Exhibit 10.4


 


EMPLOYMENT AGREEMENT


 


AGREEMENT made as of the 1st day of April,
2004, by and among BICUS SERVICES CORPORATION, a Pennsylvania
corporation, MERCER INSURANCE GROUP, INC, a Pennsylvania corporation, MERCER
INSURANCE COMPANY, a Pennsylvania corporation, and PAUL D.
EHRHARDT.


 


Bicus Services
Corporation, a wholly-owned subsidiary of Mercer Mutual Insurance Company,
desires to employ Mr. Ehrhardt, and Mr. Ehrhardt 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 in the form
attached hereto as Exhibit A.


 


4.  Position and Duties.  The Executive shall serve as a Senior
Vice President 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.


 


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
$230,000.


 


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


 


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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 that provide for sick
leave, vacation, sabbatical, or personal days, company-provided automobile,
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.


 


(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


 


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(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) 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 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’


 


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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 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


 


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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 (II) his
annualized base compensation in effect immediately prior to the Date of


 


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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.


 


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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 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).


 


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(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 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


 


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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 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.


 


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(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 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.


 


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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 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.


 


11

















 


(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 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,


 


12

















 


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 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.


 


13

















 


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 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. Paul D. Ehrhardt


6617 School Lane


New Hope, PA 18938


 


If to Mercer, or the
Company—


 


10 North Highway 31


P.O. Box 278


Pennington, NJ 08534


 


Attention:  Chairman of the Board of Directors


 


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


 


14

















 


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 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.


 


15

















 


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. Ehrhardt.


 


40.  Joinder.  Mercer and Mercer Insurance have joined in this Agreement for the
purpose of guaranteeing the performance of the Company’s obligations hereunder.


 


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


 


 


	
   

  	
   

  
	
   

  	
  Paul
  D. Ehrhardt

  
	
   

  	
   

  
	
   

  	
  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


 


1

















 


(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 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


 


2

















 


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;


 


(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.


 


3

















 


“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 Paul D. Ehrhardt, an
individual residing in New Hope, Pennsylvania.


 


“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


 


(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;


 


4

















 


(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.


 


5

















 


“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.


 


“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.


 


6

















 


“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.


 


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Exhibit
A


 


Notice
of Extension


 


Notice is hereby given
that in accordance with Paragraph 3 of the Agreement made as of
April 1, 2004, by and among BICUS Service Corporation, a Pennsylvania
corporation, Mercer Insurance Group, Inc., a Pennsylvania corporation and
Mercer Insurance Company, a Pennsylvania insurance company, and
                                                     ,
the Agreement is extended to March 31,                .  As of April 1,
               ,
the base salary for
                                                      
is
$                        .


 


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