Document:

<PAGE>
                                                                   EXHIBIT 10.12

                             STOCK OPTION AGREEMENT
                          UNDER THE NATIONSHEALTH, INC.
                             2004 STOCK OPTION PLAN

         For purposes of this Option and Stock Option Agreement (this "OPTION
AGREEMENT"), the following terms shall have the following meanings:

Grantee:                     [Insert Name of Grantee]
                             ---------------------------------------------------

Grant Date:                  [Insert Grant Date], 2004
                             ---------------------------------------------------

Number of Option Shares:     [Insert Number of Shares] shares of Common Stock
                             ---------------------------------------------------

Exercise Price (per share):  $[Insert Exercise Price -FMV at date of grant]
                             ---------------------------------------------------

Expiration Date:             [Insert Date which is one day before Grant
                             Date], 2010
                             ---------------------------------------------------

Tax Status of Option:        [Incentive Stock Option/Non-qualified Stock Option]
                             [Select one]
                             ---------------------------------------------------

Vested Shares:               Except as provided in this Option Agreement and
                             provided that the Grantee's Service Relationship
                             (as hereinafter defined) has not terminated prior
                             to any applicable date set forth below, this Option
                             shall be deemed vested to the extent the Option
                             Shares become Vested Shares on the dates set forth
                             below:

        VESTING DATE                                     VESTED SHARES

  [Insert Initial Vesting Date -              [Insert Number of Shares] shares
  Standard is 1st anniversary of              (which is [25]% of the total
  Grant Date] (the "INITIAL VESTING           Number of Option Shares)
  DATE")

  PLUS:

  [Insert Next Vesting Date -                [Insert Number of Shares] shares
  Standard is the 6th month                  (which is [12.5]% of the total
  anniversary of the Initial                 Number of Option Shares)
  Vesting Date] and on each [sixth
  (6th) month anniversary]
  thereafter until all Option
  Shares are Vested Shares

         Pursuant to the NationsHealth, Inc. 2004 Stock Option Plan (the
"PLAN"), NationsHealth, Inc., a Delaware corporation (together with its
successors, the "COMPANY"), hereby grants to the Grantee named above an option
to purchase on or prior to the Expiration Date, or such earlier date as is
specified herein, all or any part of the number of shares of Common Stock
indicated above (the "OPTION SHARES," and such shares once issued shall be
referred to as the "ISSUED SHARES," each as adjusted pursuant to Section 7 of
the Plan), at the Exercise Price specified above, subject to the terms and
conditions set forth in this Option Agreement and the Plan. All capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Plan (as applicable).

<PAGE>

         If this Option is designated as an Incentive Stock Option above, this
Option is intended to qualify as an "incentive stock option" as defined in
Section 422(b) of the Code. To the extent that any portion of this Option does
not so qualify as an Incentive Stock Option or, if this Option is designated as
a Non-qualified Stock Option above, it shall be deemed a Non-qualified Stock
Option. The Grantee should consult with the Grantee's own tax advisor regarding
the tax effects of this Option (and any requirements necessary to obtain
favorable income tax treatment under Section 422 of the Code, including, but not
limited to, the holding period requirements).

         1. VESTING AND EXERCISABILITY.

         (a) No portion of this Option may be exercised until such portion shall
have vested.

         (b) Except as set forth below, this Option shall be exercisable at any
time prior to the Expiration Date or earlier termination of the Option as
provided herein and in the Plan in an amount not to exceed the number of Vested
Shares (determined at the time of exercise) less the number of Vested Shares
previously acquired upon exercise of this Option. In no event shall this Option
be exercisable for more than the Number of Option Shares (subject to Section 7
of the Plan).

