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                                                                   EXHIBIT 10(s)

                                 AMENDMENT NO. 1

                                       TO

                          EMPLOYEE RETENTION AGREEMENT

                         ORIGINALLY DATED: MAY 31, 1999

                                     BETWEEN

                                  ROBERT M. ZAK

                                       AND

                       MERCHANTS MUTUAL INSURANCE COMPANY

                          DATED: AS OF FEBRUARY 6, 2002

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                                 AMENDMENT NO. 1

                                       TO

                          EMPLOYEE RETENTION AGREEMENT

            This AMENDMENT No. 1 to EMPLOYEE RETENTION AGREEMENT ("Agreement"),
dated as of February 6, 2002, is by and between ROBERT M. ZAK, residing at 242
Doncaster Road, Kenmore, New York 14217 (the "Executive") and MERCHANTS MUTUAL
INSURANCE COMPANY, a New York mutual insurance company with its principal office
at 250 Main Street, Buffalo, New York 14202 (the "Company").

                                    RECITALS:

            WHEREAS, the Company is responsible for managing the business of
Merchants Group, Inc. ("MGI") and MGI's wholly-owned subsidiary, Merchants
Insurance Company of New Hampshire, Inc. ("MNH"), under a Management Agreement
dated September 29, 1986 by and among the Company, MGI and MNH (the "Management
Agreement"); and

            WHEREAS, MGI has given notice to the Company that it will terminate
the Management Agreement at the end of the required five-year notice period
(i.e. July 23, 2003); and

            WHEREAS, the Executive is a key employee of the Company; and

            WHEREAS, the Executive and the Company are parties to an Employee
Retention Agreement dated as of May 31, 1999 (the "1999 Agreement"); and

            WHEREAS, the 1999 Agreement expires according to its terms on
December 31, 2003; and

            WHEREAS, the Company believes that it is in its best interest to
secure the Executive's continued employment with the Company beyond the
expiration date of the 1999 Agreement in order to enhance the Company's ability
to continue to manage the business of the Company, MGI and MNH throughout the
period prior

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to the effective date of the termination of the Management Agreement; and

            WHEREAS, the Company believes that the Executive's continued
employment with the Company will be in the collective best interests of the
Company, MGI and MNH; and

            WHEREAS, the Executive and the Company desire to amend the 1999
Agreement to change the definition of "Protection Period," as that term is
defined in the 1999 Agreement, and in certain other respects; and

            WHEREAS, the Company believes that by so amending the 1999 Agreement
it will assist the Company in retaining the services of the Executive throughout
the period prior to the effective date of the termination of the Management
Agreement; and

            WHEREAS, the Executive and the Company desire to enter into this
Agreement in order to amend the 1999 Agreement as indicated, and to restate the
1999 Agreement as amended.

            NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein contained, the adequacy and sufficiency of which are hereby
acknowledged, the Company and the Executive agree as follows:

            1. Amendment of Definition of "Protection Period."

                  Paragraph 3 of the 1999 Agreement is amended in its entirety
to read as follows:

                  (b)   The "Protection Period" shall be that period of time
                        from the date of this Agreement through and including
                        December 31, 2003, and thereafter shall automatically be
                        extended for an additional twelve (12) months if not
                        terminated by the Company prior to January 1 of the year
                        during which it would otherwise expire. For example, if
                        not terminated prior to January 1, 2003, the Protection
                        Period will be extended through December 31, 2004; if
                        not terminated prior to January 1, 2004, the Protection
                        Period will be extended through December 31, 2005; and
                        so forth.


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            2. Amendment and Restatement of the 1999 Agreement.

                  The 1999 Agreement is hereby further amended to reflect the
amendment set forth in paragraph 1 above, and certain other amendments to which
the parties agree, and, as so amended, is hereby restated in full, and as
restated shall supercede and replace the 1999 Agreement in its entirety:

                              AMENDED AND RESTATED
                          EMPLOYEE RETENTION AGREEMENT

            This AMENDED AND RESTATED EMPLOYEE RETENTION AGREEMENT
("Agreement"), dated as of February 6, 2002, is by and between MERCHANTS MUTUAL
INSURANCE COMPANY, a New York mutual insurance company with its principal office
at 250 Main Street, Buffalo, New York 14202 (the "Company") and ROBERT M. ZAK
residing at 242 Doncaster Road, Kenmore, New York 14217 (the "Executive").

