EXHIBIT 10.4
AMENDED and RESTATED EMPLOYMENT AGREEMENT
AGREEMENT made this 15th day of March, 2007 (effective retroactively to
October 31, 2004), by and among BICUS SERVICES CORPORATION, a Pennsylvania
corporation, MERCER INSURANCE GROUP, INC, a Pennsylvania corporation, MERCER
INSURANCE COMPANY, a Pennsylvania corporation, and David B. Merclean
(“Executive”).
     Executive entered into an Employment Agreement dated October 31, 2004 with
Bicus Services Corporation, Mercer Insurance Group, Inc., and Mercer Insurance
Company (the “Original Agreement”). The parties recently discovered several
drafting errors in the Original Agreement. This Amended and Restated Employment
Agreement, which is effective retroactively to October 31, 2004, is intended to
correct those drafting errors and to supersede and replace the Original
Agreement in its entirety.
     Bicus Services Corporation, a wholly-owned subsidiary of Mercer Insurance
Company, desires to employ Mr. Merclean, and Mr. Merclean is willing to serve
Bicus Services Corporation on the terms and conditions herein provided.
     In order to effect the foregoing, the parties hereto desire to enter into
an employment agreement on the terms and conditions set forth below.
Accordingly, in consideration of the premises and the respective covenants and
agreements of the parties contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
     1. Definitions. Each capitalized word and term used herein shall have the
meaning ascribed to it in the glossary appended hereto, unless the context in
which such word or term is used otherwise clearly requires. Such glossary is
incorporated herein by reference and made a part hereof.
     2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein.
     3. Term of Agreement. The Executive’s employment under this Agreement shall
commence on the date of this Agreement and, except as otherwise provided herein,
shall continue until March 31, 2007; provided, however, that commencing on
March 31, 2005 and each March 31 thereafter, the term of this Agreement shall
automatically be extended for one additional year beyond the term otherwise
established unless, prior to such March 31st date, the Company shall not have
given a Notice of Extension.
     4. Position and Duties. The Executive shall serve as Senior Vice President
and Chief Financial Officer of the Company, and he shall have such
responsibilities, duties and authority as may, from time to time, be generally
associated with such positions. In addition, the Executive shall serve in such
capacity, with respect to each Subsidiary or Affiliate, as the Board of
Directors of each such Subsidiary or Affiliate shall designate from time to
time. During the term of this Agreement, he shall devote substantially all of
his working time and efforts to the business and affairs of the Company, the
Subsidiaries and the Affiliate; provided, however, that nothing herein shall be
construed as precluding him from devoting a reasonable amount of time to civic,
charitable, trade association, and similar activities, at least to the extent he
is presently devoting time.

1

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

 

     5. Compensation and Related Matters.
     Base Compensation. During the period of the Executive’s employment
hereunder, the Company shall pay to him annual base compensation of $200,000.
     Thereafter, the Board of Directors of the Company shall periodically review
the Executive’s employment performance, in accordance with policies generally in
effect from time to time, for possible merit or cost-of-living increases in such
base compensation. Except for a reduction which is proportionate to a
company-wide reduction in executive pay, the annual base compensation paid to
the Executive in any period shall not be less than the annual base compensation
paid to him in any prior period. The frequency and manner of payment of such
base compensation shall be in accordance with the Company’s executive payroll
practices from time to time in effect. Nothing herein shall be construed as
precluding the Executive from entering into any salary reduction or deferral
plan or arrangement during the term of this Agreement; provided, however, that
his base compensation shall be determined without regard to any such salary
reduction or deferral for purposes of calculating the amount of any compensation
and benefits to which he or his surviving spouse may be entitled under
Paragraph 6, 7, 10, or 11 following his termination of employment. The amounts
set forth in the first sentence of this subparagraph shall be pro rated to the
extent such period is less than a year.
          (a) Incentive Compensation. During the period of the Executive’s
employment hereunder, he shall be entitled to participate in all incentive
plans, stock option plans, stock appreciation rights plans, and similar
arrangements maintained by the Company or its Affiliates for executive officers
on a basis and at award levels consistent and commensurate with his position and
duties hereunder.
          (b) Employee Benefit Plans and Other Plans or Arrangements. The
Executive shall be entitled to participate in all Employee Benefit Plans of the
Company and its Affiliates on the same basis as other executive officers of the
Company. In addition, he shall be entitled to participate in and enjoy any other
plans and arrangements which provide for sick leave, vacation, sabbatical, or
personal days, , education payment or reimbursement, business-related seminars,
and similar fringe benefits provided to or for the executive officers of the
Company and its Affiliates from time to time, but at least to the extent he is
presently entitled to participate in and enjoy such plans and arrangements.
          (c) Expenses. During the period of the Executive’s employment
hereunder, he shall be entitled to receive prompt reimbursement for all
reasonable and customary expenses, including transportation expenses, incurred
by him in performing services hereunder in accordance with the general policies
and procedures established by the Company.
     6. Termination By Reason of Disability.
          (a) In General. In the event the Executive becomes unable to perform
his duties on a full-time basis by reason of the occurrence of his Disability
and, within 30 days after a Notice of Termination is given, he shall not have
returned to the full-time performance of such duties, his employment may be
terminated by the Company.

2

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

 

          (b) Compensation and Benefits. In the event of the termination of the
Executive’s employment under Subparagraph (a), the Company shall pay or provide
the compensation and benefits set forth below:
               (1) The Executive shall be paid an amount per annum equal to the
greater of (i) his highest base compensation received during one of the two
calendar years immediately preceding the calendar year in which the Date of
Termination occurs, or (ii) his base compensation in effect immediately prior to
the Date of Termination (or prior to any reduction which entitled him to
terminate his employment for Good Reason) for one year beginning with such Date
of Termination. The frequency and manner of payment of such amounts shall be in
accordance with the Company’s executive payroll practices from time to time in
effect.
               (2) The Executive shall be paid an amount equal to the higher of
the aggregate bonus(es), if any, paid to him with respect to one of the two
years immediately preceding the year in which the Date of Termination occurs.
Such amount shall be paid to him in cash on the first anniversary date of the
Date of Termination.
               (3) The Executive shall be paid an amount equal to the highest
annual contribution made on his behalf (other than his own salary reduction
contributions) to each tax-qualified and non-qualified Defined Contribution Plan
of the Company or its Affiliates with respect to the year in which the Date of
Termination occurs or one of the two years immediately preceding such year. The
amount separately determined for each such plan shall be aggregated and shall be
paid to him in cash on the first anniversary date of the Date of Termination.
               (4) The Executive shall accrue benefits equal to the excess of
(i) the aggregate retirement benefits he would have received under the terms of
each tax-qualified and non-qualified Defined Benefit Plan of the Company or its
Affiliates as in effect immediately prior to the Date of Termination had he
(A) continued to be employed for one more year, and (B) received (on a pro rated
basis, as appropriate) the greater of (I) the highest compensation taken into
account under each such plan with respect to one of the two years immediately
preceding the year in which the Date of Termination occurs, or (II) his
annualized base compensation in effect immediately prior to the Date of
Termination (or prior to any reduction which entitled him to terminate his
employment for Good Reason), over (ii) the retirement benefits he actually
receives under such plans. The frequency, manner and extent of payment of such
benefits shall be consistent with the terms of the plans to which they relate
and any elections made thereunder.
               (5) The Executive and his eligible dependents shall be entitled
to continue to participate at the same aggregate benefit levels, for one year
and at no out-of-pocket or tax cost to him, in the Welfare Benefit Plans in
which he was a participant immediately prior to the Date of Termination, to the
extent permitted under the terms of such plans and applicable law. To the extent
the Company or its Affiliates are unable to provide for continued participation
in a Welfare Benefit Plan, it shall provide an equivalent benefit directly at no
out-of-pocket or tax cost to him. For purposes of the preceding two sentences,
the Company shall be deemed to have provided a benefit at no tax cost to him if
it pays an additional amount to him or on his behalf, with respect

