. Upon attainment of age 59-1/2, a Participant may request a
          ----------
distribution of all or any portion of the vested portion of his Accounts
attributable to contributions made pursuant to Sections 3.1, 3.4, and 3.11. Such
distribution may be made even though the Participant has not terminated
employment and continues as a Participant in the Plan thereafter. A Participant
requesting a distribution under this Section shall be entitled to distribution
at the time and in the manner provided by Section 5.8.

     5.4  Disability. A Participant who is determined by the Employer to be
          ----------
disabled as defined in Section 1.4(a) hereof, shall be considered to have taken
disability retirement as of the first day of the month following the month in
which the Employer makes such determination. The Employer may require the
Participant to submit to medical examinations for the purpose of verifying the
Participant's disability. A Participant who becomes disabled shall have a 100%
nonforfeitable right to the balances in his Accounts and shall be entitled to
distribution of his Accounts at the time and in the manner provided by Section
5.8.

     5.5  Death. In the event of a Participant's death prior to his termination
          -----
of employment with the Employer, the balances in such Participant's Accounts
shall become fully vested and payable to the Participant's beneficiary as
designated under the Plan. Distribution of such balances shall be made at the
time and in the manner provided by Section 5.8. Unless otherwise elected in the
manner prescribed in this Section, the Beneficiary of any death benefit payable
hereunder shall be the Participant's spouse. The Participant may designate a
Beneficiary other than his or her spouse only if:

                                      -23-

          (a) The Participant's spouse has consented to the Beneficiary
     Designation. Such consent must be in writing and must be witnessed by a
     representative of the Plan Committee or notarized. The consent will be
     valid only as to the spouse who signed it; or

          (b) The Participant establishes to the satisfaction of the Plan
     Committee that he or she has no spouse; or

          (c) The Participant's spouse cannot be located; or

          (d) Because of other circumstances under which no spousal consent is
     required in accordance with applicable regulations under the Code or ERISA.

     5.6  Termination of Employment Prior to Retirement, Disability or Death. A
          ------------------------------------------------------------------
Participant who terminates employment with the Employer and who is not entitled
to distribution of his account balance under any previous section of this
Article V, shall be entitled to distribution of the vested balances in his
Accounts at the time and in the manner provided by Section 5.8.

     5.7  Limitation on Distributions. Except as provided in Section 5.8, no
          ---------------------------
distributions shall be made to a Participant from his Accounts until such
Participant's retirement, attainment of age 59-1/2, death, disability, other
termination of employment or due to hardship as provided herein.

     The Plan Administrator shall not permit a distribution of any benefit prior
to the Participant's Normal or Early Retirement Age where the present value of
the non-forfeitable accrued benefit (taking into account benefits derived from
both Employer and Employee contributions) is in excess of $5,000 without the
consent of the Participant's spouse. The Plan Administrator must obtain the
written consent of the Participant and where applicable the Participant's spouse
not more than 90 days before the commencement of the distribution of any part of
an accrued benefit hereunder.

     5.8  Distribution upon Retirement, Disability, Death or Other
          ---------------------------------------------------------
Termination of Employment.
- -------------------------

          (a) Time and Manner of Distribution. Upon a Participant's retirement,
              -------------------------------
     attainment of age 59-1/2 (if a distribution is requested at that time
     pursuant to the provisions of Section 5.3), disability, death, or other
     termination of employment, there shall be distributed to the Participant,
     or to his Beneficiary in the case of death, the vested balances in the
     Participant's Accounts as of the Accounting Date immediately preceding the
     date of such separation from employment, plus any contributions credited or
     to be credited to his Accounts subsequent to such Accounting Date, in a
     lump sum, to be distributed as soon as practicable after such separation
     from employment (and in the case of an age 59-1/2 in-service distribution
     as soon as practical after the written request is received by the Plan
     Committee) unless elected otherwise by the Participant or the Participant's
     surviving spouse. For purposes of this Section 5.8 "Accounting Date" means
     a date on which the Trustee values the Investment Funds and makes
     allocations to Accounts pursuant to Article IV. Notwithstanding the
     foregoing, a Participant who has separated from employment may elect,
     pursuant to Plan Committee rules, to defer such lump sum distribution to
     any subsequent date, subject to the restrictions contained in subsection
     (b) hereof. The Accounting Date for such deferred lump sum distribution
     shall be the Accounting Date which immediately precedes the date of
     distribution elected by the Participant. An election to defer a
     distribution may be changed no more frequently than annually and shall be
     irrevocable upon the death of the Participant.

                                      -24-

          If a Participant (or Beneficiary) entitled to receive a distribution
     under this Section 5.8 should die prior to the time he has received the
     full distribution to which he is entitled, then the amount credited to his
     Accounts as of the Accounting Date for the month in which the death occurs
     shall be distributed to the deceased Participant's Beneficiary or to the
     estate of the Beneficiary in the case of the Beneficiary's death. The
     provisions of this Section 5.8 shall apply to all benefits payable to a
     Participant derived from both Employer and non-deductible Employee
     Contributions. If a distribution is considered to have commenced in
     accordance with the Treasury Regulations before the Participant's death,
     the remaining interest of the Participant will be distributed at least as
     rapidly as under the method of distribution being used as of the date of
     the Participant's death. Additionally, distributions under this Plan will
     be made in accordance with the requirement of the Treasury Regulations
     under Section 401(a)(9), including the minimum distribution incidental
     benefit requirements of Section 1.401(a)(9)-2 of the proposed Regulations.

          (b) Restrictions. Distributions are subject to the following
              ------------
restrictions where applicable:

              (1)  No Participant (or Beneficiary) may elect a distribution date
          which is earlier than 60 days following the date on which the
          Participant's Accounts are to be valued.

              (2)  Each Participant's Accounts balances must be distributed to
          him in full no later than the April 1st following the calendar year in
          which he attains age 70-1/2; provided however, if Participant dies
          before his entire Accounts balances have been distributed, or if
          distribution has commenced to the Participant's surviving spouse who
          dies before the entire Account balances have been distributed then the
          entire remaining Account balances must be distributed to the
          Participant's designated Beneficiary within five years of the
          Participant's death (or the death of his surviving spouse). The
          foregoing notwithstanding, a Participant other than a five (5%)
          percent owner shall not be required to accept a distribution
          regardless of age prior to the termination of his employment with the
          Employer.

                                      -25-

              (3)  Notwithstanding (2) above or any other provision herein to
          the contrary, in no event shall distribution of a Participant's
          Accounts be made later than the sixtieth (60th) day after the close of
          the Plan Year in which occurs the latest of the following events:

                   (a) The attainment by the Participant of age 65;

                   (b) In the case of a Plan Participant who commences
              participation in the Plan within five (5) years before attaining
              age 65, the fifth anniversary of the time the Plan Participant
              commences participation in the Plan;

                   (c) In the case of a Plan Participant not described in
              paragraph (b) above, the tenth anniversary of the Plan Year in
              which the Participant joined the Plan as a Participant;

                   (d) The termination of the Participant's service with the
              Employer; or

                   (e) The date specified by the Participant in his election
              made pursuant to subsection (a) hereof.

     5.9  Distributions of $5,000 or Less. Upon the termination of a
          -------------------------------
Participant's employment with the Employer, prior to a Participant's annuity
starting date, the Plan Committee shall make an immediate total distribution of
the vested value of the account of the Participant if the present value of such
account to the extent vested (calculated using an interest rate not greater than
the PBGC rate) is $5,000 or less and, at no time prior to the termination of the
Participant's employment, ever exceeded $5,000.00. Such amount shall be paid to
the Participant, or if the Participant is then deceased, to the Participant's
designated beneficiary; provided, however, if the distribution provided
hereunder is less than the total amount of the Participant's account at the time
of the distribution and if the Participant is reemployed within the five (5)
year period commencing on such termination, the Participant shall have repayment
rights with respect to such distribution identical to those provided in Section
3.13 hereof.

     5.10 Additional Distribution Restrictions. Notwithstanding anything else
          ------------------------------------
contained in this Plan, amounts attributable to Elective Deferrals may not be
distributed earlier than the occurrence of one of the following events:

          (1) the Participant's retirement, death or disability or separation
     from service;

          (2) the termination of this Plan without the establishment or
     maintenance of another defined contribution plan (other than an ESOP or
     SEP);

          (3) the Participant's attainment of age 59 1/2 or hardship as provided
     herein;

          (4) the sale or disposition by the Employer to an unrelated
     corporation of substantially all of its assets, but only with respect to
     Employees who continue employment with the acquiring corporation and the
     acquiring corporation does not maintain the Plan after the disposition; and

                                      -26-

          (5) the sale or other disposition by the Employer of its interest in a
     subsidiary to an unrelated entity but only with respect to Employees who
     continue employment with the subsidiary and the acquiring entity does not
     maintain the Plan after the disposition.

     Clauses, 2, 4, and 5 apply only if the distribution is in the form of a
     lump sum and clauses 4 and 5 apply only if the transferor corporation
     continues to maintain the Plan.

                                  ARTICLE VI

                           FIDUCIARY RESPONSIBILITY

     6.1  Named Fiduciary. The Employer shall be the "named fiduciary" referred
          ---------------
to in Section 402(a) of ERISA with respect to the management, operation and
administration of the Plan and is also responsible for making contributions
provided for under Section 3.1. The "Plan Administrator" as defined in Section
414(g) of the Code and Section 3(16) of ERISA is the Plan Committee as
established by Article VIII hereof.

     6.2  Allocation of Fiduciary Responsibility. Each fiduciary, whether named
          --------------------------------------
herein or otherwise, shall only have the individual responsibility for
exercising the functions and responsibilities assigned or allocated to such
fiduciary hereunder. Unless otherwise specifically provided herein, no fiduciary
responsibility shall be shared by two or more fiduciaries. Where one fiduciary
follows the directions of another fiduciary, who has the fiduciary
responsibility for such action, then the fiduciary following such direction
shall not be deemed a fiduciary hereunder in taking such action.

     6.3  Service in More than One Capacity. Any person, or group of persons,
          ---------------------------------
may serve in more than one fiduciary capacity with respect to this Plan.

     6.4  Employment of Advisers. A fiduciary may engage accountants, attorneys,
          ----------------------
actuaries or such other advisers as it deems necessary or advisable to properly
carry out its duties under this Plan. The functions of any such persons
designated by the fiduciary shall be limited to the specific services and duties
for which they are engaged, and such persons shall have no other duties,
obligations or responsibilities under the Plan.