         (c) In the event that the Grantee's Service Relationship is terminated
for any reason other than for Cause (as defined below), this Option may
thereafter be exercised, to the extent it was vested and exercisable on the date
of such termination, until the date specified in Section l(e) hereof. Any
portion of this Option that is not vested on the date of termination of the
Service Relationship shall immediately expire and be null and void. For purposes
of this Agreement, (i) "SERVICE RELATIONSHIP" shall mean the Grantee's
employment of service with the Company, whether in the capacity of an employee
or director or consultant; PROVIDED that, unless otherwise determined by the
Committee, the Grantee's Service Relationship shall not be deemed to have
terminated merely because of a change in the capacity in which the Grantee
renders service to the Company or a transfer between the locations of the
Company or its subsidiaries or a transfer between the Company and any
subsidiary, in each case to the extent there has been no interruption of the
Service Relationship, and (ii) "CAUSE" shall mean (A) any breach or violation by
the Grantee of any provision of any agreement to which the Grantee and the
Company are parties, including, but not limited to, this Option Agreement, any
employment agreement, any agreement containing covenants not to compete and
covenants relating to the protection of confidential information and proprietary
rights of the Company, or any agreement relating to nonsolicitation or
nondisparagement, (B) any act or omission to act by the Grantee (other than the
Grantee's resignation or retirement) which would reasonably be likely to have
the effect of injuring the reputation, business or business relationships of the
Company or impairing the Grantee's ability to perform services for the Company,
(C) the Grantee's conviction (including any pleas of guilty or nolo contendre)
of any crime (other than ordinary traffic violations), (D) any material
misconduct or willful and deliberate non-performance of duties by the Grantee in
connection with the business or affairs of the Company, (E) the Grantee's theft,
dishonesty, misrepresentation or falsification of the Company's documents or
records, (F) the Grantee's improper use or disclosure of the Company's

                                       2
<PAGE>

confidential or proprietary information, or (G) the Grantee's use of the
facilities or premises of the Company to conduct unlawful or unauthorized
activities or transactions. For purposes of this paragraph, the term "Company"
shall include any parent and any subsidiary of the Company.

         (d) In the event that the Grantee's Service Relationship is terminated
for Cause, any portion of this Option, whether or not vested on the date of
termination of the Service Relationship, shall not thereafter be exercisable and
shall be forfeited by the Grantee. Upon such termination, this Option shall
terminate immediately, shall immediately expire and be null and void, and any
and all rights which the Grantee may have had with respect to such Option shall
be extinguished.

         (e) Subject to the provisions set forth herein, once any portion of
this Option becomes vested and exercisable, it shall continue to be exercisable
by the Grantee or his or her representatives and legatees as contemplated herein
at any time or times prior to the earlier of: (i) the date which is: (A) twelve
(12) months following the date on which the Grantee's Service Relationship
terminates due to death or disability, or (B) three (3) months following the
date on which the Grantee's Service Relationship terminates if the termination
is due to any other reason (other than for Cause), and (ii) the Expiration Date;
PROVIDED that if the Grantee's Service Relationship is terminated for Cause,
this Option shall terminate immediately as set forth in Section 1(d) hereof.

         (f) If designated as an Incentive Stock Option above, the Grantee
understands that in order to obtain the benefits of an incentive stock option
under Section 422 of the Code, subject to any amendments thereof, no sale or
other disposition may be made of Issued Shares within the one (1)-year period
after the day of issuance of such Issued Shares to him or her (i.e., the
exercise date), nor within the two (2)-year period after the grant of this
Option, and further that this Option must be exercised, if and to the extent
permitted hereunder, within three (3) months after termination of employment (or
twelve (12) months in the case of death or disability) of the Grantee. If the
Grantee disposes of any such Issued Shares (whether by sale, gift, transfer or
otherwise) within either of these periods, he or she agrees to notify the
Company within thirty (30) days after such disposition. The Grantee also agrees
to provide the Company with any information concerning any such dispositions
required by the Company for tax purposes. Further, to the extent that the
aggregate "fair market value" (determined as of the time that the applicable
option is granted) of the shares of Common Stock with respect to which all
Incentive Stock Options held by the Grantee are exercisable for the first time
during any calendar year (under all option plans of the Company, its parent
and/or its subsidiaries) exceeds one hundred thousand dollars ($100,000.00),
such Incentive Stock Options shall constitute Non-qualified Stock Options. For
purposes of this Section 1(f), Incentive Stock Options shall be taken into
account in the order in which they were granted. If, pursuant to this Section
1(f), a Stock Option is treated as an Incentive Stock Option in part and a
Non-qualified Stock Option in part, the Grantee may designate which portion of
the Stock Option the Grantee is exercising. In the absence of such designation,
the Grantee shall be deemed to have exercised the Incentive Stock Option portion
of the Stock Option first. For purposes of this Option Agreement, "fair market
value" shall have the meaning set forth in the Plan.

