**Exhibit 10.1**

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**EMPLOYMENT AGREEMENT**

 

**AGREEMENT**made asof the 31st day of October, 2003, by and among **BICUS SERVICES CORPORATION**, aPennsylvania corporation, **MERCER MUTUAL INSURANCE COMPANY**, aPennsylvania corporation, and **DAVID B. MERCLEAN**.

 

BicusServices Corporation, a wholly-owned subsidiary of Mercer Mutual InsuranceCompany, desires to employ Mr. Merclean, and Mr. Merclean is willingto serve Bicus Services Corporation on the terms and conditions hereinprovided.

 

Inorder to effect the foregoing, the parties hereto desire to enter into anemployment agreement on the terms and conditions set forth below.  Accordingly, in consideration of thepremises and the respective covenants and agreements of the parties containedherein, and intending to be legally bound hereby, the parties hereto agree asfollows:

 

# 1.             **Definitions. **Each capitalized word and term usedherein 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 byreference and made a part hereof.

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# 2.             **Employment. **The Company hereby agrees to employ theExecutive, and the Executive hereby agrees to serve the Company, on the termsand conditions set forth herein.

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# 3.             **Term of Agreement. **The Executive’s employment under thisAgreement shall commence on the date this Agreement and, except as otherwiseprovided herein, shall continue until October 31, 2004; provided, however,that commencing on August 1, 2004 and each October 31 thereafter, theterm of this Agreement shall automatically be extended for one additional yearbeyond the term otherwise established unless, prior to such August 1stdate, the Company shall not have given a Notice of Extension.

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# 4.             **Position and Duties. **The Executive shall serve as Senior VicePresident and Chief Financial Officer of the Company, and he shall have suchresponsibilities, duties and authority as may, from time to time, be generallyassociated with such positions.  Inaddition, the Executive shall serve in such capacity, with respect to eachSubsidiary or Affiliate, as the Board of Directors of each such Subsidiary orAffiliate shall designate from time to time. During the term of this Agreement, he shall devote substantially all ofhis working time and efforts to the business and affairs of the Company, theSubsidiaries and the Affiliate; provided, however, that nothing herein shall beconstrued as precluding him from devoting a reasonable amount of time to civic,charitable, trade association, and similar activities, at least to the extenthe is presently devoting time.

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# 5.             **Compensation and Related Matters.**

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**BaseCompensation. **Duringthe period of the Executive’s employment hereunder, the Company shall pay tohim annual base compensation of $185,000.

 

Thereafter,the Board of Directors of the Company shall periodically review the Executive’semployment performance, in accordance with policies generally in effect fromtime to time, for possible merit or cost-of-living increases in such basecompensation.  Except for a

 

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reduction which isproportionate to a company-wide reduction in executive pay, the annual basecompensation paid to the Executive in any period shall not be less than theannual base compensation paid to him in any prior period.  The frequency and manner of payment of suchbase compensation shall be in accordance with the Company’s executive payrollpractices from time to time in effect. Nothing herein shall be construed as precluding the Executive fromentering into any salary reduction or deferral plan or arrangement during theterm of this Agreement; provided, however, that his base compensation shall bedetermined without regard to any such salary reduction or deferral for purposesof calculating the amount of any compensation and benefits to which he or hissurviving spouse may be entitled under Paragraph 6, 7, 10, or 11 followinghis termination of employment.  The amountsset forth in the first sentence of this subparagraph shall be pro rated to theextent such period is less than a year.

 

## (a)           **Incentive Compensation. **During the period of the Executive’semployment hereunder, he shall be entitled to participate in all incentiveplans, stock option plans, stock appreciation rights plans, and similararrangements maintained by the Company or its Affiliates for executive officerson a basis and at award levels consistent and commensurate with his positionand duties hereunder.

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## (b)           **Employee Benefit Plans and Other Plansor Arrangements. **TheExecutive shall be entitled to participate in all Employee Benefit Plans of theCompany and its Affiliates on the same basis as other executive officers of theCompany.  In addition, he shall beentitled to participate in and enjoy any other plans and arrangements whichprovide for sick leave, vacation, sabbatical, or personal days,company-provided automobile, club memberships and dues, education payment orreimbursement, business-related seminars, and similar fringe benefits providedto or for the executive officers of the Company and its Affiliates from time totime, but at least to the extent he is presently entitled to participate in andenjoy such plans and arrangements.

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## (c)           **Expenses. **During the period of the Executive’semployment hereunder, he shall be entitled to receive prompt reimbursement forall reasonable and customary expenses, including transportation expenses,incurred by him in performing services hereunder in accordance with the generalpolicies and procedures established by the Company.

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# 6.             **Termination By Reason of Disability.**

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## (a)           **In General. **In the event the Executive becomesunable to perform his duties on a full-time basis by reason of the occurrenceof 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, hisemployment may be terminated by the Company.

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## (b)           **Compensation and Benefits.**  In the event of the termination of theExecutive’s employment under Subparagraph (a), the Company shall pay orprovide the compensation and benefits set forth below:

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### (1)           The Executive shall bepaid an amount per annum equal to the greater of (i) his highest basecompensation received during one of the two calendar years immediately precedingthe calendar year in which the Date of Termination occurs, or (ii) hisbase compensation in effect immediately prior to the Date of Termination (orprior to any reduction which entitled him to terminate his employment for GoodReason) for

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### one year beginningwith such Date of Termination.  Thefrequency and manner of payment of such amounts shall be in accordance with theCompany’s executive payroll practices from time to time in effect.

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### (2)           The Executive shall bepaid an amount equal to the higher of the aggregate bonus(es), if any, paid tohim with respect to one of the two years immediately preceding the year inwhich the Date of Termination occurs. Such amount shall be paid to him in cash on the first anniversary dateof the Date of Termination.

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### (3)           The Executive shall bepaid an amount equal to the highest annual contribution made on his behalf(other than his own salary reduction contributions) to each tax-qualified andnon-qualified Defined Contribution Plan of the Company or its Affiliates withrespect to the year in which the Date of Termination occurs or one of the twoyears immediately preceding such year. The amount separately determined for each such plan shall be aggregatedand shall be paid to him in cash on the first anniversary date of the Date ofTermination.