     6.5  Compensation of Fiduciaries and Advisers. The fees, expenses and costs
          ----------------------------------------
charged or incurred by any fiduciary or any adviser hereunder may be paid in
whole or in part by the Employer, and any such fees, expenses or costs not paid
by the Employer shall be paid out of the Trust; provided that such compensation
or reimbursement is reasonable under the circumstances; and provided further
that no person who already receives full-time pay from an Employer whose
employees are Participants in the Plan shall receive any compensation from the
Trust, except for reimbursement of expenses properly and actually incurred.

     6.6  Liability of Fiduciaries. Each fiduciary, and each adviser to any
          ------------------------
fiduciary, shall be free from all liability for any act or conduct in carrying
out its responsibilities under this Plan, except for acts of willful misconduct
or gross negligence; provided, however, that the foregoing shall not relieve any
such fiduciary or adviser from any responsibility or liability that it may have
pursuant to ERISA.

                                      -27-

                                  ARTICLE VII

                              PLAN ADMINISTRATION

     7.1  Plan Committee. A Plan Committee consisting of at least two officers
          --------------
of the Employer shall be the Plan Administrator. The Plan Committee may appoint
one member authorized to sign any reports required by ERISA in representation of
all members. Members of the Plan Committee shall serve until their resignation
or dismissal by the Employer and vacancies shall be filled in the same manner as
the original appointments. The Employer may dismiss any member of the Plan
Committee at any time with or without cause.

     7.2  Duties and Powers of the Plan Committee. The Plan Committee shall have
          ---------------------------------------
such duties and powers as may be necessary to discharge its duties hereunder,
including, but not limited to, the following:

          (a) To construe and interpret the Plan and Trust.

          (b) To decide all questions of the eligibility of Employees to become
     Participants under the Plan.

          (c) To determine the amount, manner and time of payment of benefits
     under the Plan.

          (d) To authorize and direct all disbursements by the Trustee from the
     Trust.

          (e) To prescribe procedures to be followed by Participants or
     Beneficiaries for filing applications for benefits.

          (f) To prepare and distribute to Participants information explaining
     the Plan.

          (g) To make and publish rules for the regulation of the Plan which are
     not inconsistent with the terms of the Plan or with ERISA.

          (h) To designate one or more of its members to assume responsibility
     for any of its functions or to delegate to individuals not members of the
     Committee any administrative, clerical or other nondiscretionary duties
     provided always in such delegation, the Committee shall alone remain
     responsible for decisions affecting the rights of Participants and their
     beneficiaries.

          (i) To take any action required to take self corrective measures as
     required by the Internal Revenue Service or the Department of Labor to
     preserve the tax qualified status of the Plan, to correct errors in
     fiduciary conduct or such other action to maintain the Plan in compliance
     with all applicable laws.

                                      -28-

     The Plan Committee shall have no power to add to, subtract from or modify
any of the terms of the Plan, or to modify any benefits provided by the Plan, or
to waive or fail to apply any requirements for eligibility for a benefit under
the Plan. All policies, rules, interpretations and decisions of the Plan
Committee shall be uniformly and consistently applied in a nondiscriminatory
manner to all Participants in similar circumstances. The Plan Committee shall be
entitled to rely upon information furnished by a Participant or Beneficiary in
carrying out its duties hereunder.

     7.3  Claims Procedure. The Plan Committee shall make all determinations as
          ----------------
to the right of any person to a benefit under this Plan. If a claim is denied by
the Plan Committee, it shall give written notice to the claimant setting forth
(a) the specific reason or reasons for the denial, (b) the specific reference to
pertinent Plan provisions on which the denial is based, (c) a description of any
additional material or information necessary for the claimant to perfect the
claim and an explanation of why such material or information is necessary, and
(d) an explanation of the claim review procedure, in accordance with this
Section.

     Within sixty days after the receipt by the claimant of a written notice of
denial of a claim, or such later time as may be deemed reasonable taking into
account the nature of the benefit subject to the claim and any other attendant
circumstances, the claimant may file a written request with the Plan Committee
that it conduct a full and fair review of the denial of the claim for benefits.
If such review is requested, the claimant or his duly authorized representative
may (a) request a review upon written application, (b) review pertinent
documents, and (c) submit issues and comments in writing.

     The Plan Committee shall issue a written decision on the claim within sixty
days after the receipt of the aforesaid request for review, except that if there
are special circumstances (such as the need to hold a hearing) which require an
extension of time for processing the claim, the aforesaid sixty day period shall
be extended to one hundred twenty days. In the event of such extension, written
notice of the extension shall be furnished to the claimant prior to the
commencement of the extension. Any decision on review shall be in writing, and
shall be written in a manner calculated to be understood by the claimant, shall
include the specific reason or reasons for the decision, and shall contain
specific reference to pertinent Plan provisions upon which the decision is
based.

     The foregoing notwithstanding, the Plan Committee shall be responsible for
maintaining records of Participants' service, account balances, vesting and
other matters relating to amount of benefits under the Plan. The Plan Committee
shall also be responsible for filing such reports, and making such disclosure to
Participants as may be required by ERISA and the Code.

     7.4  Records and Reports. The Plan Committee shall be responsible for
          -------------------
maintaining records of Participants' service, account balances, vesting and
other matters relating to amount of benefits under the Plan. The Plan Committee
shall also be responsible for filing such reports, and making such disclosures
to Participants as may be required by ERISA and the Code.

     7.5  Application and Forms for Benefits. The Plan Committee may require a
          ----------------------------------
Participant to complete and file with the Committee an application for a
benefit, or any other forms approved by the Committee, and to furnish all
pertinent information requested by the Plan Committee. The Plan Committee may
rely on all such information so furnished.

                                      -29-

                                 ARTICLE VIII

                 AMENDMENT, MERGER AND TERMINATION OF THE PLAN

     8.1  Amendment and Termination.
          -------------------------

          (a) General. The Employer intends to continue this Plan and the
              -------
     payment of contributions hereunder indefinitely, but such continuance is
     not assumed as a contractual obligation, and the Employer expressly
     reserves the right to discontinue contributions to the Plan or to terminate
     the Plan at any time, as to its Employees without the consent of any other
     party. Any amendment may be made retroactive by its terms, but no such
     amendment shall cause any part of the Trust to be used for, or diverted to,
     any purpose other than the exclusive benefit of Participants or their
     Beneficiaries; provided, however, the Employer may make any amendment it
     determines necessary or desirable, with or without retroactive effect, to
     qualify or maintain the Plan as a qualified plan within the meaning of
     Section 401(a) of the Code, and to qualify or maintain the Trust as tax
     exempt under Section 501(a) of the Code, and the regulations issued
     thereunder.

         (b)  Limitations on Amendment.
              ------------------------

              (1)  If the Plan's vesting schedule is amended or the Plan is
          amended in any way that directly or indirectly affects the computation
          of a Participant's nonforfeitable percentage, or if the Plan is deemed
          amended by an automatic change to or from a top-heavy vesting
          schedule, each Participant with at least three years of service with
          the Employer may elect, within a reasonable period after the adoption
          of the amendment or change to have the Participant's nonforfeitability
          percentage computed under the Plan without regard to such amendment or
          change. The period during which the election may be made shall
          commence with the date the amendment is adopted or deemed to be made
          and shall end on the latest of:

                 (i) Sixty (60) days after the amendment is adopted

                 (ii) Sixty (60) days after the amendment becomes effective or

                 (iii) Sixty (60) days after the Participant is issued written
          notice of the amendment by the Plan Committee.

                                      -30-

              (2)  No amendment to the Plan shall be effective to the extent it
          has the effect of decreasing a Participant's accrued benefit.
          Notwithstanding the preceding sentence, a Participant's account
          balance may be reduced to the extent permitted under Section 412(c)(8)
          of the Code. For purposes of this section, a Plan amendment which has
          the effect of decreasing a Participant's account balance or
          eliminating an optional form of benefit with respect to benefits
          attributable to service before the amendment shall be treated as
          reducing an accrued benefit. Furthermore, no amendment of the Plan
          shall have the effect of decreasing a Participant's vested interest
          determined without regard to such amendment as of the later of the
          date such amendment is adopted or the date it becomes effective.

     8.2  Action by Employer. Any action by the Employer under this Plan may be
          ------------------
taken by means of a writing signed by an authorized officer.

     8.3  Effect of Termination. Upon termination of the Plan, the accounts of
          ---------------------
all Participants or Beneficiaries affected thereby shall become fully vested and
nonforfeitable, and the Plan Committee shall, after payment of expenses properly
chargeable to the Fund, allocate any unallocated assets in the Fund to the
accounts of such Participants or Beneficiaries pursuant to the rules set forth
in Article IV hereof. In making such final allocation, the Plan Committee may,
if it determines that a termination of the Plan has occurred prior to the date
of formal action by the Employer, reverse any forfeitures of accounts of
Participants which have occurred in the interim.

     8.4  Partial Termination. Upon termination of the Plan with respect to a
          -------------------
group of Participants which constitutes a partial termination of the Plan under
the Code, the accounts of such group of Participants shall become fully vested
and non-forfeitable.

     8.5  Manner of Distribution. In the event of termination or partial
          ----------------------
termination of the Plan, the Plan Committee shall direct the Trustee either (a)
to make distribution of benefits to Participants or their Beneficiaries affected
by such termination or partial termination pursuant to Section 5.8, or (b) to
retain such benefits for distribution upon the occurrence of one of the events
set forth in Article V hereof.

     To the extent that no discrimination in value results, any distribution
after termination or partial termination of the Plan may be made, in whole or in
part, in cash, in securities or other assets in kind, or in nontransferable
annuity contracts, as the Plan Committee and the Trustee may determine. All
non-cash distributions shall be valued at fair market value at the date of
distribution.

     8.6  Merger. In the event of any merger or consolidation of the Plan with,
          ------
or transfer in whole or in part of the assets and liabilities of the Fund to
another trust fund held under any other plan of deferred compensation maintained
or to be established for the benefit of all or some of the Participants in this
Plan, the assets of the Fund applicable to such Participants shall be
transferred to the other trust fund only if:

                                      -31-

          (a) Each Participant would (if either this Plan or the other plan then
     terminated) receive a benefit immediately after the merger, consolidation
     or transfer which is equal to or greater than the benefit he would have
     been entitled to receive immediately before the merger, consolidation or
     transfer (if this Plan had then terminated).

          (b) A writing signed by the authorized partner of the Employer under
     this Plan, or of any new or successor employer of the affected
     Participants, shall authorize such transfer of assets, and, in the case of
     the new or successor employer of the affected Participants, its resolutions
     shall include an assumption of liabilities with respect to such
     Participants' inclusion in the new employer's plan, and

          (c) Such other plan and trust are qualified under Sections 401(a) and
     501(a) of the Internal Revenue Code.