                                 R E C I T A L S

            WHEREAS, the Company and the Executive were parties to an Employee
Retention Agreement dated as of May 31, 1999 ("1999 Agreement"), and have
amended and restated that agreement the date hereof; and

            WHEREAS, this Agreement embodies that amendment and restatement.

            NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein contained, the adequacy and sufficiency of which are hereby
acknowledged, the Company and the Executive agree as follows:

            1. TERMINATION OF 1999 AGREEMENT.

                  The 1999 Agreement is hereby terminated and superceded in its
entirety by this Agreement.

            2. EMPLOYMENT.


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                  During the Protection Period, as such term is defined in
paragraph 3 below, the Company shall continue to employ the Executive as its
President and Chief Executive Officer, as such positions may be defined from
time to time in the Company's By-Laws or, if not so defined, as such positions
may be defined by the Company's Board of Directors. In return, the Executive
shall devote all of his business time, attention, skill and efforts to the
faithful performance of his duties as President and Chief Executive Officer. In
connection with his employment hereunder, the Executive shall be based at the
principal office of the Company in Buffalo, New York.

            3. PROTECTION PERIOD.

                  The "Protection Period" shall be that period of time from the
date of this Agreement through and including December 31, 2003, and thereafter
shall automatically be extended for an additional twelve (12) months if not
terminated by the Company prior to January 1 of the year during which it would
otherwise expire. For example, if not terminated prior to January 1, 2003, the
Protection Period will be extended through December 31, 2004; if not terminated
prior to January 1, 2004, the Protection Period will be extended through
December 31, 2005; and so forth.

            4. REGULAR COMPENSATION.

                  For the performance of his duties under this Agreement during
the Protection Period the Company shall pay the Executive a fixed annual salary
of at least $260,000 ("Initial Annual Salary"). The Executive's annual salary
shall be subject to annual review by the Compensation Committee of the Board of
Directors of the Company, subject to approval by the Company's Board of
Directors, but shall not be reduced without his written consent below the
Initial Annual Salary during the Protection Period. The Executive's salary shall
be payable semi-monthly or otherwise in accordance with the Company's customary
practice for its other executives. Notwithstanding the foregoing, the Executive
shall be entitled to defer the receipt of his salary and/or bonus pursuant to
procedures adopted or plans maintained by the Company.


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            5. ADDITIONAL BENEFITS.

                  (a) The Executive shall be eligible to participate in and
receive benefits under any incentive compensation plan or arrangement, any stock
option or other stock-based plan, any defined benefit retirement plan, defined
contribution retirement plan, supplemental retirement plan, health and dental
plan, disability plan, survivor income plan, and life insurance plan or other
employee benefit or compensation plan or arrangement (collectively, "Benefit
Plans"), made available by the Company to all of its senior executives from time
to time, subject to and on a basis consistent with the terms, conditions and
overall administration of such Benefit Plans.

                  (b) The Executive shall be entitled to paid vacations in
accordance with the Company's customary vacation practice (provided that the
Executive shall receive at least four (4) weeks vacation per year) and all paid
holidays given by the Company to its other senior executives.

                  (c) In addition to his annual salary, the Executive shall be
entitled to receive fringe benefits and perquisites given by the Company to its
senior executives.

                  (d) The Company shall promptly pay (or reimburse the Executive
for) all reasonable expenses incurred by him in the performance of his duties
hereunder, including business travel and entertainment expenses. The Executive
shall furnish to the Company such receipts and records as the Company may
require to verify the foregoing expenses.

            6. TERMINATION BENEFITS.

                  (a) The purpose of this paragraph 6 is to provide the
Executive with certain benefits in the event it is necessary or advisable for
the Company, through no fault of the Executive, to either terminate the
Executive's employment or eliminate his position. In order to give effect to
this purpose, the Executive shall receive certain payments and benefits from the
Company if there is a "Termination of Employment," as that term is defined
below, during the Protection Period subject to the following terms and
conditions.


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                  (b) "Termination of Employment" is defined to mean the
termination of the Executive's full-time employment with the Company for any
reason other than (i) the Executive's death, (ii) the Executive's "total
disability" (as defined in paragraph 7(e) below), (iii) the Executive's
voluntary termination of employment with the Company, (iv) the termination of
the Executive's employment by the Company for "good cause" (as defined in
paragraph 7(b) below), or (v) the termination of the Executive's employment by
the Company as a result of the Company's determination in its sole judgment that
the Executive has either (A) repeatedly failed to perform the duties and
assignments given to him or (B) consistently failed to perform the duties and
assignments given to him in a manner that is acceptable to the Company, based on
the level and quality of performance expected from an experienced executive at
the Executive's level in the Company.