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### (4)           The Executive shallaccrue benefits equal to the excess of (i) the aggregate retirementbenefits he would have received under the terms of each tax-qualified andnon-qualified Defined Benefit Plan of the Company or its Affiliates as ineffect immediately prior to the Date of Termination had he (A) continuedto be employed for one more year, and (B) received (on a pro rated basis,as appropriate) the greater of (I) the highest compensation taken intoaccount under each such plan with respect to one of the two years immediatelypreceding the year in which the Date of Termination occurs, or (II) hisannualized base compensation in effect immediately prior to the Date of Termination(or prior to any reduction which entitled him to terminate his employment forGood Reason), over (ii) the retirement benefits he actually receives undersuch plans.  The frequency, manner andextent of payment of such benefits shall be consistent with the terms of theplans to which they relate and any elections made thereunder.

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### (5)           The Executive and hiseligible dependents shall be entitled to continue to participate at the sameaggregate benefit levels, for one year and at no out-of-pocket or tax cost tohim, in the Welfare Benefit Plans in which he was a participant immediatelyprior to the Date of Termination, to the extent permitted under the terms ofsuch plans and applicable law.  To theextent the Company or its Affiliates are unable to provide for continuedparticipation in a Welfare Benefit Plan, it shall provide an equivalent benefitdirectly at no out-of-pocket or tax cost to him. For purposes of the precedingtwo sentences, the Company shall be deemed to have provided a benefit at no taxcost to him if it pays an additional amount to him or on his behalf, withrespect to those benefits which would otherwise be nontaxable to him,calculated in a manner consistent with the provisions of Paragraph 12.

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## (c)           **Adjustment to Certain Subparagraph(b) Compensation and Benefits.** Notwithstanding the provisions of Subparagraph (b)(5), the Companyor its Affiliates’ obligation to pay or fund any disability insurance premiumson behalf of the Executive shall be suspended while his Disability continues,provided the cessation of payment or funding does not result in the terminationof disability benefits.  Any amountsotherwise due under Subparagraph (b) shall

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be reduced (but not belowzero) by the dollar amount of disability benefits received by him pursuant toplans or policies funded, directly at its cost, by the Company or itsAffiliates.

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## (d)           **Earlier Cessation of Certain WelfareBenefits.** Notwithstanding the provisions of Subparagraph (b)(5), neither theCompany nor an Affiliate shall be required to provide, at its cost, the welfarebenefits covered therein after the later of (i) the attainment by theExecutive and his spouse (if any) of age 65, or (ii) the date specified inthe relevant plan document for benefit termination (assuming that he wasemployed until age 65 or the normal retirement date, if any, specified in suchdocument).

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## (e)           **Death During Remaining Term ofAgreement.**

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### (1)           In the event theExecutive dies during the remaining term of this Agreement following histermination for Disability and he is survived by a spouse, the compensation andbenefits remaining to be paid and provided under Subparagraph (b) shall beunaffected 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 benefitsdescribed in Subparagraph (b)(4) shall be determined by reference to therelevant plan provisions and any elections made under such plans; and providedfurther, that neither the Company nor an Affiliate shall be required to providecontinued benefits with respect to her deceased husband; and provided further,that in no event shall the Company or an Affiliate be required to provide, atits cost, the other welfare benefits described in Subparagraph (b)(5) tosuch spouse and her eligible dependents after the earlier of (i) herdeath, or (ii) the later of (A) her attainment of age 65, or(B) the date specified in the relevant plan document for benefittermination (assuming that the Executive was employed until age 65 or thenormal retirement date, if any, specified in such document).

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### (2)           In the event theExecutive dies during the remaining term of this Agreement following histermination for Disability and he is not survived by a spouse, (i) theCompany or an Affiliate shall thereafter make the remaining payments describedin Subparagraphs (b)(1) through (b)(3) directly to his estate,(ii) the extent of the rights of any person to the accrued benefitsdescribed in Subparagraph (b)(4) shall be determined by reference to therelevant plan provisions and any elections made under such plans, and(iii) the Company and its Affiliates’ obligation to provide continuedbenefits under Subparagraph (b)(5) shall terminate.

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## (f)            **Compensation and Benefits UponExpiration of Remaining Term of Agreement. **Upon the expiration of the remaining term of this Agreementfollowing the Executive’s termination for Disability, and provided hisDisability then continues, he shall be entitled to receive the compensation andbenefits provided under the terms of the Company or an Affiliates’ long-termdisability plan in effect on the Date of Termination or, if greater, at theexpiration of such remaining term.  Suchcompensation and benefits shall continue until the earlier of (i) hisdeath, 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 isunable to provide such compensation and benefits under its long-term disabilityplan, it shall provide equivalent compensation and benefits directly at noout-of-pocket or tax cost to him.  Forpurposes of the preceding sentence, the Company or the Affiliate shall bedeemed to have provided compensation and benefits at no tax cost to him if itpays an additional amount to him

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or on his behalf, withrespect to the compensation and benefits which would otherwise be nontaxable tohim, calculated in a manner consistent with the provisions ofParagraph 12.

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# 7.             **Termination By Reason of Death.**

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## (a)           **Compensation and Benefits toSurviving Spouse. **In theevent the Executive dies while he is employed under this Agreement and issurvived by a spouse, the Company or an Affiliate shall pay or provide thecompensation and benefits set forth below:

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### (1)           The surviving spouseshall be paid an amount equal to the greater of (i) the Executive’shighest base compensation received during one of the two calendar yearsimmediately preceding the calendar year in which the Date of Terminationoccurs, or (ii) his base compensation in effect immediately prior to theDate of Termination (or prior to any reduction which entitled him to terminatehis employment for Good Reason) for a period of one year, beginning with suchDate of Termination.  The frequency andmanner of payment of such amounts shall be in accordance with the Company’sexecutive payroll practices from time to time in effect.

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### (2)           The surviving spouseshall be paid an amount equal to the highest payment made to Executive undereach incentive bonus plan of the Company with respect to one of the two yearsimmediately preceding the year in which the Date of Termination occurs.  Such amount shall be paid in cash to herwithin 30 days after the Date of Termination.

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### (3)           The surviving spouseshall be paid an amount equal to the sum of the highest annual contributionmade on the Executive’s behalf (other than his own salary reductioncontributions) to each tax-qualified and non-qualified Defined ContributionPlan of the Company or an Affiliate with respect to the year in which the Dateof Termination occurs or one of the two years immediately preceding suchyear.  Such amount shall be paid in cashto her within 30 days after the Date of Termination or within 30 days aftersuch amount can first be determined, whichever is later.