                                       3
<PAGE>

         2. EXERCISE OF OPTION.

         (a) The Grantee may exercise this Option only by delivering an Option
exercise notice (an "EXERCISE NOTICE"), in substantially the form of APPENDIX A
attached hereto, to the Company's chief financial officer or as otherwise
instructed by the Company, indicating his or her election to purchase some or
all of the Option Shares which have vested at the time of delivery of such
Exercise Notice (which amount shall be specified in the Exercise Notice),
accompanied by payment in full of the aggregate Exercise Price; PROVIDED that
such exercise shall be effective only upon receipt by the Company of the
Exercise Notice and the aggregate Exercise Price. Payment of the aggregate
Exercise Price for the Option Shares elected to be purchased by the Grantee may
be made by one or more of the following methods:

                  (i) in cash, by certified or bank check, or other instrument
acceptable to the Committee, in U.S. funds payable to the order of the Company
in an amount equal to the aggregate Exercise Price of such Option Shares;

                  (ii) if permitted by the Committee at the time of exercise in
its sole and absolute discretion, (x) through the delivery (or attestation to
the ownership) of shares of Common Stock with an aggregate fair market value (as
of the date such shares are delivered or attested to) equal to the aggregate
Exercise Price and that have been purchased by the Grantee on the open market or
that have been held by the Grantee for at least six (6) months and are not
subject to restrictions under any plan of the Company, or (y) by the Grantee
delivering to the Company a properly executed Exercise Notice together with
irrevocable instructions to a broker to promptly deliver to the Company cash or
a check payable and acceptable to the Company in an amount equal to the
aggregate Exercise Price; PROVIDED that in the event the Grantee chooses such
payment procedure, the Grantee and the broker shall comply with such procedures
and enter into such agreements of indemnity and other agreements as the
Committee shall prescribe as a condition of such payment procedure; or

                  (iii) a combination of the payment methods set forth in
clauses (i) and (ii) above, if applicable.

         (b) Certificates for the Option Shares so purchased will be issued and
delivered to the Grantee upon compliance to the satisfaction of the Committee
with all requirements under applicable laws, regulations or rules in connection
with such issuance. Until the Grantee shall have complied with the requirements
hereof and of the Plan, including the withholding requirements set forth in
Section 5 hereof, the Company shall be under no obligation to issue the Option
Shares. The determination of the Committee as to such compliance shall be final
and binding on the Grantee. The Grantee shall not be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any Issued Shares
unless and until this Option shall have been exercised pursuant to the terms
hereof and the Company shall have issued and delivered such Issued Shares to the
Grantee (as evidenced by an appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company). Thereupon, the Grantee shall
have full dividend and other ownership rights with respect to such Issued
Shares, subject to the terms of this Option Agreement and the Plan.

                                       4
<PAGE>

         (c) The Company shall not be required to issue fractional shares upon
the exercise of this Option. The total number of Vested Shares under this Option
shall be rounded down to the nearest whole share and any fractional shares shall
be aggregated with the number of Option Shares that become Vested Shares in
successive vesting periods.

         3. SUBJECT TO PLAN.

                  This Option is subject to all of the terms and conditions set
forth in the Plan. Notwithstanding anything in this Option Agreement to the
contrary, to the extent of any conflict between the terms of the Plan and this
Option Agreement, the terms of the Plan shall control.

         4. TRANSFERABILITY.

                  The transferability of this Option is subject to Section 8 of
the Plan.

         5. WITHHOLDING TAXES.

                  (a) PAYMENT BY THE GRANTEE. The Grantee shall, no later than
the date as of which the exercise of this Option (or, if applicable, the
issuance, in whole or in part, of any Issued Shares, the operation of any law,
regulation or rule providing for the imputation of interest related to this
Option, or the lapsing of any restriction with respect to any Issued Shares)
gives rise to taxable income and subjects the Company to a tax withholding
obligation, authorize the Company to withhold from payroll and any other amounts
payable to the Grantee or pay to the Company or make arrangements satisfactory
to the Committee for payment of any federal, state, foreign and local taxes
required by law to be withheld with respect to such income.

