


                                 DONEGAL GROUP INC.

                           2001 AGENCY STOCK PURCHASE PLAN
                           -------------------------------

                              AS ADOPTED MARCH 8, 2001

1.    Purpose.
      -------

      The Donegal Group Inc. 2001 Agency Stock Purchase Plan (this "Plan") has
been established by Donegal Group Inc. (the "Company") for the benefit of
eligible independent insurance agencies of the Company and Donegal Mutual
Insurance Company (the "Mutual Company"), and the Company's subsidiary and
affiliated insurance companies, which shall be those insurance companies 50% or
more of whose stock is owned by the Company or the Mutual Company or with which
the Mutual Company has a management agreement (collectively, the "Companies").
This Plan provides an Eligible Agency (as defined in Section 2) an opportunity
to acquire a long-term proprietary interest in the Company through the purchase
of the Company's Class A Common Stock (the "Class A Common Stock") at a discount
from current market prices. In offering this Plan, the Company seeks to foster
the common interests of the Company and Eligible Agencies in achieving long-term
profitable growth for the Company. Accordingly, the Company has created this
Plan to facilitate the purchase and long-term investment in shares of the Class
A Common Stock by Eligible Agencies.

2.    Eligible Agencies.
      -----------------

      An agency designated as an Eligible Agency by the Company is thereafter
eligible to participate in this Plan. An Eligible Agency shall be an agency
that, as determined by the Company in its discretion, is an agency that brings
value to the Companies and with which the Companies seek a long-term
relationship. The eligibility criteria the Company will consider will include
the agency's premium volume, the potential growth of such premium volume, the
profitability of the agency's business and whether the agency has been placed on
rehabilitation by the Company or had its binding authority revoked. The Company,
in its discretion, may base eligibility on agency segmentation class or any
other factors that indicate value, directly or indirectly, to the Companies.
Continued eligibility will be subject to the Company's periodic review. A
pattern of immediate resale of the Class A Common Stock acquired under this Plan
by an Eligible Agency shall be a factor in the Company's determination whether
an agency should remain eligible for continued participation in this Plan
because immediate resales would tend to indicate that an Eligible Agency is not
seeking to share in the long-term profitable growth of the Companies. A decision
by the Company, in its discretion, to discontinue the eligibility of an agency
under this Plan, will be treated as an automatic withdrawal from this Plan. See
Section 9 below.

3.    Methods of Payment and Amount of Contribution.
      ---------------------------------------------

      There shall be three methods of payment to purchase shares of the Class A
Common Stock under this Plan. Subject to the provisions of Section 11(b), an
Eligible Agency may elect any of the payment methods individually or in
combination. In each Subscription Period (as


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defined in Section 4) an Eligible Agency may contribute an aggregate maximum of
$12,000 toward the purchase of Class A Common Stock under all payment methods
combined (the "Maximum Amount"), subject to the limitations set forth below:

      (a) An Eligible Agency may elect to purchase Class A Common Stock through
deductions from its monthly direct bill commission payments. Under this method,
an Eligible Agency shall designate no less than 1% and no more than 10% of the
Eligible Agency's direct bill commission payments to be withheld from the
Eligible Agency's direct bill commission payments; provided, however, that no
more than $12,000 will be withheld by the Company from direct bill commission
payments during each Subscription Period. Direct bill commission payments shall
mean the commissions earned and that are actually available for payment in a
monthly period to an Eligible Agency for personal and commercial direct bill
policies after all offsetting debits and credits are applied, as determined
solely from the Company's records.

      (b) An Eligible Agency may elect to purchase Class A Common Stock during
each October 1 through March 31 Subscription Period through a deduction from the
contingent commission, if any, payable to the Eligible Agency under the
applicable agency contingent plan or its equivalent. Under this method, an
Eligible Agency shall designate a percentage of the contingent commission to be
withheld by the Company subject to the Maximum Amount.

      (c) An Eligible Agency may elect to purchase Class A Common Stock through
lump-sum payments to the Company. Under this method, the Eligible Agency shall
pay to the Company a dollar amount in a lump sum by the last day of the
applicable Subscription Period (September 30 or March 31). The amount of the
lump sum payment shall not be less than $1,000 nor more than the Maximum Amount.