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### (4)           Subject to thefollowing sentence, the surviving spouse shall be paid benefits determined byreference to the excess of (i) the aggregate retirement benefits the Executivewould have accrued under the terms of each tax-qualified and non-qualifiedDefined 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 theDate of Termination, and (B) received (on a pro rated basis, asappropriate) the greater of (I) the highest compensation taken intoaccount under each such plan with respect to one of the two years immediatelypreceding the year in which the Date of Termination occurs, or (II) hisannualized base compensation in effect immediately prior to the Date ofTermination (or prior to any reduction which entitled him to terminate hisemployment for Good Reason), over (ii) the retirement benefits actuallydetermined under such plans.  Thefrequency, manner, and extent of payment of such benefits shall be consistentwith the terms of the plans to which they relate and any elections madethereunder.

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### (5)           The surviving spouseand her eligible dependents shall be entitled to continue to participate at thesame aggregate benefit levels, for a period of one year following the Date ofTermination and at no out-of-pocket or tax cost to her, in the

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### Welfare BenefitPlans in which the Executive was a participant immediately prior to the Date ofTermination, to the extent permitted under the terms of such plans andapplicable law; provided, however, that neither the Company nor its Affiliatesshall be required to provide continued benefits with respect to her deceasedhusband; and provided further, that neither the Company nor its Affiliatesshall thereafter be required to provide, at its cost, the other welfarebenefits covered by such plans to such spouse and her eligible dependents afterthe earlier of (i) her death, or (ii) the later of (A) herattainment of age 65, or (B) the date specified in the relevant plandocument for benefit termination (assuming the Executive was employed until age65 or the normal retirement date, if any, specified in such document).  To the extent the Company or an Affiliate isunable to provide for continued participation in a Welfare Benefit Plan asrequired, it shall provide an equivalent benefit directly at no out-of-pocketor tax cost to her.  For purposes of thepreceding two sentences, the Company or the Affiliate shall be deemed to haveprovided a benefit at no tax cost to her if it pays an additional amount to heror on her behalf, with respect to those benefits which would otherwise benontaxable to her, calculated in a manner consistent with the provisions ofParagraph 12.

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## (b)           **Compensation and Benefits to Estate,Etc. **In the event theExecutive dies while he is employed under this Agreement and is not survived bya spouse, (i) the Company or an Affiliate shall make the paymentsdescribed in Subparagraphs (a)(1) through (a)(3) directly to his estate,(ii) the extent of the rights of any person to the accrued benefitsdescribed in Subparagraph (a)(4) shall be determined by reference to therelevant plan provisions and any elections made under such plans, and(iii) the Company and its Affiliates’ obligation to provide benefits underSubparagraph (a)(5) shall terminate.

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# 8.             **Termination By the Company for Cause.**

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## (a)           **In General. **In the event the Company intends to terminatethe Executive’s employment for Cause, it shall deliver a Notice of Terminationto him which specifies a Date of Termination not less than 30 days followingthe date of such notice, unless a shorter period of notice is required by theprincipal regulator of any Affiliate of the Company.

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## (b)           **Compensation. **Within 30 days after the Executive’stermination under Subparagraph (a), the Company shall pay him, in one lumpsum, his accrued but unpaid base compensation and vacation compensation earnedthrough the Date of Termination.

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# 9.             **Termination By the Executive WithoutGood Reason.**

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## (a)           **In General. **In the event the Executive intends toterminate his employment without Good Reason, he shall deliver a Notice ofTermination 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 Controlshall not have occurred, or (ii) 30 days following the date of suchnotice, if a Change in Control shall have occurred.

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## (b)           **Compensation. **Within 30 days after the Executive’stermination under Subparagraph (a), the Company shall pay him, in one lumpsum, his accrued but unpaid base compensation and vacation compensation earnedthrough the Date of Termination.

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# 10.           **Termination By the Company WithoutDisability or Cause.**

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## (a)           **In General. **In the event the Company intends toterminate the Executive’s employment for any reason other than Disability orCause, it shall deliver a Notice of Termination to him which specifies a Dateof Termination not less than 90 days following the date of such notice.

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## (b)           **Compensation and Benefits DuringRemaining Term of Agreement. **In the event of the termination of the Executive’s employment underSubparagraph (a), the Company or an Affiliate shall pay or provide thecompensation and benefits described in Paragraph 6(b) for one yearbeginning with the Date of Termination.

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## (c)           **Adjustment to Certain Subparagraph(b) Compensation and Benefits. **In the event the Executive suffers a Disability during the one yearfollowing the Date of Termination, the Company or an Affiliate’s obligation topay or fund any disability insurance premiums on his behalf shall be suspendedwhile his Disability continues, provided the cessation of payment or fundingdoes 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 notbelow zero) by the dollar amount of disability benefits received by himpursuant to plans or policies funded, directly at its cost, by the Company oran Affiliate.

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## (d)           **Earlier Cessation of Certain WelfareBenefits.** Notwithstanding the provisions of Subparagraph (b), neitherthe Company nor an Affiliate shall be required to provide, at its cost, thewelfare 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, ifany, specified in such document).

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## (e)           **Death During Remaining Term ofAgreement.**

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### (1)           In the event theExecutive dies during the year following his termination without Disability orCause by the Company and he is survived by a spouse, the compensation andbenefits required to be paid and provided under Subparagraph (b) shall beunaffected 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 benefitsdescribed in Paragraph 6(b)(4) shall be determined by reference to therelevant plan provisions and any elections made under such plans; and providedfurther, that neither the Company nor an Affiliate shall be required to providecontinued benefits with respect to her deceased husband; and provided further,that in no event shall the Company nor an Affiliate be required to provide, atits cost, the other welfare benefits described in Paragraph 6(b)(5) tosuch spouse and her eligible dependents after the earlier of (i) herdeath, or (ii) the later of (A) her attainment of age 65, or(B) the date specified in the relevant plan document for benefittermination (assuming that the Executive was employed until age 65 or the normalretirement date, if any, specified in such document).

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### (2)           In the event theExecutive dies during the year following his termination without Disability orCause and he is not survived by a spouse, (i) the Company shall thereaftermake the remaining payments described in Paragraphs 6(b)(1) through6(b)(3) directly to his estate, (ii) the extent of the rights of anyperson to the

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### accrued benefitsdescribed in Paragraph 6(b)(4) shall be determined by reference to therelevant plan provisions and any elections made under such plans, and(iii) the Company and any Affiliate’s obligation to provide the continuedbenefits described in Paragraph 6(b)(5) shall terminate.

