Document:

<PAGE>
                                                                EXHIBIT 10.10

            SHAREHOLDERS AGREEMENT OF FRANKLIN HOLDING COMPANY, INC.

                  This Shareholders Agreement (this "Agreement"), dated as of
the 1st day of June, 2001, is entered into by and among MERCER MUTUAL INSURANCE
COMPANY, a Pennsylvania corporation ("Mercer"), H. THOMAS DAVIS ("Davis"), and
FRANKLIN HOLDING COMPANY, INC., a Delaware corporation (the "Company").

                                   Background

                  Mercer has entered into a stock purchase agreement (the "Stock
Purchase Agreement") with Davis and the Company, dated April 6, 2001 for the
purchase of 102,900 shares of Class A voting common stock, $0.10 par value per
share, of the Company ("Class A Stock") and options to acquire 295,000 shares of
Class B non-voting stock, $0.10 par value per share, of the Company ("Class B
Stock").

                  A condition to the obligations of the parties under the Stock
Purchase Agreement, pursuant to Section 7.1 (d) thereof, is the mutual execution
of this Agreement by Mercer, the Company and Davis, the controlling stockholder
of the Company.

                  Desiring Mercer's purchase of the Class A Stock and the
options to acquire Class B Stock pursuant to the terms of the Stock Purchase
Agreement, Davis is willing to enter into this Agreement.

                  NOW THEREFORE, in consideration of the foregoing recitals and
the mutual covenants hereinafter contained, and intending to be legally bound
thereby, the parties hereto agree as follows:

                               Certain Definitions

                  "Affiliate" with respect to any Person (other than Davis)
means a Person that directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with the person specified,
as well as, with respect to Davis only, any transferee who received Davis Stock
in an Exempt Transaction.

                  "Class A Stock" has the meaning set forth in the background
hereof.

                  "Class B Stock" has the meaning set forth in the background
hereof.

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                  "Company Quarterly Net Income" means the consolidated net
income of the Company for such calendar quarter determined in accordance with
GAAP.

                  "Company Quarterly ROI Factor" means, for any particular
calendar quarter, a fraction (expressed as a decimal) the numerator of which is
the Company Quarterly Net Income for such quarter and the denominator of which
is the sum of (i) $5,050,920, and (ii) the qualified amount of cash or the fair
value of any property hereafter invested in shares of the capital stock of the
Company or contributed to the capital accounts of the Company. For purposes of
this definition, the qualified amount of any investment or contribution shall be
any amount invested or contributed to the Company by Mercer or an Affiliate of
Mercer with the knowledge and consent of Davis, including his consent to the
determination of the fair market value of any property contributed or invested.

                  "Company Aggregate ROI Factor" means, as of the date of
determination, the sum of each Company Quarterly ROI Factor for the period
beginning with the calendar quarter that starts on July 1, 2001, and ending with
the last full calendar quarter immediately preceding the date of determination.

                  "Davis Options" means all options for Class B Stock held by
Davis.

                  "Davis Shares" means all shares of Class A Stock and Class B
Stock and all Davis Options at any time issued to Davis.

                  "Disability" means a mental or physical disability, incapacity
or incompetence of an individual that either (a) renders such individual
permanently disabled so that such individual is prevented from properly
performing the duties previously performed by such individual as certified by a
physician selected by the Company within thirty (30) days of such disability,
incapacity or incompetence, such certification to be determined within ten (10)
days of selection; or (b) has prevented such individual from properly performing
a major portion of the duties performed by such individual prior to such
disability, incapacity or incompetence for a period of six (6) consecutive
months or for shorter periods aggregating nine (9) months or more in any 12
month period; or (c) causes the appointment of a guardian for such individual
which would restrict such individual's ability to act on his own.

                  "Exempt Transaction" means: (i) a transfer by Davis of any
Davis Shares to a family member or to a trust for the benefit of Davis and/or a
family member, or transfers among

                                       2

<PAGE>

such family members or trusts, (ii) a transfer of Davis Shares under Davis' or a
family member's last will and testament or, in the absence of a last will and
testament, as a consequence of the laws of descent, (iii) a transfer of Davis
Shares to an entity owned solely by Davis and/or any of the transferees
described in clause (i) or (ii) above, but only for so long as such entity is so
owned, (iv) a transfer of Davis Shares resulting from a divorce decree, divorce
settlement, or the laws of equitable distribution in divorce, or (v) a transfer
effected by Davis' grant of an encumbrance to any lender providing purchase
money financing to Davis for the purchase of Davis Shares or to the successors
or assigns of such lender.