3

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

 

to those benefits which would otherwise be nontaxable to him, calculated in a
manner consistent with the provisions of Paragraph 12.
          (c) Adjustment to Certain Subparagraph (b) Compensation and Benefits.
Notwithstanding the provisions of Subparagraph (b)(5), the Company or its
Affiliates’ obligation to pay or fund any disability insurance premiums on
behalf of the Executive shall be suspended while his Disability continues,
provided the cessation of payment or funding does not result in the termination
of disability benefits. Any amounts otherwise due under Subparagraph (b) shall
be reduced (but not below zero) by the dollar amount of disability benefits
received by him pursuant to plans or policies funded, directly at its cost, by
the Company or its Affiliates.
          (d) Earlier Cessation of Certain Welfare Benefits. Notwithstanding the
provisions of Subparagraph (b)(5), neither the Company nor an Affiliate shall be
required to provide, at its cost, the welfare benefits covered therein after the
later of (i) the attainment by the Executive and his spouse (if any) of age 65,
or (ii) the date specified in the relevant plan document for benefit termination
(assuming that he was employed until age 65 or the normal retirement date, if
any, specified in such document).
          (e) Death During Remaining Term of Agreement.
               (1) In the event the Executive dies during the remaining term of
this Agreement following his termination for Disability and he is survived by a
spouse, the compensation and benefits remaining to be paid and provided under
Subparagraph (b) shall be unaffected by his death and shall be paid and provided
to her or on her behalf; provided, however, that the extent of her rights to the
accrued benefits described in Subparagraph (b)(4) shall be determined by
reference to the relevant plan provisions and any elections made under such
plans; and provided further, that neither the Company nor an Affiliate shall be
required to provide continued benefits with respect to her deceased husband; and
provided further, that in no event shall the Company or an Affiliate be required
to provide, at its cost, the other welfare benefits described in Subparagraph
(b)(5) to such spouse and her eligible dependents after the earlier of (i) her
death, or (ii) the later of (A) her attainment of age 65, or (B) the date
specified in the relevant plan document for benefit termination (assuming that
the Executive was employed until age 65 or the normal retirement date, if any,
specified in such document).
               (2) In the event the Executive dies during the remaining term of
this Agreement following his termination for Disability and he is not survived
by a spouse, (i) the Company or an Affiliate shall thereafter make the remaining
payments described in Subparagraphs (b)(1) through (b)(3) directly to his
estate, (ii) the extent of the rights of any person to the accrued benefits
described in Subparagraph (b)(4) shall be determined by reference to the
relevant plan provisions and any elections made under such plans, and (iii) the
Company and its Affiliates’ obligation to provide continued benefits under
Subparagraph (b)(5) shall terminate.
          (f) Compensation and Benefits Upon Expiration of Remaining Term of
Agreement. Upon the expiration of the remaining term of this Agreement following
the Executive’s termination for Disability, and provided his Disability then
continues, he shall be entitled to receive the compensation and benefits
provided under the terms of the Company or an

4

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

 

Affiliates’ long-term disability plan in effect on the Date of Termination or,
if greater, at the expiration of such remaining term. Such compensation and
benefits shall continue until the earlier of (i) his death, or (ii) the later of
(A) his attainment of age 65, or (B) the date specified in the plan document for
benefit termination. To the extent the Company or an Affiliate is unable to
provide such compensation and benefits under its long-term disability plan, it
shall provide equivalent compensation and benefits directly at no out-of-pocket
or tax cost to him. For purposes of the preceding sentence, the Company or the
Affiliate shall be deemed to have provided compensation and benefits at no tax
cost to him if it pays an additional amount to him or on his behalf, with
respect to the compensation and benefits which would otherwise be nontaxable to
him, calculated in a manner consistent with the provisions of Paragraph 12.
     7. Termination By Reason of Death.
          (a) Compensation and Benefits to Surviving Spouse. In the event the
Executive dies while he is employed under this Agreement and is survived by a
spouse, the Company or an Affiliate shall pay or provide the compensation and
benefits set forth below:
               (1) The surviving spouse shall be paid an amount equal to the
greater of (i) the Executive’s highest base compensation received during one of
the two calendar years immediately preceding the calendar year in which the Date
of Termination occurs, or (ii) his base compensation in effect immediately prior
to the Date of Termination (or prior to any reduction which entitled him to
terminate his employment for Good Reason) for a period of one year, beginning
with such Date of Termination. The frequency and manner of payment of such
amounts shall be in accordance with the Company’s executive payroll practices
from time to time in effect.
               (2) The surviving spouse shall be paid an amount equal to the
highest payment made to Executive under each incentive bonus plan of the Company
with respect to one of the two years immediately preceding the year in which the
Date of Termination occurs. Such amount shall be paid in cash to her within
30 days after the Date of Termination.
               (3) The surviving spouse shall be paid an amount equal to the sum
of the highest annual contribution made on the Executive’s behalf (other than
his own salary reduction contributions) to each tax-qualified and non-qualified
Defined Contribution Plan of the Company or an Affiliate with respect to the
year in which the Date of Termination occurs or one of the two years immediately
preceding such year. Such amount shall be paid in cash to her within 30 days
after the Date of Termination or within 30 days after such amount can first be
determined, whichever is later.
               (4) Subject to the following sentence, the surviving spouse shall
be paid benefits determined by reference to the excess of (i) the aggregate
retirement benefits the Executive would have accrued under the terms of each
tax-qualified and non-qualified Defined Benefit Plan as in effect immediately
prior to the Date of Termination, had he (A) continued to be employed for a
period of one year following the Date of Termination, and (B) received (on a pro
rated basis, as appropriate) the greater of (I) the highest compensation taken
into account under each such plan with respect to one of the two years
immediately preceding the year in which the Date of Termination occurs, or