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# 11.           **Termination By the Executive for GoodReason.**

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## (a)           **In General. **In the event the Executive intends toterminate his employment for Good Reason, he shall deliver a Notice ofTermination to the Company which specifies a Date of Termination not less than30 days following the date of such notice.

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## (b)           **Compensation and Benefits DuringRemaining Term of Agreement. **In the event of the termination of the Executive’s employment underSubparagraph (a), the Company shall pay or provide the compensation andbenefits described in Paragraph 6(b) for one year beginning with the Dateof Termination.

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## (c)           **Adjustment to Certain Subparagraph(b) Compensation and Benefits. **In the event the Executive suffers a Disability during the yearfollowing the Date of Termination, the Company or any Affiliate’s obligation topay or fund any disability insurance premiums on his behalf shall be suspendedwhile his Disability continues, provided the cessation of payment or fundingdoes 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 notbelow zero) by the dollar amount of disability benefits received by himpursuant to plans or policies funded, directly at its cost, to the Company orany Affiliate.

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## (d)           **Earlier Cessation of Certain WelfareBenefits. **Notwithstandingthe provisions of Subparagraph (b), neither the Company nor an Affiliateshall be required to provide, at its cost, the welfare benefits covered byParagraph 6(b)(5) after the later of (i) the attainment by theExecutive and his spouse (if any) of age 65, or (ii) the date specified inthe relevant plan document for benefit termination (assuming that he wasemployed until age 65 or the normal retirement date, if any, specified in suchdocument).

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## (e)           **Death During Remaining Term ofAgreement.**

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### (1)           In the event theExecutive dies during the year following his termination for Good Reason and heis survived by a spouse, the compensation and benefits required to be paid andprovided under Subparagraph (b) shall be unaffected by his death and shallbe paid and provided to her or on her behalf; provided, however, that theextent of her rights to the accrued benefits described inParagraph 6(b)(4) shall be determined by reference to the relevant planprovisions and any elections made under such plans; and provided further, thatneither the Company nor any Affiliate shall be required to provide continuedbenefits with respect to her deceased husband; and provided further, that in noevent 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 spouseand her eligible dependents after the earlier of (i) her death, or(ii) the later of (A) her attainment of age 65, or (B) the datespecified in the relevant plan document for benefit termination (assuming thatthe Executive was employed until age 65 or the normal retirement date, if any,specified in such document).

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### (2)           In the event the Executivedies during the year following his termination for Good Reason and he is notsurvived by a spouse, (i) either the Company or any Affiliate shallthereafter make the remaining payments described in Paragraphs 6(b)(1)through 6(b)(3) directly to his estate, (ii) the extent of the rights ofany person to the accrued benefits described in Paragraph 6(b)(4) shall bedetermined by reference to the relevant plan provisions and any elections madeunder such plans, and (iii) the Company or any Affiliate’s obligation toprovide the continued benefits described in Paragraph 6(b)(5) shallterminate.

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# 12.           **Provisions Relating to Excise Taxes.**

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## (a)           **In General. **In the event the Executive becomesliable, for any taxable year, for the payment of an Excise Tax (because of achange in control) with respect to the compensation and benefits payable by theCompany or an Affiliate under this Agreement or otherwise, the Company shallmake one or more Gross-Up Payments to the Executive or on his behalf.  The amount of any Gross-Up Payment shall becalculated by a certified public accountant or other tax professionaldesignated jointly by the Executive and the Company.  The provisions of this paragraph shall apply with respect to theExecutive’s surviving spouse or estate, where relevant.

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## (b)           **Methodology for Calculation ofGross-Up Payment. **Forpurposes of determining the amount of any Gross-Up Payment, the Executive shallbe deemed to pay income taxes at the highest federal, state, and local marginalrates 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 fromthe deduction of state and local income taxes. In the event that the Excise Tax is subsequently determined to be lessthan 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 suchreduction in Excise Tax is finally determined, the portion of the Gross-UpPayment attributable to the reduction (plus a portion of the Gross-Up Paymentattributable to the Excise Tax and the federal, state, and local income taxesimposed on the portion of the Gross-Up Payment being repaid by the Executive tothe extent such repayment results in a reduction in Excise Tax or federal,state, or local income tax), plus interest on the amount of suchrepayment.  Such interest shall becalculated by using the rate in effect under Section 1274(d)(1) of theIRC, on the date the Gross-Up Payment was made, for debt instruments with aterm equal to the period of time which has elapsed from the date the Gross-UpPayment was made to the date of repayment. In the event that the Excise Tax is subsequently determined to exceedthe 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 notbe determined at the time of the Gross-Up Payment), the Company shall make anadditional Gross-Up Payment with respect to the excess at the time the amountthereof is finally determined, plus interest calculated in a manner similar tothat described in the preceding sentence.

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## (c)           **Time of Payment. **Any Gross-Up Payment provided for hereinshall be paid not later than the 30th day following the payment of anycompensation or the provision of any benefit which causes such payment to bemade; provided, however, that if the amount of such payment cannot be finallydetermined on or before such day, the Company shall pay on such day an estimateof the minimum amount of such payment and shall pay the remainder of suchpayment (together with interest calculated in a manner similar to thatdescribed in

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Subparagraph (b)) assoon as the amount thereof can be determined. In the event that the amount of an estimated payment exceeds the amountsubsequently determined to have been due, such excess shall constitute a loanby the Company to the Executive, payable on the 30th day after demand by theCompany (together with interest calculated in a manner similar to thatdescribed in Subparagraph (b)).

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## (d)           Notwithstanding theprovisions of this paragraph to the contrary, the actual amounts payablehereunder as Gross-Up Payments shall be coordinated with any similar amountspaid to the Executive under any other contract, plan, or arrangement.

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# 13.           **Fees and Expenses of the Executive. **After a Change in Control and except asprovided in the following sentence, the Company shall pay, within 30 daysfollowing demand by the Executive, all legal, accounting, actuarial, andrelated fees and expenses incurred by him in connection with the enforcement ofthis Agreement.  An arbitration panel ora court of competent jurisdiction shall be empowered to deny payment to theExecutive of such fees and expenses only if it determines that he instituted aproceeding hereunder, or otherwise acted, in bad faith.

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# 14.           **Reduction for Compensation andBenefits 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 becomesentitled to continued compensation and benefits hereunder by reason of theExecutive’s termination of employment and, in addition, compensation or similarbenefits are payable under a severance policy, program or arrangementmaintained by the Company (other than retirement plans), then the compensationor benefits otherwise payable hereunder shall be reduced by the compensation orbenefits provided under such severance policy, program or arrangement.