                  "GAAP" means generally accepted accounting principles, as set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entities as may be approved by a significant segment of
the accounting profession of the United States of America.

                  "Mercer Quarterly Net Income" means the consolidated net
income of Mercer for such calendar quarter before policyholder dividends,
determined in accordance with GAAP.

                  "Mercer Quarterly ROE Factor means, for any particular
calendar quarter, a fraction (expressed as a decimal) the numerator of which is
the Mercer Quarterly Net Income for such quarter and the denominator of which is
the surplus of Mercer at the commencement of such calendar quarter determined in
accordance with GAAP.

                  "Mercer Aggregate ROE Factor" means, as of the date of
determination, the sum of each Mercer Quarterly ROE Factor for the period
beginning with the calendar quarter that starts on July 1, 2001, and ending with
the last full calendar quarter immediately preceding the date of determination.

                  "Person" means any natural person or individual, trustee,
corporation, general or limited partnership, limited liability company or
partnership, joint venture, joint stock company, bank, firm, governmental
entity, trust, association, organization or unincorporated entity of any kind.

                  "Stock Purchase Agreement" has the meaning set forth in the
background hereof.

                  "Transfer" means, collectively, any sale, assignment,
encumbrance, hypothecation, pledge, conveyance in trust, gift, transfer by
bequest, devise or descent, or other

                                       3

<PAGE>

transfer or disposition of any kind, including, but not limited to, transfers to
receivers, levying creditors, trustees or receivers in bankruptcy proceedings
for general assignees for the benefit of creditors, whether voluntary or by
operation of law, indirectly or indirectly.

                               Terms of Agreement

                  1.       Restricted Period. During the period beginning on the
date hereof and ending on the second anniversary hereof (the "Restricted
Period"), neither Davis, nor any of his Affiliates, shall Transfer any Davis
Shares to any Person other than Mercer, other than pursuant to an Exempt
Transaction or except in accordance with the terms of this Agreement. Any
purported Transfer of Davis Shares in violation of the terms of this Agreement
shall be void. In the event of a Transfer pursuant to an Exempt Transaction,
Davis shall provide written notice thereof to Mercer and the Company not later
than the effective date of such Exempt Transaction.

                  2.       Right of First Refusal.

                           (a)      Offer to Purchase. If, at any time after the
Restricted Period, Davis desires to Transfer any Davis Shares to any Person (the
"Proposed Transferee") other than pursuant to an Exempt Transaction, and has
received a bona fide written offer (the "Bona Fide Offer") from such Proposed
Transferee to purchase such Davis Shares, Davis shall submit a written offer
(the "Offer") to sell such Davis Shares (the "Offered Shares") to Mercer on
terms and conditions, including price, not less favorable to Mercer than those
on which Davis proposes to Transfer such Offered Shares to the Proposed
Transferee.

                           (i) The Offer shall disclose the identity of the
Proposed Transferee, the number of Offered Shares proposed to be Transferred,
and the terms and conditions, including price, of the proposed Transfer, and
shall be accompanied by a copy of the Bona Fide Offer. The Offer shall further
state that Mercer may acquire, in accordance with the provisions of this
Agreement, all, but not less than all, of the Offered Shares for the price and
upon the other terms and conditions, including deferred payment (if applicable),
of the proposed Transfer to the Proposed Transferee set forth therein.

                           (ii) If the purchase price to be paid by the Proposed
Transferee is to be payable in property other than in cash, Mercer shall have
the right to pay the purchase price in the form of cash in an amount equal to
the fair market value (as determined in good faith by

                                       4

<PAGE>

[____________]) of such non-cash property. In the event of any dispute between
Davis and Mercer regarding the determination of the fair market value of
non-cash property, at the request of either of them, the Company shall engage a
consulting or investment banking firm selected by the Board of Directors of the
Company and approved by Davis and Mercer to prepare an independent appraisal of
the fair market value of such property, which appraisal shall be binding. The
expense of any appraisal by such a consulting or investment banking firm shall
be borne by the Company.