5

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

 

(II) his annualized base compensation in effect immediately prior to the Date of
Termination (or prior to any reduction which entitled him to terminate his
employment for Good Reason), over (ii) the retirement benefits actually
determined under such plans. The frequency, manner, and extent of payment of
such benefits shall be consistent with the terms of the plans to which they
relate and any elections made thereunder.
               (5) The surviving spouse and her eligible dependents shall be
entitled to continue to participate at the same aggregate benefit levels, for a
period of one year following the Date of Termination and at no out-of-pocket or
tax cost to her, in the Welfare Benefit Plans in which the Executive was a
participant immediately prior to the Date of Termination, to the extent
permitted under the terms of such plans and applicable law; provided, however,
that neither the Company nor its Affiliates shall be required to provide
continued benefits with respect to her deceased husband; and provided further,
that neither the Company nor its Affiliates shall thereafter be required to
provide, at its cost, the other welfare benefits covered by such plans to such
spouse and her eligible dependents after the earlier of (i) her death, or
(ii) the later of (A) her attainment of age 65, or (B) the date specified in the
relevant plan document for benefit termination (assuming the Executive was
employed until age 65 or the normal retirement date, if any, specified in such
document). To the extent the Company or an Affiliate is unable to provide for
continued participation in a Welfare Benefit Plan as required, it shall provide
an equivalent benefit directly at no out-of-pocket or tax cost to her. For
purposes of the preceding two sentences, the Company or the Affiliate shall be
deemed to have provided a benefit at no tax cost to her if it pays an additional
amount to her or on her behalf, with respect to those benefits which would
otherwise be nontaxable to her, calculated in a manner consistent with the
provisions of Paragraph 12.
          (b) Compensation and Benefits to Estate, Etc. In the event the
Executive dies while he is employed under this Agreement and is not survived by
a spouse, (i) the Company or an Affiliate shall make the payments described in
Subparagraphs (a)(1) through (a)(3) directly to his estate, (ii) the extent of
the rights of any person to the accrued benefits described in Subparagraph
(a)(4) shall be determined by reference to the relevant plan provisions and any
elections made under such plans, and (iii) the Company and its Affiliates’
obligation to provide benefits under Subparagraph (a)(5) shall terminate.
     8. Termination By the Company for Cause.
          (a) In General. In the event the Company intends to terminate the
Executive’s employment for Cause, it shall deliver a Notice of Termination to
him which specifies a Date of Termination not less than 30 days following the
date of such notice, unless a shorter period of notice is required by the
principal regulator of any Affiliate of the Company.
          (b) Compensation. Within 30 days after the Executive’s termination
under Subparagraph (a), the Company shall pay him, in one lump sum, his accrued
but unpaid base compensation and vacation compensation earned through the Date
of Termination.
     9. Termination By the Executive Without Good Reason.
          (a) In General. In the event the Executive intends to terminate his
employment without Good Reason, he shall deliver a Notice of Termination to the
Company

6

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

 

which specifies a Date of Termination not less than (i) 90 days following the
date of such notice, if a Change in Control shall not have occurred, or
(ii) 30 days following the date of such notice, if a Change in Control shall
have occurred.
          (b) Compensation. Within 30 days after the Executive’s termination
under Subparagraph (a), the Company shall pay him, in one lump sum, his accrued
but unpaid base compensation and vacation compensation earned through the Date
of Termination.
     10. Termination By the Company Without Disability or Cause.
          (a) In General. In the event the Company intends to terminate the
Executive’s employment for any reason other than Disability or Cause, it shall
deliver a Notice of Termination to him which specifies a Date of Termination not
less than 90 days following the date of such notice.
          (b) Compensation and Benefits During Remaining Term of Agreement. In
the event of the termination of the Executive’s employment under Subparagraph
(a), the Company or an Affiliate shall pay or provide the compensation and
benefits described in Paragraph 6(b), except that all such compensation and
benefits shall be for the remaining term of this Agreement and, with respect to
Subparagraphs 6(b)(2) and (3), an additional pro rated amount shall be paid to
him in cash on the last day of the remaining term of this Agreement. Such pro
rated amount shall be determined by reference to a fraction, the numerator of
which is the number of whole months elapsed during the year in which termination
occurs, and the denominator of which is 12.
          (c) Adjustment to Certain Subparagraph (b) Compensation and Benefits.
In the event the Executive suffers a Disability during the remaining term of
this Agreement following the Date of Termination, the Company or an Affiliate’s
obligation to pay or fund any disability insurance premiums on his behalf shall
be suspended while his Disability continues, provided the cessation of payment
or funding does not result in the termination of disability benefits. Any
amounts described in Paragraph 6(b) and otherwise payable under Subparagraph
(b) shall be reduced (but not below zero) by the dollar amount of disability
benefits received by him pursuant to plans or policies funded, directly at its
cost, by the Company or an Affiliate.
          (d) Earlier Cessation of Certain Welfare Benefits. Notwithstanding the
provisions of Subparagraph (b), neither the Company nor an Affiliate shall be
required to provide, at its cost, the welfare benefits covered by
Paragraph 6(b)(5) after the later of (i) the attainment by the Executive and his
spouse (if any) of age 65, or (ii) the date specified in the relevant plan
document for benefit termination (assuming that he was employed until age 65 or
the normal retirement date, if any, specified in such document).
          (e) Death During Remaining Term of Agreement.
               (1) In the event the Executive dies during the remaining term of
this Agreement following his termination without Disability or Cause by the
Company and he is survived by a spouse, the compensation and benefits required
to be paid and provided under Subparagraph (b) shall be unaffected by his death
and shall be paid and provided to her or on her behalf; provided, however, that
the extent of her rights to the accrued