                  (c) If there is a Termination of Employment during the
Protection Period, the Executive or his duly designated beneficiary will
continue to receive his gross bi-weekly salary in effect on the date of
Termination of Employment, subject to all required withholding taxes, in the
form of salary continuation ("Salary Continuation"), during each of the
thirty-four (34) months following the date of Termination of Employment (the
"Salary Continuation Period").


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                  (d) In addition to the Salary Continuation provided under
paragraph 6(c) above, during the Salary Continuation Period the Company shall
maintain in full force for the Executive's and his family's benefit, all life
insurance, health and accident insurance, and disability and medical
reimbursement plans in which the Executive and his family were entitled to
participate immediately prior to the date of Termination of Employment, under
the same terms as are made available during the Salary Continuation Period to
other executive employees of the Company from time to time, if the continued
participation of the Executive and his family in such plans is possible under
the general terms and provisions of such plans, programs and arrangements. The
costs of the Executive's and his family's continued participation in such
insurance and reimbursement plans shall be allocated between the Company and the
Executive in the same proportion as such costs were allocated prior to the date
of Termination of Employment. If the Executive's or his family's continued
participation is not possible, the Company shall reimburse the Executive for his
cost in obtaining comparable coverage, subject to a maximum reimbursement during
the Salary Continuation Period equal to 10% of the Executive's base annual
salary for the calendar year preceding the date of Termination of Employment.
For purposes of the Consolidated Omnibus Budget Reconciliation Act ("COBRA"),
the qualifying event that begins the Executive's period of coverage shall be
considered to occur on the last day for which health coverage is provided during
the Salary Continuation Period and for which the Company contributes to the
costs of such coverage pursuant to this paragraph 6(d).

                  (e) This paragraph 6 shall not be applicable to any
Termination of Employment following a "change in control" as defined in
paragraph 7(c) of this Agreement.

                  (f) The payments and benefits provided for in paragraphs 6(c)
and (d) shall be in lieu of any other severance payments the Executive might
otherwise be entitled to from the Company whether in this Agreement, under any
employment agreement, or under a severance plan or policy maintained by the
Company for employees of Executive's rank and seniority.


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                  (g) The Executive shall not be considered to be an employee of
the Company during the Salary Continuation Period for purposes of accruing any
benefits under the Company's 401(k) retirement plan, or any other retirement,
pension, profit sharing, savings or incentive or bonus plan maintained,
sponsored or administered by the Company ("Retirement or Bonus Plans") or under
the Company's vacation policy. During the Salary Continuation Period the
Executive shall not be entitled to any contribution by the Company on his behalf
or to his account under any Retirement or Bonus Plans nor shall he be entitled
to accrue any benefits under the Company's vacation policy.

            7. CHANGE IN CONTROL PAYMENTS.

                  (a) If during the Protection Period there is a "change in
control" and within two (2) years thereafter (i) the employment of the Executive
is terminated by the Company for other than "good cause" or the death or "total
disability" of the Executive or (ii) the Executive shall declare his employment
terminated for "good reason," then the Executive shall be entitled to the
following:

                        A. All unpaid salary through the date of termination of
                        employment plus credit for any vacation earned but not
                        taken through the date of termination of employment (as
                        permitted by the Company's policy on vacations) together
                        with reimbursement for expenses not previously
                        reimbursed through the date of termination, all of which
                        will be paid immediately subject to all required
                        withholding taxes.

                        B. As a severance benefit, the Executive shall be
                        entitled to an amount equal to his then current base
                        annual salary ("X") plus the average of the last three
                        (3) annual incentive or bonus compensation awards paid
                        to the Executive by the Company prior to the date of
                        termination ("Y"), multiplied by two and nine-tenths
                        [2.9] ("Severance Benefit"). The Severance Benefit will
                        equal (X + Y) multiplied by 2.9.

                        C. This Severance Benefit, less all proper


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                        payroll deductions, shall be paid immediately to the
                        Executive in a lump sum.

