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                                                                   EXHIBIT 10.12


                          MERCER INSURANCE GROUP, INC.

                           STOCK COMPENSATION PROGRAM

         1.       Purpose. The Mercer Insurance Group, Inc. Stock Compensation
Program ("Program") is intended to secure for Mercer Insurance Group, Inc. (the
"Company") and its shareholders the benefits arising from ownership of the
Company's common stock, no par value per share ("Common Stock"), by those
selected executives and other key employees and directors of the Company who
will be responsible for its future growth. The Program is designed to help
attract and retain superior personnel for positions of substantial
responsibility with the Company, and to provide key employees with an additional
incentive to contribute to the success of the Company.

         2.       Elements of the Program. In order to maintain flexibility in
the award of stock benefits, the Program is comprised of four parts. The first
part is the Incentive Stock Option Plan ("Incentive Plan"). The second part is
the Compensatory Stock Option Plan ("Compensatory Plan"). The third part is the
Stock Appreciation Rights Plan ("S.A.R. Plan"). The fourth part is the
Performance Shares Plan ("Performance Plan"). Copies of the Incentive Plan,
Compensatory Plan, S.A.R. Plan, and Performance Plan are attached hereto as Part
I, Part II, Part III and Part IV, respectively, and are collectively referred to
herein as the "Plans." The grant of an option, appreciation right or performance
share under one of the Plans shall not be construed to prohibit the grant of an
option, appreciation right or performance share under any of the other Plans.

         3.       Applicability of General Provisions. Unless any Plan
specifically indicates to the contrary, all Plans shall be subject to the
General Provisions of the Stock Compensation Program set forth below.

         4.       Administration of the Plans. The Plans shall be administered,
construed, governed and amended in accordance with their respective terms.

                GENERAL PROVISIONS OF STOCK COMPENSATION PROGRAM

         Article 1. Administration. The Program shall be administered by the
Compensation Committee of the Board of Directors of the Company. The committee,
when acting to administer the Program, is referred to as the "Program
Administrators." Any action of the Program Administrators shall be taken by
majority vote or the unanimous written consent of the Program Administrators.
The Board of Directors, with the Program Administrators not voting, shall
administer the Program with respect to the options granted to the Program
Administrators in accordance with the provisions of Plan II. No Program
Administrator or member of the Board of Directors of the Company or any parent
or subsidiary, shall be liable for any action or determination made in good
faith with respect to the Program or to any option, stock appreciation right, or
performance share granted thereunder.

         Article 2. Authority of Program Administrators. Subject to the other
provisions of this Program, and with a view to effecting its purpose, the
Program Administrators shall have sole authority in their absolute discretion:
(a) to construe and interpret the Program; (b) to define the terms used herein;
(c) to prescribe, amend, and rescind rules and regulations relating to the
Program; (d) to determine the employees to whom options, appreciation rights and
performance shares shall be granted under the Program; (e) to determine the time
or times at which options, appreciation rights and performance

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shares shall be granted under the Program; (f) to determine the number of shares
subject to any option or stock appreciation right under the Program and the
number of shares to be awarded as performance shares under the Program as well
as the option price, and the duration of each option, appreciation right and
performance share, and any other terms and conditions of options, appreciation
rights and performance shares; (g) to make any other determinations necessary or
advisable for the administration of the Program and to do everything necessary
or appropriate to administer the Program. All decisions, determinations, and
interpretations made by the Program Administrators shall be binding and
conclusive on all participants in the Program and on their legal
representatives, heirs and beneficiaries.

         Article 3. Maximum Number of Shares Subject to the Program. The maximum
aggregate number of shares of Common Stock available pursuant to the Plans,
subject to adjustment as provided in Article 6 hereof, shall be equal to the
number of shares that represent 10% of the Company's initial issuance of Common
Stock. If any of the options granted under this Program expire or terminate for
any reason before they have been exercised in full, the unpurchased shares
subject to those expired or terminated options shall again be available for the
purposes of the Program. If the performance objectives associated with the grant
of any performance share(s) are not achieved within the specified performance
period or if the performance share grant terminates for any reason before the
performance objective date arrives, the shares of Common Stock associated with
such performance shares shall again be available for the purposes of the
Program.

         Article 4. Eligibility and Participation. Only regular full-time
employees of the Company, including officers whether or not directors of the
Company, or of any parent or any subsidiary, shall be eligible for selection by
the Program Administrators to participate in the Program. Directors who are not
full-time employees of the Company shall only be eligible to participate in Plan
II of the Program.

         Article 5. Effective Date and Term of Program. The Program shall become
effective upon its adoption by the Board of Directors of the Company and
subsequent approval of the Program by a majority of the total votes eligible to
be cast at a meeting of shareholders, which vote shall be taken within 12 months
of adoption of the Program by the Company's Board of Directors; provided,
however, that options, appreciation rights, and performance shares may be
granted under this Program prior to obtaining shareholder approval of the
Program, but after the Company's original issuance of Common Stock, but any such
options or appreciation rights or performance shares shall be contingent upon
such shareholder approval being obtained and may not be exercised prior to such
approval. The Program shall continue in effect for a term of 10 years unless
sooner terminated under Article 2 of the General Provisions.