     8.7  Successor Employer. In the event of the dissolution, merger,
          ------------------
consolidation or reorganization of the Employer, provision may be made by which
the Plan and Trust will be continued by the successor; and, in that event, such
successor shall be substituted for the Employer under the Plan. The substitution
of the successor shall constitute an assumption of Plan liabilities by the
successor and the successor shall have all of the powers, duties and
responsibilities of the Employer under the Plan.

                                  ARTICLE IX

                                   TOP-HEAVY
                          PROVISIONS AND DEFINITIONS

     9.1  Top-Heavy Plan Definitions.
          --------------------------

          (a) "Top-Heavy Plan" means a plan which, as of the Determination Date
     (1) the Present Value of Accrued Benefits of Key Employees and (2) the
     aggregate of the Accounts of Key Employees under the plan exceeds sixty
     percent (60%) of the Present Value of Accrued Benefits and the aggregate of
     the Accounts of all employees under such plan. The determination of whether
     a plan is top-heavy shall be made after aggregating all other plans of the
     Employer or any of its affiliates which are part of a Required Aggregation
     Group and after aggregating any other plan of the Employer or any of its
     affiliates which is part of the Permissive Aggregation Group, if such
     permissive aggregation thereby eliminates the top-heavy status of any plan
     within such Permissive Aggregation Group. A plan is a "Super Top-Heavy
     Plan" if, as of the Determination Date, the plan would meet the test
     specified above for being a Top-Heavy Plan if ninety percent (90%) were
     substituted for sixty percent (60%) in each place it appears in this
     subsection.

          (b) "Determination Date" means, for purposes of determining whether a
     plan is a Top-Heavy Plan for a particular Plan Year, the last day of the
     preceding Plan Year (or, in the case of the first Plan Year of a plan, the
     last day of the first Plan Year).

          (c) "Valuation Date" means, for purposes of determining the value of
     Accounts under this Section, the same date as the Determination Date.

                                      -32-

          (d) "Key Employee" means any Employee or former Employee (including a
     Beneficiary of such Employee) who at any time during the Plan Year of
     Determination, or during any of the four (4) preceding Plan Years, is:

              (1) An officer of the Employer having annual Compensation for
          such Plan Year which is in excess of 50% of the dollar limit in effect
          under Section 415(b)(1)(A) for the calendar year in which such Plan
          Year ends;

              (2) An owner of (or considered as owning within the meaning of
          Section 318) both more than an one-half percent interest as well as
          one of the ten largest interests in the Employer and having annual
          compensation greater than the dollar limit in effect under Section
          415(c)(1)(A) for the Plan Year;

              (3) A 5% owner of the Employer; or

              (4) A 1% owner of the Employer whose annual compensation is more
          than $150,000.

     For purposes of determining 5% and 1% owners, the aggregation rules and the
rules of subsections (b), (c) and (m) of Section 414 of the Code do not apply.

          (e) "Non-Key Employee" means any Employee or former Employee
     (including a Beneficiary of such Employee) who is not a Key Employee.

          (f) "Account" means the value of all accounts (as defined in Sections
     1.4(b), (c) and (d) under the Plan as of the Valuation Date, including all
     employer contributions paid or payable to such Account and all employee
     contributions actually paid to such Account, except as follows:

              (1) The value of each Account shall be increased by the aggregate
          distributions made with respect to an Employee under the Plan during
          the five (5) year period ending on the Determination Date.

              (2) In the case of a profit sharing plan, the value of each
          Account shall not include any employer contribution actually made
          after the Determination Date, except in the case of the first Plan
          Year each account shall include such contributions that are allocated
          to the Account as of a date within the first Plan Year.

              (3) The value of an Account maintained for voluntary deductible
          Employee contributions (if any) shall not be included.

              (4) The value of an Account maintained for rollover contributions
          (if any) shall not be included if the rollover contribution was
          initiated by the Employee and was not made from a plan maintained by
          the Employer (or by an employer required to be aggregated with the
          Employer under Sections 414(b), (c) or (m) of the Code).

                                      -33-

              (5) The value of an Account maintained for an Employee who is a
          Non-Key Employee with respect to a plan for any Plan Year who was a
          Key Employee with respect to a plan for any prior Plan Year shall not
          be included.

              (6) If an individual has not performed any services for any
          employer maintaining the Plan at any time during the five (5) year
          period ending on the Determination Date, the value of the Account of
          such individual shall not be included.

          (g) "Required Aggregation Group" means (1) each qualified plan of the
     Employer or any of its affiliates in which at least one Key Employee
     participates, including for this purpose any terminated plan that covered a
     Key Employee maintained by the Employer within the five year period ending
     on the Determination Date, and (2) any other qualified plan of the Employer
     or any of its affiliates which enables a plan described in (1) to meet the
     requirements of Sections 401(a)(4) or 410 of the Code.

          (h) "Permissive Aggregation Group" means the Required Aggregation
     Group of plans plus any other plan or plans of the Employer or any of its
     affiliates which, when considered as a group with the Required Aggregation
     Group would continue to satisfy the requirements of Sections 401(a)(4) and
     410 of the Code.

          (i) "Present Value of Accrued Benefit" means, in the case of a defined
     benefit plan, the present value of a Participant's accrued benefit as
     determined under the provisions of the applicable defined benefit plan.

          (j) "Employer or any of its Affiliates" means the Employer maintaining
     the Plan, and all commonly controlled trades or businesses (as defined in
     Section 414(c) of the Code), and affiliated service groups (as defined in
     Section 414(m) of the Code) of which the Employer is a part.

     9.2  Effective Date.  In any Plan Year in which the Plan is a Top-Heavy
          --------------
Plan, the Plan shall meet the requirements set forth in Sections 9.3 and 9.7.

     9.3  Minimum Contribution Requirements.
          ---------------------------------

          (a) Definition of Compensation. For purposes of this Section,
              --------------------------
     Compensation for any Plan Year shall mean the amount of Compensation
     received from the Employer for that Plan Year.

          (b) Allocation. The total allocable amount under Section 4.3 shall be
              ----------
     allocated as follows:

              (1) The total allocable amount shall first be allocated among the
          accounts of Participants who have completed a Year of Service as
          defined in Section 2.1 (except that such requirement that the
          Participant complete 1,000 Hours of Service in the Plan Year shall not
          apply to any Participant) in the same proportion that each such
          Participant's Compensation bears to the aggregate Compensation of all
          such Participants for such Plan Year, provided that the amount so
          allocated to the account of any Participant who is not a Key Employee
          shall not be less than the lesser of 3% or the highest rate allocated
          to any Key Employee for the Plan Year (such rate determined by
          calculating the largest percentage of Compensation not in excess of
          $200,000.00). If the highest rate allocated to a Key Employee for such
          Plan Year is less than 3%, amounts contributed attributable to a
          salary reduction arrangement shall be included in determining
          contributions made on behalf of Key Employees.

                                      -34-

               (2) The remainder of the total allocable amount, if any, shall be
          allocated as set forth in Section 4.3.

          (c) Exceptions to the Minimum Contribution Requirement. The minimum
              --------------------------------------------------
     contribution required under subsection (b) shall be reduced or eliminated,
     as the case may be, in the following circumstances:

              (1) If the allocation in any Plan Year of the total allocable
          amount under Section 4.3 (determined without regard to this Section)
          results in an allocation to each Participant who is eligible to
          receive an allocation under Section 9.3(b)(1) of at least 3% of such
          Participant's Compensation for the Plan Year, then the provisions of
          Section 9.3(b) shall not apply for such Plan Year.

              (2) No minimum contribution will be required (or the minimum
          contribution percentage will be reduced, as the case may be) for any
          Plan Year for a Participant who is eligible to receive an allocation
          under Section 9.3(b)(1) if the employer maintains another qualified
          plan under which a minimum benefit or contribution is being accrued or
          made for such Plan Year in whole or in part for the Participant in
          accordance with Section 416(c) of the Code.

          (d) Effect of Defined Benefit Plan. The 3% minimum contribution
              ------------------------------
     requirement in subsections (b) and (c) shall be increased to 5% for any
     Plan Year in which the Employer also maintains a defined benefit pension
     plan to the extent necessary to avoid the application of Section 416(f) of
     the Code and regulations thereunder.

     9.4  Maximum Compensation Limitation. The Compensation (as defined in both
          -------------------------------
Section 9.3(a) and Section 1.3(d)) of each Participant in the Plan for any Plan
Year shall not exceed the first $200,000 of such Participant's Compensation;
provided that such dollar limitation shall be adjusted to take into account any
adjustments prescribed by the Secretary of the Treasury or his delegate under
Section 416(d)(2) of the Code.

     9.5  Adjustment to Section 415 Limits. If the Plan is a Super Top-Heavy
          --------------------------------
Plan or if the Plan is a Top-Heavy Plan, and the minimum benefits required by
Section 416(h) of the Code are not provided, then the 1.25 factor used in the
denominators of the Defined Contribution Plan Fraction (under Section 4.4(c)(5))
and Defined Benefit Plan Fraction (under Section 4.4(c)(4)) shall be changed to
1.0.

     9.6  Remedial Provisions. In addition to the other powers granted
          -------------------
hereunder, the Plan Committee shall have the power to take such action as it
deems necessary or appropriate to determine whether the Plan is a Top-Heavy
Plan, and in such event, to apply the provisions of this Article to the Plan,
including, but not limited to the power to reallocate employer contributions,
forfeitures and income, to reverse all or part of any forfeitures which may have
been improperly recognized, and to direct the Trustee to make required
distributions hereunder.

     9.7  Top Heavy Vesting Schedule. For any Plan Year in which the Plan is
          --------------------------
determined to be "top heavy", as defined in Section 9.1 hereof, the vesting
schedule applicable to Employer Matching Contributions as provided in Section
5.1(b) shall be superseded by the following schedule:

                Years                                 Vesting
              of Service                            Percentage
              ----------                            ----------
              Less than 2                                 0
                   2                                     20
                   3                                    100
                                      -35-

     If the Plan ceases to be top heavy in a subsequent Plan Year, the vesting
schedule provided in Section 5.1(b) will apply to a Participant's benefits
accrued subsequent to the last year the Plan was top heavy, provided however
that any Participant with 5 or more Years of Service must be given the
opportunity to choose between the vesting schedule contained in this Section and
that contained in Section 5.1(b).

                                   ARTICLE X

                                 MISCELLANEOUS

     10.1 Non-Guarantee of Employment. Nothing contained herein shall be
          ---------------------------
construed as a contract of employment between the Employer and any Employee, or
as a right of any Employee to be continued in the employment of the Employer, or
as a limitation of the right of the Employer to discharge any Employee, with or
without cause.