7

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

 

benefits described in Paragraph 6(b)(4) shall be determined by reference to the
relevant plan provisions and any elections made under such plans; and provided
further, that neither the Company nor an Affiliate shall be required to provide
continued benefits with respect to her deceased husband; and provided further,
that in no event shall the Company nor an Affiliate be required to provide, at
its cost, the other welfare benefits described in Paragraph 6(b)(5) to such
spouse and her eligible dependents after the earlier of (i) her death, or
(ii) the later of (A) her attainment of age 65, or (B) the date specified in the
relevant plan document for benefit termination (assuming that the Executive was
employed until age 65 or the normal retirement date, if any, specified in such
document).
               (2) In the event the Executive dies during the remaining term of
this Agreement following his termination without Disability or Cause and he is
not survived by a spouse, (i) the Company shall thereafter make the remaining
payments described in Paragraphs 6(b)(1) through 6(b)(3) directly to his estate,
(ii) the extent of the rights of any person to the accrued benefits described in
Paragraph 6(b)(4) shall be determined by reference to the relevant plan
provisions and any elections made under such plans, and (iii) the Company and
any Affiliate’s obligation to provide the continued benefits described in
Paragraph 6(b)(5) shall terminate.
     11. Termination By the Executive for Good Reason.
          (a) In General. In the event the Executive intends to terminate his
employment for Good Reason, he shall deliver a Notice of Termination to the
Company which specifies a Date of Termination not less than 30 days following
the date of such notice.
          (b) Compensation and Benefits During Remaining Term of Agreement. In
the event of the termination of the Executive’s employment under Subparagraph
(a), the Company shall pay or provide the compensation and benefits described in
Paragraph 6(b), except that all such compensation and benefits shall be for the
remaining term of this Agreement and, with respect to Subparagraphs 6(b)(2) and
(3), an additional pro rated amount shall be paid to him in cash on the last day
of the remaining term of this Agreement. Such pro rated amount shall be
determined by reference to a fraction, the numerator of which is the number of
whole months elapsed during the year in which termination occurs, and the
denominator of which is 12.
          (c) Adjustment to Certain Subparagraph (b) Compensation and Benefits.
In the event the Executive suffers a Disability during the remaining term of
this Agreement following the Date of Termination, the Company or any Affiliate’s
obligation to pay or fund any disability insurance premiums on his behalf shall
be suspended while his Disability continues, provided the cessation of payment
or funding does not result in the termination of disability benefits. Any
amounts described in Paragraph 6(b) and otherwise payable under Subparagraph
(b) shall be reduced (but not below zero) by the dollar amount of disability
benefits received by him pursuant to plans or policies funded, directly at its
cost, to the Company or any Affiliate.
          (d) Earlier Cessation of Certain Welfare Benefits. Notwithstanding the
provisions of Subparagraph (b), neither the Company nor an Affiliate shall be
required to provide, at its cost, the welfare benefits covered by
Paragraph 6(b)(5) after the later of (i) the attainment by the Executive and his
spouse (if any) of age 65, or (ii) the date specified in the

8

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

 

relevant plan document for benefit termination (assuming that he was employed
until age 65 or the normal retirement date, if any, specified in such document).
          (e) Death During Remaining Term of Agreement.
               (1) In the event the Executive dies during the remaining term of
this Agreement following his termination for Good Reason and he is survived by a
spouse, the compensation and benefits required to be paid and provided under
Subparagraph (b) shall be unaffected by his death and shall be paid and provided
to her or on her behalf; provided, however, that the extent of her rights to the
accrued benefits described in Paragraph 6(b)(4) shall be determined by reference
to the relevant plan provisions and any elections made under such plans; and
provided further, that neither the Company nor any Affiliate shall be required
to provide continued benefits with respect to her deceased husband; and provided
further, that in no event shall the Company or any Affiliate be required to
provide, at its cost, the other welfare benefits described in Paragraph 6(b)(5)
to such spouse and her eligible dependents after the earlier of (i) her death,
or (ii) the later of (A) her attainment of age 65, or (B) the date specified in
the relevant plan document for benefit termination (assuming that the Executive
was employed until age 65 or the normal retirement date, if any, specified in
such document).
               (2) In the event the Executive dies during the remaining term of
this Agreement following his termination for Good Reason and he is not survived
by a spouse, (i) either the Company or any Affiliate shall thereafter make the
remaining payments described in Paragraphs 6(b)(1) through 6(b)(3) directly to
his estate, (ii) the extent of the rights of any person to the accrued benefits
described in Paragraph 6(b)(4) shall be determined by reference to the relevant
plan provisions and any elections made under such plans, and (iii) the Company
or any Affiliate’s obligation to provide the continued benefits described in
Paragraph 6(b)(5) shall terminate.
     12. Provisions Relating to Excise Taxes.
          (a) In General. In the event the Executive becomes liable, for any
taxable year, for the payment of an Excise Tax (because of a change in control)
with respect to the compensation and benefits payable by the Company or an
Affiliate under this Agreement or otherwise, the Company shall make one or more
Gross-Up Payments to the Executive or on his behalf. The amount of any Gross-Up
Payment shall be calculated by a certified public accountant or other tax
professional designated jointly by the Executive and the Company. The provisions
of this paragraph shall apply with respect to the Executive’s surviving spouse
or estate, where relevant.
          (b) Methodology for Calculation of Gross-Up Payment. For purposes of
determining the amount of any Gross-Up Payment, the Executive shall be deemed to
pay income taxes at the highest federal, state, and local marginal rates of tax
for the calendar year in which the Gross-Up Payment is to be made, net of the
maximum reduction in federal income tax which could be obtained from the
deduction of state and local income taxes. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account at the
time the Gross-Up Payment was made, the Executive shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally determined,
the portion of the Gross-Up

9

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

 

Payment attributable to the reduction (plus a portion of the Gross-Up Payment
attributable to the Excise Tax and the federal, state, and local income taxes
imposed on the portion of the Gross-Up Payment being repaid by the Executive to
the extent such repayment results in a reduction in Excise Tax or federal,
state, or local income tax), plus interest on the amount of such repayment. Such
interest shall be calculated by using the rate in effect under
Section 1274(d)(1) of the IRC, on the date the Gross-Up Payment was made, for
debt instruments with a term equal to the period of time which has elapsed from
the date the Gross-Up Payment was made to the date of repayment. In the event
that the Excise Tax is subsequently determined to exceed the amount taken into
account at the time the Gross-Up Payment was made (including by reason of any
payment the existence or amount of which could not be determined at the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment
with respect to the excess at the time the amount thereof is finally determined,
plus interest calculated in a manner similar to that described in the preceding
sentence.
          (c) Time of Payment. Any Gross-Up Payment provided for herein shall be
paid not later than the 30th day following the payment of any compensation or
the provision of any benefit which causes such payment to be made; provided,
however, that if the amount of such payment cannot be finally determined on or
before such day, the Company shall pay on such day an estimate of the minimum
amount of such payment and shall pay the remainder of such payment (together
with interest calculated in a manner similar to that described in Subparagraph
(b)) as soon as the amount thereof can be determined. In the event that the
amount of an estimated payment exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the 30th day after demand by the Company (together with
interest calculated in a manner similar to that described in Subparagraph (b)).
          (d) Notwithstanding the provisions of this paragraph to the contrary,
the actual amounts payable hereunder as Gross-Up Payments shall be coordinated
with any similar amounts paid to the Executive under any other contract, plan,
or arrangement.
     13. Fees and Expenses of the Executive. After a Change in Control and
except as provided in the following sentence, the Company shall pay, within
30 days following demand by the Executive, all legal, accounting, actuarial, and
related fees and expenses incurred by him in connection with the enforcement of
this Agreement. An arbitration panel or a court of competent jurisdiction shall
be empowered to deny payment to the Executive of such fees and expenses only if
it determines that he instituted a proceeding hereunder, or otherwise acted, in
bad faith.
     14. Reduction for Compensation and Benefits Received Under the Company
Severance Policy, Etc. Notwithstanding anything herein to the contrary, in the
event the Executive, his surviving spouse, or any other person becomes entitled
to continued compensation and benefits hereunder by reason of the Executive’s
termination of employment and, in addition, compensation or similar benefits are
payable under a severance policy, program or arrangement maintained by the
Company (other than retirement plans), then the compensation or benefits
otherwise payable hereunder shall be reduced by the compensation or benefits
provided under such severance policy, program or arrangement.
     15. Mitigation. The Executive shall not be required to mitigate the amount
of any compensation or benefits which may become payable hereunder by reason of
his termination by

