Exhibit 10.1


 


EMPLOYMENT AGREEMENT


 


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


 


Bicus
Services Corporation, a wholly-owned subsidiary of Mercer Mutual Insurance
Company, desires to employ Mr. Merclean, and Mr. Merclean is willing
to serve Bicus Services Corporation on the terms and conditions herein
provided.


 


In
order to effect the foregoing, the parties hereto desire to enter into an
employment agreement on the terms and conditions set forth below.  Accordingly, in consideration of the
premises and the respective covenants and agreements of the parties contained
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:


 


1.             Definitions.  Each capitalized word and term used
herein shall have the meaning ascribed to it in the glossary appended hereto,
unless the context in which such word or term is used otherwise clearly requires.  Such glossary is incorporated herein by
reference and made a part hereof.


 


2.             Employment.  The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company, on the terms
and conditions set forth herein.


 


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


 


4.             Position and Duties.  The Executive shall serve as Senior Vice
President and Chief Financial Officer of the Company, and he shall have such
responsibilities, duties and authority as may, from time to time, be generally
associated with such positions.  In
addition, the Executive shall serve in such capacity, with respect to each
Subsidiary or Affiliate, as the Board of Directors of each such Subsidiary or
Affiliate shall designate from time to time. 
During the term of this Agreement, he shall devote substantially all of
his working time and efforts to the business and affairs of the Company, the
Subsidiaries and the Affiliate; provided, however, that nothing herein shall be
construed as precluding him from devoting a reasonable amount of time to civic,
charitable, trade association, and similar activities, at least to the extent
he is presently devoting time.


 


5.             Compensation and Related Matters.


 


Base
Compensation.  During
the period of the Executive’s employment hereunder, the Company shall pay to
him annual base compensation of $185,000.


 


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


 


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reduction which is
proportionate to a company-wide reduction in executive pay, the annual base
compensation paid to the Executive in any period shall not be less than the
annual base compensation paid to him in any prior period.  The frequency and manner of payment of such
base compensation shall be in accordance with the Company’s executive payroll
practices from time to time in effect. 
Nothing herein shall be construed as precluding the Executive from
entering into any salary reduction or deferral plan or arrangement during the
term of this Agreement; provided, however, that his base compensation shall be
determined without regard to any such salary reduction or deferral for purposes
of calculating the amount of any compensation and benefits to which he or his
surviving spouse may be entitled under Paragraph 6, 7, 10, or 11 following
his termination of employment.  The amounts
set forth in the first sentence of this subparagraph shall be pro rated to the
extent such period is less than a year.


 


(a)           Incentive Compensation.  During the period of the Executive’s
employment hereunder, he shall be entitled to participate in all incentive
plans, stock option plans, stock appreciation rights plans, and similar
arrangements maintained by the Company or its Affiliates for executive officers
on a basis and at award levels consistent and commensurate with his position
and duties hereunder.


 


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


 


(c)           Expenses.  During the period of the Executive’s
employment hereunder, he shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses, including transportation expenses,
incurred by him in performing services hereunder in accordance with the general
policies and procedures established by the Company.


 


6.             Termination By Reason of Disability.


 


(a)           In General.  In the event the Executive becomes
unable to perform his duties on a full-time basis by reason of the occurrence
of his Disability and, within 30 days after a Notice of Termination is given,
he shall not have returned to the full-time performance of such duties, his
employment may be terminated by the Company.


 


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


 


(1)           The Executive shall be
paid an amount per annum equal to the greater of (i) his highest base
compensation received during one of the two calendar years immediately preceding
the calendar year in which the Date of Termination occurs, or (ii) his
base compensation in effect immediately prior to the Date of Termination (or
prior to any reduction which entitled him to terminate his employment for Good
Reason) for


 


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one year beginning
with such Date of Termination.  The
frequency and manner of payment of such amounts shall be in accordance with the
Company’s executive payroll practices from time to time in effect.


 


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


 


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


 


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


 


(5)           The Executive and his
eligible dependents shall be entitled to continue to participate at the same
aggregate benefit levels, for one year and at no out-of-pocket or tax cost to
him, in the Welfare Benefit Plans in which he was a participant immediately
prior to the Date of Termination, to the extent permitted under the terms of
such plans and applicable law.  To the
extent the Company or its Affiliates are unable to provide for continued
participation in a Welfare Benefit Plan, it shall provide an equivalent benefit
directly at no out-of-pocket or tax cost to him. For purposes of the preceding
two sentences, the Company shall be deemed to have provided a benefit at no tax
cost to him if it pays an additional amount to him or on his behalf, with
respect to those benefits which would otherwise be nontaxable to him,
calculated in a manner consistent with the provisions of Paragraph 12.


 


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


 


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be reduced (but not below
zero) by the dollar amount of disability benefits received by him pursuant to
plans or policies funded, directly at its cost, by the Company or its
Affiliates.