     10.2 Alienation.
          ----------

          (a) In General. Except as provided in Subsections (b) and (c) of this
     Section, or pursuant to an order of a court of competent jurisdiction to
     the contrary, none of the payments, benefits or rights of any Participant,
     Beneficiary, prospective beneficiary or alternate payee shall be subject to
     any claim of any creditor. In particular, to the fullest extent permitted
     by law, all such payments, benefits and rights shall be free from
     attachment, garnishment, trustee's process, or any other legal or equitable
     process available to any credit or of such Participant, Beneficiary,
     prospective beneficiary or alternate payee. Except as provided in
     Subsection (b) of this Section, no person entitled to any payment, benefit
     or right under the Plan shall have the right to alienate, anticipate,
     commute, pledge, encumber or assign any of the payments, benefits or rights
     which he may expect to receive, contingently or otherwise, under the Plan.

          (b) Exceptions. The following shall not be precluded by the operation
     of Subsection (a) hereof:

              (1) the withholding of income taxes from distributions (whether
          by legal mandate or by election of the prospective distributee) and
          transmittal of the amounts so withheld to appropriate tax collection
          authorities;

              (2) the pledge by a borrower from the Plan (and foreclosure on
          the pledged amount by the lender or other hold of the borrower's debt
          obligation) of any portion of his interest in the Plan as security for
          the repayment of the amount borrowed, interest payable in respect
          thereof, and costs and expenses associated therewith;

                                      -36-

              (3) any arrangement for the recovery by the Plan of overpayments
          of benefits previously made to or for the benefit of the Participant
          or other person with respect to whom such arrangement applies:

              (4) transfer of any eligible rollover distribution amount from
          the Plan to any other benefit plan qualified under section 401(a) of
          the Code or to an individual retirement arrangement established under
          section 408 of the Code;

              (5) direct deposit arrangements with respect to benefits if the
          direct deposits authorized by such arrangement is to an account of the
          payee (or a joint account of the payee and his spouse) at a bank or
          other financial institution;

              (6) any assignment or alienation of benefits in pay status to the
          extent that such assignment or alienation (i) is voluntary and
          revocable, (ii) is not for the purpose of, nor has the effect of,
          defraying Plan administration costs; and (iii) does not, when combined
          with all other such assignments in the aggregate, exceed ten percent
          (10%) of any benefit payment;

              (7) any assignment to the Plan Sponsor if (i) such assignment is
          revocable at any time, and (ii) the Plan Sponsor files with the Plan
          Administrator a written acknowledgment meeting the requirements of
          Treas. Reg. Section 1.401(a)-13(e)(2) (or a successor regulation of
          similar purpose); and

              (8) the enforcement of a federal tax levy made pursuant to
          section 6331 of the Code or the collection by the United States on a
          judgment resulting from an unpaid tax assessment.

          (c) Applicability of a QDRO. Compliance with the provisions and
     conditions of any QDRO shall not be deemed a violation of the provisions of
     Subsection (a) hereof.

     10.3 Facility of Payment. If any Participant or Beneficiary shall be
          -------------------
physically or mentally incapable of receiving or acknowledging receipt of any
payment due under the terms of the Plan, and no legal representative shall have
been appointed for him, the Plan Administrator may direct the Trustee to make
such payment to the person or institution maintaining such Participant or
Beneficiary, and the payment to such person or institution in good faith shall
constitute a valid and complete discharge for such payment.

     10.4 Exclusive Benefit.  This Plan is established for the exclusive
          -----------------
benefit of the Employees of the Employer.

     10.5 No Reversion. Except as otherwise expressly permitted hereunder, no
          ------------
assets of the Plan or the Trust shall ever revert to or be used or enjoyed by
the Employer, nor, prior to the satisfaction of all liabilities under this Plan
to Participants and their Beneficiaries, shall any of the assets of the Plan or
Trust ever be used other than for the benefit of the Employees of the Employer
and their Beneficiaries and defraying reasonable expenses of administering the
Plan.

                                      -37-

     10.5A. Restrictions-Assets from Money Purchase Pension Plan.
            ----------------------------------------------------
Notwithstanding any provision of this Plan to the contrary, if any optional form
of benefit under this Plan permits a distribution prior to a Participant's
retirement, death or disability or severance from employment and prior to Plan
termination, that optional form of benefit shall not be available with respect
to the benefits attributable to assets (including post transfer earnings and
appreciation thereon) and liabilities that are transferred within the meaning of
IRC 414(l) to this Plan from a money purchase plan (other than any portion of
those assets and liabilities attributable to voluntary Employee contributions).

     10.6 Effect of Social Security Benefits. Benefits paid to or on behalf of a
          ----------------------------------
retired or terminated Participant hereunder shall not be reduced or otherwise
affected by increases or other adjustments in Social Security benefits such
Participants may receive.

     10.7 Titles.  Titles of Articles and Sections are inserted for
          ------
convenience only and shall not affect the meaning or construction of the Plan.

     10.8 Severability. If any provision of this Plan shall be held invalid or
          ------------
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and this Plan shall be constructed and enforced as if such
provision had not been included herein.

     10.9 Applicable Law.  This Plan shall be construed in accordance with
          --------------
Pennsylvania law.

     10.10 Initial Qualification. This Plan has been adopted and is based upon
           ---------------------
the condition precedent that the Internal Revenue Service issue its
determination that it meets the requirements of the Code and regulations issued
hereunder with respect to qualified plans. Notwithstanding any other provision
herein, if the Internal Revenue Service determines that the Plan does not
initially qualify under the Code, any assets attributable to Employer
contributions which have been made prior to notice of such adverse determination
shall be returned to the Employer, and this Plan shall terminate.

     10.11 Plan designation.  For purposes of Code Section 401(a)(27), this
           ----------------
Plan is a profit sharing plan.

                                   ARTICLE XI

                       MONEY PURCHASE PENSION PLAN ACCOUNT

     Section 11.1. General. This Article applies only to those employees who
                   -------
were participants in DMIC Money Purchase Pension Plan and who had accounts in
that Plan on December 31, 1999. This Articles does not apply to any other
Employee or Participant.

     Section 11.2. Money Purchase Pension Benefit. For purposes of this Plan,
                   ------------------------------
the term "Money Purchase Pension Benefit" means the account balance of the
Participant in the Money Purchase Pension Plan as of December 31, 1999. As
provided by amendment to that Plan, all such accounts are fully vested in the
Participants and under no circumstances may any forfeitures arise with respect
to those accounts.

                                      -38-

     Section 11.3. Participants' Accounts. Under all circumstances a
                   ----------------------
Participant's Account shall be treated as a segregated investment individually
directed by the Participant and shall be adjusted for only the income or loss
realized with respect to each such Account.

     Section 11.4. Determination and Distribution of Benefits. The
                   ------------------------------------------
provisions of ARTICLES VI and VII of the Money Purchase Pension Plan as in
effect on December 31, 1999 are hereby incorporated by reference and for
convenience set forth in full in Appendix "A" to the Plan.  The provisions of
these Articles will apply to the determination and distribution of a
Participant's Money Purchase Pension Benefit.  Otherwise, the provisions of
this Plan shall govern with respect to a Participant's Money Purchase Pension
Benefit.

                  (Original Plan executed on October 28, 1998)

                                      -39-

                                  Appendix "A"

                                   ARTICLE VI

                   DETERMINATION AND DISTRIBUTION OF BENEFITS
                   ------------------------------------------

     6.1 Vesting of Benefits. A Participant's Account shall be vested in
         -------------------
accordance with Section 6.5. No amendment to the Plan shall decrease a
Participant's Account Balance or eliminate an optional form of distribution.
Notwithstanding the preceding sentence, a Participant's Account Balance may be
reduced to the extent permitted under Section 412(c)(8) of the Code.
Furthermore, no amendment to the plan shall have the effect of decreasing a
Participant's Vested Interest determined without regard to such amendment as of
the later of the date such amendment is adopted or the date it becomes
effective.

     6.2  Retirement Benefits.
          -------------------

          (a) A Participant may terminate employment with the Employer and
     retire for the purposes herein upon reaching Normal Retirement Age (age 65)
     or may elect Early Retirement at age 55. Upon either such event, all
     amounts credited to such Participant's Account shall be nonforfeitable and
     100% vested and shall be distributed to such Participant in accordance with
     the provisions of Section 6.6 and 6.7.

          (b) Any Employee who continues in the employment of the Employer after
     age sixty-five (65) will continue to Participate in this Plan until actual
     retirement from active employment with the Employer. At the time of actual
     retirement, all amounts credited to such Participant's account shall be
     distributed to such Participant in accordance with the provisions of
     Section 6.6 and 6.7.

     6.3 Benefits Upon Disability. In the event of a Participant's total and
         ------------------------
permanent disability as defined in Section 1.9 prior to reaching Normal or Early
Retirement Age or separation from service, all amounts credited to such
Participant's account shall be distributed to such Participant in accordance
with the provisions of Section 6.6 as though the Participant has retired. The
disability of a Participant shall be determined by the Administrator with the
advice of competent medical authority chosen by the Administrator. The
determination shall be applied uniformly to all Participants.

                                       -1-

     6.4  Benefits Upon Death.
          -------------------

          (a) Death Benefit. Upon the death of a Participant before retirement
              -------------
     or other termination of employment, and upon the death of a former
     Participant with a deferred vested interest before such benefit has
     commenced to be paid, all amounts credited to such Participant's account or
     former Participant's account shall be distributed to the Participant's
     Beneficiary in accordance with the provisions of Section 6.6 and 6.9.

          (b) Determination of Right to Payment. The Administrator may require
              ---------------------------------
     such proof of death and such evidence of the right of any person to receive
     payment of the value of the account of a deceased Participant or former
     Participant as the Administrator may deem desirable. The Administrator's
     determination of death and of the right of any person to receive payment
     shall be conclusive.

          (c) Designation of Beneficiary. Each Participant shall file a written
              --------------------------
     designation of Beneficiary with the Employer upon forms provided by the
     Administrator. Such designation shall remain in force until revoked by the
     Participant by the filing of a new Beneficiary form. The designated
     Beneficiary of a Participant who is married at the time of his or her death
     prior to retirement shall be the Participant's surviving spouse unless a
     qualified election as hereinafter defined is in effect. If a Participant is
     not married at the time of death and there is no designation of Beneficiary
     effective at the time of death, payments of benefits shall be made in equal
     shares to the children of the Participant, if any, and, if none, then to
     the Participant's Estate. Any election to designate a beneficiary other
     than a Participant's spouse shall not be effective unless: (a) the
     Participant's spouse consents irrevocably in writing to the election; (b)
     the election designates a specific beneficiary, including any class of
     beneficiaries or any contingent beneficiaries, which may not be changed
     without spousal consent (or the spouse expressly permits designations by
     the Participant without further spousal consent); (c) the spouse's consent

                                      -2-

     acknowledges the effect of the election; and (d) the spouse's consent is
     witnessed by a Plan representative or notary public. If it is established
     to the satisfaction of a Plan representative that there is no spouse or
     that the spouse cannot be located, an election to designate a beneficiary
     other than a Participant's spouse will be deemed a qualified election.