                  (b) PAYMENT IN STOCK. Subject to approval by the Committee in
its sole and absolute discretion, the Grantee may elect to have the minimum tax
withholding obligation satisfied, in whole or in part, by: (i) authorizing the
Company to withhold from shares of Common Stock to be issued a number of shares
of Common Stock with an aggregate fair market value (as of the date the
withholding is effected) that would satisfy the withholding amount due, or (ii)
transferring to the Company shares of Common Stock owned by the Grantee with an
aggregate fair market value (as of the date the withholding is effected) that
would satisfy the withholding amount due. The fair market value of any shares of
Common Stock withheld or tendered to satisfy any such tax withholding obligation
shall not exceed the amount determined by the applicable minimum statutory
withholding rates.

        6. REPURCHASE OF ISSUED SHARES.

                  (a) REPURCHASE. If (i) the Company terminates the Grantee's
Service Relationship for Cause, or (ii) after the Grantee ceases to maintain a
Service Relationship with the Company, an act or omission occurs which would
constitute Cause if the Grantee still maintained a Service Relationship with the
Company (a "CAUSE EVENT"), then the Company or its assigns shall have the right
and option to repurchase all or any portion of the Issued Shares received by the
Grantee upon exercise of this Option (the "REPURCHASE"). The per share purchase
price of the Issued Shares subject to the repurchase (the "REPURCHASE PRICE")
shall be equal to the Exercise Price.

                                       5
<PAGE>

                  (b) CLOSING PROCEDURE. The Company may exercise its Repurchase
Right with respect to Issued Shares received by the Grantee upon exercise of
this Option (i) with respect to a Repurchase pursuant to Section 6(a)(i) above,
at any time during the three (3) month period beginning six (6) months after the
later of the termination of the Grantee's Service Relationship or the date on
which such Issued Shares were issued upon exercise of this Option, or (ii) with
respect to a Repurchase pursuant to Section 6(a)(ii) above, at any time during
the three (3) month period beginning six (6) months after the later of the
termination of the Grantee's Service Relationship, or the date on which such
Issued Shares were issued upon exercise of this Option, or the occurrence of a
Cause Event (the "REPURCHASE PERIOD"). The Company or its assigns shall effect
the Repurchase (if so elected) by delivering or mailing to the Grantee written
notice within such Repurchase Period, specifying a date within such Repurchase
Period when the Repurchase shall be effected. Upon such notification, the
Grantee shall promptly surrender to the Company any certificates representing
the Issued Shares to be repurchased, together with a duly executed stock power
for the transfer of such Issued Shares to the Company or the Company's assigns.
Upon the Company's or its assigns' receipt of the certificate or certificates
representing the Issued Shares so repurchased, duly endorsed for transfer and
free and clear of any liens or encumbrances from the Grantee, the Company or its
assigns shall deliver to him, her or them a check for the Repurchase Price of
the Issued Shares being purchased; PROVIDED that the Company may pay the
Repurchase Price for such shares by offsetting and canceling any indebtedness
then owed to the Company.

                  (c) REMEDY. Without limitation of any other provision of this
Option Agreement, if the Grantee refuses or, for any reason, fails to deliver to
the Company or its assigns the certificate or certificates evidencing the Issued
Shares that the Company or its assigns has elected to purchase pursuant to this
Section 6 together with a related stock power, then the Company or its assigns
may deposit the Repurchase Price for such Issued Shares with a bank designated
by the Company or its assigns, or with the Company's or its assigns' independent
public accounting firm, as agent or trustee, or in escrow, for the Grantee, to
be held by such bank or accounting firm for the benefit of and for delivery to
the Grantee. In the alternative, the Company may, in its discretion, pay such
Repurchase Price by offsetting any indebtedness then owed by the Grantee as
provided above. Upon any such deposit and/or offset and upon notice to the
Grantee, such Issued Shares shall be deemed to have been sold, assigned,
transferred and conveyed to the Company or its assigns, the Grantee shall have
no further rights thereto (other than the right to withdraw the payment thereof
held in escrow, if applicable), and the Company shall record such transfer in
its stock transfer book or in any appropriate manner.