                           (b)      Exercise of Purchase Right by Company. If
Mercer desires to purchase all of the Offered Shares, Mercer shall deliver a
written notice of its election to purchase such Offered Shares to Davis, which
shall be delivered in person or mailed to Davis within 30 days of the date of
receipt by Mercer of the Offer. Such notice, when taken in conjunction with the
Offer, shall be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of such Offered Shares to Mercer on the
terms of the Offer as set forth in Section 2 (a) hereof. The closing of the sale
of Offered Shares to Mercer pursuant to this Section 2 (b) shall be made at the
offices of the Company on such date as may be agreed by Mercer and Davis but no
later than the 60th day following the date the Offer is received by Davis (or if
such 60th day is not a business day, then on the next succeeding business day).
Such sale shall be effected by Davis' delivery to Mercer of a certificate or
certificates evidencing the Offered Shares, duly endorsed for Transfer to
Mercer, against payment to Davis of the purchase price by Mercer. The exercise
or non-exercise by Mercer of its rights pursuant to this Section 2 shall be
without prejudice to its rights under this Section 2 with respect to any future
sales of Offered Shares.

                           (c)      Transfer of Offered Shares to Proposed
Transferee. If Mercer does not purchase all of the Offered Shares, the Offered
Shares may be Transferred by Davis at any time within 150 days after the date
the Offer was made to Davis. Any such Transfer shall be to the Proposed
Transferee, at not less than the price and upon other terms and conditions, if
any, not more favorable to the Proposed Transferee than those specified in the
Offer subject to the provisions of this Section 2 (c). Davis shall provide
written notice of such sale (the "Notice") to the Company and Mercer not later
than the date of sale. Any Offered Shares not Transferred within the 150 day
period shall again be subject to the requirements of a prior offer pursuant to
this Section 2. If Offered Shares are Transferred pursuant to this Section 2 to
any purchaser who

                                       5

<PAGE>

is not a party to this Agreement, the Offered Shares so Transferred shall no
longer be subject to any of the restrictions imposed by this Agreement.

                  3.       Exchange Rights. In the event of a conversion of
Mercer from the mutual form of organization to the stock form of organization,
including the simultaneous acquisition of Mercer by a publicly traded company
(the Publicly Traded Acquirer), or any similar transaction (collectively, a
"Conversion"), Davis shall have the right to exchange any and all of the Davis
Shares for such number of shares ( the "Exchange Shares") of registered voting
common stock of Mercer or the Publicly Traded Acquirer (the "Share Exchange") as
determined in accordance with this Section 3(a), by notifying Mercer of his
intent on or before the later of the 30th day after the receipt by Davis of :
(i) a final prospectus forming a part of a registration statement declared
effective under the Securities Act of 1933, as amended, or (ii) any supplement
to such prospectus. In exchange for the Davis Shares, Davis shall receive, and
Mercer shall, or Mercer shall cause the Publicly Traded Acquirer to, issue to
Davis such number of Exchange Shares that equals the product of (i) the number
of Davis Shares and (ii) the Share Value per share (as defined in Section 6
hereof) divided by the initial price to the public of the common stock of Mercer
or Publicly Traded Acquirer as the case may be. If Davis fails to provide timely
notice of his intent or indicates in such notice that Davis does not intend to
exercise his right to the Share Exchange, Mercer shall have the right to compel
the Share Exchange, by providing written notice thereof to Davis not later than
60 days prior to the closing of the Conversion. In such event, Davis shall
cooperate in the Share Exchange by executing such documents and taking such
other actions, in a timely manner, as may be required to complete the Share
Exchange simultaneously with the closing of the Conversion.

                  4.       Davis' Put Right. Davis or his personal
representative, as applicable, shall have the right to require Mercer to
purchase, and Mercer shall be obligated to purchase, the Davis Shares ("Put") at
the Share Value per share, (a) at any time on or after September 3, 2007, or (b)
prior to such date, in the event of (i) his death or Disability, (ii) the
expiration of the employment agreement between Mercer and Davis (unless
immediately renewed and continued) or the termination (except as a result of his
resignation without good reason or termination for cause) of his employment with
Mercer or (iii) the acquisition, merger, consolidation, or reorganization of
Mercer in a transaction not described in Section 3 with any public or private
company or with a mutual company if, after such event, the individuals who,
immediately before

                                       6

<PAGE>

such acquisition, merger, consolidation, or reorganization, were members of the
Mercer Board of Directors, do not continue to constitute at least a majority of
the board of directors of the surviving entity. To exercise such Put right,
Davis or his personal representative, as applicable, shall give written notice
thereof to Mercer. In the case of an event described in clause (b) of this
Section, such notice shall describe such event with specificity and be given not
more than 90 days after the event giving rise to the Put right. The closing of
such transaction shall occur at a place and at a time mutually agreeable to the
Parties but in no event shall the time of closing be later that 60 days after
the date of notice. If the Parties cannot agree on the place for closing, such
place shall be the principal place of business of the Company at such time.