     Any consent by a spouse obtained under this provision (or establishment
     that the consent of a spouse may not be obtained) shall be effective only
     with respect to such spouse. A consent that permits designations by the
     Participant without any requirement of further consent by such spouse must
     acknowledge that the spouse has the right to limit consent to a specific
     beneficiary, and that the spouse voluntarily elects to relinquish such
     rights. A revocation of a prior election may be made by a Participant
     without the consent of a spouse at any time before the commencement of
     benefits. The number of revocations shall not be limited.

     6.5  Benefits Upon Termination of Employment.
          ---------------------------------------

          (a) Entitlement Upon Termination.
              ----------------------------

              (1) A Participant who terminates employment prior to reaching
          normal or early retirement age (other than on account of death or
          total and permanent disability) shall be entitled to receive the
          vested portion of his or her account in accordance with the provisions
          of Section 6.6 hereof. Distribution shall be made solely on the
          occurrence of an event which would result in the distribution had the
          Participant remained in the employ of the Employer (the Participant's
          death, total and permanent disability, or early or normal retirement)
          unless paragraph (6) of this Section applies. However, at the election
          of the Participant, the Administrator shall direct the Trustee to
          cause the entire vested portion of the Participant's account to be
          payable to the Participant within a reasonable time following the end
          of the Plan Year next following or coinciding with the Participant's
          termination.

                                      -3-

               (2) The Vested portion of any Participant's Account shall be a
          percentage of the total amount credited to his or her Participant's
          account determined on the basis of the Participant's number of Years
          of Service according to the following schedule:

                                VESTING SCHEDULE

            Years of Service                      Percentage

                   1                                  10%
                   2                                  20%
                   3                                  30%
                   4                                  40%
                   5                                  60%
                   6                                  80%
                   7                                 100%

               (3) Notwithstanding the vesting provided for in paragraph (2)
          above, for any Top Heavy Plan Year, the vested portion of the
          Participant's Account of any Participant who has an Hour of Service
          after the Plan becomes top heavy shall be a percentage of the total
          amount credited to his or her Participant's Account determined on the
          basis of the Participant's number of Years of Service according to the
          following schedule:

                                VESTING SCHEDULE

            Years of Service                      Percentage

                   2                                  20%
                   3                                  40%
                   4                                  60%
                   5                                  80%
                   6                                 100%

                                      -4-

                    If any subsequent Plan Year, the Plan ceases to be a Top
               Heavy Plan, the Administrator shall revert to the vesting
               schedule in effect before this Plan became a Top Heavy Plan. Any
               such reversion shall be treated as a Plan amendment pursuant to
               the terms of the Plan.

               (4) Notwithstanding the vesting schedule above, upon any full or
          partial termination of the Plan, all amounts credited to any account
          maintained shall become 100% vested and shall not thereafter be
          subject to Forfeiture.

               (5) If the Plan's vesting schedule is amended, or the Plan is
          amended in any way that directly or indirectly affects the computation
          of the Participant's nonforfeitable percentage or if the Plan is
          deemed amended by an automatic change to or from a top heavy vesting
          schedule, each Participant with at least three (3) Years of Service
          with the Employer may elect, within a reasonable period after the
          adoption of the amendment or change, to have the nonforfeitable
          percentage computed under the Plan without regard to such amendment or
          change. For Participants who do not have at least 1 hour of service in
          any Plan Year beginning after December 31, 1988, the preceding
          sentence shall be applied by substituting "5 years of service" for "3
          years of service" where such language appears.

                    The period during which the election may be made shall
               commence with the date the amendment is adopted or deemed to be
               made and shall end on the latest of:

                    (1) 60 days after the amendment is adopted;

                    (2) 60 days after the amendment becomes effective; or

                    (3) 60 days after the Participant is issued written notice
               of the amendment by the Employer or Plan Administrator.

                                      -5-

               (6) If a Participant terminates employment and the value of the
          Participant's vested account balance derived from Employer and
          Employee contributions is not greater than three thousand five hundred
          ($3,500.00) dollars, the Participant will receive a distribution of
          the value of the entire vested portion of such account balance, and
          the nonvested portion will be treated as a forfeiture, which
          distribution shall be made within a reasonable time following the end
          of the Plan Year next following or coinciding with the Participant's
          termination. (However, no distribution shall be made pursuant to the
          preceding sentence after the Annuity Starting Date unless the
          Participant and his or her spouse (or the Participant's surviving
          spouse) consent in writing to such distribution.) The Annuity Starting
          Date is the first day of the first period for which an amount is paid
          as an annuity or any other form. Any written consent required under
          this paragraph must be obtained not more than ninety (90) days before
          commencement of the distribution and shall be made in a manner
          consistent with Section 7.4. For purposes of this section, if the
          value of an Employee's vested account balance is zero, the Employee
          shall have deemed to have received a distribution of such vested
          account balance. A Participant's vested account balance shall not
          include accumulated deductible Employee contributions within the
          meaning of Section 72(o)(5)(B) of the Code for Plan Years beginning
          prior to January 1, 1989.

               (7) If an Employee terminates service, and elects, in accordance
          with the requirements of Section 6.5(a)(1), to receive the value of
          the Employee's vested account balance, the nonvested portion will be
          treated as a Forfeiture. If the Employee elects to have distributed
          less than the entire vested portion of the account balance derived
          from Employer contributions, the part of the nonvested portion that
          will be treated as a Forfeiture is the total nonvested portion
          multiplied by a fraction, the numerator of which is the amount of the
          distribution attributable to Employer contributions and the
          denominator of which is the total value of the vested Employer derived
          account balance.

                                      -6-

               If an Employee received a distribution pursuant to this section
          and the Employee resumes employment covered under this Plan, the
          Employee's Employer-derived account balance will be restored to the
          amount on the date of distribution if the Employee repays to the Plan
          the full amount of the distribution attributable to Employer
          contributions before the earlier of 5 years after the first date on
          which the Participant is subsequently re-employed by the Employer, or
          the date the Participant incurs 5 consecutive 1-year breaks in service
          following the date of the distribution. If an Employee is deemed to
          receive a distribution pursuant to this section, and the Employee
          resumes employment covered under this Plan before the date the
          Participant incurs 5 consecutive 1-year breaks in service, upon the
          reemployment of such Employee, the Employer-derived account balance of
          the Employee will be restored to the amount on the date of such deemed
          distribution.

               (8) If the value of a Participant's vested account balance
          derived from Employer and Employee contributions exceeds (or at the
          time of any prior distribution exceeded) $3,500, and the account
          balance is immediately distributable, the Participant and the
          Participant's spouse (or where either the Participant or the spouse
          has died, the survivor) must consent to any distribution of such
          account balance. The consent of the Participant and the Participant's
          spouse shall be obtained in writing within the 90-day period ending on
          the Annuity Starting Date. The Annuity Starting Date is the first day
          of the first period for which an amount is paid as an annuity or any
          other form. The Plan Administrator shall notify the Participant and
          the Participant's spouse of the right to defer any distribution until
          the Participant's account balance is no longer immediately
          distributable. Such notification shall include a general description
          of the material features, and an explanation of the relative values
          of, the optional forms of benefit available under the Plan in a manner
          that would satisfy the notice requirements of section 417(a)(3), and
          shall be provided no less than 30 days and no more than 90 days prior
          to the Annuity Starting Date.

                                      -7-

               If a distribution is one to which Code Sections 401(a)(11) and
          417 do not apply, such distribution may commence less than 30 days
          after the notice required under Regulation 1.411(a)-11(c) is given,
          provided that: (1) the Administrator clearly informs the Participant
          that the Participant has a right to a period of at least 30 days after
          receiving the notice to consider the decision of whether or not to
          elect a distribution (and, if applicable, a particular distribution
          option), and (2) the Participant, after receiving the notice,
          affirmatively elects a distribution.

               Notwithstanding the foregoing, only the Participant need consent
          to the commencement of a distribution in the form of a qualified joint
          and survivor annuity while the account balance is immediately
          distributable. Neither the consent of the Participant or the
          Participant's spouse shall be required to the extent that a
          distribution is required to satisfy section 401(a)(9) or section 415
          of the Code. In addition, upon termination of this Plan, if the Plan
          does not offer an annuity option (purchased from a commercial
          provider) and if the Employer or any entity within the same controlled
          group as the Employer does not maintain another defined contribution
          plan (other than Employee stock ownership plan as defined in Section
          4975(e)(7) of the Code), the Participant's account balance will,
          without the Participant's consent, be distributed to the Participant.
          However, if any entity within the same controlled group as the
          Employer maintains another defined contribution plan (other than an
          Employee stock ownership plan as defined in Section 4975(e)(7) then
          the Participant's account balance will be transferred, without the
          Participant's consent, to the other plan if the Participant does not
          consent to an immediate distribution.

                                      -8-

               An account balance is immediately distributable if any part of
          the account balance could be distributed to the Participant (or
          surviving spouse) before the Participant attains or would have
          attained if not deceased) the later of normal retirement age or age
          62.

               For purposes of determining the applicability of the foregoing
          consent requirements to distributions made before the first day of the
          first plan year beginning after December 31, 1988, the Participant's
          vested account balance shall not include amounts attributable to
          accumulated deductible Employee contributions within the meaning of
          Section 72(o)(5)(B) of the Code.

               (9) For purposes of computing an Employee's nonforfeitable right
          to the account balance derived from Employer contributions, Years of
          Service and Breaks in Service will be measured by the plan year.

               (10) All of an Employee's Years of Service with the Employer are
          counted to determine the nonforfeitable percentage in the Employee's
          account balance derived from Employer contributions. In the case of a
          Participant who has incurred a 1-year break in service, years of
          service before such break will not be taken into account until the
          Participant has completed a Year of Service after such Break in
          Service.

                                      -9-

               (11) In the case of a Participant who has 5 or more consecutive
          1-year breaks in service all service after such breaks in service will
          be disregarded for the purpose of vesting the employer-derived account
          balance that accrued before such breaks in service. Such Participant's
          pre-break service will count in vesting the post-break
          employer-derived account balance only if either:

                    (i) such Participant has any nonforfeitable interest in the
               account balance attributable to employer contributions at the
               time of separation from service; or

                    (ii) upon returning to service the number of consecutive
               1-year breaks in service is less than the number of years of
               service.