 


(d)           Earlier Cessation of Certain Welfare
Benefits. 
Notwithstanding the provisions of Subparagraph (b)(5), neither the
Company nor an Affiliate shall be required to provide, at its cost, the welfare
benefits covered therein after the later of (i) the attainment by the
Executive and his spouse (if any) of age 65, or (ii) the date specified in
the relevant plan document for benefit termination (assuming that he was
employed until age 65 or the normal retirement date, if any, specified in such
document).


 


(e)           Death During Remaining Term of
Agreement.


 


(1)           In the event the
Executive dies during the remaining term of this Agreement following his
termination for Disability and he is survived by a spouse, the compensation and
benefits remaining to be paid and provided under Subparagraph (b) shall be
unaffected by his death and shall be paid and provided to her or on her behalf;
provided, however, that the extent of her rights to the accrued benefits
described in Subparagraph (b)(4) shall be determined by reference to the
relevant plan provisions and any elections made under such plans; and provided
further, that neither the Company nor an Affiliate shall be required to provide
continued benefits with respect to her deceased husband; and provided further,
that in no event shall the Company or an Affiliate be required to provide, at
its cost, the other welfare benefits described in Subparagraph (b)(5) to
such spouse and her eligible dependents after the earlier of (i) her
death, or (ii) the later of (A) her attainment of age 65, or
(B) the date specified in the relevant plan document for benefit
termination (assuming that the Executive was employed until age 65 or the
normal retirement date, if any, specified in such document).


 


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


 


(f)            Compensation and Benefits Upon
Expiration of Remaining Term of Agreement.  Upon the expiration of the remaining term of this Agreement
following the Executive’s termination for Disability, and provided his
Disability then continues, he shall be entitled to receive the compensation and
benefits provided under the terms of the Company or an Affiliates’ long-term
disability plan in effect on the Date of Termination or, if greater, at the
expiration of such remaining term.  Such
compensation and benefits shall continue until the earlier of (i) his
death, or (ii) the later of (A) his attainment of age 65, or
(B) the date specified in the plan document for benefit termination.  To the extent the Company or an Affiliate is
unable to provide such compensation and benefits under its long-term disability
plan, it shall provide equivalent compensation and benefits directly at no
out-of-pocket or tax cost to him.  For
purposes of the preceding sentence, the Company or the Affiliate shall be
deemed to have provided compensation and benefits at no tax cost to him if it
pays an additional amount to him


 


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or on his behalf, with
respect to the compensation and benefits which would otherwise be nontaxable to
him, calculated in a manner consistent with the provisions of
Paragraph 12.


 


7.             Termination By Reason of Death.


 


(a)           Compensation and Benefits to
Surviving Spouse.  In the
event the Executive dies while he is employed under this Agreement and is
survived by a spouse, the Company or an Affiliate shall pay or provide the
compensation and benefits set forth below:


 


(1)           The surviving spouse
shall be paid an amount equal to the greater of (i) the Executive’s
highest base compensation received during one of the two calendar years
immediately preceding the calendar year in which the Date of Termination
occurs, or (ii) his base compensation in effect immediately prior to the
Date of Termination (or prior to any reduction which entitled him to terminate
his employment for Good Reason) for a period of one year, beginning with such
Date of Termination.  The frequency and
manner of payment of such amounts shall be in accordance with the Company’s
executive payroll practices from time to time in effect.


 


(2)           The surviving spouse
shall be paid an amount equal to the highest payment made to Executive under
each incentive bonus plan of the Company with respect to one of the two years
immediately preceding the year in which the Date of Termination occurs.  Such amount shall be paid in cash to her
within 30 days after the Date of Termination.


 


(3)           The surviving spouse
shall be paid an amount equal to the sum of the highest annual contribution
made on the Executive’s behalf (other than his own salary reduction
contributions) to each tax-qualified and non-qualified Defined Contribution
Plan of the Company or an Affiliate with respect to the year in which the Date
of Termination occurs or one of the two years immediately preceding such
year.  Such amount shall be paid in cash
to her within 30 days after the Date of Termination or within 30 days after
such amount can first be determined, whichever is later.


 


(4)           Subject to the
following sentence, the surviving spouse shall be paid benefits determined by
reference to the excess of (i) the aggregate retirement benefits the Executive
would have accrued under the terms of each tax-qualified and non-qualified
Defined Benefit Plan as in effect immediately prior to the Date of Termination,
had he (A) continued to be employed for a period of one year following the
Date of Termination, and (B) received (on a pro rated basis, as
appropriate) the greater of (I) the highest compensation taken into
account under each such plan with respect to one of the two years immediately
preceding the year in which the Date of Termination occurs, or (II) his
annualized base compensation in effect immediately prior to the Date of
Termination (or prior to any reduction which entitled him to terminate his
employment for Good Reason), over (ii) the retirement benefits actually
determined under such plans.  The
frequency, manner, and extent of payment of such benefits shall be consistent
with the terms of the plans to which they relate and any elections made
thereunder.