                        D. In addition to the Severance Benefit, the Executive
                        shall be entitled to continued participation for
                        thirty-four (34) months following the date of the
                        termination of his employment, in all life insurance,
                        health and accident insurance, disability and medical
                        reimbursement plans, programs and arrangements in which
                        the Executive and his family were entitled to
                        participate immediately prior to the date of a "change
                        in control," if the continued participation of the
                        Executive and his family in such plans, programs and
                        arrangements is possible under the general terms and
                        provisions of such plans, programs and arrangements. The
                        costs of the Executive's and his family's continued
                        participation in such plans, programs and arrangements
                        shall be allocated between the Company and the Executive
                        in the same proportion as such costs were allocated
                        prior to the date of the termination of his employment.
                        If the Executive's or his family's continued
                        participation is not possible, the Company shall
                        reimburse the Executive at the end of each month during
                        the thirty-four (34) month period for his cost in
                        obtaining comparable coverage, subject to a maximum
                        reimbursement during each month equal to 2% of the
                        Executive's base annual salary for the calendar year
                        preceding the date of the termination of his employment.
                        For purposes of COBRA, the qualifying event that begins
                        the Executive's period of coverage shall be considered
                        to occur on the last day for which health coverage is
                        provided and for which the Company contributes to the
                        costs of such coverage pursuant to this paragraph 7(a)D.
                        The Company's obligations under this paragraph 7(a)D.
                        with respect to life, health, accident and disability
                        coverage shall be suspended with respect to any such
                        coverage at any time that the Executive is


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                        eligible for comparable coverage from another employer.

            The parties agree that the payments provided for in this paragraph
7(a) shall be liquidated damages which are in lieu of any other severance
payments that the Executive would otherwise be entitled to under this Agreement
or under any severance plan or policy that would apply to him but for this
Agreement, and the Company agrees that the Executive shall not be required to
mitigate his damages by seeking other employment or otherwise.

                  (b) "Good cause" shall mean (i) the Executive's dishonesty,
fraud or breach of trust, or substantial misconduct in the performance of or
substantial nonperformance of his duties as an employee of the Company, (ii) any
act or omission by the Executive that results in a felony conviction or in a
regulatory body with jurisdiction over the Company removing the Executive from
office or requesting or recommending the suspension or removal of the Executive
or taking punitive action against the Executive, or (iii) a material breach by
the Executive of paragraphs 8 or 9 of this Agreement.

                  (c) For purposes of this Agreement, a "change in control"
shall have occurred if, after the date of this Agreement:

                        A. Any person (as such term is used in Section 13(d) or
                        Section 14(d)(2) of the Securities Exchange Act of 1934,
                        as amended, and the rules and regulations thereunder and
                        including any affiliate or associate of such person, as
                        defined in Rule 12b-2 under said Act, and any person
                        acting in concert with such person), directly or
                        indirectly acquires or becomes the beneficial owner of
                        (within the meaning of Rule 13d-3 under said Act), or
                        otherwise becomes entitled to vote, stock of the Company
                        or Merchants Group, Inc. ("MGI") or its subsidiary
                        Merchants Insurance Company of New Hampshire, Inc.
                        ("MNH")(hereinafter referred to individually as a
                        "Merchants Company" and collectively as the "Merchants
                        Companies") with 25% or more of the voting


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                        power entitled to be cast at elections for directors
                        (excluding any acquisition of stock in one Merchants
                        Company by another Merchants Company or the voting of
                        stock in one Merchants Company by another Merchants
                        Company); or

                        B. There occurs any merger or consolidation of a
                        Merchants Company (excluding any merger or consolidation
                        of one Merchants Company with another) or any sale,
                        lease or exchange of all or any substantial part of the
                        assets of any of the Merchants Companies and their
                        subsidiaries to any other person, excluding any of the
                        Merchants Companies, and (i) in the case of a merger or
                        consolidation, the holders of the outstanding stock of
                        any of the Merchants Companies entitled to vote in
                        elections of directors ("voting stock") immediately
                        before such merger or consolidation hold less than 50%
                        of the voting stock of the survivor of such merger or
                        consolidation or its parent; or (ii) in the case of any
                        such sale, lease or exchange, neither the Company nor
                        either of the other Merchants Companies or the Merchants
                        Companies as a group owns at least 50% of the voting
                        stock of the other person; or

                        C. During any period of two (2) consecutive years,
                        individuals who at the beginning of such period
                        constitute the entire Board of Directors of any of the
                        Merchants Companies shall cease for any reason to
                        constitute a majority thereof, unless the election or
                        the nomination for the election by that company's
                        shareholders or policyholders of each new Director was
                        approved by a vote of at least two-thirds of the
                        Directors then still in office who were Directors at the
                        beginning of the period;

            Provided, however, that a "change in control" shall not be deemed to
have occurred if any of the events described in paragraphs 7 (c), A, B or C
above occur with respect to MGI or


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MNH at such time that they are not parties with the Company to the Management
Agreement dated September 29, 1986, or an extension or modification of that
agreement, or are not parties with the Company to another management or expense
sharing or pooling, quota share or reinsurance agreement.