                  5.       Mercer's Call Right. Mercer shall have the right to
purchase, and Davis or his personal representative, as applicable, shall be
obligated to sell, any Davis Shares ("Call") at the Share Value per share, (a)
at any time on or after September 3, 2007, or (b) in the event Davis resigns his
employment with Mercer during the three (3) year period beginning as of the date
hereof without good reason. To exercise such Call right, Mercer shall give
written notice thereof to Davis or his personal representative. In the case of
an event described in clause (b) of this Section, such notice shall describe
such event with specificity and be given not more than 30 days after the event
giving rise to the Call right. The closing of such transaction shall occur at a
place and at a time mutually agreeable to the Parties but in no event shall the
time of closing be later that 60 days after the date of notice. If the Parties
cannot agree on the place for closing, such place shall be the principal place
of business of the Company at such time.

                  6.       Determination of Value. In determining either (a) the
consideration payable to Davis in the event of a Put or a Call, or (b) the
number of Exchange Shares to be exchanged in connection with the Conversion, or
(c) the amount of cash, securities or combination thereof to be received by
Davis in connection with the Merger, as applicable, the total amount of
consideration to be received by Davis shall be equal, in the aggregate, to the
value of the Davis Shares (the "Share Value") sold or exchanged, as applicable.
The Share Value per share of the Davis Shares, as of any date, shall equal the
greatest of:

                           (a)      the product of (x) $10.00 and (y) the sum of
(i) 1.00 and (ii) the Company Aggregate ROI Factor,

                                       7

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                           (b)      the product of (x) $10.00 times (y) the sum
of (i) 1.00 and (ii) the Mercer Aggregate ROE Factor, or

                           (c)      $10.00.

         The Share Value shall be determined (A) in the case of the Merger, as
of the effective date thereof, (B) in the case of the Share Exchange, as of the
effective date of the Conversion, and (C) in the case of a Put or Call, as of
the date of the event giving rise to such Put or Call, as applicable. By way of
example only, Exhibit 1, attached hereto and made a part hereof, sets forth the
method for calculating the Share Value per share of Davis Shares.

                  7.       Special Provisions Concerning Davis Options. In the
event that any unexercised Davis Options are subject to a Share Exchange, Share
Conversion, Put or Call, Davis may exercise such Davis Options to purchase
shares of Class B Stock not later than immediately prior to, or concurrently
with, the closing of such event; provided that any Davis Options not so
exercised shall nevertheless be deemed to have been exercised on a net basis as
of the time immediately prior to the closing of such event. By way of example
only, if Davis holds options for 295,000 shares of stock with an option exercise
price of $10.00 per share, and the Share Value of the stock is $15.00 per share,
then Davis shall be entitled, on a net basis, to the issuance of 147,500 shares
of stock without payment by Davis (i.e. [295,000 X ($15.00-$10.00)/$10.00] =
147,500 shares). Such "net" shares shall then be subject to the Share Exchange,
Share Conversion, Put or Call, as applicable. Subject to customary antidilution
provisions that will be set forth in an amended option agreement, in no event
shall Davis be entitled to the issuance of shares on a "net basis" that is in
excess of the number of shares that may be acquired pursuant to outstanding
Davis Options.

                  8.       Injunction; Specific Performance. Because of the
unique character of the securities of the Company and the important business
purposes underlying this Agreement, each Party acknowledges that he or it will
be irreparably damaged in the event this Agreement is not specifically enforced.
If any dispute arises concerning the Transfer of any securities of the Company,
an injunction may be issued restraining that sale or disposition until the
controversy has been resolved. If any controversy arises concerning a right or
obligation to purchase or sell any securities of the Company, that right or
obligation may be enforced in a court of equity by a

                                       8

<PAGE>

decree of specific performance. However, that remedy shall be cumulative and not
exclusive, enforceable singly, alternatively, successively or concurrently.