                    Separate accounts will be maintained for the Participant's
               pre-break and post-break employer-derived account balance. Both
               accounts will share in the earnings and losses of the fund.

     6.6 Distribution of Benefits.
         ------------------------

          (a) Except as otherwise provided in Article VII, Joint and Survivor
     Annuity Requirements, the requirements of this Section shall apply to any
     distribution of a Participant's accrued benefit.

          (b) Settlement Options: Distributions may be made in one of the
     following forms:

               (1) One lump-sum payment in cash or in property,

               (2) Payments over a period certain in monthly, quarterly,
          semiannual, or annual cash installments after first having (A)
          segregated the aggregate amount thereof in a separate, federally
          insured savings account, certificate of deposit in a bank or savings
          and loan association, money market certificate or other liquid
          short-term security or (B) purchased a nontransferable annuity
          contract providing for such payment. The period over which such
          payment is to be made shall not extend beyond the Participant's life
          expectancy (or the life expectancy of the Participant and his or her
          designated Beneficiary).

                                      -10-

               (3) Purchase of annuity. However, such annuity may not be in any
          form that will provide for payments over a period extending beyond
          either the life of the Participant (or the lives of the Participant
          and his or her designated Beneficiary) or the life expectancy of the
          Participant (or the life expectancy of the Participant and his or her
          designated Beneficiary). Any annuity contract distributed herefrom
          must be nontransferable. The terms of any annuity contract purchased
          and distributed by the plan to a Participant or spouse shall comply
          with the requirements of this plan.

          Selection of the form of payment shall be made by the Participant or
     if deceased, the Participant's Beneficiary, subject to the provisions of
     Article VII.

     6.7  Distribution Requirements.
          -------------------------

          (a) Subject to Article VII, Joint and Survivor Annuity Requirements,
     the requirements of this Section shall apply to any distribution of a
     Participant's interest and will take precedence over any inconsistent
     provisions of this plan. Unless otherwise specified, the provisions of this
     article apply to calendar years beginning after December 31, 1984. All
     distributions required under this Section shall be determined and made in
     accordance with the proposed regulations under Section 401(a)(9), including
     the minimum distribution incidental benefit requirement of Section
     1.401(a)(9)-2 of the proposed regulations.

          (b) Required beginning date. The entire interest of a Participant must
     be distributed or begin to be distributed no later than the Participant's
     required beginning date.

                                      -11-

          (c)  Limits on Distribution Periods. As of the first distribution
     calendar year, distribution, if not made in a single-sum, may only be made
     over one of the following periods (or a combination thereof):

               (1) the life of the Participant,

               (2) the life of the Participant and a designated beneficiary,

               (3) a period certain not extending beyond the life expectancy of
          the Participant, or

               (4) a period certain not extending beyond the joint and last
          survivor expectancy of the Participant and a designated beneficiary.

          (d) Determination of amount to be distributed each year. If the
     Participant's interest is to be distributed in other than a single sum, the
     following minimum distribution rules shall apply on or after the required
     beginning date:

               (1)  Individual Account.
                    ------------------

                         (A) If a Participant's benefit is to be distributed
                    over (i) a period not extending beyond the life expectancy
                    of the Participant or the joint life and last survivor
                    expectancy of the Participant and the Participant's
                    designated beneficiary or (ii) over a period not extending
                    beyond the life expectancy of the designated beneficiary,
                    the amount required to be distributed for each calendar
                    year, beginning with distributions for the first
                    distribution calendar year, must at least equal the quotient
                    obtained by dividing the Participant's benefit by the
                    applicable life expectancy.

                         (B) For calendar years beginning before January 1,
                    1989, if the Participant's spouse is not the designated
                    beneficiary, the method of distribution selected must assure
                    that at least 50% of the present value of the amount
                    available for distribution is paid within the life
                    expectancy of the Participant.

                                      -12-

                         (C) For calendar years beginning after December 31,
                    1988, the amount to be distributed each year, beginning with
                    distributions for the first distribution calendar year shall
                    not be less than the quotient obtained by dividing the
                    Participant's benefit by the lesser of (1) the applicable
                    life expectancy or (2) if the Participant's spouse is not
                    the designated beneficiary, the applicable divisor
                    determined from the table set forth in Q&A-4 of Section
                    1.401(a)(9)-2 of the proposed regulations. Distributions
                    after the death of the Participant shall be distributed
                    using the applicable life expectancy in Paragraph (d)(1)(A)
                    the relevant divisor without regard to Proposed Regulations
                    Section 1.401(a)(9)-2.

                         (D) The minimum distribution required for the
                    Participant's first distribution calendar year must be made
                    on or before the Participant's required beginning date. The
                    minimum distribution for other calendar years, including the
                    minimum distribution for the distribution calendar year in
                    which the Employee's required beginning date occurs, must be
                    made on or before December 31 of that distribution calendar
                    year.

               (2) Other Forms.
                   ------------

                    If the Participant's benefit is distributed in the form of
               an annuity purchased from an insurance company, distributions
               thereunder shall be made in accordance with the requirements of
               Section 401(a)(9) of the Code and the proposed regulations
               thereunder.

                                      -13-

     6.8 Commencement of Benefits.
         ------------------------

               Except as limited by Sections 6.6 and 6.9, whenever the Trustee
          is to make a distribution or to commence a series of payments on or as
          of an Anniversary Date, the distribution or series of payments may be
          made or begun on such date or as soon thereafter as is practicable,
          but in no event later than 180 days after the Anniversary Date.
          However, unless a Former Participant elects in writing to defer the
          receipt of benefits (such election may not result in a death benefit
          that is more than incidental), the payment of benefits shall begin not
          later than the 60th day after the close of the Plan Year in which the
          latest of the following events occurs: (a) the date on which the
          Participant attains the earlier of age 65 or the Normal Retirement Age
          specified herein; (b) the 10th anniversary of the year in which the
          Participant commenced participation in the Plan; or (c) the date the
          Participant terminates service with the Employer. Notwithstanding the
          foregoing, the failure of a Participant and spouse to consent to a
          distribution while a benefit is immediately distributable, within the
          meaning of Section 6.5(a)(4) of the plan, shall be deemed to be an
          election to defer commencement of payment of any benefit sufficient to
          satisfy this section.

     6.9  Death Distribution Provisions.
          -----------------------------

          (a) Distribution beginning before death. If the Participant dies after
              -----------------------------------
     distribution of his or her interest has begun, the remaining portion of
     such interest will continue to be distributed at least as rapidly as under
     the method of distribution being used prior to the Participant's death.

          (b) Distribution beginning after death. If the Participant dies before
              ----------------------------------
     distribution of his or her interest begins, distribution of the
     Participant's entire interest shall be completed by December 31 of the
     calendar year containing the fifth anniversary of the Participant's death
     except to the extent that an election is made to receive distributions in
     accordance with (1) or (2) below:

               (1) if any portion of the Participant's interest is payable to a
          designated beneficiary, distributions may be made over the life or
          over a period certain not greater than the life expectancy of the
          designated beneficiary commencing on or before December 31 of the
          calendar year immediately following the calendar year in which the
          Participant died;

                                      -14-

               (2) if the designated beneficiary is the Participant's surviving
          spouse, the date distributions are required to begin in accordance
          with (1) above shall not be earlier than the later of (A) December 31
          of the calendar year immediately following the calendar year in which
          the Participant died and (B) December 31 of the calendar year in which
          the Participant would have attained age 70 1/2.

          If the Participant has not made an election pursuant to this Paragraph
     (b) by the time of his or her death, the Participant's designated
     beneficiary must elect the method of distribution no later than the earlier
     of (1) December 31 of the calendar year in which distributions would be
     required to begin under this Section, or (2) December 31 of the calendar
     year which contains the fifth anniversary of the date of death of a
     Participant. If the Participant has no designated beneficiary, or if the
     designated beneficiary does not elect a method of distribution,
     distribution of the Participant's entire interest must be completed by
     December 31 of the calendar year containing the fifth anniversary of the
     Participant's death.

          (c) For purposes of Paragraph (b) above, if the surviving spouse dies
     after the Participant, but before payments to such spouse begin, the
     provisions of Paragraph (b), with the exception of subparagraph (2)
     therein, shall be applied as if the surviving spouse were the Participant.

          (d) For purposes of this Section 6.9, any amount paid to a child of
     the Participant will be treated as if it had been paid to the surviving
     spouse if the amount becomes payable to the surviving spouse when the child
     reaches the age of majority.

                                      -15-

          (e) For the purposes of this Section 6.9, distribution of a
     Participant's interest is considered to begin on the Participant's required
     beginning date (or, if Paragraph (c) above is applicable, the date
     distribution is required to begin to the surviving spouse pursuant to
     Paragraph (b) above). If distribution in the form of an annuity irrevocably
     commences to the Participant before the required beginning date, the date
     distribution is considered to begin is the date distribution actually
     commences.

     6.10 Definitions Applicable to Section 6.
          -----------------------------------

          (a) Applicable life expectancy. The life expectancy (or joint and last
              --------------------------
     survivor expectancy) calculated using the attained age of the Participant
     (or designated beneficiary) as of the Participant's (or designated
     beneficiary's) birthday in the applicable calendar year reduced by one for
     each calendar year which has elapsed since the date life expectancy was
     first calculated. If life expectancy is being recalculated, the applicable
     life expectancy shall be the life expectancy as so recalculated. The
     applicable calendar year shall be the first distribution calendar year, and
     if life expectancy is being recalculated such succeeding calendar year.

          (b) Designated beneficiary. The individual who is designated as the
              ----------------------
     beneficiary under the plan in accordance with Section 401(a)(9) and the
     proposed regulations thereunder.

          (c) Distribution calendar year. A calendar year for which a minimum
              --------------------------
     distribution is required. For distributions beginning before the
     Participant's death, the first distribution calendar year is the calendar
     year immediately preceding the calendar year which contains the
     Participant's required beginning date. For distributions beginning after
     the Participant's death, the first distribution calendar year is the
     calendar year in which distributions are required to begin pursuant to
     Section 6.9 above.

                                      -16-

          (d) Life expectancy. Life expectancy and joint and last survivor
              ---------------
     expectancy are computed by use of the expected return multiples in Tables V
     and VI of Section 1.72-9 of the income tax regulations.

          Unless otherwise elected by the Participant (or spouse, in the case of
     distributions described in Section 6.9(b)(2) above) by the time
     distributions are required to begin, life expectancies shall be
     recalculated annually. Such election shall be irrevocable as to the
     Participant (or spouse) and shall apply to all subsequent years. The life
     expectancy of a nonspouse beneficiary may not be recalculated.