         Article 6. Adjustments. If the shares of Common Stock of the Company as
a whole are increased, decreased, changed into, or exchanged for a different
number or kind of shares or securities through merger, consolidation,
combination, exchange of shares, other reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares as to which options, appreciation rights and performance shares
may be granted under this Program. A corresponding adjustment changing the
number or kind of shares allocated to unexercised options, appreciation rights,
performance shares, or portions thereof, which shall have been

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granted prior to any such change, shall likewise be made. Any such adjustment in
outstanding options and appreciation rights shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the option or
appreciation right, but with a corresponding adjustment in the price for each
share or other unit of any security covered by the option or appreciation right.
In making any adjustment pursuant to this Article 6, any fractional shares shall
be disregarded.

         Article 7. Termination and Amendment of Program. The Program shall
terminate no later than 10 years from the date such Program is adopted by the
Board of Directors, or the date such Program is approved by the shareholders,
whichever is earlier. No options, appreciation rights, or performance shares
shall be granted under the Program after that date. The Board of Directors may
terminate the Program at any time. Subject to the limitation contained in
Article 8 of the General Provisions, the Program Administrators may at any time
amend or revise the terms of the Program, including the form and substance of
the option, appreciation right, and performance shares agreements to be used
hereunder; provided that no amendment or revision shall (a) increase the maximum
aggregate number of shares that may be sold, subjected to appreciation, or
distributed pursuant to options, appreciation rights, or performance shares
granted under this Program, except as permitted under Article 6 of the General
Provisions; (b) change the minimum purchase price for shares under Section 4 of
Plans I and II; (c) increase the maximum term established under the Plans for
any option, appreciation right, or performance share; or (d) permit the granting
of an option, appreciation right, or performance share to anyone other than as
provided in Article 4 of the General Provisions.

         Article 8. Prior Rights and Obligations. No amendment, suspension, or
termination of the Program shall, without the consent of the employee who has
received an option, appreciation right, or performance share, alter or impair
any of that employee's rights or obligations under any option, appreciation
right or performance share granted under the Program prior to such amendment,
suspension, or termination.

         Article 9. Privileges of Stock Ownership. Notwithstanding the exercise
of any options granted pursuant to the terms of this Program or the achievement
of any performance objective specified in any performance share granted pursuant
to the terms of this Program, no employee shall have any of the rights or
privileges of a shareholder of the Company in respect of any shares of stock
issuable upon the exercise of his or her option or achievement of his or her
performance goal until certificates representing the shares have been issued and
delivered. No shares shall be required to be issued and delivered upon exercise
of any option or achievement of any performance goal as specified in a
performance share unless and until all of the requirements of law and of all
regulatory agencies having jurisdiction over the issuance and delivery of the
securities shall have been fully complied with. No adjustment shall be made for
dividends or any other distributions for which the record date is prior to the
date on which such stock certificate is issued.

         Article 10. Reservation of Shares of Common Stock. The Company, during
the term of this Program, will at all times reserve and keep available such
number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Program. In addition, the Company will from time to time, as
is necessary to accomplish the purposes of this Program, seek to obtain from any
regulatory agency having jurisdiction, any requisite authority in order to issue
and sell shares of Common Stock hereunder. The inability of the Company to
obtain from any regulatory

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agency having jurisdiction the authority deemed, by the Company's counsel, to be
necessary to the lawful issuance and sale of any shares of its stock hereunder
shall relieve the Company of any liability in respect of the non-issuance or
sale of the stock as to which the requisite authority shall not have been
obtained.

         Article 11. Tax Withholding. The exercise of any option, appreciation
right, or performance share granted under the Program is subject to the
condition that if at any time the Company shall determine, in its discretion,
that the satisfaction of withholding tax or other withholding liabilities under
any state or federal law is necessary or desirable as a condition of, or in any
connection with, such exercise or the delivery or purchase of shares pursuant
thereto, then in such event, the exercise of the option, appreciation right or
performance share shall not be effective unless such withholding tax or other
withholding liabilities shall have been satisfied in a manner acceptable to the
Company.

         Article 12. Employment. Nothing in the Program or in any option, stock
appreciation right, or performance share award, shall confer upon any eligible
employee any right to continued employment by the Company, or by any parent or
subsidiary corporation, or limit in any way the right of the Company or any
parent or subsidiary corporation at any time to terminate or alter the terms of
that employment.

                                     PART I

                          MERCER INSURANCE GROUP, INC.
                           INCENTIVE STOCK OPTION PLAN

         Section 1.        Purpose. The purpose of the Mercer Insurance Group,
Inc. Incentive Stock Option Plan ("Incentive Plan") is to promote the growth and
general prosperity of the Company by permitting the Company to grant options to
purchase shares of its Common Stock. The Incentive Plan is designed to help
attract and retain superior personnel for positions of responsibility with the
Company and any parent or subsidiary, and to provide key employees with an
additional incentive to contribute the success of the Company. The Company
intends that options granted pursuant to the provisions of the Incentive Plan
will qualify and will be identified as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code"). This Incentive Plan is Part I of the Company's Stock Compensation
Program ("Program"). Unless any provision herein indicates to the contrary, this
Incentive Plan shall be subject to the General Provisions of the Program.