 


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


 


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Welfare Benefit
Plans in which the Executive was a participant immediately prior to the Date of
Termination, to the extent permitted under the terms of such plans and
applicable law; provided, however, that neither the Company nor its Affiliates
shall be required to provide continued benefits with respect to her deceased
husband; and provided further, that neither the Company nor its Affiliates
shall thereafter be required to provide, at its cost, the other welfare
benefits covered by such plans to such spouse and her eligible dependents after
the earlier of (i) her death, or (ii) the later of (A) her
attainment of age 65, or (B) the date specified in the relevant plan
document for benefit termination (assuming the Executive was employed until age
65 or the normal retirement date, if any, specified in such document).  To the extent the Company or an Affiliate is
unable to provide for continued participation in a Welfare Benefit Plan as
required, it shall provide an equivalent benefit directly at no out-of-pocket
or tax cost to her.  For purposes of the
preceding two sentences, the Company or the Affiliate shall be deemed to have
provided a benefit at no tax cost to her if it pays an additional amount to her
or on her behalf, with respect to those benefits which would otherwise be
nontaxable to her, calculated in a manner consistent with the provisions of
Paragraph 12.


 


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


 


8.             Termination By the Company for Cause.


 


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


 


(b)           Compensation.  Within 30 days after the Executive’s
termination under Subparagraph (a), the Company shall pay him, in one lump
sum, his accrued but unpaid base compensation and vacation compensation earned
through the Date of Termination.


 


9.             Termination By the Executive Without
Good Reason.


 


(a)           In General.  In the event the Executive intends to
terminate his employment without Good Reason, he shall deliver a Notice of
Termination to the Company which specifies a Date of Termination not less than
(i) 90 days following the date of such notice, if a Change in Control
shall not have occurred, or (ii) 30 days following the date of such
notice, if a Change in Control shall have occurred.


 


(b)           Compensation.  Within 30 days after the Executive’s
termination under Subparagraph (a), the Company shall pay him, in one lump
sum, his accrued but unpaid base compensation and vacation compensation earned
through the Date of Termination.


 


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10.           Termination By the Company Without
Disability or Cause.


 


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


 


(b)           Compensation and Benefits During
Remaining Term of Agreement. 
In the event of the termination of the Executive’s employment under
Subparagraph (a), the Company or an Affiliate shall pay or provide the
compensation and benefits described in Paragraph 6(b) for one year
beginning with the Date of Termination.


 


(c)           Adjustment to Certain Subparagraph
(b) Compensation and Benefits. 
In the event the Executive suffers a Disability during the one year
following the Date of Termination, the Company or an Affiliate’s obligation to
pay or fund any disability insurance premiums on his behalf shall be suspended
while his Disability continues, provided the cessation of payment or funding
does not result in the termination of disability benefits.  Any amounts described in Paragraph 6(b)
and otherwise payable under Subparagraph (b) shall be reduced (but not
below zero) by the dollar amount of disability benefits received by him
pursuant to plans or policies funded, directly at its cost, by the Company or
an Affiliate.


 


(d)           Earlier Cessation of Certain Welfare
Benefits.  Notwithstanding the provisions of Subparagraph (b), neither
the Company nor an Affiliate shall be required to provide, at its cost, the
welfare benefits covered by Paragraph 6(b)(5) after the later of
(i) the attainment by the Executive and his spouse (if any) of age 65, or
(ii) the date specified in the relevant plan document for benefit termination
(assuming that he was employed until age 65 or the normal retirement date, if
any, specified in such document).


 


(e)           Death During Remaining Term of
Agreement.


 


(1)           In the event the
Executive dies during the year following his termination without Disability or
Cause by the Company and he is survived by a spouse, the compensation and
benefits required to be paid and provided under Subparagraph (b) shall be
unaffected by his death and shall be paid and provided to her or on her behalf;
provided, however, that the extent of her rights to the accrued benefits
described in Paragraph 6(b)(4) shall be determined by reference to the
relevant plan provisions and any elections made under such plans; and provided
further, that neither the Company nor an Affiliate shall be required to provide
continued benefits with respect to her deceased husband; and provided further,
that in no event shall the Company nor an Affiliate be required to provide, at
its cost, the other welfare benefits described in Paragraph 6(b)(5) to
such spouse and her eligible dependents after the earlier of (i) her
death, or (ii) the later of (A) her attainment of age 65, or
(B) the date specified in the relevant plan document for benefit
termination (assuming that the Executive was employed until age 65 or the normal
retirement date, if any, specified in such document).


 


(2)           In the event the
Executive dies during the year following his termination without Disability or
Cause and he is not survived by a spouse, (i) the Company shall thereafter
make the remaining payments described in Paragraphs 6(b)(1) through
6(b)(3) directly to his estate, (ii) the extent of the rights of any
person to the


 


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


 


11.           Termination By the Executive for Good
Reason.


 


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


 


(b)           Compensation and Benefits During
Remaining Term of Agreement. 
In the event of the termination of the Executive’s employment under
Subparagraph (a), the Company shall pay or provide the compensation and
benefits described in Paragraph 6(b) for one year beginning with the Date
of Termination.