                  (d) "Good reason" shall mean any of the following subsequent
to a "change in control" (i) the requirement that the Executive relocate his
principal place of business to a location that is more than 25 miles from the
Executive's principal place of business immediately prior to the date of a
"change in control," (ii) any assignment to the Executive without his express
written consent of any material duties, functions, authority or responsibilities
with respect to any of the Merchants Companies other than those duties,
functions, authority and responsibilities assigned to the Executive by the
Company prior to the "change in control," or any material limitation or
expansion without the Executive's express written consent of the material
duties, functions, authority and responsibilities assigned to the Executive by
the Company prior to the "change in control," any such assignment, limitation or
expansion being deemed a continuing breach of this Agreement, (iii) a reduction
in the Executive's then annual salary paid by any of the Merchants Companies or
(iv) failure by the Company to obtain the assumption of, and the agreement to
perform, this Agreement by any successor or assign as contemplated in paragraph
13 hereof, and such relocation described in the foregoing clause (i), such
assignment, limitation or expansion described in the foregoing clause (ii),
reduction described in the foregoing clause (iii) or failure described in the
foregoing clause (iv) is not cured within thirty (30) days after receipt by the
Company of written notice from the Executive describing such event, or (v) any
removal of the Executive from, or any failure to re-designate or re-elect the
Executive to the position he held immediately prior to the "change in control";
provided that in any event set forth above in this subparagraph 7(d), the
Executive shall have elected to terminate his employment under this Agreement
upon not less than sixty (60) days' advance written notice to the Company,
given, except in the case of a continuing breach, within three calendar months
after (A) failure to be so elected or re-elected, or such removal, or (B)
expiration of the thirty-day cure period with respect to such event. An election
by the Executive to terminate his employment given under the provisions of this
paragraph 7(d) shall not be deemed a voluntary termination of employment by the
Executive for the purpose of this Agreement or


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any plan or practice of the Company.

                  (e) "Total disability," as used herein, shall mean total
disability as defined in any long-term disability plan sponsored by the Company
in which the Executive participates, or, if there is no such plan or it does not
define such term, then it shall mean the physical or mental incapacity of the
Executive which prevents him from substantially performing his duties as an
employee of the Company for a period of at least 180 days and the incapacity is
expected to be permanent and continues for the remainder of the Executive's
life.

                  (f) The payments provided for in this paragraph 7 are in lieu
of any payments provided for in the 1999 Agreement or in any severance agreement
or similar agreement between the Executive and the Company which is dated prior
to the date of this Agreement ("Severance Agreement"). This Agreement hereby
voids, terminates and supersedes the 1999 Agreement and any such Severance
Agreement and the Executive hereby acknowledges that the 1999 Agreement and any
such Severance Agreement are hereby terminated and he no longer has any rights
or benefits thereunder.

            8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.

                  The Executive will not at any time use or disclose to any
third party any confidential information or trade secrets relating to the
business of any of the Merchants Companies, including business methods and
techniques, research data, marketing and sales information, agent lists,
underwriting and claims procedures, investment strategies, reinsurance
arrangements, agent compensation plans, pricing data, and any other information
concerning the business of any of the Merchants Companies, their manner of
operation, their plans, or other information not disclosed to the general public
or known in the insurance industry, except for disclosure in the course of the
Executive's duties hereunder, or disclosure required by any law, rule,
regulation or court order, or disclosure which the Executive reasonably believes
would subject him or any of the Merchants Companies to liability if not made.
This covenant will survive the termination of this Agreement.

            9. COVENANT NOT TO COMPETE.

                  (a) The Executive shall not "compete," as that


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term is defined in paragraph 9(c) below, while employed by the Company with the
Company or any Affiliated Companies, as defined below in paragraph 9(b).