         Section 2.        Option Terms and Conditions. The terms and conditions
of options granted under the Incentive Plan may differ from one another as the
Program Administrators shall, in their discretion, determine, as long as all
options granted under the Incentive Plan satisfy the requirements of the
Incentive Plan.

         Section 3.        Duration of Options. Each option and all rights
thereunder granted pursuant to the terms of the Incentive Plan shall expire on
the date determined by the Program Administrators, but in no event shall any
option granted under the Incentive Plan expire later than 10 years from the date
on which the option is granted, except that any employee who owns more than 10%
of the combined voting power of all classes of stock of the Company, or of any
parent or subsidiary, must exercise any options within five years from the date
of grant. In addition, each option shall be subject to early termination as
provided in the Incentive Plan.

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         Section 4.        Purchase Price. The purchase price for shares
acquired pursuant to the exercise, in whole or in part, of any option shall not
be less than the fair market value of the shares at the time of the grant of the
option; except that for any employee who owns more than 10% of the combined
voting power of all classes of stock of the Company, or of any parent or
subsidiary, the purchase price shall not be less than 110% of fair market value.
Fair market value shall be determined by the Program Administrators on the basis
of such factors as they deem appropriate; provided, however, that fair market
value shall be determined without regard to any restriction other than a
restriction which, by its terms, will never lapse, and further provided,
however, that if at the time the determination of fair market value is made,
those shares are subject to trading on a national securities exchange for which
sale prices are regularly reported, the fair market value of those shares shall
not be less than the mean of the high and low asked or closing sales prices
reported for the Common Stock on that exchange on the day or most recent trading
day preceding the date on which the option is granted. For purposes of this
Section 4, the term "national securities exchange" shall include the National
Association of Securities Dealers Automated Quotation System and the
over-the-counter market.

         Section 5.        Maximum Amount of Options in Any Calendar Year. The
aggregate fair market value (determined as of the time the option is granted),
of the Common Stock with respect to which incentive stock options are first
exercisable by any Optionee during any calendar year under the terms of this
Plan and all such plans of the Company and any parent or subsidiary corporation,
shall not exceed $100,000. Any option in excess of the foregoing limitations
shall be granted pursuant to the Company's Compensatory Stock Option Plan (Plan
II), and shall be clearly and specifically designated as not being an incentive
stock option.

         Commencing January 1, 2003, grants to any employee under the Incentive
Plan shall not exceed in the aggregate 100,000 options during any period of 12
consecutive months. Such limitation shall be subject to adjustments in the
manner described in Article 6 of the General Provisions of this Program.

         Section 6.        Exercise of Options. Each option shall be exercisable
in one or more installments during its term, and the right to exercise may be
cumulative as determined by the Program Administrators. No option may be
exercised for a fraction of a share of Common Stock. The purchase price of any
shares purchased shall be paid in full, in cash or by certified or cashier's
check payable to the order of the Company or by shares of Common Stock, if
permitted by the Program Administrators, or by a combination of cash, check, or
shares of Common Stock, at the time of exercise of the option; provided that the
form(s) of payment allowed the employee shall be established when the option is
granted. If any portion of the purchase price is paid in shares of Common Stock,
those shares shall be tendered at their then fair market value as determined by
the Program Administrators in accordance with Section 4 of this Incentive Plan.
Notwithstanding the foregoing, Common Stock acquired pursuant to the exercise of
an incentive stock option may not be tendered as payment unless the holding
period requirements of Code Section 422(a)(1) have been satisfied, and Common
Stock not acquired pursuant to the exercise of an incentive stock option may not
be tendered as payment unless it has been held, beneficially and of record, for
at least one year.

         Section 7.        Acceleration of Right of Exercise of Installments.
Notwithstanding the first sentence of Section 6 of this Incentive Plan, in the
event the Company or its shareholders enter into an agreement to dispose of all
or substantially all of the assets or stock of the Company

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by means of a sale, merger or other reorganization, liquidation, or otherwise,
any option granted pursuant to the terms of the Incentive Plan shall become
immediately exercisable with respect to the full number of shares subject to
that option during the period commencing as of the date of the agreement to
dispose of all or substantially all of the assets or stock of the Company and
ending when the disposition of assets or stock contemplated by that agreement is
consummated or the option is otherwise terminated in accordance with its
provisions or the provisions of this Incentive Plan, whichever occurs first;
provided, however, that no option shall be immediately exercisable under this
Section 7 on account of any agreement to dispose of all or substantially all of
the assets or stock of the Company by means of a sale, merger or other
reorganization, liquidation, or otherwise where the shareholders of the Company
immediately before the consummation of the transaction will own at least 50% of
the total combined voting power of all classes of stock entitled to vote of the
surviving entity, whether the Company or some other entity, immediately after
the consummation of the transaction. In the event the transaction contemplated
by the agreement referred to in this Section 7 is not consummated, but rather is
terminated, cancelled, or expires, the options granted pursuant to the Incentive
Plan shall thereafter be treated as if such agreement had never been entered
into.