 


(c)           Adjustment to Certain Subparagraph
(b) Compensation and Benefits. 
In the event the Executive suffers a Disability during the year
following the Date of Termination, the Company or any Affiliate’s obligation to
pay or fund any disability insurance premiums on his behalf shall be suspended
while his Disability continues, provided the cessation of payment or funding
does not result in the termination of disability benefits.  Any amounts described in Paragraph 6(b)
and otherwise payable under Subparagraph (b) shall be reduced (but not
below zero) by the dollar amount of disability benefits received by him
pursuant to plans or policies funded, directly at its cost, to the Company or
any Affiliate.


 


(d)           Earlier Cessation of Certain Welfare
Benefits.  Notwithstanding
the provisions of Subparagraph (b), neither the Company nor an Affiliate
shall be required to provide, at its cost, the welfare benefits covered by
Paragraph 6(b)(5) after the later of (i) the attainment by the
Executive and his spouse (if any) of age 65, or (ii) the date specified in
the relevant plan document for benefit termination (assuming that he was
employed until age 65 or the normal retirement date, if any, specified in such
document).


 


(e)           Death During Remaining Term of
Agreement.


 


(1)           In the event the
Executive dies during the year following his termination for Good Reason and he
is survived by a spouse, the compensation and benefits required to be paid and
provided under Subparagraph (b) shall be unaffected by his death and shall
be paid and provided to her or on her behalf; provided, however, that the
extent of her rights to the accrued benefits described in
Paragraph 6(b)(4) shall be determined by reference to the relevant plan
provisions and any elections made under such plans; and provided further, that
neither the Company nor any Affiliate shall be required to provide continued
benefits with respect to her deceased husband; and provided further, that in no
event shall the Company or any Affiliate be required to provide, at its cost,
the other welfare benefits described in Paragraph 6(b)(5) to such spouse
and her eligible dependents after the earlier of (i) her death, or
(ii) the later of (A) her attainment of age 65, or (B) the date
specified in the relevant plan document for benefit termination (assuming that
the Executive was employed until age 65 or the normal retirement date, if any,
specified in such document).


 


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(2)           In the event the Executive
dies during the year following his termination for Good Reason and he is not
survived by a spouse, (i) either the Company or any Affiliate shall
thereafter make the remaining payments described in Paragraphs 6(b)(1)
through 6(b)(3) directly to his estate, (ii) the extent of the rights of
any person to the accrued benefits described in Paragraph 6(b)(4) shall be
determined by reference to the relevant plan provisions and any elections made
under such plans, and (iii) the Company or any Affiliate’s obligation to
provide the continued benefits described in Paragraph 6(b)(5) shall
terminate.


 


12.           Provisions Relating to Excise Taxes.


 


(a)           In General.  In the event the Executive becomes
liable, for any taxable year, for the payment of an Excise Tax (because of a
change in control) with respect to the compensation and benefits payable by the
Company or an Affiliate under this Agreement or otherwise, the Company shall
make one or more Gross-Up Payments to the Executive or on his behalf.  The amount of any Gross-Up Payment shall be
calculated by a certified public accountant or other tax professional
designated jointly by the Executive and the Company.  The provisions of this paragraph shall apply with respect to the
Executive’s surviving spouse or estate, where relevant.


 


(b)           Methodology for Calculation of
Gross-Up Payment.  For
purposes of determining the amount of any Gross-Up Payment, the Executive shall
be deemed to pay income taxes at the highest federal, state, and local marginal
rates of tax for the calendar year in which the Gross-Up Payment is to be made,
net of the maximum reduction in federal income tax which could be obtained from
the deduction of state and local income taxes. 
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account at the time the Gross-Up Payment was made,
the Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to the reduction (plus a portion of the Gross-Up Payment
attributable to the Excise Tax and the federal, state, and local income taxes
imposed on the portion of the Gross-Up Payment being repaid by the Executive to
the extent such repayment results in a reduction in Excise Tax or federal,
state, or local income tax), plus interest on the amount of such
repayment.  Such interest shall be
calculated by using the rate in effect under Section 1274(d)(1) of the
IRC, on the date the Gross-Up Payment was made, for debt instruments with a
term equal to the period of time which has elapsed from the date the Gross-Up
Payment was made to the date of repayment. 
In the event that the Excise Tax is subsequently determined to exceed
the amount taken into account at the time the Gross-Up Payment was made
(including by reason of any payment the existence or amount of which could not
be determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment with respect to the excess at the time the amount
thereof is finally determined, plus interest calculated in a manner similar to
that described in the preceding sentence.