10

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

 

seeking other employment or otherwise, nor, except as otherwise provided in the
following sentence or elsewhere herein, shall the amount of any such
compensation or benefits be reduced by any compensation or benefits received by
the Executive as the result of his employment by another employer.
Notwithstanding anything in this Agreement to the contrary, the Company or any
Affiliate’s obligation to provide any medical and dental benefits hereunder may
be suspended, with the written concurrence of the Executive or, if applicable,
his surviving spouse during any period of time that such benefits are being
provided by reason of his or her employment.
     16. Funding of Compensation and Benefits; Acceleration of Certain Payments.
          (a) Grantor Trust. In the event the Executive’s employment is
terminated without Cause or he terminates his employment for Good Reason and a
Change in Control has occurred as of the Date of Termination or occurs
thereafter, the Executive shall have the right to require the Company to
establish a grantor trust (taxable to the Company) and fund such trust, on an
actuarially sound basis, to provide the compensation and benefits to which he is
entitled hereunder, other than those which may be paid pursuant to the
provisions of Subparagraph (c). The specific terms of such trust shall be as
agreed to by the parties in good faith; provided, however, that the trustee
shall be a financial institution independent of the Company; and provided
further, that in no event shall the Company be entitled to withdraw funds from
the trust for its benefit, or otherwise voluntarily assign or alienate such
funds, until such time as all compensation and benefits required hereunder are
paid and provided. The determination of the extent of required funding,
including any supplemental funding in the event of adverse investment
performance of trust assets, shall be made by an actuary or a certified public
accountant retained by each party. To the extent such professionals cannot agree
on the proper level of funding, they shall select a third such professional
whose determination shall be binding upon the parties. Notwithstanding the
foregoing, the Company and its Affiliates shall remain liable for all
compensation and benefits required to be paid or provided hereunder.
          (b) Alternate Security. In lieu of the right given to the Executive
under Subparagraph (a), he shall have the right under such circumstances to
require that the Company or its Affiliates provide (i) an irrevocable standby
letter of credit issued by a financial institution other than the Company or any
Subsidiary of the Company with a senior debt credit rating of “A” or better by
Moody’s Investors Service or Standard & Poor’s Corporation, or (ii) other
security reasonably acceptable to him, to secure the payment of such
compensation and benefits.
          (c) Accelerated Payment of Present Value of Certain Compensation. In
the event the Executive’s employment is terminated without Cause or he
terminates his employment for Good Reason, the Executive shall have the
continuing right to demand that the present value of the remaining payments
described in Paragraphs 6(b)(1) through (3), and payable by reason of the
provisions of Paragraph 10 or 11 (as the case may be), be paid to him in one
lump sum within 10 days after the date written demand is given. For purposes of
calculating the present value of such payments, a discount factor shall be
applied to each such payment which is equal to the relevant applicable federal
rate in effect on the date written demand is given by him, determined by
reference to the period of time between the date of such notice and the
scheduled time such payment would otherwise be made. In the event any payment
described in Paragraphs 6(b)(1) through (3) is not yet determinable on the date
written demand is made, the other payments shall nonetheless be made as provided
above; and the undetermined payment

11

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

 

shall be made within 30 days after it becomes determinable, calculated as
provided in the preceding sentence but by treating the date on which the payment
becomes determinable as the date of written notice. Nothing in this subparagraph
shall be construed as affecting the Executive’s right to one or more Gross-Up
Payments in accordance with the provisions of Paragraph 12; and a Gross-Up
Payment (if applicable) will be calculated and made with any payment made under
this subparagraph, as well as any other Gross-Up Payments that may be required
hereunder at a subsequent date.
     17. Withholding Taxes. All compensation and benefits provided for herein
shall, to the extent required by law, be subject to federal, state, and local
tax withholding.
     18. Confidential Information. The Executive agrees that subsequent to his
employment with the Company, he will not, at any time, communicate or disclose
to any unauthorized person, without the written consent of the Company, any
proprietary or other confidential information concerning the Company or any
Subsidiary or any Affiliate of the Company; provided, however, that the
obligations under this paragraph shall not apply to the extent that such matters
(i) are disclosed in circumstances where the Executive is legally obligated to
do so, or (ii) become generally known to and available for use by the public
otherwise than by his wrongful act or omission; and provided further, that he
may disclose any knowledge of insurance, financial, legal and economic
principles, concepts and ideas which are not solely and exclusively derived from
the business plans and activities of the Company.
     19. Covenants Not to Compete or to Solicit.
          (a) Noncompetition. During his employment, and if the Executive’s
employment terminates under Paragraph 8 or 9 prior to a Change in Control, then
for a period of 12 months after the Date of Termination, the Executive agrees he
will not, without the written consent in writing of the Board of Directors of
the Company, endeavor to entice away from the Company, a Subsidiary or any
Affiliate, or otherwise interfere with the relationship of the Company, a
Subsidiary or any Affiliate with any person who is, or was within the then most
recent 12 month period, a customer, agent or supplier of the Company, a
Subsidiary or any Affiliate. If at the time of the enforcement of this paragraph
a court holds that the duration, scope, or area restrictions stated herein are
unreasonable under the circumstances then existing and, thus, unenforceable, the
Company and the Executive agree that the maximum duration, scope, or area
reasonable under such circumstances shall be substituted for the stated
duration, scope, or area.
          (b) Nonsolicitation. During his employment, and if the Executive’s
employment terminates under Paragraph 8 or 9 prior to a Change in Control, then
for a period of 12 months after the Date of Termination, the Executive shall
not, whether on his own behalf or on behalf of any other individual or business
entity, solicit, endeavor to entice away from the Company, a Subsidiary or any
Affiliate, or otherwise interfere with the relationship of the Company, a
Subsidiary or any Affiliate with any person who is, or was within the then most
recent 12 month period, an employee or associate thereof; provided, however,
that this subparagraph shall not apply following the occurrence of a Change in
Control.
     20. Arbitration. To the extent permitted by applicable law, any controversy
or dispute arising out of or relating to this Agreement, or any alleged breach
hereof, shall be settled