         Notwithstanding the first sentence of Section 6 of this Incentive Plan,
in the event of a change in control of the Company or threatened change in
control of the Company as determined by a vote of not less than a majority of
the Board of Directors of the Company, all options granted prior to such change
in control or threatened change of control shall become immediately exercisable.
The term "control" for purposes of this Section shall refer to the acquisition
of 10% or more of the voting securities of the Company by any person or by
persons acting as a group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended; provided, however, that for purposes of the
Incentive Plan, no change in control or threatened change in control shall be
deemed to have occurred if prior to the acquisition of, or offer to acquire, 10%
or more of the voting securities of the Company, the full Board of Directors of
the Company shall have adopted, by not less than two-thirds vote, a resolution
specifically approving such acquisition or offer. The term "person" for purposes
of this Section refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.

         Section 8.        Written Notice Required. Any option granted pursuant
to the terms of the Incentive Plan shall be exercised when written notice of
that exercise has been given to the Company at its principal office by the
person entitled to exercise the option and full payment for the shares with
respect to which the option is exercised has been received by the Company.

         Section 9.        Additional Exercise Provisions. An employee granted
and holding more than one option granted pursuant to the terms of the Incentive
Plan at any relevant time may, in accordance with the provisions of the
Incentive Plan, elect to exercise such options in any order.

         In addition, at the request of the employee and to the extent permitted
by applicable law, the Company may, in its sole discretion, selectively approve
arrangements with a brokerage firm under which such brokerage firm, on behalf of
the employee, shall pay to the Company the exercise price of the options being
exercised, and the Company, pursuant an irrevocable notice from the employee,
shall promptly deliver the shares being purchased to such brokerage firm.

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         Section 10.       Compliance With Securities Laws. Shares of Common
Stock shall not be issued with respect to any option granted under the Incentive
Plan unless the exercise of that option and the issuance and delivery of those
shares pursuant to that exercise shall comply with all relevant provisions of
state and federal law including, without limitation, the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance. The Program Administrators may also require an employee to
whom an option has been granted under the Incentive Plan ("Optionee") to furnish
evidence satisfactory to the Company, including a written and signed
representation letter and consent to be bound by any transfer restriction
imposed by law, legend, condition, or otherwise, that the shares are being
purchased only for investment and without any present intention to sell or
distribute the shares in violation of any state or federal law, rule, or
regulation. Further, each Optionee shall consent to the imposition of a legend
on the shares of Common Stock subject to his or her option restricting their
transferability as required by law or by this Section 10.

         Section 11.       Employment of Optionee. Each Optionee, if requested
by the Program Administrators when the option is granted, must agree in writing
as a condition of receiving his or her option, that he or she will remain in the
employ of the Company, or any parent or subsidiary corporation of the Company
(or a corporation or a parent or subsidiary of such corporation issuing or
assuming a stock option in a transaction to which section 424(a) of the Code
applies), as the case may be, following the date of the granting of that option
for a period specified by the Program Administrators, which period shall in no
event exceed three years. Nothing in the Plan or in any option granted hereunder
shall confer upon any Optionee any right to continued employment by the Company,
or any parent or subsidiary corporation, or limit in any way the right of the
Company or any parent or subsidiary corporation at any time to terminate or
alter the terms of that employment.

         Section 12.       Option Rights Upon Termination of Employment. If an
Optionee ceases to be employed by the Company, or any parent or subsidiary
corporation (or a corporation or a parent or subsidiary of such corporation
issuing or assuming a stock option in a transaction to which section 424(a) of
the Code applies), for any reason other than death or disability, his or her
option shall immediately terminate; provided, however, that the Program
Administrators may, at the time an option is granted, in their discretion, allow
such option to be exercised (to the extent exercisable on the date of
termination of employment) at any time within three months after the date of
termination of employment, unless either the option or the Incentive Plan
otherwise provides for earlier termination.

         Section 13.       Option Rights Upon Disability. If an Optionee becomes
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code while employed by the Company, or any parent or subsidiary corporation (or
a corporation or a parent or subsidiary of such corporation issuing or assuming
a stock option in a transaction to which section 424(a) of the Code applies),
the option may be exercised, to the extent exercisable on the date of
termination of employment, at any time within one year after the date of
termination of employment due to disability, unless either the option or the
Incentive Plan otherwise provides for earlier termination.

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         Section 14.       Option Rights Upon Death of Optionee. Except as
otherwise limited by the Program Administrators at the time of the grant of an
option, if an Optionee dies while employed by the Company, or any parent or
subsidiary corporation (or a corporation or a parent or subsidiary of such
corporation issuing or assuming a stock option in a transaction to which section
424(a) of the Code applies), or within three months after ceasing to be an
employee thereof, his or her option shall expire one year after the date of
death unless by its term it expires sooner. During this one year or shorter
period, the option may be exercised, to the extent that it remains unexercised
on the date of death, by the person or persons to whom the Optionee's rights
under the option shall pass by will or by the laws of descent and distribution,
but only to the extent that the Optionee is entitled to exercise the option at
the date of death.

         Section 15.       Options Not Transferable. Options granted pursuant to
the terms of the Incentive Plan may not be sold, pledged, assigned, or
transferred in any manner otherwise than by will or the laws of descent or
distribution and may be exercised during the lifetime of an Optionee only by
that Optionee.