          (e)  Participant's benefit.
               ---------------------
               (1) The account balance as of the last valuation date in the
          calendar year immediately preceding the distribution calendar year
          (valuation calendar year) increased by the amount of any contributions
          or forfeitures allocated to the account balance as of dates in the
          valuation calendar year after the valuation date and decreased by
          distributions made in the valuation calendar year after the valuation
          date.

               (2) Exception for second distribution calendar year. For purposes
                   -----------------------------------------------
          of Paragraph (1) above, if any portion of the minimum distribution for
          the first distribution calendar year is made in the second
          distribution calendar year on or before the required beginning date,
          the amount of the minimum distribution made in the second distribution
          calendar year shall be treated as if it had been made in the
          immediately preceding distribution calendar year.

                                      -17-

          (f)  Required beginning date.
               -----------------------

               (1) General rule. The required beginning date of a Participant is
          the first day of April of the calendar year following the calendar
          year in which the Participant attains age 70 1/2.

               (2) Transitional rules. The required beginning date of a
          Participant who attains age 70 1/2 before January 1, 1988, shall be
          determined in accordance with (A) or (B) below:

                    (A) Non-5-percent owners. The required beginning date of a
               Participant who is not a 5-percent owner is the first day of
               April of the calendar year following the calendar year in which
               the later of retirement or attainment of age 70 1/2 occurs.

                    (B) 5-percent owners. The required beginning date of a
               Participant who is a 5-percent owner during any year beginning
               after December 31, 1979, is the first day of April following the
               later of:

                         (i) the calendar year in which the Participant attains
                    age 70 1/2; or

                         (ii) the earlier of the calendar year with or within
                    which ends the plan year in which the Participant becomes a
                    5-percent owner, or the calendar year in which the
                    Participant retires.

                    The required beginning date of a Participant who is not a
               5-percent owner who attains age 70 1/2 during 1988 and who has
               not retired as of January 1, 1989, is April 1, 1990.

               (3) 5-percent owner. A Participant is treated as a 5-percent
          owner for purposes of this section if such Participant is a 5-percent
          owner as defined in Section 416(i) of the Code (determined in
          accordance with Section 416 but without regard to whether the plan is
          top-heavy) at any time during the plan year ending with or within the
          calendar year in which such owner attains age 66 1/2 or any subsequent
          plan year.

                                      -18-

               (4) Once distributions have begun to a 5-percent owner under this
          section, they must continue to be distributed, even if the Participant
          ceases to be a 5-percent owner in a subsequent year.

     6.11 Transitional Rule.
          -----------------

          (a) Notwithstanding the other requirements of this Article and subject
     to the requirements of Article VII, Joint and Survivor Annuity
     Requirements, distribution on behalf of any Employee, including a 5-percent
     owner, may be made in accordance with all of the following requirements
     (regardless of when such distribution commences):

               (1) The distribution by the trust is one which would not have
          disqualified such trust under Section 401(a)(9) of the Internal
          Revenue Code as in effect prior to amendment by the Deficit Reduction
          Act of 1984.

               (2) The distribution is in accordance with a method of
          distribution designated by the Employee whose interest in the trust is
          being distributed or, if the Employee is deceased, by a Beneficiary of
          such Employee.

               (3) Such designation was in writing, was signed by the Employee
          of the Beneficiary, and was made before January 1, 1984.

               (4) The Employee had accrued a benefit under the Plan as of
          December 31, 1983.

               (5) The method of distribution designated by the Employee or the
          Beneficiary specifies the time at which distribution will commence,
          the period over which distributions will be made, and in the case of
          any distribution upon the Employee's death, the Beneficiaries of the
          Employee listed in order of priority.

                                      -19-

          (b) A distribution upon death will not be covered by this transitional
     rule unless the information in the designation contains the required
     information described above with respect to the distributions to be made
     upon the death of the Employee.

          (c) For any distribution which commences before January 1, 1984, but
     continues after December 31, 1983, the Employee, or the Beneficiary, to
     whom such distribution is being made, will be presumed to have designated
     the method of distribution under which the distribution is being made if
     the method of distribution was specified in writing and the distribution
     satisfied the requirements in subsection 6.9(a)(1) and (5).

          (d) If a designation is revoked any subsequent distribution must
     satisfy the requirements of Section 401(a)(9) of the Code and the proposed
     regulations thereunder. If a designation is revoked subsequent to the date
     distributions are required to begin, the trust must distribute by the end
     of the calendar year following the calendar year in which the revocation
     occurs the total amount not yet distributed which would have been required
     to have been distributed to satisfy Section 401(a)(9) of the Code and the
     proposed regulations thereunder, but for the Section 242(b)(2) election.
     For calendar years beginning after December 31, 1988, such distributions
     must meet the minimum distribution incidental benefit requirements in
     Section 1.401(a)(9)-2 of the proposed regulations. Any changes in the
     designation will be considered to be a revocation of the designation.
     However, the mere substitution of addition of another Beneficiary (one not
     named in the designation) under the designation will not be considered to
     be a revocation of the designation, so long as such substitution or
     addition does not alter the period over which distributions are to be made
     under the designation, directly or indirectly (for example, by altering the
     relevant measuring life). In the case in which an amount is transferred or
     rolled over from one plan to another plan, the rules in Q&A J-3 shall
     apply.

                                      -20-

     6.12 Distribution for Minor Beneficiary. In the event a distribution is to
          ----------------------------------
be made to a minor, then the Administrator may direct that such distributions be
paid to the legal guardian, or if none, to a parent of such Beneficiary or a
responsible adult with whom the Beneficiary maintains residence, or to the
custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to
Minors Act, if such is permitted by the laws of the state in which said
Beneficiary resides. Such a payment to the legal guardian, custodian or parent
of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan
from further liability on account thereof.

     6.13 Location of Participant or Beneficiary Unknown. In the event that all,
          ----------------------------------------------
or any portion, of the distribution payable to a Participant or Beneficiary
hereunder shall, at the expiration of five (5) years after it shall become
payable, remain unpaid solely by reason of the inability of the Administrator,
after sending a registered letter, return receipt requested, to the last known
address, and after further diligent effort, to ascertain the whereabouts of such
Participant or Beneficiary, the amount so distributable shall be treated as a
Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is
located subsequent to the benefit being reallocated, such benefits shall be
restored.

     6.14 Limitations on Benefits and Distributions. All rights and benefits,
          -----------------------------------------
including elections, provided to a Participant in this Plan shall be subject to
the rights afforded to any "alternate payee" under a "qualified domestic
relations order." Furthermore, a distribution to an "alternate payee" shall be
permitted if such distribution is authorized by a "qualified domestic relations
order," even if the affected Participant has not reached the "earliest
retirement age" under the Plan. For the purposes of this Section, "alternate
payee," "qualified domestic relations order" and "earliest retirement age" shall
have the meaning set forth under Code Section 414(p).

                                      -21-

                                   ARTICLE VII

                     JOINT AND SURVIVOR ANNUITY REQUIREMENTS
                     ---------------------------------------

     7.1 The provisions of this Article shall take precedence over any
conflicting provision in this Plan and shall apply to any Participant who is
credited with at least one hour of service with the Employer on or after August
23, 1984, and such other Participants as provided in Section 7.6. The provisions
of this Article incorporating changes required by TRA '86 shall be effective for
Plan Years beginning after December 31, 1984.

     7.2 Qualified Joint and Survivor Annuity. Unless an optional form of
         ------------------------------------
benefit is selected pursuant to a Qualified Election within the 90-day period
ending on the Annuity Starting Date, a married Participant's vested account
balance will be paid in the form of a Qualified Joint and Survivor Annuity and
an unmarried Participant's vested account balance will be paid in the form of a
Life Annuity. The Participant may elect to have such annuity distributed upon
attainment of the earliest retirement age under the Plan.

     7.3 Qualified Pre-retirement Survivor Annuity. Unless an optional form of
         -----------------------------------------
benefit has been selected within the Election Period pursuant to Qualified
Election, if a Participant dies before the Annuity Starting Date then fifty
(50%) percent of the Participant's vested account balance shall be applied
toward the purchase of annuity for the life of the Surviving Spouse. The balance
of the Participant's account shall be paid to the Surviving Spouse pursuant to
Section 6.6(b). The Surviving Spouse may, in the alternative, elect to have
benefits paid in the form of an annuity based upon one hundred (100%) percent of
the Participant's account. The Surviving Spouse may elect to have such annuity
distributed within a reasonable period after the Participant's death.

                                -22-

     7.4  Definitions.
          -----------

          (a) Election Period: The period which begins on the first day of the
     Plan Year in which the Participant attains age thirty-five (35) and ends on
     the date of the Participant's death. If a Participant separates from
     service prior to the first day of the Plan Year in which age thirty-five
     (35) is attained, with respect to the account balance as of the date of
     separation, the Election Period shall begin on the date of separation.

          Pre-age 35 waiver: A Participant who will not yet attain age 35 as of
     the end of any current Plan Year may make a special Qualified Election to
     waive the Qualified Preretirement Survivor Annuity for the period beginning
     on the date of such election and ending on the first day of the Plan Year
     in which the Participant will attain age 35. Such election shall not be
     valid unless the Participant receives a written explanation of the
     Qualified Preretirement Survivor Annuity in such terms as are comparable to
     the explanation required under section 7.5. Qualified Preretirement
     Survivor Annuity coverage will be automatically reinstated as of the first
     day of the Plan Year in which the Participant attains age 35. Any new
     waiver on or after such date shall be subject to the full requirements of
     this article.

          (b) Earliest Retirement Age: The earliest date on which, under the
     Plan, the Participant could elect to receive retirement benefits.

                                      -23-

          (c) Qualified Election: A waiver of Qualified Joint and Survivor
     Annuity or a Qualified Preretirement Survivor annuity. Any waiver of a
     qualified joint and survivor annuity or a qualified pre-retirement survivor
     annuity shall not be effective unless: (a) the Participant's spouse
     consents in writing to the election; (b) the election designates a specific
     beneficiary, including any class of beneficiaries or any contingent
     beneficiaries, which may not be changed without spousal consent (or the
     spouse expressly permits designations by the Participant without any
     further spousal consent); (c) the spouse's consent acknowledged the effect
     of the election; and (d) the spouse's consent is witnessed by a plan
     representative or notary public. Additionally, a Participant's waiver of
     the qualified joint and survivor annuity shall not be effective unless the
     election designates a form of benefit payment which may not be changed
     without spousal consent (or the spouse expressly permits designations by
     the Participant without any further spousal consent). If it is established
     to the satisfaction of a plan representative that there is no spouse or
     that the spouse cannot be located, a waiver will be deemed a qualified
     election.