                  9.       Election of Mercer and Davis Directors. Concurrently
with the execution of this Agreement and the closing of the transactions
contemplated by the Stock Purchase Agreement, the existing directors of the
Company and its Subsidiary will tender their resignations and Davis and Mercer
hereby agree to elect a Board of Directors of the Company and its Subsidiary
that shall consist of the existing directors of Mercer, Davis and one additional
director designated by Davis. In addition, concurrently with the closing of the
transactions contemplated by the Stock Purchase Agreement, Mercer hereby agrees
to elect Davis a director of Mercer and each of its subsidiaries. For so long as
Davis and Mercer each continue to own any Class A Shares, they hereby agree to
elect: (i) Davis and his designee to the Board of Directors of the Company and
its Subsidiary, (ii) Davis to the Board of Directors of Mercer and each of its
subsidiaries, and (iii) the nominees designated by Mercer for election to the
Board of Directors of the Company and its Subsidiary. After closing under the
Stock Purchase Agreement and for so long as Davis and Mercer each continue to
own any Class A Shares, Davis hereby agrees not to take any action to expand the
size of the Board of Directors of the Company without the concurrence of Mercer.

                  10.      Termination of Agreement. All of the provisions of
this Agreement, shall terminate on the date the Company is required to file
reports with respect to any class of its common stock with the Securities and
Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, except with respect to any notices issued prior to that
date under the provisions of this Agreement.

                  11.      Shares to Bear Legend. All certificates evidencing
Davis Shares (whether now outstanding or hereafter issued) shall bear the
following conspicuous legend:

                  "This stock certificate and the shares represented hereby are
         held subject to the terms, covenants and conditions of an agreement
         dated June 1, 2001, by and among the Company and certain of its
         stockholders, as it may be amended or restated from time to time, and
         may not be transferred or disposed of except in accordance with the
         terms and conditions thereof. A copy of such agreement is on file and
         may be inspected at the offices of the Company. These securities have
         not been registered under the Securities

                                       9

<PAGE>

         Act of 1933, as amended, or any state securities law, including the
         Pennsylvania Securities Act of 1972. These securities may not be
         transferred in the absence of an effective registration statement or an
         opinion from counsel to the Company that registration is not required."

                  12.      Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, heirs, legatees, successors and assigns.

                  13.      Amendments. The provision of this Agreement,
including the provisions of this sentence, may be amended, modified or
supplemented only by a written instrument executed by (i) holders of at least a
majority of Davis Shares, and (ii) Mercer.

                  14.      Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania.

                  15.      Interpretation. The headings of the sections
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not affect the meaning or
interpretation of this Agreement.

                  16.      Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by commercial delivery services, or mailed by registered or certified mail
(return receipt requested) or sent via facsimile (with confirmation of receipt)
to the parties at the following address (or at such other address for a party as
shall be specified by like notice):

                           if to Mercer, to:

                           Mercer Mutual Insurance Company
                           Route 31 North
                           Pennington, New Jersey
                           Attention: Andrew R. Speaker, President and Chief
                                      Executive Officer
                           Facsimile No.: 609-737-8719
                           Telephone No.: 609-737-0426

                                       10

<PAGE>

                           with a copy to:

                           Stevens & Lee
                           1275 Drummers Lane
                           P.O. Box 236
                           Wayne, Pennsylvania 19087-0236
                           Attention: Jeffrey P. Waldron
                           Facsimile No.: 610-687-1384
                           Telephone No.: 610-293-4961

                           to the Company, to:

                           Franklin Holding Company, Inc.
                           214 East Church Street
                           Lock Haven, Pennsylvania 17745
                           Facsimile No.: 717-570-6655
                           Telephone No.: 717-570-3234

                           with a copy to:

                           Rosenn, Jenkins & Greenwald, LLP
                           15 South Franklin Street
                           Wilkes-Barre, Pennsylvania 18711
                           Attention: Bruce C. Rosenthal, Esquire
                           Facsimile No.: 570-826-5640
                           Telephone No.: 570-826-5643

                           if to Davis, to:

                           H. Thomas Davis
                           Franklin Insurance Company
                           214 East Church Street
                           Suite 100
                           Lock Haven, Pennsylvania 17743

                           with a copy to:

                           Rosenn, Jenkins & Greenwald, LLP
                           15 South Franklin Street
                           Wilkes-Barre, Pennsylvania 18711
                           Attention: Bruce C. Rosenthal, Esquire
                           Facsimile No.: 570-826-5640
                           Telephone No.: 570-826-5643

                  17.      Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become

                                       11

<PAGE>

effective when one or more counterparts have been signed by each of the parties
and delivered to the other Parties, it being understood that all Parties need
not sign the same counterpart.