                  (b) If the Executive is receiving Salary Continuation payments
under paragraph 6(c) of this Agreement, he shall not compete during the first
ninety (90) days of the Salary Continuation Period with the Company, or any
subsidiary of the Company, or any other insurance company that is a party with
the Company to any management, expense sharing or pooling, quota share or
reinsurance agreement (collectively, "Affiliated Companies"), nor shall he
"solicit," as that term is defined in paragraph 9(d) below, any employee of the
Company for a period of six (6) months after his last day of employment with the
Company, unless he shall have received prior written approval from the Company.

                  (c) As used in this paragraph 9, the term "compete" means the
direct or indirect ownership, management, operation or control of, or
participation in the ownership, management, operation, or control of, or the
holding of the position of an officer, employee, partner, director, consultant
or similar positions, or the holding of any financial interest in, or the giving
of any aid or assistance to anyone else in the conduct of, any business that is
engaged in a property-casualty insurance business that offers substantially any
of the same lines of insurance and coverages offered, or proposed to be offered,
by the Company or any Affiliated Company at the time of the Executive's
withdrawal from or termination of employment with the Company, in any of the
geographic markets in which the Company or any Affiliated Company is then
conducting business. Ownership of stock of MGI or of one percent (1%) or less of
the voting stock of any other publicly held corporation shall not constitute a
violation of this paragraph 9.

                  (d) As used in paragraph 9(b) above, the term "solicit" shall
mean the solicitation of any employee of the Company for the purpose of hiring
or engaging such employee to work for or otherwise assist any person who does or
intends to compete with the Company or any Affiliated Company

                  (e) In addition to any other remedies that the Company may
have in law or in equity for a breach of the Executive's covenants set forth in
this paragraph 9, the Company may also cancel its obligations to pay to the
Executive any


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monies and other benefits otherwise due to the Executive under this Agreement.

            10. ENTIRE AGREEMENT.

                  The terms and provisions of this Agreement constitute the
entire agreement between the parties and supersede any previous oral or written
communications, representations, or agreements with respect to the subject
matter hereof, including without limitation the 1999 Agreement.

            11. NOTICE.

                  Any notices given hereunder shall be in writing and shall be
given by personal delivery or by certified or registered mail, return receipt
requested, addressed to the addressee at the address set forth at the head of
this Agreement or such other address that such addressee has duly notified the
other party to forward notices to hereunder.

            12. SEVERABILITY.

                  The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if the invalid or unenforceable
provision had been omitted.


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            13. COMPANY ASSIGNMENT.

                  The Company may not assign this Agreement, except that the
Company's obligations hereunder shall be binding legal obligations of any
successor to all or substantially all of the Company's business by purchase,
merger, consolidation, conversion, or otherwise. The Company shall require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation, conversion, or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly, absolutely and unconditionally to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession or
assignment had taken place. Any failure of the Company to obtain such agreement
prior to the effectiveness of any such succession or assignment shall be a
material breach of this Agreement. As used in this Agreement, the term "Company"
shall mean the Company as hereinbefore defined and any successor or assign to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this paragraph 13 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.

            14. NO ASSIGNMENT BY EXECUTIVE.

                  No interest of the Executive or the Executive's spouse or any
other beneficiary under this Agreement, or any right to receive any payments or
distributions hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, the Executive or the Executive's spouse or
other beneficiary, including claims for alimony, support, separate maintenance,
and claims in bankruptcy proceedings.


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            15. BENEFITS UNFUNDED.

                  All rights of the Executive and the Executive's spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded,
and no provision shall at any time be made with respect to segregating any
assets of the Company for payment of any amounts due hereunder. Neither the
Executive nor the Executive's spouse or other beneficiary shall have any
interest in or rights against any specific assets of the Company, and the
Executive and the Executive's spouse or other beneficiary shall have only the
rights of a general unsecured creditor of the Company.

            16. WAIVER.

                  No waiver by any party at any time of any breach by another
party of, or compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of any other provisions or
conditions at the same time or at any prior or subsequent time.

            17. PAYMENTS IN EVENT OF DEATH.

                  Upon the death of the Executive all amounts due and payable to
the Executive pursuant to this Agreement shall be paid to the person or persons
designated by him as his beneficiary or beneficiaries on the Form of Designation
of Beneficiary attached hereto as Exhibit A, or if no such person is designated
then to his devisee, legatee or other designee, or in their absence to his
estate.


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            18. REDUCTION OF PARACHUTE PAYMENTS AND EXCESSIVE EMPLOYEE
REMUNERATION.