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# 15.           **Mitigation. **The Executive shall not be required tomitigate the amount of any compensation or benefits which may become payablehereunder by reason of his termination by seeking other employment orotherwise, nor, except as otherwise provided in the following sentence orelsewhere herein, shall the amount of any such compensation or benefits bereduced by any compensation or benefits received by the Executive as the resultof his employment by another employer. Notwithstanding anything in this Agreement to the contrary, the Companyor any Affiliate’s obligation to provide any medical and dental benefitshereunder may be suspended, with the written concurrence of the Executive or,if applicable, his surviving spouse during any period of time that suchbenefits are being provided by reason of his or her employment.

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# 16.           **Funding of Compensation and Benefits;Acceleration of Certain Payments.**

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## (a)           **Grantor Trust. **In the event the Executive’s employmentis terminated without Cause or he terminates his employment for Good Reason anda Change in Control has occurred as of the Date of Termination or occursthereafter, the Executive shall have the right to require the Company toestablish a grantor trust (taxable to the Company ) and fund such trust, on anactuarially sound basis, to provide the compensation and benefits to which heis entitled hereunder, other than those which may be paid pursuant to theprovisions of Subparagraph (c).  Thespecific terms of such trust shall be as agreed to by the parties in goodfaith; provided, however, that the trustee shall be a financial institutionindependent of the Company; and provided further, that in no event shall theCompany be entitled to withdraw funds from the trust

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for its benefit, orotherwise voluntarily assign or alienate such funds, until such time as allcompensation and benefits required hereunder are paid and provided.  The determination of the extent of requiredfunding, including any supplemental funding in the event of adverse investmentperformance of trust assets, shall be made by an actuary or a certified publicaccountant retained by each party.  Tothe extent such professionals cannot agree on the proper level of funding, theyshall select a third such professional whose determination shall be bindingupon the parties. Notwithstanding the foregoing, the Company and its Affiliatesshall remain liable for all compensation and benefits required to be paid orprovided hereunder.

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## (b)           **Alternate Security. **In lieu of the right given to theExecutive under Subparagraph (a), he shall have the right under suchcircumstances to require that the Company or its Affiliates provide (i) anirrevocable standby letter of credit issued by a financial institution otherthan the Company or any Subsidiary of the Company with a senior debt creditrating 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 Valueof Certain Compensation.** In the event the Executive’s employment is terminated without Cause orhe terminates his employment for Good Reason and a Change in Control hasoccurred as of the Date of Termination or occurs thereafter, the Executiveshall have the continuing right to demand that the present value of theremaining payments described in Paragraphs 6(b)(1) through (3), andpayable by reason of the provisions of Paragraph 10 or 11 (as the case maybe), be paid to him in one lump sum within 30 days after the date writtendemand is given.  For purposes ofcalculating the present value of such payments, a discount factor shall beapplied to each such payment which is equal to the relevant applicable federalrate in effect on the date written demand is given by him, determined byreference to the period of time between the date of such notice and thescheduled 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, theother payments shall nonetheless be made as provided above; and theundetermined payment shall be made within 30 days after it becomes determinable,calculated as provided in the preceding sentence but by treating the date onwhich the payment becomes determinable as the date of written notice.  Nothing in this subparagraph shall beconstrued as affecting the Executive’s right to one or more Gross-Up Paymentsin accordance with the provisions of Paragraph 12; and a Gross-Up Payment(if applicable) will be calculated and made with any payment made under thissubparagraph, as well as any other Gross-Up Payments that may be required hereunderat a subsequent date.

##  

# 17.           **Withholding Taxes. **All compensation and benefits providedfor 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 tohis employment with the Company, he will not, at any time, communicate ordisclose to any unauthorized person, without the written consent of theCompany, any proprietary or other confidential information concerning theCompany or any Subsidiary or any Affiliate of the Company; provided, however,that the obligations under this paragraph shall not apply to the extent thatsuch matters (i) are disclosed in circumstances where the Executive islegally obligated to do so, or (ii) become generally known to andavailable for use by the public otherwise than by his wrongful act or omission;and provided further, that he may disclose any

#  

# 11

# 

#  

knowledge of insurance,financial, legal and economic principles, concepts and ideas which are notsolely and exclusively derived from the business plans and activities of theCompany.

#  

# 19.           **Covenants Not to Compete or toSolicit.**

#  

## (a)           **Noncompetition.**  If the Executive’s employment terminatesunder Paragraph 8 or 9 prior to a Change in Control, he agrees that for aperiod of 12 months after the Date of Termination he will not, without thewritten consent in writing of the Board of Directors of the Company, become anofficer, employee, agent, partner, director, or a four and nine-tenths percentor greater shareholder or equity owner of any licensed direct property andcasualty insurance company with its corporate headquarters located withinPennsylvania or New Jersey.  If at thetime of the enforcement of this paragraph a court holds that the duration,scope, or area restrictions stated herein are unreasonable under thecircumstances then existing and, thus, unenforceable, the Company and theExecutive agree that the maximum duration, scope, or area reasonable under suchcircumstances shall be substituted for the stated duration, scope, or area.

##  

## (b)           **Nonsolicitation.**  During his employment and for a period of 12months following the Date of Termination, the Executive shall not, whether onhis own behalf or on behalf of any other individual or business entity,solicit, endeavor to entice away from the Company, a Subsidiary or anyAffiliate, or otherwise interfere with the relationship of the Company, aSubsidiary or any Affiliate with any person who is, or was within the then mostrecent 12 month period, an employee or associate thereof; provided, however,that this subparagraph shall not apply following the occurrence of a Change inControl.

##  

# 20.           **Arbitration. **To the extent permitted by applicablelaw, 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 ArbitrationAssociation then in existence (to the extent such rules are not inconsistentwith the provisions of this Agreement), it being understood and agreed that thearbitration panel shall consist of three individuals acceptable to the partieshereto.  In the event that the partiescannot agree on three arbitrators within 20 days following receipt by one partyof a demand for arbitration from another party, then the Executive and theCompany shall each designate one arbitrator and the two arbitrators selectedshall select the third arbitrator.  Thearbitration panel so selected shall convene a hearing no later than 90 daysfollowing the selection of the panel. The arbitration award shall be final and binding upon the parties, andjudgment may be entered thereon in the Commonwealth of Pennsylvania Court ofCommon Pleas or in any other court of competent jurisdiction.