        7. COMPLIANCE WITH LEGAL REQUIREMENTS.

                  The grant of this Option and the issuance of shares of Common
Stock upon exercise of this Option shall be subject to compliance with all
applicable requirements of federal, state and foreign law with respect to such
securities. This Option may not be exercised if the issuance of shares of Common
Stock upon exercise would constitute a violation of any applicable federal,
state or foreign securities laws or other law or regulations or the requirements
of any stock exchange or market system upon which the Common Stock may then be
listed. In addition, this Option may not be exercised unless: (a) a registration
statement under the Securities Act of 1933, as amended (the "ACT") shall at the
time of exercise of this Option be in effect with respect to the shares issuable
upon exercise, or (b) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of this Option may be issued in accordance with the terms

                                       6
<PAGE>

of an applicable exemption from the registration requirements of the Act. The
inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed necessary by the Company's legal counsel for
the lawful issuance and sale of any shares hereunder shall relieve the Company
of any liability in respect of the failure to issue or sell such shares as to
which such requisite authority shall not have been obtained. As a condition to
the exercise of this Option, the Company may require the Grantee to satisfy any
qualifications that may be necessary or appropriate to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.

        8. LOCK-UP PROVISION.

                  The Grantee agrees that if the Company proposes to offer for
sale to the public any shares of Common Stock pursuant to a public offering
under the Act and if requested by the Company or any underwriter engaged by the
Company, not to, directly or indirectly, offer, sell, pledge, contract to sell
(including any short sale), grant any option to purchase, or otherwise dispose
of any securities of the Company held by him, her or them (except for any
securities sold pursuant to such registration statement) or enter into any
"Hedging Transaction" as (as defined below) relating to any securities of the
Company (including, without limitation, pursuant to Rule 144 under the Act or
any successor or similar exemptive rule hereinafter in effect) held by him, her
or them for such period following the effective date of the registration
statement of the Company filed under the Act with respect to such offering, as
the Company or such underwriter shall specify reasonably and in good faith, not
to exceed ninety (90) days. For purposes of this Section 8, "HEDGING
TRANSACTION" means any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from the Common Stock.

        9. MISCELLANEOUS PROVISIONS.

                  (a) ADMINISTRATION. All questions of interpretation concerning
this Option Agreement shall be determined by the Committee. All determinations
by the Committee shall be final and binding upon all persons having an interest
in this Option.

                  (b) EMPLOYMENT RIGHTS. The grant of this Option does not
confer upon the Grantee any right to continued employment or service with the
Company or its parent or any subsidiary or interfere in any way with the right
of the Company or any subsidiary to terminate the Grantee's employment or
service at any time.

                  (c) EQUITABLE RELIEF. The parties hereto agree and declare
that legal remedies may be inadequate to enforce the provisions of this Option
Agreement and that equitable relief, including specific performance and
injunctive relief, may be used to enforce the provisions of this Option
Agreement.

                  (d) CHANGE AND MODIFICATIONS. The Committee may terminate or
amend the Plan or this Option in accordance with the terms of the Plan.

                                       7
<PAGE>

                  (e) GOVERNING LAW. This Option Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware (or the state
of incorporation of any successor corporation) without regard to conflict of
laws principles thereof.

                  (f) INTEGRATED AGREEMENT. This Option Agreement and the Plan
constitute the entire understanding and agreement between the Grantee and the
Company with respect to the subject matter contained herein and supersedes any
prior agreements, understandings, restrictions, representations, or warranties
among the Grantee and the Company with respect to such subject matter except as
provided for herein. To the extent contemplated herein, the provisions of this
Option Agreement shall survive any exercise of this Option and shall remain in
full force and effect.

                  (g) SAVING CLAUSE. If any provision of this Option Agreement
shall be determined to be illegal or unenforceable, such determination shall in
no manner affect the legality or enforceability of any other provision hereof.