 


(c)           Time of Payment.  Any Gross-Up Payment provided for herein
shall be paid not later than the 30th day following the payment of any
compensation or the provision of any benefit which causes such payment to be
made; provided, however, that if the amount of such payment cannot be finally
determined on or before such day, the Company shall pay on such day an estimate
of the minimum amount of such payment and shall pay the remainder of such
payment (together with interest calculated in a manner similar to that
described in


 


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


 


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


 


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


 


14.           Reduction for Compensation and
Benefits Received Under the Company Severance Policy, Etc.  Notwithstanding anything herein to the contrary,
in the event the Executive, his surviving spouse, or any other person becomes
entitled to continued compensation and benefits hereunder by reason of the
Executive’s termination of employment and, in addition, compensation or similar
benefits are payable under a severance policy, program or arrangement
maintained by the Company (other than retirement plans), then the compensation
or benefits otherwise payable hereunder shall be reduced by the compensation or
benefits provided under such severance policy, program or arrangement.


 


15.           Mitigation.  The Executive shall not be required to
mitigate the amount of any compensation or benefits which may become payable
hereunder by reason of his termination by seeking other employment or
otherwise, nor, except as otherwise provided in the following sentence or
elsewhere herein, shall the amount of any such compensation or benefits be
reduced by any compensation or benefits received by the Executive as the result
of his employment by another employer. 
Notwithstanding anything in this Agreement to the contrary, the Company
or any Affiliate’s obligation to provide any medical and dental benefits
hereunder may be suspended, with the written concurrence of the Executive or,
if applicable, his surviving spouse during any period of time that such
benefits are being provided by reason of his or her employment.


 


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


 


(a)           Grantor Trust.  In the event the Executive’s employment
is terminated without Cause or he terminates his employment for Good Reason and
a Change in Control has occurred as of the Date of Termination or occurs
thereafter, the Executive shall have the right to require the Company to
establish a grantor trust (taxable to the Company ) and fund such trust, on an
actuarially sound basis, to provide the compensation and benefits to which he
is entitled hereunder, other than those which may be paid pursuant to the
provisions of Subparagraph (c).  The
specific terms of such trust shall be as agreed to by the parties in good
faith; provided, however, that the trustee shall be a financial institution
independent of the Company; and provided further, that in no event shall the
Company be entitled to withdraw funds from the trust


 


10

















 


for its benefit, or
otherwise voluntarily assign or alienate such funds, until such time as all
compensation and benefits required hereunder are paid and provided.  The determination of the extent of required
funding, including any supplemental funding in the event of adverse investment
performance of trust assets, shall be made by an actuary or a certified public
accountant retained by each party.  To
the extent such professionals cannot agree on the proper level of funding, they
shall select a third such professional whose determination shall be binding
upon the parties. Notwithstanding the foregoing, the Company and its Affiliates
shall remain liable for all compensation and benefits required to be paid or
provided hereunder.


 


(b)           Alternate Security.  In lieu of the right given to the
Executive under Subparagraph (a), he shall have the right under such
circumstances to require that the Company or its Affiliates provide (i) an
irrevocable standby letter of credit issued by a financial institution other
than the Company or any Subsidiary of the Company with a senior debt credit
rating of “A” or better by Moody’s Investors Service or Standard &
Poor’s Corporation, or (ii) other security reasonably acceptable to him,
to secure the payment of such compensation and benefits.


 


(c)           Accelerated Payment of Present Value
of Certain Compensation. 
In the event the Executive’s employment is terminated without Cause or
he terminates his employment for Good Reason and a Change in Control has
occurred as of the Date of Termination or occurs thereafter, the Executive
shall have the continuing right to demand that the present value of the
remaining payments described in Paragraphs 6(b)(1) through (3), and
payable by reason of the provisions of Paragraph 10 or 11 (as the case may
be), be paid to him in one lump sum within 30 days after the date written
demand is given.  For purposes of
calculating the present value of such payments, a discount factor shall be
applied to each such payment which is equal to the relevant applicable federal
rate in effect on the date written demand is given by him, determined by
reference to the period of time between the date of such notice and the
scheduled time such payment would otherwise be made.  In the event any payment described in Paragraphs 6(b)(1)
through (3) is not yet determinable on the date written demand is made, the
other payments shall nonetheless be made as provided above; and the
undetermined payment shall be made within 30 days after it becomes determinable,
calculated as provided in the preceding sentence but by treating the date on
which the payment becomes determinable as the date of written notice.  Nothing in this subparagraph shall be
construed as affecting the Executive’s right to one or more Gross-Up Payments
in accordance with the provisions of Paragraph 12; and a Gross-Up Payment
(if applicable) will be calculated and made with any payment made under this
subparagraph, as well as any other Gross-Up Payments that may be required hereunder
at a subsequent date.


 


17.           Withholding Taxes.  All compensation and benefits provided
for herein shall, to the extent required by law, be subject to federal, state,
and local tax withholding.