         Section 16.       Adjustments to Number and Purchase Price of Optioned
Shares. All options granted pursuant to the terms of this Incentive Plan shall
be adjusted in the manner prescribed by Article 6 of the General Provisions of
this Program.

                                     PART II

                          MERCER INSURANCE GROUP, INC.
                         COMPENSATORY STOCK OPTION PLAN

         Section 17.       Purpose. The purpose of the Mercer Insurance Group,
Inc. Compensatory Stock Option Plan ("Compensatory Plan") is to permit the
Company to grant options to purchase shares of its Common Stock to selected
executive officers, full-time, key employees and to directors of the Company.
The Compensatory Plan is designed to help attract and retain superior personnel
for positions of substantial responsibility with the Company and any parent or
subsidiary, and to provide key employees with an additional incentive to
contribute to the success of the Company. Any option granted pursuant to this
Compensatory Plan shall be clearly and specifically designated as not being an
incentive stock option, as defined in Section 422(b) of the Internal Revenue
Code of 1986, as amended ("Code"). This Compensatory Plan is Part II of the
Company's Stock Compensation Program ("Program"). Unless any provision herein
indicates to the contrary, this Compensatory Plan shall be subject to the
General Provisions of the Program.

         Section 18.       Option Terms and Conditions. The terms and conditions
of options granted under this Compensatory Plan may differ from one another as
the Program Administrators shall, in their discretion, determine as long as all
options granted under the Compensatory Plan satisfy the requirements of the
Compensatory Plan.

         The maximum number of shares of common stock for which options may be
granted under this Compensatory Plan to all directors who are not full-time
salaried employees of the Company or any parent or subsidiary shall not exceed
50 percent of the shares of common stock covered by the Program.

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         Section 19.       Duration of Options. Each option and all rights
thereunder granted pursuant to the terms of this Compensatory Plan shall expire
on the date determined by the Program Administrators, but in no event shall any
option granted under the Compensatory Plan expire later than 10 years and one
month from the date on which the option is granted. In addition, each option
shall be subject to early termination as provided in the Compensatory Plan.

         Section 20.       Purchase Price. The purchase price for shares
acquired pursuant to the exercise, in whole or in part, of any option shall be
equal to or less than the fair market value of the shares at the time of the
grant of the option, as determined by the Program Administrators at the time of
grant on the basis of such factors as they deem appropriate; provided, however,
that fair market value shall be determined without regard to any restriction
other than a restriction which, by its terms, shall never lapse. If at the time
of the determination, the shares of the Company are admitted to trading on a
national securities exchange for which sales prices are regularly reported, the
fair market value of those shares shall not be less than the mean of the high
and low asked or closing sales prices reported for the Common Stock on that
exchange on the day or most recent trading day preceding the date on which the
option is granted. For purposes of this Section 4, the term "national securities
exchange" shall include the National Association of Securities Dealers Automated
Quotation System and the over-the-counter market.

         Section 21.       Exercise of Options. Each option shall be exercisable
in one or more installments during its term and the right to exercise may be
cumulative as determined by the Program Administrators (or the Board of
Directors with respect to the Program Administrators). No options may be
exercised for a fraction of a share of Common Stock. The purchase price of any
shares purchased shall be paid in full in cash or by certified or cashier's
check payable to the order of the Company or by shares of Common Stock, if
permitted by the Program Administrators (or the Board of Directors with respect
to the Program Administrators), or by a combination of cash, check or shares of
Common Stock, at the time of exercise of the option. If any portion of the
purchase price is paid in shares of Common Stock, those shares shall be tendered
at their then fair market value as determined by the Program Administrators (or
the Board of Directors with respect to the Program Administrators) in accordance
with Section 4 of this Compensatory Plan. Notwithstanding the foregoing, Common
Stock acquired pursuant to the exercise of an incentive stock option may not be
tendered as payment unless the holding period requirements of Code Section
422(a)(1) have been satisfied, and Common Stock not acquired pursuant to the
exercise of an incentive stock option may not be tendered as payment unless it
has been held, beneficially and of record, for at least one year.

         Section 22.       Acceleration of Right of Exercise of Installments.
Notwithstanding the first sentence of Section 5 of this Compensatory Plan, if
the Company or its shareholders enter into an agreement to dispose of all or
substantially all of the assets or stock of the Company by means of a sale,
merger or other reorganization, liquidation, or otherwise, any option granted
pursuant to the terms of this Compensatory Plan shall become immediately
exercisable with respect to the full number of shares subject to that option
during the period commencing as of the date of the agreement to dispose of all
or substantially all of the assets or stock of the Company and ending when the
disposition of assets or stock contemplated by that agreement is consummated, or
the option is otherwise terminated in accordance with its provisions or the
provisions of this Compensatory Plan, whichever occurs first; provided, however,
that no option shall be immediately exercisable under this Section 6 on account
of any agreement to dispose of all or substantially all of the assets or stock
of the Company by means of a sale, merger or other

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reorganization, liquidation, or otherwise where the shareholders of the Company
immediately before the consummation of the transaction will own at least 50% of
the total combined voting power of all classes of stock entitled to vote of the
surviving entity whether the Company or some other entity, immediately after the
consummation of the transaction. In the event the transaction contemplated by
the agreement referred to in this Section 6 is not consummated, but rather is
terminated, cancelled or expires, the options granted pursuant to this
Compensatory Plan shall thereafter be treated as if such agreement had never
been entered into.