#  

# 21.           **Additional Equitable Remedy. **The Executive acknowledges and agreesthat the Company’s remedy at law for a breach or a threatened breach of theprovisions of Paragraphs 18 and 19 would be inadequate; and, inrecognition of this fact and notwithstanding the provisions ofParagraph 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 inthe form of specific performance, temporary restraining order, temporary orpermanent injunction, or any other equitable remedy which may then beavailable.  Nothing in this paragraphshall be construed as prohibiting the Company from pursuing any other remedyavailable under this Agreement for such a breach or threatened breach.

#  

# 12

# 

#  

# 22.           **Related Agreements.**  Except as may otherwise be provided herein,to the extent that any provision of any other agreement between the Company andthe Executive shall limit, qualify, duplicate, or be inconsistent with anyprovision of this Agreement, the provision in this Agreement shall control andsuch 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 formallyamended to the extent necessary to accomplish such purpose.

#  

# 23.           **No Effect on Other Rights. **Except as otherwise specificallyprovided herein, nothing contained in this Agreement shall be construed asadversely affecting any rights the Executive may have under any agreement,plan, policy or arrangement to the extent any such right is not inconsistentwith the provisions hereof.

#  

# 24.           **Exclusive Rights and Remedy.**  Except for any explicit rights and remediesthe Executive may have under any other contract, plan or arrangement with theCompany, the compensation and benefits payable hereunder and the remedy forenforcement thereof shall constitute his exclusive rights and remedy in theevent of his termination of employment.

#  

# 25.           **Director and Officer LiabilityInsurance; Indemnification.** The Company and Mercer shall provide the Executive (including his heirs,executors, and administrators) with coverage under a standard directors’ andofficers’ liability insurance policy, at the Company and Mercer’s expense, inamounts consistent with amounts provided by peer corporations to theirdirectors and officers, and shall indemnify him as both a director and as anofficer (and his heirs, executors, and administrators) to the fullest extentpermitted under Pennsylvania law against all expenses and liabilitiesreasonably 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 anofficer or director of the Company or any Subsidiary or Affiliate (whether ornot he continues to be such an officer or director at the time of incurringsuch expenses or liabilities).  Suchexpenses and liabilities shall include, but not be limited to, judgments, courtcosts, and attorneys’ fees, and the costs of reasonable settlements.

#  

# 26.           **Notices. **Any notice required or permitted underthis Agreement shall be sufficient if it is in writing and shall be deemedgiven (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 |   |

 

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The name or address ofany addressee may be changed at any time and from time to time by noticesimilarly given.

 

# 27.           **No Waiver. **The failure by any party to thisAgreement at any time or times hereafter to require strict performance by anyother party of any of the provisions, terms, or conditions contained in thisAgreement shall not waive, affect, or diminish any right of the first party atany time or times thereafter to demand strict performance therewith and withany other provision, term, or condition contained in this Agreement.  Any actual waiver of a provision, term, orcondition contained in this Agreement shall not constitute a waiver of anyother provision, term, or condition herein, whether prior or subsequent to suchactual waiver and whether of the same or a different type.  The failure of the Company to promptlyterminate the Executive’s employment for Cause or the Executive to promptlyterminate his employment for Good Reason shall not be construed as a waiver ofthe right of termination, and such right may be exercised at any time followingthe occurrence of the event giving rise to such right.

#  

# 28.           **Joint and Several Obligations ofMercer and the Company. **Mercerand the Company shall be jointly and severally liable for all compensation andbenefits 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 terminationof this Agreement and the Executive’s employment hereunder, the provisionshereof which specify continuing obligations, compensation and benefits, andrights (including the otherwise applicable term hereof) shall remain in effectuntil such time as all such obligations are discharged, all such compensationand benefits are received, and no party or beneficiary has any remaining actualor contingent rights hereunder.

#  

# 30.           **Severability. **In the event any provision in thisAgreement shall be held illegal or invalid for any reason, such illegal orinvalid provision shall not affect the remaining provisions hereof, and thisAgreement shall be construed, administered and enforced as though such illegalor invalid provision were not contained herein.

#  

# 31.           **Binding Effect and Benefit. **The provisions of this Agreement shallbe binding upon and shall inure to the benefit of the successors and assigns ofthe Company and the executors, personal representatives, surviving spouse,heirs, devisees, and legatees of the Executive.

#  

# 32.           **Entire Agreement. **This Agreement embodies the entireagreement among the parties with respect to the subject matter hereof, and it supersedesall prior discussions and oral understandings of the parties with respectthereto.

#  

# 33.           **No Assignment. **This Agreement, and the benefits andobligations hereunder, shall not be assignable by any party hereto except byoperation of law.

#  

# 34.           **No Attachment.**  Except as otherwise provided by law, noright to receive compensation or benefits under this Agreement shall be subjectto anticipation, commutation, alienation, sale, assignment, encumbrance,charge, pledge, or hypothecation, or to set off,

#  

# 14

# 

#  

execution, attachment,levy, or similar process, and any attempt, voluntary or involuntary, to effectany such action shall be null and void.

#  

# 35.           **Captions. **The captions of the several paragraphsand subparagraphs of this Agreement have been inserted for convenience ofreference only.  They constitute no partof this Agreement and are not to be considered in the construction hereof.

#  

# 36.           **Counterparts. **This Agreement may be executed in anynumber of counterparts, each of which shall be deemed one and the sameinstrument which may be sufficiently evidenced by any one counterpart.

#  

# 37.           **Number. **Wherever any words are used herein inthe singular form, they shall be construed as though they were used in the pluralform, as the context requires, and viceversa.

#  

# 38.           **Applicable Law. **Except to the extent preempted byfederal law, the provisions of this Agreement shall be construed, administered,and enforced in accordance with the domestic internal law of the Commonwealthof Pennsylvania.

#  

# 39.           **Prior Agreements**.  The execution of this Agreement terminatesany and all previous employment agreements among the Company, its Affiliatesand Mr. Merclean.

#  

**IN WITNESS WHEREOF,**theparties have executed this Agreement, or caused it to be executed, as of thedate first above written.