12

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

 

by arbitration in Pennington, New Jersey, in accordance with the commercial
rules of the American Arbitration Association then in existence (to the extent
such rules are not inconsistent with the provisions of this Agreement), it being
understood and agreed that the arbitration panel shall consist of three
individuals acceptable to the parties hereto. In the event that the parties
cannot agree on three arbitrators within 20 days following receipt by one party
of a demand for arbitration from another party, then the Executive and the
Company shall each designate one arbitrator and the two arbitrators selected
shall select the third arbitrator. The arbitration panel so selected shall
convene a hearing no later than 90 days following the selection of the panel.
The arbitration award shall be final and binding upon the parties, and judgment
may be entered thereon in the Commonwealth of Pennsylvania Court of Common Pleas
or in any other court of competent jurisdiction.
     21. Additional Equitable Remedy. The Executive acknowledges and agrees that
the Company’s remedy at law for a breach or a threatened breach of the
provisions of Paragraphs 18 and 19 would be inadequate; and, in recognition of
this fact and notwithstanding the provisions of Paragraph 20, in the event of
such a breach or threatened breach by him, it is agreed that the Company shall
be entitled to request equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction, or any other
equitable remedy which may then be available. Nothing in this paragraph shall be
construed as prohibiting the Company from pursuing any other remedy available
under this Agreement for such a breach or threatened breach.
     22. Related Agreements. Except as may otherwise be provided herein, to the
extent that any provision of any other agreement between the Company and the
Executive shall limit, qualify, duplicate, or be inconsistent with any provision
of this Agreement, the provision in this Agreement shall control and such
provision of such other agreement shall be deemed to have been superseded, and
to be of no force or effect, as if such other agreement had been formally
amended to the extent necessary to accomplish such purpose.
     23. No Effect on Other Rights. Except as otherwise specifically provided
herein, nothing contained in this Agreement shall be construed as adversely
affecting any rights the Executive may have under any agreement, plan, policy or
arrangement to the extent any such right is not inconsistent with the provisions
hereof.
     24. Exclusive Rights and Remedy. Except for any explicit rights and
remedies the Executive may have under any other contract, plan or arrangement
with the Company, the compensation and benefits payable hereunder and the remedy
for enforcement thereof shall constitute his exclusive rights and remedy in the
event of his termination of employment.
     25. Director and Officer Liability Insurance; Indemnification. The Company
and Mercer shall provide the Executive (including his heirs, executors, and
administrators) with coverage under a standard directors’ and officers’
liability insurance policy, at the Company and Mercer’s expense, in amounts
consistent with amounts provided by peer corporations to their directors and
officers, and shall indemnify him as both a director and as an officer (and his
heirs, executors, and administrators) to the fullest extent permitted under
Pennsylvania law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his having been an officer or director of the
Company or any Subsidiary or Affiliate (whether or not he continues to be such

13

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

 

an officer or director at the time of incurring such expenses or liabilities).
Such expenses and liabilities shall include, but not be limited to, judgments,
court costs, and attorneys’ fees, and the costs of reasonable settlements.
     26. Notices. Any notice required or permitted under this Agreement shall be
sufficient if it is in writing and shall be deemed given (i) at the time of
personal delivery to the addressee, or (ii) at the time sent certified mail,
with return receipt requested, addressed as follows:
          If to the Executive—
Mr. David B. Merclean
8 Demarest Drive
Mendham, New Jersey 07945
          If to Mercer, or the Company—
10 North Highway 31
P.O. Box 278
Pennington, NJ 08534
Attention: President and Chief Executive Officer
The name or address of any addressee may be changed at any time and from time to
time by notice similarly given.
     27. No Waiver. The failure by any party to this Agreement at any time or
times hereafter to require strict performance by any other party of any of the
provisions, terms, or conditions contained in this Agreement shall not waive,
affect, or diminish any right of the first party at any time or times thereafter
to demand strict performance therewith and with any other provision, term, or
condition contained in this Agreement. Any actual waiver of a provision, term,
or condition contained in this Agreement shall not constitute a waiver of any
other provision, term, or condition herein, whether prior or subsequent to such
actual waiver and whether of the same or a different type. The failure of the
Company to promptly terminate the Executive’s employment for Cause or the
Executive to promptly terminate his employment for Good Reason shall not be
construed as a waiver of the right of termination, and such right may be
exercised at any time following the occurrence of the event giving rise to such
right.
     28. Joint and Several Obligations of Mercer and the Company. Mercer and the
Company shall be jointly and severally liable for all compensation and benefits
that may become payable hereunder to or on behalf of the Executive or, if
applicable, his surviving spouse, estate or beneficiaries.
     29. Survival. Notwithstanding the nominal termination of this Agreement and
the Executive’s employment hereunder, the provisions hereof which specify
continuing obligations, compensation and benefits, and rights (including the
otherwise applicable term hereof) shall remain in effect until such time as all
such obligations are discharged, all such compensation and

14

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

 

benefits are received, and no party or beneficiary has any remaining actual or
contingent rights hereunder.
     30. Severability. In the event any provision in this Agreement shall be
held illegal or invalid for any reason, such illegal or invalid provision shall
not affect the remaining provisions hereof, and this Agreement shall be
construed, administered and enforced as though such illegal or invalid provision
were not contained herein.
     31. Binding Effect and Benefit. The provisions of this Agreement shall be
binding upon and shall inure to the benefit of the successors and assigns of the
Company and the executors, personal representatives, surviving spouse, heirs,
devisees, and legatees of the Executive.
     32. Entire Agreement. This Agreement embodies the entire agreement among
the parties with respect to the subject matter hereof, and it supersedes all
prior discussions and oral understandings of the parties with respect thereto.
     33. No Assignment. This Agreement, and the benefits and obligations
hereunder, shall not be assignable by any party hereto except by operation of
law.
     34. No Attachment. Except as otherwise provided by law, no right to receive
compensation or benefits under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation, or to set off, execution, attachment, levy, or similar process,
and any attempt, voluntary or involuntary, to effect any such action shall be
null and void.
     35. Captions. The captions of the several paragraphs and subparagraphs of
this Agreement have been inserted for convenience of reference only. They
constitute no part of this Agreement and are not to be considered in the
construction hereof.
     36. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed one and the same instrument which
may be sufficiently evidenced by any one counterpart.
     37. Number. Wherever any words are used herein in the singular form, they
shall be construed as though they were used in the plural form, as the context
requires, and vice versa.
     38. Applicable Law. Except to the extent preempted by federal law, the
provisions of this Agreement shall be construed, administered, and enforced in
accordance with the domestic internal law of the Commonwealth of Pennsylvania.
     39. Prior Agreements. The execution of this Agreement terminates any and
all previous employment agreements among the Company, its Affiliates and
Mr. Merclean.
     40. Joinder. Mercer and Mercer Insurance have joined in this Agreement for
the purpose of guaranteeing the performance of the Company’s obligations
hereunder.