                  18.      Waiver and Consent. No action taken pursuant to this
Agreement, including, without limitation, any investment by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder. Each party hereto, in addition
to being entitled to exercise all rights provided herein, in the charter or
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. Each party hereto agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive that defense in any action for specific performance that a remedy at
law would be adequate.

                                       12

<PAGE>

                  19.      Inspection. Copies of this Agreement will be
available for inspection or copying by any party at the offices of the Company
through the Secretary of the Company.

                  IN WITNESS WHEREOF, the parties have executed the Agreement as
of the date first above written.

                                    MERCER MUTUAL INSURANCE COMPANY

                                    By:/s/ Andrew R. Speaker
                                       _________________________________________
                                       Andrew R. Speaker, President and Chief
                                       Executive Officer

WITNESS:
                                    /s/ H. Thomas Davis
___________________________         ____________________________________________
                                    H. THOMAS DAVIS, individually

                                    FRANKLIN HOLDING COMPANY, INC.

                                    By:/s/ H. Thomas Davis
                                       _________________________________________
                                       H. Thomas Davis, President and Chief
                                       Executive Officer

                                       13

<PAGE>

                                    EXHIBIT 1

                           Calculation of Share Value

Assume the following Company Quarterly Net Income, a valuation of the Company of
$5,050,920 (210,000 shares x $24.052) and no further investment by Mercer in the
Company.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
                                                                        Company
Quarter Ending    Company Quarterly Net    Company Quarterly ROI      Aggregate ROI
                          Income                   Factor                Factor
-----------------------------------------------------------------------------------
<S>               <C>                      <C>                        <C>
   9/30/01            $   (505,092)              (0.10)                  (0.10)
-----------------------------------------------------------------------------------
   12/31/01           $    252,546                0.05                   (0.05)
-----------------------------------------------------------------------------------
   03/31/02           $    (50,509)              (0.01)                  (0.06)
-----------------------------------------------------------------------------------
   6/30/02            $  1,010,184                0.20                   (0.14)
-----------------------------------------------------------------------------------
   9/30/02            $    505,092                0.10                   (0.24)
-----------------------------------------------------------------------------------
</TABLE>

Mercer Aggregate ROE Factor is assumed in the examples below but not
illustrated as above

Example 1

<TABLE>
<S>                                                         <C>
Date of Event - December 29, 2001

Company Aggregate ROI Factor = (.10)  $10.00 x (1-.10)      $ 9.00
Mercer Aggregate ROE Factor = 0.15    $10.00 x (1+.15)      $11.50
Minimum Share Value                                         $10.00
Share Value (greatest of)                                   $11.50
</TABLE>

Example 2

<TABLE>
<S>                                                         <C>
Date of Event - October 15, 2002

Company Aggregate ROI Factor = 0.24  $10.00 x (1+.24)       $12.40
Mercer Aggregate ROE Factor = 0.15   $10.00 x (1+.15)       $11.50
Minimum Share Value                                         $10.00
Share Value (greatest of)                                   $12.40
</TABLE>

                                       14

<PAGE>
                     [LETTERHEAD OF MERCER INSURANCE GROUP]

July 7, 2003

Mr. H. Thomas Davis, Jr.
143 Davis Lane
Lock Haven, PA 17745

Dear Tom:

Reference is made to Section 6 of the Shareholders Agreement of Franklin Holding
Company, Inc. ("Franklin") dated June 1, 2001, by and among you, Franklin and
Mercer Mutual Insurance Company. The first sentence of the last paragraph of
Section 6 is hereby amended to read as follows:

      The Share Value shall be determined (A) in the case of the Merger, as of
      the effective date thereof, (B) in the case of the Share Exchange, as of
      the date of the most recent audited or interim balance sheet of Mercer
      included in the registration statement filed with and declared effective
      by the Securities and Exchange Commission in connection with the
      Conversion, and (C) in the case of a Put or Call, as of the date of the
      event giving rise to such Put or Call, as applicable.

If the foregoing is acceptable to you, please execute the enclosed copy of this
letter in the space provided below.