 

 
|   |                             |
|--------|----------------------------------|
|   | David B.  Merclean               |
|   |                             |
|   | BICUS SERVICE  CORPORATION       |
|   |                             |
|   | By:                              |   |
|   |                             |   |
|   | Attest:                          |   |
|   |                             |   |
|   | MERCER MUTUAL  INSURANCE COMPANY |
|   |                             |
|   | By:                              |   |
|   |                             |   |
|   | Attest:                          |   |
|        |                                  |  |  |  |

 

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**GLOSSARY**

 

**“Affiliate”** meanswith 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 orentity, including without limitation, Mercer and Mercer Insurance Group, Inc.

 

**“Board of Directors”**meansthe board of directors of the relevant corporation.

 

**“Cause”**means(i) a documented repeated and willful failure by the Executive to performhis duties, but only after written demand and only if termination is effected byaction taken by a vote of (A) prior to a Change in Control, at least amajority of the directors of the Company then in office, or (B) after aChange in Control, at least 80% of the nonofficer directors of the Company thenin office, (ii) his final conviction of a felony, (iii) conduct byhim which constitutes moral turpitude which is directly and materiallyinjurious to the Company or any Subsidiary or affiliated company,(iv) willful material violation of corporate policy, or (v) the issuanceby the regulator of the Company or any Subsidiary or Affiliate of anunappealable order to the effect that he be permanently discharged.

 

For purposes of thisdefinition, no act or failure to act on the part of the Executive shall beconsidered “willful” unless done or omitted not in good faith and withoutreasonable belief that the action or omission was in the best interest of theCompany or any of its Subsidiaries or Affiliate.

 

**“Change in Control”**meansthe occurrence of any of the following events:

 

#### (a)           any Person (except(i) the Company or any Subsidiary or Affiliate of the Company, or(ii) any Employee Benefit Plan (or any trust forming a part thereof)maintained by the Company or any Subsidiary or Affiliate) is or becomes thebeneficial owner, directly or indirectly, of the Company or any Affiliate’ssecurities representing 19.9% or more of the combined voting power of theCompany or any Affiliate’s then outstanding securities, or 50.1% or more of thecombined 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 ofthe Company, Mercer or a Material Subsidiary to another entity, except to anentity controlled directly or indirectly by the Company or an Affiliate;

####  

#### (c)           there occurs a merger,consolidation, share exchange, division or other reorganization of or relatingto the Company or Mercer, unless—

####  

##### (i)            the shareholders ofthe Company or Mercer immediately before such merger, consolidation, shareexchange, division or reorganization own, directly or indirectly, immediatelythereafter at least two-thirds of the combined voting power of the outstandingvoting securities of the Surviving Company in substantially the same proportionas 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 orreorganization, are members of the Incumbent Board continue to constitute atleast two-thirds of the board of directors of the Surviving Company; provided,however, that if the election, or nomination for election by the Company orMercer’s shareholders, of any new director was approved by a vote of at leasttwo-thirds of the Incumbent Board, such director shall, for the purposeshereof, be considered a member of the Incumbent Board; and provided further,however, that no individual shall be considered a member of the Incumbent Boardif such individual initially assumed office as a result of either an actual orthreatened Election Contest or Proxy Contest, including by reason of anyagreement intended to avoid or settle any Election Contest or Proxy Contest;and

#####  

##### (iii)          no Person (except(A) the Company or any Subsidiary or Affiliate of the Company,(B) any Employee Benefit Plan (or any trust forming a part thereof)maintained by the Company or any Subsidiary or Affiliate of the Company, or(C) the Surviving Company or any Subsidiary or Affiliate of the SurvivingCompany) has beneficial ownership of 19.9% or more of the combined voting powerof the Surviving Company’s outstanding voting securities immediately followingsuch merger, consolidation, share exchange, division or reorganization;

#####  

#### (d)           a plan of liquidationor dissolution of the Company or Mercer, other than pursuant to bankruptcy orinsolvency laws, is adopted; or

####  

#### (e)           during any period oftwo consecutive years, individuals who, at the beginning of such period,constituted the Board of Directors of the Company or Mercer cease for anyreason to constitute at least a majority of such Board of Directors, unless theelection, or the nomination for election by the Company or Mercer’sshareholders, of each new director was approved by a vote of at leasttwo-thirds of the directors then still in office who were directors at thebeginning of the period; provided, however, that no individual shall beconsidered a member of the Board of Directors of the Company or Mercer at thebeginning of such period if such individual initially assumed office as aresult of either an actual or threatened Election Contest or Proxy Contest,including by reason of any agreement intended to avoid or settle any ElectionContest or Proxy Contest.

####  

Notwithstanding theforegoing, a Change in Control shall not be deemed to have occurred if a Personbecomes the beneficial owner, directly or indirectly, of securitiesrepresenting 19.9% or more of the combined voting power of the Company orMercer’s then outstanding securities solely as a result of an acquisition bythe Company or Mercer of its voting securities which, by reducing the number ofshares outstanding, increases the proportionate number of shares beneficiallyowned by such Person; provided, however, that if a Person becomes a beneficialowner of 19.9% or more of the combined voting power of the Company or Mercer’sthen outstanding securities by reason of share repurchases by the Company orMercer and thereafter becomes the beneficial owner, directly or indirectly, ofany additional voting securities of the Company or Mercer, then a Change inControl shall be deemed to have occurred with respect to such Person underClause (a).

 

2

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Notwithstanding anythingcontained herein to the contrary, if the Executive’s employment is terminatedand he reasonably demonstrates that such termination (i) was at the requestof a third party who has indicated an intention of taking steps reasonablycalculated to effect a Change in Control and who effects a Change in Control,or (ii) otherwise occurred in connection with, or in anticipation of, aChange in Control which actually occurs, then for all purposes hereof, a Changein Control shall be deemed to have occurred on the day immediately prior to thedate of such termination of his employment.

 

**“Company”**meansBicus Services Corporation, a Pennsylvania corporation, and any successorthereto.

 

**“Date of Termination”**means:

 

###### (a)           if the Executive’semployment is terminated for Disability, 30 days after the Notice ofTermination is given (provided that he shall not have returned to theperformance of his duties on a full-time basis during such 30-day period);

######  

###### (b)           if the Executive’semployment terminates by reason of his death, the date of his death;

######  

###### (c)           if the Executive’semployment is terminated by the Company for Cause, the date specified in theNotice of Termination;

######  

###### (d)           if the Executive’semployment is terminated by him without Good Reason, the date specified in theNotice of Termination;

######  

###### (e)           if the Executive’semployment is terminated by the Company for any reason other than forDisability or Cause, the date specified in the Notice of Termination; or

######  

###### (f)            if the Executive’semployment is terminated by him for Good Reason, the date specified in theNotice of Termination;

######  

provided, however thatthe Date of Termination shall mean the actual date of termination in the event theparties 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”**hasthe meaning ascribed to such term in Section 3(34) of ERISA.