         Notwithstanding the first sentence of Section 5 of this Compensatory
Plan, in the event of a change in control of the Company, or threatened change
in control of the Company as determined by a vote of not less than a majority of
the Board of Directors of the Company, all options granted prior to such change
in control or threatened change in control shall become immediately exercisable.
The term "control" for purposes of this Section shall refer to the acquisition
of 10% or more of the voting securities of the Company by any person or by
persons acting as a group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended; provided, however, that for purposes of this
Compensatory Plan, no change in control or threatened change in control shall be
deemed to have occurred if prior to the acquisition of, or offer to acquire, 10%
or more of the voting securities of the Company, the full Board of Directors of
the Company shall have adopted, by not less than two-thirds vote, a resolution
specifically approving such acquisition or offer. The term "person" for purposes
of this Section refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.

         Section 23.       Written Notice Required. Any option granted pursuant
to the terms of this Compensatory Plan shall be exercised when written notice of
that exercise has been given to the Company at its principal office by the
person entitled to exercise the option and full payment for the shares with
respect to which the option is exercised has been received by the Company.

         Section 24.       Compliance With Securities Laws. Shares shall not be
issued with respect to any option granted under the Compensatory Plan unless the
exercise of that option and the issuance and delivery of the shares pursuant
thereto shall comply with all relevant provisions of state and federal law,
including, without limitation, the Securities Act of 1933, as amended, the rules
and regulations promulgated thereunder and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance. The
Program Administrators may also require an employee to whom an option has been
granted ("Optionee") to furnish evidence satisfactory to the Company, including
a written and signed representation letter and consent to be bound by any
transfer restrictions imposed by law, legend, condition, or otherwise, that the
shares are being purchased only for investment purposes and without any present
intention to sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each Optionee shall consent to the imposition
of a legend on the shares of Common Stock subject to his or her option
restricting their transferability as required by law or by this Section 8.

         Section 25.       Employment of Optionee. Each Optionee, if requested
by the Program Administrators, must agree in writing as a condition of the
granting of his or her option, to remain in the employment of the Company or any
parent or subsidiary (or a corporation or a parent or subsidiary of such
corporation issuing or assuming a stock option in a transaction to

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which Code Section 424(a) applies), following the date of the granting of that
option for a period specified by the Program Administrators, which period shall
in no event exceed three years. Nothing in this Compensatory Plan or in any
option granted hereunder shall confer upon any Optionee any right to continued
employment by the Company or any parent or subsidiary, or limit in any way the
right of the Company or any parent or subsidiary at any time to terminate or
alter the terms of that employment.

         Section 26.       Option Rights Upon Termination of Employment. If any
Optionee under this Compensatory Plan ceases to be employed by the Company or
any parent or subsidiary (or a corporation or a parent or subsidiary of such
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies), for any reason other than disability or death, his or
her option shall immediately terminate; provided, however, that the Program
Administrators (or the Board of Directors with respect to the Program
Administrators) may, in their discretion, allow the option to be exercised, to
the extent exercisable on the date of termination of employment, at any time
within three months after the date of termination of employment, unless either
the option or this Compensatory Plan otherwise provides for earlier termination.

         Section 27.       Option Rights Upon Disability. If an Optionee becomes
permanently and totally disabled within the meaning of Code Section 22(e)(3)
while employed by the Company, or any parent or subsidiary corporation (or a
corporation or a parent or subsidiary of such corporation issuing or assuming a
stock option in a transaction to which Code Section 424(a) applies), the Program
Administrators (or the Board of Directors with respect to the Program
Administrators), in their discretion, may allow the option to be exercised, to
the extent exercisable on the date of termination of employment, at any time
within one year after the date of termination of employment due to disability,
unless either the option or the Incentive Plan otherwise provides for earlier
termination.

         Section 28.       Option Rights Upon Death of Optionee. Except as
otherwise limited by the Program Administrators (or the Board of Directors with
respect to the Program Administrators) at the time of the grant of an option, if
an Optionee dies while employed by the Company, or any parent or subsidiary, (or
a corporation or a parent or subsidiary of such corporation issuing or assuming
a stock option in a transaction to which Code Section 424(a) applies), his or
her option shall expire one year after the date of death unless by its terms it
expires sooner. During this one year or shorter period, the option may be
exercised, to the extent that it remains unexercised on the date of death, by
the person or persons to whom the Optionee's rights under the option shall pass
by will or by the laws of descent and distribution, but only to the extent that
the Optionee is entitled to exercise the option at the date of death.