                  (h) NOTICES. All notices, requests, consents and other
communications shall be in writing and be deemed given when delivered
personally, by facsimile transmission or two (2) days after deposit in the mail
if mailed by first class registered or certified mail, postage prepaid or one
(1) business day after deposit with a nationally recognized overnight carrier.
Notices to the Company or the Grantee shall be addressed to such address or
addresses as may have been furnished by such party in writing to the other.

                  (i) BENEFIT AND BINDING EFFECT. This Option Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors, permitted assigns, and legal representatives. The Company
has the right to assign this Option Agreement and such assignee shall become
entitled to all the rights of the Company hereunder to the extent of such
assignment.

                  (j) COUNTERPARTS. This Option Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.

                            [Signature page follows]

                                       8
<PAGE>

         IN WITNESS WHEREOF, the Company and the Grantee have executed this
Stock Option Agreement as of the grant date first above written.

NATIONSHEALTH, INC.
By:                                         By:
            ------------------------                 ---------------------------
Name:       [Insert Officer's Name]         Name:    [Insert Name of Grantee]
Title:      [Insert Officer's Title]        Address: [Insert Grantee's Address]
Address:    13650 NW 8th Street
            Sunrise, FL 33325

                                       9
<PAGE>

                                   APPENDIX A

                          STOCK OPTION EXERCISE NOTICE

NationsHealth, Inc.
13650 NW 8th Street
Sunrise, FL 33325
Attention: Chief Financial Officer                         Date:
                                                                  -------------

         Pursuant to the terms of the Stock Option Agreement dated
______________ _____, _____ (the "OPTION AGREEMENT") granted pursuant to the
NationsHealth, Inc. 2004 Stock Option Plan (the "PLAN") and entered into by
NationsHealth, Inc. and ______________________ on such date, I hereby [Circle
One] partially/fully exercise such option by including herein payment in the
amount of $__________ representing the purchase price for __________ shares of
Common Stock, all of which have vested in accordance with the Option Agreement.
I hereby authorize payroll withholding or otherwise will make adequate provision
for federal, state, foreign and local tax withholding obligations of the
Company, if any, that arise in connection with the option.

         I acknowledge that the shares are being acquired in accordance with and
subject to the terms, provisions and conditions of the Plan and the Option
Agreement, copies of which I have received and carefully read and understand to
all of which I hereby expressly assent.

         I agree that, IF THE OPTION IS DESIGNATED AS AN "INCENTIVE STOCK
OPTION" IN THE OPTION AGREEMENT, that I will promptly notify the Chief Financial
Officer of the Company if I transfer any of the shares acquired pursuant to the
option within one (1) year from the date of exercise of all or part of the
option or within two (2) years of the date of grant of the option.

                                            Sincerely yours,

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

                                           Name:
                                                    ----------------------------

                                           Address:
                                                    ----------------------------

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

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

                                       10<PAGE>

                                                                   EXHIBIT 10(e)

                                                              No. 2521-0027-E002

                                   ENDORSEMENT

Attached to and forming part of the CASUALTY EXCESS OF LOSS REINSURANCE
AGREEMENT No. 2521-0027 between MERCHANTS MUTUAL INSURANCE COMPANY, Buffalo, New
York and MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC., Concord, New
Hampshire (hereinafter collectively referred to as "Company") and AMERICAN
RE-INSURANCE COMPANY, a Delaware Corporation with Administrative Offices in
Princeton, New Jersey (hereinafter referred to as the "Reinsurer").