15

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

 

     IN WITNESS WHEREOF, the parties have executed this Agreement, or caused it
to be executed, as of the date first above written.

         
 
 
 
David B. Merclean    

                  BICUS SERVICE CORPORATION    
 
           
 
  By:        
 
     
 
   
 
           
 
  Attest:        
 
     
 
   
 
                MERCER INSURANCE GROUP, INC.    
 
           
 
  By:        
 
     
 
   
 
           
 
  Attest:        
 
     
 
   
 
                MERCER INSURANCE COMPANY    
 
           
 
  By:        
 
     
 
   
 
           
 
  Attest:        
 
     
 
   

16

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

 

GLOSSARY
     “Affiliate” means with respect to any Person, a Person or entity that,
directly or indirectly, controls, or is controlled by, or is under common
control with such Person or entity, including without limitation, Mercer and
Mercer Insurance Group, Inc.
     “Board of Directors” means the board of directors of the relevant
corporation.
     “Cause” means (i) a documented repeated and willful failure by the
Executive to perform his duties, but only after written demand and only if
termination is effected by action taken by a vote of (A) prior to a Change in
Control, at least a majority of the directors of the Company then in office, or
(B) after a Change in Control, at least 80% of the nonofficer directors of the
Company then in office, (ii) his final conviction of a felony, (iii) conduct by
him which constitutes moral turpitude which is directly and materially injurious
to the Company or any Subsidiary or affiliated company, (iv) willful material
violation of corporate policy, or (v) the issuance by the regulator of the
Company or any Subsidiary or Affiliate of an unappealable order to the effect
that he be permanently discharged.
     For purposes of this definition, no act or failure to act on the part of
the Executive shall be considered “willful” unless done or omitted not in good
faith and without reasonable belief that the action or omission was in the best
interest of the Company or any of its Subsidiaries or Affiliate.
     “Change in Control” means the occurrence of any of the following events:
     (a) any Person (except (i) Mercer or any Subsidiary or Affiliate of Mercer,
or (ii) any Employee Benefit Plan (or any trust forming a part thereof)
maintained by Mercer or any Subsidiary or Affiliate) is or becomes the
beneficial owner, directly or indirectly, of, Mercer or any Affiliate’s
securities representing 19.9% or more of the combined voting power of Mercer or
any Affiliate’s then outstanding securities, or 50.1% or more of the combined
voting power of a Material Subsidiary’s then outstanding securities, other than
pursuant to a transaction described in Clause (c);
     (b) there occurs a sale, exchange, transfer or other disposition of
substantially all of the assets of Mercer or a Material Subsidiary to another
entity, except to an entity controlled directly or indirectly by Mercer or an
Affiliate;
     (c) there occurs a merger, consolidation, share exchange, division or other
reorganization of or relating to Mercer, unless—
     (i) the shareholders of Mercer immediately before such merger,
consolidation, share exchange, division or reorganization own, directly or
indirectly, immediately thereafter at least two-thirds of the combined voting
power of the outstanding voting securities of the Surviving Company in
substantially the same proportion as their ownership of the voting securities
immediately before such merger, consolidation, share exchange, division or
reorganization; and
     (ii) the individuals who, immediately before such merger, consolidation,
share exchange, division or reorganization, are members of the Incumbent Board
continue to constitute at least two-thirds of the board of directors of the
Surviving Company; provided, however, that if the election, or nomination for
election by Mercer’s shareholders, of any new director was approved by a vote of
at least two-thirds of the Incumbent Board, such director shall, for the
purposes hereof, be considered a member of the Incumbent Board; and provided
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened Election Contest or

17

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

 

Proxy Contest, including by reason of any agreement intended to avoid or settle
any Election Contest or Proxy Contest; and
     (iii) no Person (except (A) Mercer or any Subsidiary or Affiliate of
Mercer, (B) any Employee Benefit Plan (or any trust forming a part thereof)
maintained by Mercer or any Subsidiary or Affiliate of Mercer, or (C) the
Surviving Company or any Subsidiary or Affiliate of the Surviving Company) has
beneficial ownership of 19.9% or more of the combined voting power of the
Surviving Company’s outstanding voting securities immediately following such
merger, consolidation, share exchange, division or reorganization;
     (d) a plan of liquidation or dissolution of Mercer, other than pursuant to
bankruptcy or insolvency laws, is adopted; or
     (e) during any period of two consecutive years, individuals who, at the
beginning of such period, constituted the Board of Directors of Mercer cease for
any reason to constitute at least a majority of such Board of Directors, unless
the election, or the nomination for election by Mercer’s shareholders, 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 no individual shall be considered a member of the Board of
Directors of Mercer at the beginning of such period if such individual initially
assumed office as a result of either an actual or threatened Election Contest or
Proxy Contest, including by reason of any agreement intended to avoid or settle
any Election Contest or Proxy Contest.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have
occurred if a Person becomes the beneficial owner, directly or indirectly, of
securities representing 19.9% or more of the combined voting power of Mercer’s
then outstanding securities solely as a result of an acquisition by Mercer of
its voting securities which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person;
provided, however, that if a Person becomes a beneficial owner of 19.9% or more
of the combined voting power of Mercer’s then outstanding securities by reason
of share repurchases by Mercer and thereafter becomes the beneficial owner,
directly or indirectly, of any additional voting securities of Mercer, then a
Change in Control shall be deemed to have occurred with respect to such Person
under Clause (a).
Notwithstanding anything contained herein to the contrary, if the Executive’s
employment is terminated and he reasonably demonstrates that such termination
(i) was at the request of a third party who has indicated an intention of taking
steps reasonably calculated to effect a Change in Control and who effects a
Change in Control, or (ii) otherwise occurred in connection with, or in
anticipation of, a Change in Control which actually occurs, then for all
purposes hereof, a Change in Control shall be deemed to have occurred on the day
immediately prior to the date of such termination of his employment.
     “Company” means Bicus Services Corporation, a Pennsylvania corporation, and
any successor thereto.
     “Date of Termination” means:
     (a) if the Executive’s employment is terminated for Disability, 30 days
after the Notice of Termination is given (provided that he shall not have
returned to the performance of his duties on a full-time basis during such
30-day period);
     (b) if the Executive’s employment terminates by reason of his death, the
date of his death;
     (c) if the Executive’s employment is terminated by the Company for Cause,
the date specified in the Notice of Termination;