         Section 29.       Transferability. Except as provided below, options
granted pursuant to the terms of this Compensatory Plan may not be sold,
pledged, assigned, or transferred in any manner otherwise than by will or the
laws of descent or distribution and may be exercised during the lifetime of an
Optionee only by that Optionee. However, if the Program Administrators so
determine at the time the option is granted, the option may be transferable to
members of the Optionee's "immediate family" (as hereinafter defined), to a
partnership whose members are only the Optionee and/or members of the Optionee's
immediate family, or to a trust for the benefit of only the Optionee and/or
members of the Optionee's immediate family. For purposes of this Section 13, an
Optionee's "immediate family" includes only his or her spouse, parents or other

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<PAGE>

ancestors, and children and other direct descendants of the Optionee or of his
or her spouse (including such ancestors and descendants by adoption).

         Section 30.       Adjustments to Number and Purchase Price of Optioned
Shares. All options granted pursuant to the terms of this Compensatory Plan
shall be adjusted in a manner prescribed by Article 6 of the General Provisions
of the Program.

                                    PART III

                          MERCER INSURANCE GROUP, INC.
                         STOCK APPRECIATION RIGHTS PLAN

         Section 31.       Purpose. The purpose of the Mercer Insurance Group,
Inc. Stock Appreciation Rights Plan ("S.A.R. Plan") is to permit the Company to
grant stock appreciation rights for its Common Stock to its full-time, key
employees. The S.A.R. Plan is designed to help attract and retain superior
personnel for positions of substantial responsibility with the Company and any
parent or subsidiary and to provide key employees with an additional incentive
to contribute to the success of the Company. This S.A.R. Plan is Part III of the
Company's Stock Compensation Program ("Program").

         Section 32.       Terms and Conditions. The Program Administrators may,
but shall not be obligated to, authorize, on such terms and conditions as they
deem appropriate in each case, the Company to accept the surrender by the
recipient of a stock option granted under Plan I or Plan II of the right to
exercise that option, or portion thereof, in consideration for the payment by
the Company of an amount equal to the excess of the fair market value of the
shares of Common Stock subject to such option, or portion thereof surrendered,
over the option price of such shares. Such payment, at the discretion of the
Program Administrators, may be made in shares of Common Stock valued at the then
fair market value thereof, determined as provided in Section 4 of Plan I, or in
cash or partly in cash and partly in shares of Common Stock; provided that with
respect to rights granted in tandem with incentive stock options, the Program
Administrators shall establish the form(s) of payment allowed the Optionee at
the date of grant. The Program Administrators shall not be authorized to make
payment to any optionee in shares of the Company's Common Stock unless Section
83 of the Internal Revenue Code of 1986, as amended ("Code") would apply to the
Common Stock transferred to the Optionee. Notwithstanding the foregoing, the
Company may not permit the exercise and cancellation of a stock appreciation
right issued pursuant to this S.A.R. Plan until the Company has been subject to
the reporting requirements of Section 13 of the Securities Exchange Act of 1934,
as amended ("Exchange Act") for a period of at least one year prior to the
exercise and cancellation of any such stock appreciation right.

         Section 33.       Time Limitations. Any election by an Optionee to
exercise the stock appreciation rights provided in this S.A.R. Plan shall be
made during the period beginning on the third business day following the release
for publication of quarterly or annual financial information required to be
prepared and disseminated by the Company pursuant to the requirements of the
Exchange Act and ending on the twelfth business day following such date. The
required release of information shall be deemed to have been satisfied when the
specified financial data appears on or in a wire service, financial news service
or newspaper of general circulation or is otherwise first made publicly
available.

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<PAGE>

         Section 34.       Exercise of Stock Appreciation Rights; Effect on
Stock Options and Vice-Versa. Upon the exercise of a stock appreciation right,
the number of shares available under the stock option to which it relates shall
decrease by a number equal to the number of shares for which the right was
exercised. Upon the exercise of a stock option, any related stock appreciation
right shall terminate as to any number of shares subject to the right that
exceeds the total number of shares for which the stock option remains
unexercised.

         Section 35.       Time of Grant. With respect to options granted under
Plan I, stock appreciation rights must be granted concurrently with the stock
options to which they relate; with respect to options granted under Plan II,
stock appreciation rights may be granted concurrently or at any time thereafter
prior to the exercise or expiration of such options.

         Section 36.       Non-Transferable. The holder of a stock appreciation
right may not transfer or assign the right otherwise than by will or in
accordance with the laws of descent and distribution. Furthermore, in the event
of the termination of his or her service with the Company as a director, officer
and/or employee, the right may be exercised only within the period, if any,
which the option to which it relates may be exercised.

         Section 37.       Tandem Incentive Stock Option - Stock Appreciation
Right. Whenever an incentive stock option, granted pursuant to Plan I and a
stock appreciation right authorized hereunder are granted together and the
exercise of one affects the right to exercise the other, the following
requirements shall apply:

                  (1) The stock appreciation right will expire no later than the
expiration of the underlying incentive stock option;

                  (2) The stock appreciation right may be for no more than the
difference between the exercise price of the underlying option and the market
price of the stock subject to the underlying option at the time the stock
appreciation right is exercised;

                  (3) The stock appreciation right is transferable only when the
underlying incentive stock option is transferable, and under the same
conditions;

                  (4) The stock appreciation right may be exercised only when
the underlying incentive stock option is eligible to be exercised; and

                  (5) The stock appreciation right may be exercised only when
the market price of the stock subject to the option exceeds the exercise price
of the stock subject to the option.