It is mutually understood and agreed by the parties hereto that effective
January 1, 2004, as respects the Company's in-force, new and renewal policies,
as respects losses occurring on or after said date, this Agreement is amended to
read as follows:

I.    The policy limits for Section II Liability under Businessowners are
      increased to $2,000,000 in ARTICLE IV, COMPANY POLICY LIMITS, and the
      Article reads as follows:

                                   ARTICLE IV

      COMPANY POLICY LIMITS

      For the purpose of determining the Company Retention and the Reinsurer's
      limit of liability with respect to each Exhibit of this Agreement, the
      limits of liability of the Company with respect to any one Policy shall be
      deemed not to exceed:

<TABLE>
<S>                                                              <C>
Automobile Bodily Injury Liability                               $1,000,000 each person
                                                                 $1,000,000 each occurrence

Automobile Property Damage Liability                             $1,000,000 each occurrence

Automobile Liability Combined Single Limit                       $1,000,000 each occurrence

Uninsured/Underinsured Motorists Coverage                        $1,000,000 each person
                                                                 $1,000,000 each occurrence

Personal Injury Protection Coverage                              $1,000,000 each occurrence

Other Bodily Injury Liability                                    $2,000,000 each occurrence

Other Property Damage Liability                                  $2,000,000 each occurrence

Other Liability Combined Single Limit                            $2,000,000 each occurrence

Section II Liability under Commercial Multiple Peril             $2,000,000 each occurrence

Section II Liability under Businessowners                        $2,000,000 each occurrence

Section II Liability under Homeowners Multiple Peril             $1,000,000 each occurrence
</TABLE>

                                      -1-
<PAGE>

                                                              No. 2521-0027-E002

<TABLE>
<CAPTION>
<S>                                                              <C>
Section II Liability under Farmowners Multiple Peril             $1,000,000 each occurrence
</TABLE>

<TABLE>
<S>                                                              <C>
Employers' Liability
(1) In all states with Statutory Limits                          Statutory Limits
(2) In All Other States
    (i)   Bodily Injury by Accident                              $1,000,000 each accident
    (ii)  Bodily Injury by Disease                               $1,000,000 policy limit
    (iii) Bodily Injury by Disease                               $1,000,000 each employee

Owners and Contractors Protective Liability (OCP)                $5,000,000 each occurrence*
</TABLE>

*The Company warrants that it shall purchase facultative reinsurance for
policies greater than $2,000,000 with policy limits not to exceed $5,000,000.

II.   Section 4, REINSURANCE PREMIUM, of EXHIBIT A, FIRST CASUALTY EXCESS OF
      LOSS REINSURANCE COVER, is amended to reflect the change in rate for
      Commercial Automobile Liability (including PIP) to 4.77% and the change in
      rate for Commercial Multiple Peril (Section II), Business Owners (Section
      II), General Liability and the Liability Section of Contractors Coverall
      to 6.40%, and the Section reads in its entirety as follows:

                                    Section 4

      REINSURANCE PREMIUM

      A.    With respect to business in force at the effective time and date of
            this Exhibit, the Company shall pay to the Reinsurer a reinsurance
            premium equal to the product of the applicable gross rate set forth
            in the Schedule of Rates below times the Company's unearned premium
            for each class of Casualty business reinsured hereunder, calculated
            on the monthly pro rata basis as of the effective time and date of
            this Exhibit.

      B.    With respect to business becoming effective at and after the
            effective time and date of this Agreement, the Company shall pay to
            the Reinsurer a reinsurance premium equal to the product of the
            applicable gross rate set forth in the Schedule of Rates below times
            the Company's Gross Net Written Premium for each class of Casualty
            business covered under this Exhibit.

                                SCHEDULE OF RATES

<TABLE>
Class of Business                                                          Gross Rate
-----------------                                                          ----------
<S>                                                                        <C>
Private Passenger Automobile Liability (including PIP)                       0.xx%

Commercial Automobile Liability (including PIP)                              x.xx%
</TABLE>

                                      -2-
<PAGE>

                                                              No. 2521-0027-E002

<TABLE>
<S>                                                                        <C>
Workers' Compensation and Employers' Liability                               x.xx%

Commercial Multiple Peril (Section II), Business Owners (Section II),        x.xx%
General Liability and the Liability Section of Contractors Coverall

Homeowners Multiple Peril (Section II) and Farmowners Multiple Peril        No Charge
(Section II)
</TABLE>

III.  Section 4, REINSURANCE PREMIUM, of EXHIBIT B, SECOND CASUALTY EXCESS OF
      LOSS REINSURANCE COVER, is amended to reflect the change in the minimum
      premium amount to $xxx,xxx and the change in the deposit premium amount to
      $xxx,xxx, and the Section reads in its entirety as follows:

                                    Section 4

      REINSURANCE PREMIUM

      A.    With respect to business in force and business becoming effective at
            and after at the effective time and date of this Exhibit, the
            Company shall pay to the Reinsurer a reinsurance premium equal to
            x.xx% times the Company's unearned premium for the Casualty business
            reinsured hereunder, calculated on the monthly pro rata basis as of
            the effective time and date of this Exhibit.