 


18.           Confidential Information.  The Executive agrees that subsequent to
his employment with the Company, he will not, at any time, communicate or
disclose to any unauthorized person, without the written consent of the
Company, any proprietary or other confidential information concerning the
Company or any Subsidiary or any Affiliate of the Company; provided, however,
that the obligations under this paragraph shall not apply to the extent that
such matters (i) are disclosed in circumstances where the Executive is
legally obligated to do so, or (ii) become generally known to and
available for use by the public otherwise than by his wrongful act or omission;
and provided further, that he may disclose any


 


11

















 


knowledge of insurance,
financial, legal and economic principles, concepts and ideas which are not
solely and exclusively derived from the business plans and activities of the
Company.


 


19.           Covenants Not to Compete or to
Solicit.


 


(a)           Noncompetition.  If the Executive’s employment terminates
under Paragraph 8 or 9 prior to a Change in Control, he agrees that for a
period of 12 months after the Date of Termination he will not, without the
written consent in writing of the Board of Directors of the Company, become an
officer, employee, agent, partner, director, or a four and nine-tenths percent
or greater shareholder or equity owner of any licensed direct property and
casualty insurance company with its corporate headquarters located within
Pennsylvania or New Jersey.  If at the
time of the enforcement of this paragraph a court holds that the duration,
scope, or area restrictions stated herein are unreasonable under the
circumstances then existing and, thus, unenforceable, the Company and the
Executive agree that the maximum duration, scope, or area reasonable under such
circumstances shall be substituted for the stated duration, scope, or area.


 


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


 


20.           Arbitration.  To the extent permitted by applicable
law, any controversy or dispute arising out of or relating to this Agreement,
or any alleged breach hereof, shall be settled by arbitration in Pennington,
New Jersey, in accordance with the commercial rules of the American Arbitration
Association then in existence (to the extent such rules are not inconsistent
with the provisions of this Agreement), it being understood and agreed that the
arbitration panel shall consist of three individuals acceptable to the parties
hereto.  In the event that the parties
cannot agree on three arbitrators within 20 days following receipt by one party
of a demand for arbitration from another party, then the Executive and the
Company shall each designate one arbitrator and the two arbitrators selected
shall select the third arbitrator.  The
arbitration panel so selected shall convene a hearing no later than 90 days
following the selection of the panel. 
The arbitration award shall be final and binding upon the parties, and
judgment may be entered thereon in the Commonwealth of Pennsylvania Court of
Common Pleas or in any other court of competent jurisdiction.


 


21.           Additional Equitable Remedy.  The Executive acknowledges and agrees
that the Company’s remedy at law for a breach or a threatened breach of the
provisions of Paragraphs 18 and 19 would be inadequate; and, in
recognition of this fact and notwithstanding the provisions of
Paragraph 20, in the event of such a breach or threatened breach by him,
it is agreed that the Company shall be entitled to request equitable relief in
the form of specific performance, temporary restraining order, temporary or
permanent injunction, or any other equitable remedy which may then be
available.  Nothing in this paragraph
shall be construed as prohibiting the Company from pursuing any other remedy
available under this Agreement for such a breach or threatened breach.


 


12

















 


22.           Related Agreements.  Except as may otherwise be provided herein,
to the extent that any provision of any other agreement between the Company and
the Executive shall limit, qualify, duplicate, or be inconsistent with any
provision of this Agreement, the provision in this Agreement shall control and
such provision of such other agreement shall be deemed to have been superseded,
and to be of no force or effect, as if such other agreement had been formally
amended to the extent necessary to accomplish such purpose.


 


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


 


24.           Exclusive Rights and Remedy.  Except for any explicit rights and remedies
the Executive may have under any other contract, plan or arrangement with the
Company, the compensation and benefits payable hereunder and the remedy for
enforcement thereof shall constitute his exclusive rights and remedy in the
event of his termination of employment.


 


25.           Director and Officer Liability
Insurance; Indemnification. 
The Company and Mercer shall provide the Executive (including his heirs,
executors, and administrators) with coverage under a standard directors’ and
officers’ liability insurance policy, at the Company and Mercer’s expense, in
amounts consistent with amounts provided by peer corporations to their
directors and officers, and shall indemnify him as both a director and as an
officer (and his heirs, executors, and administrators) to the fullest extent
permitted under Pennsylvania law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action,
suit, or proceeding in which he may be involved by reason of his having been an
officer or director of the Company or any Subsidiary or Affiliate (whether or
not he continues to be such an officer or director at the time of incurring
such expenses or liabilities).  Such
expenses and liabilities shall include, but not be limited to, judgments, court
costs, and attorneys’ fees, and the costs of reasonable settlements.