      At the end of each Subscription Period, each Eligible Agency's direct bill
commission payments, if any, shall be totaled and added to all lump-sum and/or
contingent commission payments, if any, made by such agency. If at any time
during a Subscription Period an Eligible Agency's total payments exceed the
Maximum Amount for that Subscription Period then, upon request by the Eligible
Agency, such excess amount shall be returned by the Company to the Eligible
Agency without interest within a reasonable period. Any such amount not returned
shall be applied to the purchase of Class A Common Stock during the next
Subscription Period without reducing the Maximum Amount applicable to such
Subscription Period.

4.    Duration of This Plan and Subscription Periods.
      ----------------------------------------------

      This Plan shall be in effect from September 15, 2001 through and including
September 30, 2006. During the term of this Plan, there will be ten semi-annual
"Subscription Periods." Each Subscription Period will extend from October 1
through March 31 or from April 1 through September 30, respectively, beginning
with October 1, 2001 and ending on September 30, 2006.

5.    Enrollment and Enrollment Periods.
      ---------------------------------

      Enrollment for participation in this Plan based on withholding from direct
bill commissions shall take place in the "Enrollment Period" preceding each
Subscription Period, which shall be from the 15th through the 30th day of
September and from the 15th through the 31st day of March of each year
commencing with September 15, 2001. An Eligible Agency shall be sent a

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Subscription Agreement prior to the beginning of first Enrollment Period
following such agency's designation as an Eligible Agency. An Eligible Agency
that desires to subscribe for the purchase of Class A Common Stock through
withholding from direct bill commissions must return a duly executed and
completed Subscription Agreement during the first applicable Enrollment Period.
Once enrolled, an Eligible Agency shall continue to participate in this Plan for
each succeeding Subscription Period until it ceases to be an Eligible Agency or
chooses to withdraw from this Plan pursuant to Section 9. If an Eligible Agency
desires to change its rate of contribution, it may do so effective for the next
Subscription Period by filing a new Subscription Agreement during the Enrollment
Period for the next Subscription Period. An Eligible Agency that wishes to make
lump-sum purchases during a Subscription Period shall remit each lump-sum
payment to the Company with a supplemental Subscription Agreement by the last
day of the applicable Subscription Period (September 30 or March 31). An
Eligible Agency that wishes to make a purchase during the October 1 through
March 31 Subscription Period through designation of a portion of its contingent
commission under the agency contingent plan shall file a Subscription Agreement
during the Enrollment Period applicable to that Subscription Period.

6.    Number of Shares To Be Offered.
      ------------------------------

      The total number of shares to be made available under this Plan is 300,000
shares of Class A Common Stock of the Company. In the event all 300,000 shares
of Class A Common Stock are purchased prior to the expiration of this Plan, this
Plan may be terminated in accordance with Section 13 of this Plan.

7.    Subscription Price.
      ------------------

      The "Subscription Price" for each share of Class A Common Stock shall be
equal to 90% of the average of the closing prices of the Class A Common Stock on
the Nasdaq Stock Market on the last ten trading days of the applicable
Subscription Period; provided, however, that the Subscription Price shall never
be less than the par value per share of the Class A Common Stock.

8.    Purchase of Shares.
      ------------------

      The Company will maintain a "Plan Account" on behalf of each enrolled
Eligible Agency. As of the last day of each Subscription Period, the aggregate
amount deducted from the Eligible Agency's direct bill commission payments and
contingent commission withholding and lump-sum payments, not to exceed the
Maximum Amount permitted pursuant to Section 3 of this Plan from all three
payment methods, shall be credited to the Eligible Agency's Plan Account. At
such time, the amount then contained in the Eligible Agency's Plan Account shall
be divided by the Subscription Price for such Subscription Period and each Plan
Account will be credited with the number of whole shares that results. Any
amount remaining in the Plan Account will be carried forward to the next
Subscription Period or, at the option of the Eligible Agency, returned to the
Eligible Agency. Any amount so carried forward will not reduce the Maximum
Amount applicable to such succeeding Subscription Period. If the number of
shares subscribed for during any Subscription Period exceeds the number of
shares available for sale under this Plan, the remaining shares shall be
allocated among all Eligible Agencies in proportion to their aggregate Plan
Account balances, exclusive of any amounts carried forward as provided in
Sections 3 and 8 of this Plan. Stock certificates will be issued and delivered
to each Eligible Agency with respect to the shares it has purchased hereunder
within a reasonable time thereafter.