      B.    The annual minimum premium for the reinsurance provided for each
            Agreement Year hereunder is $xxx,xxx.

      C.    The annual deposit premium for the reinsurance provided for each
            Agreement Year hereunder is $xxx,xxx.

IV.   Section 4, REINSURANCE PREMIUM, of EXHIBIT C, THIRD CASUALTY EXCESS OF
      LOSS REINSURANCE COVER, is amended to reflect the change in the minimum
      premium amount to $xxx,xxx and the change in the deposit premium amount to
      $xxx,xxx, and the Section reads in its entirety as follows:

                                    Section 4

      REINSURANCE PREMIUM

      A.    With respect to business in force and business becoming effective at
            and after at the effective time and date of this Exhibit, the
            Company shall pay to the Reinsurer a reinsurance premium equal to
            0.xx% times the Company's unearned premium for the Casualty business
            reinsured hereunder, calculated on the monthly pro rata basis as of
            the effective time and date of this Exhibit.

                                      -3-
<PAGE>

                                                              No. 2521-0027-E002

      B.    The annual minimum premium for the reinsurance provided for each
            Agreement Year hereunder is $xxx,xxx.

      C.    The annual deposit premium for the reinsurance provided for each
            Agreement Year hereunder is $xxx,xxx.

V.    Section 5, REINSURANCE PREMIUM, of EXHIBIT D, WORKERS' COMPENSATION EXCESS
      OF LOSS REINSURANCE COVER, is amended to reflect the change in the rate to
      x.xx%, the change in the minimum premium amount to $xxx,xxx, and the
      change in the deposit premium amount to $xxx,xxx. The Section reads in its
      entirety as follows:

                                    Section 5

      REINSURANCE PREMIUM

      A.    With respect to business in force and business becoming effective at
            and after at the effective time and date of this Exhibit, the
            Company shall pay to the Reinsurer a reinsurance premium equal to
            x.xx% times the Company's unearned premium for the Casualty business
            reinsured hereunder, calculated on the monthly pro rata basis as of
            the effective time and date of this Exhibit.

      B.    The annual minimum premium for the reinsurance provided for each
            Agreement Year hereunder is $xxx,xxx.

      C.    The annual deposit premium for the reinsurance provided for each
            Agreement Year hereunder is $xxx,xxx.

VI.   Section 8, EXCLUSIONS, is added to EXHIBIT D, WORKERS' COMPENSATION EXCESS
      OF LOSS REINSURANCE COVER, and the Section reads in its entirety as
      follows:

                                    Section 8

      EXCLUSIONS

      In addition to the exclusions in Article III of this Agreement, the
      following exclusion shall also apply:

            All loss, cost or expense directly or indirectly arising out of,
            resulting from or in any manner related to Fungal Pathogens or
            Bacteria whether or not there is another cause of loss which may
            have contributed concurrently or in any sequence to a loss.

                                      -4-
<PAGE>

                                                              No. 2521-0027-E002

            "Fungal Pathogens" as utilized herein, shall mean any fungus or
            Mycota or any byproduct or type of infestation produced by such
            fungus or Mycota, including but not limited to, mold, mildew,
            mycotoxins, spores or any biogenic aerosols.

IN WITNESS WHEREOF the parties hereto have caused this Endorsement to be
executed in                    this     day of                      , 2004;

ACCEPTED:

MERCHANTS MUTUAL INSURANCE COMPANY
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.

______________________________

and in Princeton, New Jersey this      day of                       , 2003.

                                             AMERICAN RE-INSURANCE COMPANY

                                             _____________________________
                                             Vice President

DATED:  February 23, 2004

RG/rg
                                      -5-

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