 


26.           Notices.  Any notice required or permitted under
this Agreement shall be sufficient if it is in writing and shall be deemed
given (i) at the time of personal delivery to the addressee, or
(ii) at the time sent certified mail, with return receipt requested,
addressed as follows:


 


	
   

  	
  If to the
  Executive—

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Mr. David B.
  Merclean

  	
   

  
	
   

  	
   

  	
  8 Demarest Drive

  	
   

  
	
   

  	
   

  	
  Mendham, New
  Jersey 07945

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to Mercer, or
  the Company—

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  10 North Highway
  31

  	
   

  
	
   

  	
   

  	
  P.O. Box 278

  	
   

  
	
   

  	
   

  	
  Pennington,
  NJ  08534

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:  President and Chief Executive Officer

  	
   

  



 


13

















 


The name or address of
any addressee may be changed at any time and from time to time by notice
similarly given.


 


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


 


28.           Joint and Several Obligations of
Mercer and the Company.  Mercer
and the Company shall be jointly and severally liable for all compensation and
benefits that may become payable hereunder to or on behalf of the Executive or,
if applicable, his surviving spouse, estate or beneficiaries.


 


29.           Survival.  Notwithstanding the nominal termination
of this Agreement and the Executive’s employment hereunder, the provisions
hereof which specify continuing obligations, compensation and benefits, and
rights (including the otherwise applicable term hereof) shall remain in effect
until such time as all such obligations are discharged, all such compensation
and benefits are received, and no party or beneficiary has any remaining actual
or contingent rights hereunder.


 


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


 


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


 


32.           Entire Agreement.  This Agreement embodies the entire
agreement among the parties with respect to the subject matter hereof, and it supersedes
all prior discussions and oral understandings of the parties with respect
thereto.


 


33.           No Assignment.  This Agreement, and the benefits and
obligations hereunder, shall not be assignable by any party hereto except by
operation of law.


 


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


 


14

















 


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


 


35.           Captions.  The captions of the several paragraphs
and subparagraphs of this Agreement have been inserted for convenience of
reference only.  They constitute no part
of this Agreement and are not to be considered in the construction hereof.


 


36.           Counterparts.  This Agreement may be executed in any
number of counterparts, each of which shall be deemed one and the same
instrument which may be sufficiently evidenced by any one counterpart.


 


37.           Number.  Wherever any words are used herein in
the singular form, they shall be construed as though they were used in the plural
form, as the context requires, and vice  versa.


 


38.           Applicable Law.  Except to the extent preempted by
federal law, the provisions of this Agreement shall be construed, administered,
and enforced in accordance with the domestic internal law of the Commonwealth
of Pennsylvania.


 


39.           Prior Agreements.  The execution of this Agreement terminates
any and all previous employment agreements among the Company, its Affiliates
and Mr. Merclean.


 


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


 


 


	
   

  	
   

  
	
   

  	
  David B.
  Merclean

  
	
   

  	
   

  
	
   

  	
  BICUS SERVICE
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MERCER MUTUAL
  INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  
					



 


15

















 


GLOSSARY


 


“Affiliate” means
with respect to any Person, a Person or entity that, directly or indirectly,
controls, or is controlled by, or is under common control with such Person or
entity, including without limitation, Mercer and Mercer Insurance Group, Inc.


 


“Board of Directors” means
the board of directors of the relevant corporation.


 


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


 


For purposes of this
definition, no act or failure to act on the part of the Executive shall be
considered “willful” unless done or omitted not in good faith and without
reasonable belief that the action or omission was in the best interest of the
Company or any of its Subsidiaries or Affiliate.


 


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


 


(a)           any Person (except
(i) 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 the
beneficial owner, directly or indirectly, of the Company or any Affiliate’s
securities representing 19.9% or more of the combined voting power of the
Company or any Affiliate’s then outstanding securities, or 50.1% or more of the
combined voting power of a Material Subsidiary’s then outstanding securities,
other than pursuant to a transaction described in Clause (c);


 


(b)           there occurs a sale,
exchange, transfer or other disposition of substantially all of the assets of
the Company, Mercer or a Material Subsidiary to another entity, except to an
entity controlled directly or indirectly by the Company or an Affiliate;


 


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


 


(i)            the shareholders of
the Company or Mercer immediately before such merger, consolidation, share
exchange, division or reorganization own, directly or indirectly, immediately
thereafter at least two-thirds of the combined voting power of the outstanding
voting securities of the Surviving Company in substantially the same proportion
as their ownership of the voting securities immediately before such merger,
consolidation, share exchange, division or reorganization; and


 


1

















 


(ii)           the individuals who,
immediately before such merger, consolidation, share exchange, division or
reorganization, are members of the Incumbent Board continue to constitute at
least two-thirds of the board of directors of the Surviving Company; provided,
however, that if the election, or nomination for election by the Company or
Mercer’s shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such director shall, for the purposes
hereof, be considered a member of the Incumbent Board; and provided further,
however, that no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either an actual or
threatened Election Contest or Proxy Contest, including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest;
and


 


(iii)          no Person (except
(A) 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 Surviving
Company) has beneficial ownership of 19.9% or more of the combined voting power
of the Surviving Company’s outstanding voting securities immediately following
such merger, consolidation, share exchange, division or reorganization;