         Section 38.       Tandem Stock Option - Limited Stock Appreciation
Right. The Program Administrators may provide that any tandem stock appreciation
right granted pursuant to Section 8 hereof be a limited stock appreciation
right, in which event:

                  (1) The limited stock appreciation right shall be exercisable
during the period beginning on the first day following the expiration of an
Offer (as defined below) and ending on the thirtieth day following such date
(but in no event less than six months after the date of grant of the right);

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<PAGE>

                  (2) Neither the option tandem to the limited stock
appreciation right nor any other stock appreciation right tandem to such option
may be exercised at any time that the limited stock appreciation right may be
exercised, provided that this requirement shall not apply in the case of an
incentive stock option tandem to a limited stock appreciation right if and to
the extent that the Program Administrators determine that such requirement is
not consistent with applicable statutory provisions regarding incentive stock
options and the regulations issued thereunder;

                  (3) Upon exercise of the limited stock appreciation right, the
fair market value of the shares to which the right relates for purposes of
Section 4 of Plan I shall be determined as the highest price per share paid in
any Offer that is in effect at any time during the period beginning on the
sixtieth day prior to the date on which the limited stock appreciation right is
exercised and ending on such exercise date; provided, however, with respect to a
limited stock appreciation right tandem to an incentive stock option, the
Program Administrators shall determine fair market value of such shares in a
different manner if and to the extent that the Program Administrators deem
necessary or desirable to conform with applicable statutory provisions regarding
incentive stock options and the regulations issued thereunder.

         The term "Offer" shall mean any tender offer or exchange offer for
shares of the Company, provided that the person making the offer acquires shares
of the Company's capital stock pursuant to such offer.

         Section 39.       Exercise Restriction Effects. For the purposes of
Section 9 of Plan I, a tandem incentive stock option - stock appreciation right
will be considered exercised in full when either the underlying incentive stock
option or the stock appreciation right is fully exercised.

         Section 40.       Request for Reports. A copy of the Company's annual
report to shareholders shall be delivered to each Optionee. Upon written
request, the Company shall furnish to each Optionee a copy of its most recent
Form 10-K Annual Report and each Form 10-Q Quarterly Report and Form 8-K Current
Report filed with the Securities and Exchange Commission since the end of the
Company's prior fiscal year.

                                     PART IV

                          MERCER INSURANCE GROUP, INC.
                             PERFORMANCE SHARE PLAN

         Section 41.       Purpose. The purpose of the Mercer Insurance Group,
Inc. Performance Share Plan ("Performance Plan") is to promote the growth and
general prosperity of the Company by permitting the Company to grant performance
shares to help attract and retain superior personnel for positions of
substantial responsibility with the Company and any parent or subsidiary, and to
provide key employees with an additional incentive to contribute to the success
of the Company. This Performance Plan is Part IV of the Company's Stock
Compensation Program ("Program").

         Section 42.       Terms and Conditions. The Program Administrators may
grant performance shares to any employee eligible under Article 4 of the General
Provisions. Each performance share grant confers upon the recipient thereof the
right to receive a specified number of shares of Common Stock of the Company
contingent upon the achievement of

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<PAGE>

specified performance objectives within a specified period. The Program
Administrators shall specify the performance objective and the period of
duration of the performance share grant at the time that such performance share
is granted. Any performance shares granted under this Plan shall constitute an
unfunded promise to make future payments to the affected employee upon the
completion of specified conditions. The grant of an opportunity to receive
performance shares shall not entitle the affected employee to any rights to
specific fund(s) or assets of the Company, or any parent or subsidiary.

         Section 43.       Cash in Lieu of Stock. In lieu of some or all of the
shares earned by achievement of the specified performance objectives within the
specified period, the Program Administrators may distribute cash in an amount
equal to the fair market value of the Common Stock at the time that the employee
achieves the performance objective within the specified period. Such fair market
value shall be determined by Section 4 of Plans I and II, on the business day
next preceding the date of payment.

         Section 44.       Performance Objective Period. The duration of the
period within which to achieve the performance objectives is to be determined by
the Program Administrators. The period may not be less than one year nor more
than five years from the date the performance share is granted.

         Section 45.       Non-Transferable. A participating employee may not
transfer or assign a performance share.

         Section 46.       Performance Share Rights Upon Death or Termination of
Employment. If a participating employee dies or terminates service with the
Company or any parent or subsidiary (or a corporation or a parent or subsidiary
of such corporation issuing or assuming a stock option in a transaction to which
Section 424(a) of the Internal Revenue Code of 1986, as amended ("Code")
applies), prior to the expiration of the performance objective period, any
performance shares granted to him during that period are terminated.

         Section 47.       Tax Consequences. No federal income tax consequences
are incurred by the Company or the participating employee at the time a
performance share is granted. However, if the specified performance objectives
are met, the employee will realize ordinary income at the end of the award
period equal to the amount of cash or the fair market value of the stock
received by him or her. The Company will ordinarily be entitled to a deduction
for federal income tax purposes at the same time and in the same amount. The
Program Administrators shall be authorized to make payment in shares of Common
Stock only if Code Section 83 would apply to the transfer of Common Stock to the
employee.

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