18

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

 

     (d) if the Executive’s employment is terminated by him without Good Reason,
the date specified in the Notice of Termination;
     (e) if the Executive’s employment is terminated by the Company for any
reason other than for Disability or Cause, the date specified in the Notice of
Termination; or
     (f) if the Executive’s employment is terminated by him for Good Reason, the
date specified in the Notice of Termination;
provided, however that the Date of Termination shall mean the actual date of
termination in the event the parties mutually agree to a date other than that
described above.
     “Defined Benefit Plan” has the meaning ascribed to such term in
Section 3(35) of ERISA.
     “Defined Contribution Plan” has the meaning ascribed to such term in
Section 3(34) of ERISA.
     “Disability” has the meaning ascribed to the term “permanent and total
disability” in Section 22(e)(3) of the IRC.
     “Election Contest” means a solicitation with respect to the election or
removal of directors that is subject to the provisions of Rule 14a-11 of the
1934 Act.
     “Employee Benefit Plan” has the meaning ascribed to such term in
Section 3(3) of ERISA.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended and as the same may be amended from time to time.
     “Excise Tax” means the tax imposed by Section 4999 of the IRC (or any
similar tax that may hereafter be imposed by federal, state or local law).
     “Executive” means David B. Merclean, an individual residing in Mendham, New
Jersey.
     “Good Reason” means:
     (a) prior to a Change in Control—
     (i) a change in the Executive’s status or position, or any material
diminution in his duties or responsibilities;
     (ii) a reduction in the Executive’s base compensation, other than a
reduction which is proportionate to a company-wide reduction in executive pay;
     (iii) a failure to increase the Executive’s base compensation, consistent
with his performance rating, within 24 months since the last increase, other
than similar treatment on a company-wide basis for executives or a voluntary
deferral by him of an increase;
     (iv) requiring the Executive to be based more than 20 miles from his
current office location as of the date of this Agreement;
     (v) delivery to the Executive of a Notice of Nonextension; or
     (vi) any purported termination of the Executive’s employment which is not
in accordance with the terms of this Agreement; and

19

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

 

     (b) after a Change in Control—
     (i) a change in the Executive’s status or position, or any material
diminution in his duties or responsibilities;
     (ii) any increase in the Executive’s duties inconsistent with his position;
     (iii) any reduction in the Executive’s base compensation;
     (iv) a failure to increase the Executive’s base compensation, consistent
with his performance review, within 12 months of the last increase; or a failure
to consider the Executive for an increase within 12 months of his last
performance review;
     (v) a failure to continue in effect any Employee Benefit Plan in which the
Executive participates, including (whether or not they constitute Employee
Benefit Plans) incentive bonus, stock option, or other qualified or nonqualified
plans of deferred compensation (A) other than as a result of the normal
expiration of such a plan, or (B) unless such plan is merged or consolidated
into, or replaced with, a plan with benefits which are of equal or greater
value;
     (vi) requiring the Executive to be based more than 20 miles from where his
principal office was located immediately prior to the Change in Control;
     (vii) refusal to allow the Executive to attend to matters or engage in
activities in which he was permitted to engage prior to the Change in Control;
     (viii) delivery to the Executive of a Notice of Nonextension;
     (ix) failure to secure the affirmation by a Successor, within seven
business days prior to a Change in Control, of this Agreement and its or the
Company’s continuing obligations hereunder (or where there is not at least three
business days advance notice that a Person may become a Successor, within one
business day after having notice that such Person may become or has become a
Successor); or
     (x) any purported termination of the Executive’s employment which is not in
accordance with the terms of this Agreement.
Notwithstanding anything herein to the contrary, at the election of the
Executive, beginning with seven days prior to the Change in Control and
continuing through the first anniversary of such Change in Control, he may
terminate his employment for any reason or no reason and such termination will
be treated as having occurred for Good Reason.
     “Gross-Up Payment” means an additional payment to be made to or on behalf
of the Executive in an amount such that the net amount retained by him, after
deduction of any Excise Tax on the Total Payments and any federal, state, and
local income tax and Excise Tax on such additional payment, equals the Total
Payments.
     “Incumbent Board” means the Board of Directors of Mercer or an Affiliate as
constituted at any relevant time.
     “IRC” means the Internal Revenue Code of 1986, as amended and as the same
may be amended from time to time.

20

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

 

     “Material Subsidiary” means a Subsidiary whose net worth, determined under
generally accepted accounting principles, at the fiscal year end immediately
prior to any relevant time is at least 25% of the aggregate net worth of the
controlled group of corporations of which Mercer is the common parent.
     “1934 Act” means the Securities Exchange Act of 1934, as amended and as the
same may be amended from time to time.
     “Mercer” means Mercer Insurance Group, Inc., a Pennsylvania corporation and
the holding company for Mercer Insurance.
     “Mercer Insurance” means Mercer Insurance Company, a Pennsylvania insurance
company.
     “Notice of Extension” means a written notice in the form attached hereto as
Exhibit A delivered to or by the Executive that advises that the Agreement will
be extended as provided in Paragraph 3.
     “Notice of Termination” means a written notice that (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive’s employment under the provision so indicated, and
(iii) gives the required advance notice of termination.
     “Person” has the same meaning as such term has for purposes of Sections
13(d) and 14(d) of the 1934 Act.
     “Proxy Contest” means the solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors of Mercer.
     “Subsidiary” means any business entity of which a majority of its voting
power or its equity securities or equity interests is owned, directly or
indirectly by Mercer.
     “Successor” means any Person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), Mercer’s business
directly, by merger or consolidation, or indirectly, by purchase of Mercer’s
voting securities or all or substantially all of its assets.
     “Surviving Company” means the business entity that is a resulting company
following a merger, consolidation, share exchange, division or other
reorganization of or relating to Mercer or any Affiliate.
     “Total Payments” means the compensation and benefits that become payable
under the Agreement or otherwise (and which may be subject to an Excise Tax) by
reason of the Executive’s termination of employment, determined without regard
to any Gross-Up Payments that may also be made.
     “Welfare Benefit Plan” has the meaning ascribed to the term “employee
welfare benefit plan” in Section 3(1) of ERISA. For purposes of determining the
Executive’s or his dependents’ right to continued welfare benefits hereunder
following his termination of employment, the meaning of such term shall include
any retiree health plan maintained by Mercer or any Affiliate at any time after
the relevant Date of Termination, notwithstanding the fact that the Executive is
not a participant therein prior to such date.

21