 


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


 


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


 


Notwithstanding the
foregoing, a Change in Control shall not be deemed to have occurred if a Person
becomes the beneficial owner, directly or indirectly, of securities
representing 19.9% or more of the combined voting power of the Company or
Mercer’s then outstanding securities solely as a result of an acquisition by
the Company or Mercer of its voting securities which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person; provided, however, that if a Person becomes a beneficial
owner of 19.9% or more of the combined voting power of the Company or Mercer’s
then outstanding securities by reason of share repurchases by the Company or
Mercer and thereafter becomes the beneficial owner, directly or indirectly, of
any additional voting securities of the Company or Mercer, then a Change in
Control shall be deemed to have occurred with respect to such Person under
Clause (a).


 


2

















 


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


 


“Company” means
Bicus Services Corporation, a Pennsylvania corporation, and any successor
thereto.


 


“Date of Termination”
means:


 


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


 


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


 


(c)           if the Executive’s
employment is terminated by the Company for Cause, the date specified in the
Notice of Termination;


 


(d)           if the Executive’s
employment is terminated by him without Good Reason, the date specified in the
Notice of Termination;


 


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


 


(f)            if the Executive’s
employment is terminated by him for Good Reason, the date specified in the
Notice of Termination;


 


provided, however that
the Date of Termination shall mean the actual date of termination in the event the
parties mutually agree to a date other than that described above.


 


“Defined Benefit Plan”
has the meaning ascribed to such term in Section 3(35) of ERISA.


 


“Defined Contribution Plan” has
the meaning ascribed to such term in Section 3(34) of ERISA.


 


“Disability” has
the meaning ascribed to the term “permanent and total disability” in
Section 22(e)(3) of the IRC.


 


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


 


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


 


3

















 


“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended and as the same may
be amended from time to time.


 


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


 


“Executive” means
David B. Merclean, an individual residing in Mendham, New Jersey.


 


“Good Reason”
means:


 


(a)           prior
to a Change in Control—


 


(i)            a
change in the Executive’s status or position, or any material diminution in his
duties or responsibilities;


 


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


 


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


 


(iv)          delivery
to the Executive of a Notice of Nonextension; or


 


(v)           any
purported termination of the Executive’s employment which is not in accordance
with the terms of this Agreement; and


 


(b)           after
a Change in Control—


 


(i)            a
change in the Executive’s status or position, or any material diminution in his
duties or responsibilities;


 


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


 


(iii)          any reduction in the Executive’s base
compensation;


 


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


 


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


 


4

















 


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


 


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


 


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


 


(ix)           failure
to secure the affirmation by a Successor, within three business days prior to a
Change in Control, of this Agreement and its or the Company’s continuing
obligations hereunder (or where there is not at least three business days
advance notice that a Person may become a Successor, within one business day
after having notice that such Person may become or has become a Successor); or


 


(x)            any
purported termination of the Executive’s employment which is not in accordance
with the terms of this Agreement.


 


Notwithstanding anything
herein to the contrary, at the election of the Executive, beginning with the
181st day following a Change in Control and continuing through the first
anniversary of such Change in Control, he may terminate his employment for any
reason or no reason and such termination will be treated as having occurred for
Good Reason.


 


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


 


“Incumbent Board” means
the Board of Directors of the Company or an Affiliate as constituted at any
relevant time.


 


“IRC” means the
Internal Revenue Code of 1986, as amended and as the same may be amended from time
to time.


 


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


 


“1934 Act” means
the Securities Exchange Act of 1934, as amended and as the same may be amended
from time to time.


 


“Mercer” means
Mercer Mutual Insurance Company.


 


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


 


5

















 


“Notice of Termination” means
a written notice that (i) indicates the specific termination provision in
this Agreement relied upon, (ii) sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive’s
employment under the provision so indicated, and (iii) gives the required
advance notice of termination.


 


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


 


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


 


“Subsidiary” means
any business entity of which a majority of its voting power or its equity
securities or equity interests is owned, directly or indirectly by Mercer.


 


“Successor” means
any Person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company’s business directly, by
merger or consolidation, or indirectly, by purchase of the Company’s voting
securities or all or substantially all of its assets.


 


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


 


“Total Payments” means
the compensation and benefits that become payable under the Agreement or
otherwise (and which may be subject to an Excise Tax) by reason of the
Executive’s termination of employment, determined without regard to any
Gross-Up Payments that may also be made.


 


“Welfare Benefit Plan” has
the meaning ascribed to the term “employee welfare benefit plan” in
Section 3(1) of ERISA.  For
purposes of determining the Executive’s or his dependents’ right to continued
welfare benefits hereunder following his termination of employment, the meaning
of such term shall include any retiree health plan maintained by the Company at
any time after the relevant Date of Termination, notwithstanding the fact that
the Executive is not a participant therein prior to such date.


 


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