          Any consent by a spouse obtained under this provision (or
     establishment that the consent of a spouse may not be obtained) shall be
     effective only with respect to such spouse. A consent that permits
     designations by the Participant without any requirement of further consent
     by such spouse must acknowledge that the spouse has the right to limit
     consent to a specific beneficiary, and a specific form of benefit where
     applicable, and that the spouse voluntarily elects to relinquish either or
     both of such rights. A revocation of a prior waiver may be made by a
     Participant without the consent of the spouse at any time before the
     commencement of benefits. The number of revocations shall not be limited.
     No consent obtained under this provision shall be valid unless the
     Participant has received notice as provided in Section 7.5 below.

          (d) Qualified Joint and Survivor Annuity: An immediate annuity for the
     life of the Participant with a survivor annuity for the life of a
     Participant's Spouse which is not less than fifty percent (50%) and not
     more than one hundred percent (100%) of the amount of the annuity which is
     payable during the joint lives of the Participant and the Spouse and which
     is the amount of benefit which can be purchased with the Participant's
     vested account balance. The percentage of the Survivor Annuity shall be
     fifty percent (50%) unless a different percentage is elected hereunder.

                                      -24-

          (e) Qualified Pre-retirement Survivor Annuity: An annuity for the life
     of the Surviving Spouse the actuarial equivalent of which is not less than
     fifty percent (50%) of the Participant's account balance (as of the date of
     death) to which the Participant had a nonforfeitable right (within the
     meaning of Section 411(a) of the Code).

          (f) Spouse (Surviving Spouse): The Spouse or Surviving Spouse of the
     Participant, provided that a former Spouse will be treated as the Spouse or
     Surviving Spouse to the extent provided under a qualified domestic
     relations order as described in Section 414(p) of the Code.

          (g) Annuity Starting Date: The first day of the first period for which
     an amount is paid as an annuity or any other form.

          (h) Vested Account Balance: The aggregate value of the Participant's
     vested account balances derived from employer and Employee contributions
     (including rollovers) , whether vested before or upon death, including the
     proceeds of insurance contracts, if any, on the Participant's life. The
     provisions of this article shall apply to a Participant who is vested in
     amounts attributable to employer contributions, Employee contributions (or
     both) at the time of death or distribution.

                                      -25-

     7.5  Notice Requirements.
          -------------------

          (a) In the case of a Qualified Joint and Survivor Annuity as described
     in Section 7.2 of this Article, the Plan Administrator shall provide each
     Participant no less than 30 days and no more than 90 days prior to the
     Annuity Starting Date a written explanation of: (i) terms and conditions of
     a Qualified Joint and Survivor Annuity; (ii) the Participant's right to
     make, and the effect of, an election to waive the Qualified Joint and
     Survivor Annuity form of benefit; (iii) the rights of a Participant's
     Spouse; and (iv) the right to make, and the effect of, a revocation of a
     previous election to waive the Qualified Joint and Survivor Annuity.

          (b) In the case of a Qualified Preretirement Survivor Annuity as
     described in Section 7.3 of this Article, the Plan Administrator shall
     provide each Participant a written explanation of the Qualified
     Preretirement Survivor Annuity in such terms and in such manner as would be
     comparable to the explanation provided for meeting the requirements of
     Paragraph (a) applicable to a Qualified Joint and Survivor Annuity. Such
     explanation shall be provided within whichever of the following periods
     ends last:

               (1) The period beginning with the first day of the plan year in
          which the Participant attains age 32 and ending with the close of the
          plan year preceding the plan year in which the Participant attains age
          35;

               (2) A reasonable period ending after the individual becomes a
          Participant;

               (3) A reasonable period ending after Section 7.5(c) ceases to
          apply to the Participant; or

               (4) A reasonable period ending after this Article first becomes
          applicable to the Participant.

          Notwithstanding the foregoing, notice must be provided within a
     reasonable period ending after separation from service where the
     Participant terminates employment with the Employer prior to attaining age
     35.

                                      -26-

          For purposes of applying the preceding paragraph, a reasonable period
     ending after the enumerated events described in (2), (3) and (4) is the end
     of the two-year period beginning one year prior to the date the applicable
     event occurs, and ending one year after that date. In the case of a
     Participant who separates from service before the Plan Year in which-age 35
     is attained, notice shall be provided within the two-year period beginning
     one year prior to separation and ending one year after separation. If such
     a Participant thereafter returns to employment with the employer, the
     applicable period for such Participants shall be redetermined.

     7.6 Transitional Rules.
         ------------------

          (a) Any living Participant not receiving benefits on August 23, 1984,
     who would otherwise not receive the benefits prescribed by the previous
     sections of the Article must be given the opportunity to elect to have the
     prior sections of the Article apply if such Participant is credited with at
     least one (1) hour of service under the Plan or a predecessor Plan in a
     Plan Year beginning on or after January 1, 1976, and such Participant had
     at least ten (10) years of vesting service when he or she separated from
     service.

          (b) Any living Participant not receiving benefits on August 23, 1984,
     who was credited with at least one (1) hour of service under this Plan or a
     predecessor Plan on or after September 2, 1974, and who is not otherwise
     credited with any service in a plan Year beginning on or after January 1,
     1976, must be given the opportunity to have his or her benefits paid in
     accordance with Paragraph (d) of this Section.

          (c) The respective opportunities to elect (as described in Paragraph
     (a) and (b) above) must be afforded to the appropriate Participants during
     the period commencing on August 23, 1984, and ending on the date benefits
     would otherwise commence to said Participants.

                                      -27-

          (d) Any Participant who has elected pursuant to Paragraph (b) of this
     Section and any Participant who does not elect under Paragraph (1) or who
     meets the requirement of paragraph (a) except that such Participant does
     not have at least ten (10) years of vesting service when he or she
     separates from service, shall have his or her benefits distributed in
     accordance with all of the following requirements if benefits would have
     been payable in the form of a life annuity:

               (1) Automatic Joint and Survivor Annuity.
                   ------------------------------------

                    If benefits in the form of a life annuity become payable to
               a married Participant who:

                         (A) begins to receive payments under the Plan on or
                    after normal retirement age;

                         (B) dies on or after normal retirement age while still
                    working for the Employer; or

                         (C) begins to receive payments on or after the
                    qualified early retirement age; or

                         (D) separates from service on or after attaining normal
                    retirement age (or the qualified early retirement age) and
                    after satisfying the eligibility requirements for the
                    payment of benefits under the Plan and thereafter dies
                    before beginning to receive such benefits then such benefits
                    will be received under this Plan in the form of a Qualified
                    Joint and Survivor Annuity, unless the Participant has
                    elected otherwise during the Election Period. The election
                    period must begin at least six (6) months before the
                    Participant attains qualified early retirement age and end
                    not more than ninety (90) days before the commencement of
                    benefits. Any election will be in writing and may be changed
                    by the Participant at any time.

                                      -28-

               (2) Election of Early Survivor Annuity. A Participant who is
          employed after attaining the qualified early retirement age will be
          given the opportunity to elect, during the election period, to have a
          survivor annuity, payments under such annuity must not be less than
          the payment which would have been made to the Spouse under the
          Qualified Joint and Survivor Annuity if the Participant had retired on
          the day before his or her death. Any election under this provision
          will be in writing and may be changed by the Participant at any time.
          The election period begins on the later of (A) the 90th day before the
          Participant attains the qualified early retirement age, or (B) the
          date on which participation begins, and ends on the date the
          Participant terminates employment.

               (3) For purposes of this Paragraph (d):

                        (A) Qualified early retirement is the later of:

                            (i) the earliest date, under the Plan, on which the
                        Participant may elect to receive benefits;

                            (ii) the first day of the 120th month beginning
                        before the Participant reaches normal retirement age; or

                            (iii) the date the Participant begins participation.

                        (B) Qualified joint and survivor annuity is an annuity
                    for the life of the Participant with a survivor annuity for
                    the life of the spouse as described in Section 7.4(d) of
                    this Article.

     7.7 Restriction on Cash-Outs of Benefits Under $3,500.00. No distribution
         ----------------------------------------------------
of the present value of a qualified joint and survivor annuity or a survivor
annuity or a qualified pre-retirement survivor annuity shall be made after the
annuity starting date (as defined by Section 417(f)(2) of the Code) unless the
Participant and the spouse of the Participant (or where the Participant has
died, the surviving spouse) consents in writing to such distribution. The
consent of the spouse shall be given in accordance with the requirements of
Section 7.4(c).

                                      -29-

                                                                       EXHIBIT 5

                          [DUANE MORRIS LLP LETTERHEAD]

                                  May 31, 2002

The Board of Directors of
   Donegal Group Inc.
1195 River Road
Marietta, PA  17547

Ladies and Gentlemen:

     We have acted as counsel to Donegal Group Inc. (the "Company") in
connection with the preparation and filing with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, of a registration
statement on Form S-8 (the "Registration Statement") relating to the offer and
sale by the Company of up to 200,000 shares (the "Shares") of Class A common
stock, $.01 par value, of the Company, under the Donegal Mutual Insurance
Company 401(k) Plan (the "Plan").

     As counsel to the Company, we have supervised all corporate proceedings in
connection with the preparation and filing of the Registration Statement. We
have also examined the Company's Certificate of Incorporation and By-laws, as
amended to date, the corporate minutes and other proceedings and the records
relating to the authorization, sale and issuance of the Shares, and such other
documents and matters of law as we have deemed necessary or appropriate in order
to render this opinion.

     Based upon the foregoing, it is our opinion that each of the Shares, when
issued in accordance with the terms and conditions of the Plan, will be duly
authorized, legally and validly issued and outstanding, fully paid and
nonassessable.

     We hereby consent to the use of this opinion in the Registration Statement,
and we further consent to the reference to our name under the caption "Interests
of Named Experts and Counsel" in the Registration Statement.

                                            Sincerely,

                                            DUANE MORRIS LLP

                                                                    EXHIBIT 23.1

The Board of Directors
Donegal Group Inc.:

We consent to the use of our reports incorporated herein by reference.

/s/ KPMG LLP
Philadelphia, Pennsylvania
May 31, 2002

                                                                    EXHIBIT 23.2

The Board of Directors
Donegal Group Inc.:

We consent to incorporation by reference in this registration statement on Form
S-8 of Donegal Group Inc. of our report dated October 10, 2001, relating to the
financial statements and supplemental schedule of the Donegal Mutual Insurance
Company 401(k) Plan as of December 31, 2000 and for the year then ended, which
report is incorporated by reference or appears in the December 31, 2000 annual
report on Form 11-K of Donegal Mutual Insurance Company 401(k) Plan.

/s/ McKonly & Asbury, LLP
Harrisburg, Pennsylvania
May 30, 2002