                                      -3-

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9.    Withdrawal from This Plan.
      -------------------------

      An enrolled Eligible Agency may withdraw from this Plan at any time by
giving written notice of withdrawal to the Company, which written notice shall
be signed on behalf of the Eligible Agency by an authorized representative.
Promptly after the time of withdrawal or the discontinuance of an Eligible
Agency's eligibility, certificates representing any shares held under this Plan
shall be issued in the name of the Eligible Agency and the amount of any cash
credited to the Eligible Agency's Plan Account for the current Subscription
Period shall be refunded by the Company without interest. If an Eligible Agency
withdraws, such Eligible Agency may not resubscribe until after the next full
Subscription Period has elapsed, and then only if it has been redesignated by
the Company as an Eligible Agency.

10.   Termination of Agency Status.
      ----------------------------

      Termination of agency status for any reason shall be treated as an
automatic withdrawal from this Plan pursuant to Section 9.

11.   Assignment and Issuance of Shares.
      ---------------------------------

      Except as expressly permitted by this Section 11, no Eligible Agency may
assign its subscription payments under this Plan or rights to subscribe under
this Plan to any other person (including its shareholders, partners or other
principals), and any attempted assignment shall be void. Neither an Eligible
Agency's rights under this Plan nor shares held in an Eligible Agency's Plan
Account may be transferred, pledged, hypothecated or assigned. All shares issued
under this Plan shall be titled in the name of the Eligible Agency; provided,
however, that an Eligible Agency may, upon written request to the Company: (a)
designate that such shares be issued to a shareholder, partner, other principal
or other licensed employee of such Eligible Agency, or (b) designate that any
retirement plan maintained by or for the benefit of such Eligible Agency or a
shareholder, partner, other principal or other licensed employee of such
Eligible Agency may purchase shares in lieu of such Eligible Agency through
lump-sum payments made by the designee, subject to the $12,000 Maximum Amount
limitation set forth in Section 3, compliance with applicable laws, including
the Employee Retirement Income Security Act of 1974, as amended, and, if
applicable, payment by the Eligible Agency or its designee of any applicable
transfer taxes and satisfaction of the Company's usual requirements for
recognition of a transfer of Class A Common Stock.

12.   Adjustment of and Changes in the Class A Common Stock.
      -----------------------------------------------------

      In the event that the outstanding shares of Class A Common Stock are
hereafter increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend either in
shares of the Class A Common Stock or of another class of the Company's stock,
spin-off or combination of shares, appropriate adjustments shall be made by the
Committee appointed pursuant to Section 14 of this Plan in the aggregate number
and kind of shares that are reserved for sale under this Plan.

                                      -4-

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13.   Amendment or Discontinuance of This Plan.
      ----------------------------------------

      The Board of Directors of the Company shall have the right to amend,
modify or terminate this Plan at any time without notice provided that no
participant's existing rights are adversely affected thereby.

14.   Administration.
      --------------

      This Plan shall be administered by a committee (the "Committee")
consisting of three persons appointed from time to time by the Board of
Directors of the Company. The Committee may from time to time adopt rules and
regulations for carrying out this Plan. Interpretation or construction of any
provision of this Plan by the Committee shall be final and conclusive on all
persons absent contrary action by the Board of Directors.

15.   Titles.
      ------

      Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Plan.

16.   Applicable Law.
      --------------

      This Plan shall be construed, administered and governed in all respects
under the laws of the Commonwealth of Pennsylvania and the United States of
America.

826517
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