                  (a) In the event that a determination is made by legal counsel
for the Company that (i) the Executive would, except for this paragraph 18, be
subject to the excise tax provisions of Section 4999 of the Internal Revenue
Code of 1986 (the "Code"), or any successor sections thereof, as a result of a
"parachute payment" (as defined in Section 280G(b)(2)(A) of the Code) made by
the Company to the Executive pursuant to this Agreement or any other agreement,
plan or arrangement, or (ii) a federal income tax deduction would not be allowed
to the Company for all or a part of such payments by reason of Section 280G(a)
of the Code (or any successor provision), the payments to which the Executive
would otherwise be entitled hereunder shall be reduced, eliminated, or postponed
in such amounts as are required to reduce the aggregate "present value" (as
defined in Section 280G(d)(4) of the Code) of such payments to one dollar less
than an amount equal to three times the Executive's "base amount" (as defined in
Sections 280G(b)(3)(A) and 280G(d)(1) and (2) of the Code), to the end that the
Executive is not subject to tax pursuant to such Section 4999 and no deduction
is disallowed by reason of such Section 280G(a). To achieve such reduction in
aggregate present value, the Executive shall determine which item or items
payable hereunder shall be reduced, eliminated, or postponed, the amount of each
such reduction, elimination, or postponement, and the period of each
postponement. The Company shall direct its legal counsel to review the payments
made to the Executive and shall provide to the Executive such information as is
reasonably necessary for the Executive to make the determinations contemplated
in this paragraph.

                  (b) In the event that a determination is made by legal counsel
for the Company that the Company would not be allowed to deduct remuneration
payable to the Executive as a result of the limits imposed by Section 162(m) of
the Code, or any successor sections thereof, the payments to which the Executive
would otherwise be entitled hereunder shall be reduced, eliminated, or postponed
in such amounts as are required to avoid the limits imposed by Section 162(m).
The procedures set forth in paragraph 18(a) to accomplish such reduction,
elimination or postponement shall apply to this paragraph 18(b).


                                       18
<PAGE>

            19. APPLICABLE LAW.

                  This Agreement shall be construed and interpreted in
accordance with the internal substantive laws of the State of New York without
taking into account its laws on the conflict of law.

            20. ARBITRATION.

                  The Company and the Executive shall attempt to resolve between
them any dispute which arises hereunder. If they cannot agree within ten (10)
days after either party submits a demand for arbitration to the other party,
then the issue shall be submitted to arbitration with each party having the
right to appoint one (1) arbitrator and those two (2) arbitrators mutually
selecting a third arbitrator. The rules of the American Arbitration Association
for the arbitration of commercial disputes shall apply and the decision of 2 of
the 3 arbitrators shall be final. The arbitrators must reach a decision within
ninety (90) days after the selection of the third arbitrator. The arbitration
shall take place in Buffalo, New York. The arbitrators shall apply New York law.

            21. AMENDMENT.

                  This Agreement shall be amended only by a written document
signed by each party hereto.

            22. EMPLOYEE-AT-WILL.

            Notwithstanding any provision in this Agreement, the Executive will
remain an at-will employee of the Company, whose employment may be terminated by
the Company at any time subject to the Executive's rights to receive the
benefits specifically provided in this Agreement, as applicable.


                                       19
<PAGE>

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

                                           THE EXECUTIVE:

                                           -------------------------------------
                                           ROBERT M. ZAK


                                           MERCHANTS MUTUAL INSURANCE COMPANY

                                           By
                                             -----------------------------------
                                                    BRIAN J. LIPKE
                                                    CHAIRMAN OF THE
                                                    COMPENSATION COMMITTEE

650260v2


                                       20
<PAGE>

                                    EXHIBIT A

                       FORM OF DESIGNATION OF BENEFICIARY

            In the event of the death of the undersigned, the undersigned hereby
designates the following person or persons as his beneficiary or beneficiaries
for the receipt of any payments due to the undersigned under the Amended and
Restated Employee Retention Agreement between the undersigned and Merchants
Mutual Insurance Company dated as of February 6, 2002:

  Primary Beneficiary
   or Beneficiaries:

                              _________________________________________

                              _________________________________________

Contingent Beneficiary
   or Beneficiaries:

                              _________________________________________

                              _________________________________________


Dated:_______________________                    _______________________________
                                                         ROBERT M. ZAK