<PAGE>   1




                                  EXHIBIT 10-R








                          EMPLOYEE RETENTION AGREEMENT





                                     BETWEEN


                                EDWARD M. MURPHY


                                       and


                       MERCHANTS MUTUAL INSURANCE COMPANY








                              Dated: March 1, 1999



<PAGE>   2



                          EMPLOYEE RETENTION AGREEMENT
                          ----------------------------



         This AGREEMENT ("Agreement"), dated as of March 1, 1999, is by and
between EDWARD M. MURPHY, residing at 256 Louvaine Drive, Buffalo, New York
14223 (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 no later than at the end of the required five-year notice
period; and

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

         WHEREAS, the Company believes that the Executive's continued employment
with the Company will enhance the Company's ability to continue to manage the
business of the Company, MGI and MNH throughout the period prior 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 Company believes that by extending certain financial
incentives to the Executive 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 provide for such financial incentives.

         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:




<PAGE>   3



         1.       SALARY CONTINUATION AND BENEFITS.
                  ---------------------------------

                  (a) The purpose of this paragraph 1 is to provide the
Executive with a continuation of salary and 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" during the
"Protection Period," as those terms are defined below, subject to the following
terms and conditions.

                  (b) The "Protection Period" shall be that period of time from
the date of this Agreement through and including December 31, 2003.

                  (c) "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 2(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 2(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.

                  (d) 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 the time period set
forth in Schedule I attached hereto (the "Salary Continuation Period").

                  (e) In addition to the Salary Continuation provided under
paragraph 1(d) 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



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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
1(e).

                  (f) This paragraph 1 shall not be applicable to any
Termination of Employment following a "change in control" as defined in
paragraph 2(c) of this Agreement.

                  (g) The salary payments and benefits continuation provided for
in paragraphs 1(d) and 1(e) 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.

                  (h) 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.

         2.       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:




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          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 current base annual salary ("X") plus the annual
     average of all incentive compensation paid to the Executive by the Company
     during the three (3) calendar years preceding the date of termination or
     such portion of that period during which Executive was an employee ("Y"),
     multiplied by the number set forth in Schedule II attached hereto
     ("Severance Benefit"). The Severance Benefit will equal (X + Y) multiplied
     by the number set forth in Schedule II.

          C. This Severance Benefit, less all proper 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 the number of months set forth in
     Schedule III attached hereto 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 period specified in Schedule III for his cost in obtaining comparable
     coverage, subject to a maximum reimbursement



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     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 2(a)D. The Company's obligations
     under this paragraph 2(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 eligible for comparable coverage from
     another employer.

                  The parties agree that the payments provided for in this
paragraph 2(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 3 or 4 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 MGI or MNH (hereinafter referred to
                  individually as a "Merchants Company" and collectively as the



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                  "Merchants Companies") with 25% or more of the voting 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.

                  (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



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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 8 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 2(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 2(d) shall not be deemed
a voluntary termination of employment by the Executive for the purpose of this
Agreement or 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 2 are in lieu
of any payments provided for in any severance agreement, employment agreement or
similar agreement between the Executive and the Company which is dated prior to
the date of this Agreement ("Severance Agreement"). This Employee Retention
Agreement hereby voids, terminates and supersedes any such Severance Agreement
and the Executive hereby acknowledges that any such Severance Agreement is
hereby terminated and he no longer has any rights or benefits thereunder.

         3.       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,



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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.

         4.       COVENANT NOT TO COMPETE. 
                  -----------------------

                  (a) The Executive shall not "compete," as that term is defined
in paragraph 4(c) below, with any of the Merchants Companies while employed by
the Company.

                  (b) If the Executive is receiving Salary Continuation payments
under paragraph 1(d) of this Agreement, he shall not compete with any of the
Merchants Companies during the first ninety (90) days of the Salary Continuation
Period, nor shall he "solicit," as that term is defined in paragraph 4(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 4, 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 any of the Merchants Companies at the time of the Executive's withdrawal from
or termination of employment with the Company, in any of the geographic markets
in which any of the Merchants Companies 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 4.

                  (d) As used in paragraph 4(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 any of the Merchants Companies.




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                  (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 4, the Company may also cancel its obligations to pay to the
Executive any monies and other benefits otherwise due to the Executive under
this Agreement.

         5.       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.

         6.       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.

         7.       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.

         8.       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, or otherwise. The Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation 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 8 or which otherwise



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becomes bound by all the terms and provisions of this Agreement
by operation of law.

         9.       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.

         10.      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.

         11.      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.

         12.      PAYMENTS IN EVENT OF DEATH.
                  ---------------------------

                  Upon the death of the Executive all amounts due and payable to
the Executive pursuant to paragraphs 1(d) and (e) and 2(a) of 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.

         13.      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,



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except for this paragraph 13, 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 (2) 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 13(a) to accomplish such reduction,
elimination or postponement shall apply to this paragraph 13(b).

         14.      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.

         15.      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



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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.

         16.      AMENDMENT.
                  ----------

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

         17.      GENDER.
                  -------

                  The use of the masculine gender when used to refer to the
Executive in this Agreement or in any Exhibit or Schedule hereto shall be deemed
to be the female gender if the Executive is a female.

         18.      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 paragraphs 1 and 2 in this
Agreement, as applicable.

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


                                             THE EXECUTIVE:



                                             /s/Edward M. Murphy
                                             ----------------------------------
                                             EDWARD M. MURPHY



                                             MERCHANTS MUTUAL INSURANCE COMPANY



                                             By /s/ Franklin S. Barry, Jr.
                                                --------------------------------
                                                   FRANKLYN S. BARRY, JR.,
                                                   CHAIRMAN OF THE
                                                   COMPENSATION COMMITTEE






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<PAGE>   14



                                    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
Employee Retention Agreement between the undersigned and Merchants Mutual
Insurance Company:

  Primary Beneficiary
   or Beneficiaries:
   -----------------


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


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



Contingent Beneficiary
   or Beneficiaries:
   -----------------


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


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





Dated:    _________________                    ______________________________
                                                      EDWARD M. MURPHY


<PAGE>   15



                                   SCHEDULE I




Salary Continuation                         24 months -- commencing on the day
Period:                                     after the date of Termination of
-------------------                         Employment.






                                   SCHEDULE II


The number (multiplier) referred to in paragraph 2(a)B. shall be
2.




                                  SCHEDULE III


The number of months referred to in paragraph 2(a)D. shall be 24.