 

**“Disability”**hasthe meaning ascribed to the term “permanent and total disability” inSection 22(e)(3) of the IRC.

 

**“Election Contest”**meansa solicitation with respect to the election or removal of directors that issubject to the provisions of Rule 14a-11 of the 1934 Act.

 

**“Employee Benefit Plan”**hasthe meaning ascribed to such term in Section 3(3) of ERISA.

 

3

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**“ERISA”**means theEmployee Retirement Income Security Act of 1974, as amended and as the same maybe amended from time to time.

 

**“Excise Tax”**meansthe tax imposed by Section 4999 of the IRC (or any similar tax that mayhereafter be imposed by federal, state or local law).

 

**“Executive”**meansDavid B. Merclean, an individual residing in Mendham, New Jersey.

 

**“Good Reason”**means:

 

(a)           priorto a Change in Control—

 

(i)            achange in the Executive’s status or position, or any material diminution in hisduties or responsibilities;

 

(ii)           areduction in the Executive’s base compensation, other than a reduction which isproportionate to a company-wide reduction in executive pay;

 

(iii)          a failure to increase the Executive’s basecompensation, consistent with his performance rating, within 24 months sincethe last increase, other than similar treatment on a company-wide basis forexecutives or a voluntary deferral by him of an increase;

 

(iv)          deliveryto the Executive of a Notice of Nonextension; or

 

(v)           anypurported termination of the Executive’s employment which is not in accordancewith the terms of this Agreement; and

 

(b)           aftera Change in Control—

 

(i)            achange in the Executive’s status or position, or any material diminution in hisduties or responsibilities;

 

(ii)           anyincrease in the Executive’s duties inconsistent with his position;

 

(iii)          any reduction in the Executive’s basecompensation;

 

(iv)          afailure to increase the Executive’s base compensation, consistent with hisperformance review, within 12 months of the last increase; or a failure toconsider Executive for an increase within 12 months of his last performancereview;

 

(v)           afailure to continue in effect any Employee Benefit Plan in which the Executiveparticipates, including (whether or not they constitute Employee Benefit Plans)incentive bonus, stock option, or other qualified or nonqualified plans ofdeferred compensation (A) other than as a result of the normal expirationof such a plan, or (B) unless such plan is merged or consolidated into, orreplaced with, a plan with benefits which are of equal or greater value;

 

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(vi)          requiringthe Executive to be based anywhere other than the county where his principaloffice was located immediately prior to the Change in Control;

 

(vii)         refusal to allow the Executive to attend tomatters or engage in activities in which he was permitted to engage prior tothe Change in Control;

 

(viii)        delivery to the Executive of a Notice ofNonextension;

 

(ix)           failureto secure the affirmation by a Successor, within three business days prior to aChange in Control, of this Agreement and its or the Company’s continuingobligations hereunder (or where there is not at least three business daysadvance notice that a Person may become a Successor, within one business dayafter having notice that such Person may become or has become a Successor); or

 

(x)            anypurported termination of the Executive’s employment which is not in accordancewith the terms of this Agreement.

 

Notwithstanding anythingherein to the contrary, at the election of the Executive, beginning with the181st day following a Change in Control and continuing through the firstanniversary of such Change in Control, he may terminate his employment for anyreason or no reason and such termination will be treated as having occurred forGood Reason.

 

**“Gross-Up Payment”**meansan additional payment to be made to or on behalf of the Executive in an amountsuch that the net amount retained by him, after deduction of any Excise Tax onthe Total Payments and any federal, state, and local income tax and Excise Taxon such additional payment, equals the Total Payments.

 

**“Incumbent Board”**meansthe Board of Directors of the Company or an Affiliate as constituted at anyrelevant time.

 

**“IRC”**means theInternal Revenue Code of 1986, as amended and as the same may be amended from timeto time.

 

**“Material Subsidiary”**means a Subsidiary whose net worth, determined under generally acceptedaccounting principles, at the fiscal year end immediately prior to any relevanttime is at least 25% of the aggregate net worth of the controlled group ofcorporations of which Mercer is the common parent.

 

**“1934 Act”**meansthe Securities Exchange Act of 1934, as amended and as the same may be amendedfrom time to time.

 

**“Mercer”** meansMercer Mutual Insurance Company.

 

**“Notice of Extension”**meansa written notice delivered to or by the Executive which advises that theAgreement will be extended as provided in Paragraph 3.

 

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**“Notice of Termination”**meansa written notice that (i) indicates the specific termination provision inthis Agreement relied upon, (ii) sets forth in reasonable detail the factsand circumstances claimed to provide a basis for termination of the Executive’semployment under the provision so indicated, and (iii) gives the requiredadvance notice of termination.

 

**“Person”**has thesame meaning as such term has for purposes of Sections 13(d) and 14(d) ofthe 1934 Act.

 

**“Proxy Contest”**meansthe solicitation of proxies or consents by or on behalf of a Person other thanthe Board of Directors of the Company.

 

**“Subsidiary”**meansany business entity of which a majority of its voting power or its equitysecurities or equity interests is owned, directly or indirectly by Mercer.

 

**“Successor”**meansany Person that succeeds to, or has the practical ability to control (eitherimmediately or with the passage of time), the Company’s business directly, bymerger or consolidation, or indirectly, by purchase of the Company’s votingsecurities or all or substantially all of its assets.

 

**“Surviving Company”**meansthe business entity that is a resulting company following a merger,consolidation, share exchange, division or other reorganization of or relatingto the Company or any Affiliate.

 

**“Total Payments”**meansthe compensation and benefits that become payable under the Agreement orotherwise (and which may be subject to an Excise Tax) by reason of theExecutive’s termination of employment, determined without regard to anyGross-Up Payments that may also be made.

 

**“Welfare Benefit Plan”**hasthe meaning ascribed to the term “employee welfare benefit plan” inSection 3(1) of ERISA.  Forpurposes of determining the Executive’s or his dependents’ right to continuedwelfare benefits hereunder following his termination of employment, the meaningof such term shall include any retiree health plan maintained by the Company atany time after the relevant Date of Termination, notwithstanding the fact thatthe Executive is not a participant therein prior to such date.

 

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