                                     MERCER MUTUAL INSURANCE COMPANY

                                     By: /s/ Andrew R. Speaker
                                         ---------------------------------------
                                             Andrew R. Speaker, President and
                                             Chief Executive Officer

ACCEPTED AND AGREED

/s/  H. Thomas Davis, Jr.
---------------------------
H. Thomas Davis, Jr.<PAGE>

                          MERCER INSURANCE GROUP, INC.

                         2003 STOCK-BASED INCENTIVE PLAN

<PAGE>

                          MERCER INSURANCE GROUP, INC.
                         2003 STOCK-BASED INCENTIVE PLAN

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ARTICLE                                                                     PAGE
-------                                                                     ----
<S>                                                                         <C>
Article 1.    PURPOSE OF THE PLAN; TYPES OF AWARDS                            1

Article 2.    DEFINITIONS                                                     1

Article 3.    ADMINISTRATION                                                  5

Article 4.    COMMON STOCK SUBJECT TO THE PLAN                                6

Article 5.    ELIGIBILITY                                                     7

Article 6.    STOCK OPTIONS IN GENERAL                                        7

Article 7.    TERM, VESTING AND EXERCISE OF OPTIONS                           9

Article 8.    EXERCISE OF OPTIONS FOLLOWING TERMINATION OF EMPLOYMENT        10

Article 9.    RESTRICTED STOCK                                               12

Article 10.   STOCK APPRECIATION RIGHTS                                      13

Article 11.   ADJUSTMENT PROVISIONS                                          13

Article 12.   SPECIAL PROVISIONS RELATING TO DIRECTOR AWARDS                 15

Article 13.   GENERAL PROVISIONS                                             15
</TABLE>

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                 ARTICLE 1. PURPOSE OF THE PLAN; TYPES OF AWARDS

         1.1      Purpose. The Mercer Insurance Group, Inc. 2003 Stock-Based
Incentive Plan is intended to provide selected Employees and Directors of Mercer
Insurance Group, Inc. and its Subsidiaries with an opportunity to acquire Common
Stock of the Corporation. The Plan is designed to help the Corporation and its
Subsidiaries attract, retain and motivate selected persons to make substantial
contributions to the success of the Corporation's business and the businesses of
its Subsidiaries. Awards will be granted under the Plan based, among other
things, on the Participant's level of responsibility and performance within the
Corporation and its Subsidiaries.

         1.2      Authorized Plan Awards. Incentive Stock Options, Nonqualified
Stock Options, Restricted Stock and SARs (including Tandem SARs) may be awarded
within the limitations of the Plan herein described; provided, however, that
Incentive Stock Options (including Tandem SARs coupled with Incentive Stock
Options) may not be granted to Directors.

                             ARTICLE 2. DEFINITIONS

         2.1      "Agreement". A written instrument evidencing the grant of an
Award. A Participant may be issued one or more Agreements from time to time,
reflecting one or more Awards.

         2.2      "Award". The grant of an Option, Restricted Stock or an SAR
(including a Tandem SAR).

         2.3      "Board". The Board of Directors of the Corporation.

         2.4      "Change in Control". Except as otherwise provided in an
Agreement, the first to occur of any of the following events:

                  (a)      any "Person" (as such term is used in Sections 13(d)
         and 14(d) of the Exchange Act), except for any of the Corporation's or
         a Subsidiary's employee benefit plans, or any entity holding the
         Corporation's voting securities for, or pursuant to, the terms of any
         such plan (or any trust forming a part thereof) (the "Benefit
         Plan(s)"), is or becomes the beneficial owner, directly or indirectly,
         of the Corporation's securities representing 19.9% or more of the
         combined voting power of the Corporation's then outstanding securities
         other than pursuant to a transaction excepted in Clause (c) or (d);

                  (b)      there occurs a contested proxy solicitation of the
         Corporation's shareholders that results in the contesting party
         obtaining the ability to vote securities representing 19.9% or more of
         the combined voting power of the Corporation's then outstanding
         securities;

                  (c)      a binding written agreement is executed (and, if
         legally required, approved by the Corporation's shareholders) providing
         for a sale, exchange, transfer or other disposition of all or
         substantially all of the assets of the Corporation to another entity,

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         except to an entity controlled directly or indirectly by the
         Corporation;

                  (d)      the shareholders of the Corporation approve a merger,
         consolidation, or other reorganization of the Corporation, unless:

                           (i)      under the terms of the agreement approved by
                  the Corporation's shareholders providing for such merger,
                  consolidation or reorganization, the shareholders of the
                  Corporation immediately before such merger, consolidation or
                  reorganization, will own, directly or indirectly immediately
                  following such merger, consolidation or reorganization, at
                  least 51% of the combined voting power of the outstanding
                  voting securities of the Corporation resulting from such
                  merger, consolidation or reorganization (the "Surviving
                  Corporation") in substantially the same proportion as their
                  ownership of the voting securities immediately before such
                  merger, consolidation or reorganization;

                           (ii)     under the terms of the agreement approved by
                  the Corporation's shareholders providing for such merger,
                  consolidation or reorganization, the individuals who were
                  members of the Board immediately prior to the execution of
                  such agreement will constitute at least 51% of the members of
                  the board of directors of the Surviving Corporation after such
                  merger, consolidation or reorganization; and

                           (iii)    based on the terms of the agreement approved
                  by the Corporation's shareholders providing for such merger,
                  consolidation or reorganization, no Person (other than (A) the
                  Corporation or any Subsidiary of the Corporation, (B) any
                  Benefit Plan, (C) the Surviving Corporation or any Subsidiary
                  of the Surviving Corporation, or (D) any Person who,
                  immediately prior to such merger, consolidation or
                  reorganization had beneficial ownership of 19.9% or more of
                  the then outstanding voting securities) will have beneficial
                  ownership of 19.9% or more of the combined voting power of the
                  Surviving Corporation's then outstanding voting securities;

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

                  (f)      during any period of two consecutive years,
         individuals, who at the beginning of such period, constituted the Board
         cease for any reason to constitute at least a majority of the Board
         unless the election, or the nomination for election by the
         Corporation'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.

         Notwithstanding Clause (a), a Change in Control shall not be deemed to
have occurred if a Person becomes the beneficial owner, directly or indirectly,
of the Corporation's securities representing 19.9% or more of the combined
voting power of the Corporation's then outstanding securities solely as a result
of an acquisition by the Corporation of its voting securities which, by

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reducing the number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to 19.9% or more of the combined voting
power of the Corporation's then outstanding securities; provided, however, that
if a Person becomes a beneficial owner of 19.9% or more of the combined voting
power of the Corporation's then outstanding securities by reason of share
purchases by the Corporation and shall, after such share purchases by the
Corporation, become the beneficial owner, directly or indirectly, of any
additional voting securities of the Corporation (other than as a result of a
stock split, stock dividend or similar transaction), then a Change in Control of
the Corporation shall be deemed to have occurred with respect to such Person
under Clause (a). In no event shall a Change in Control of the Corporation be
deemed to occur under Clause (a) with respect to Benefit Plans.

         2.5      "Code". The Internal Revenue Code of 1986, as amended.

         2.6      "Committee". The Compensation Committee of the Board, or any
successor to such committee.

         2.7      "Common Stock". The common stock of the Corporation (no par
value) as described in the Corporation's Articles of Incorporation, or such
other stock as shall be substituted therefor.

         2.8      "Corporation". Mercer Insurance Group, Inc., a Pennsylvania
corporation.

         2.9      "Director". A non-employee director of the Corporation or a
Subsidiary.

         2.10     "Disability". Permanent and total disability, within the
meaning of such term in Code Section 22(e)(3).

         2.11     "Effective Date". The effective date of the Plan as provided
in Section 13.1.

         2.12     "Employee". Any common law employee of the Corporation or a
Subsidiary.

         2.13     "Exchange Act". The Securities Exchange Act of 1934, as
amended.

         2.14     "Fair Market Value". The amount determined as such with
respect to a share of Common Stock pursuant to the provisions of Section 6.3.

         2.15     "Incentive Stock Option". A Stock Option intended to satisfy
the requirements of Code Section 422(b).

         2.16     "Initial Public Offering". The initial public offering of
Common Stock that occurs on [INSERT THE DATE OF CONVERSION], 2003.

         2.17     "Nonqualified Stock Option". A Stock Option other than an
Incentive Stock Option.

         2.18     "Optionee". A Participant who is awarded a Stock Option
pursuant to the

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provisions of the Plan.

         2.19     "Participant". An Employee or Director to whom an Award has
been granted and remains outstanding.

         2.20     "Performance Criteria". Any objective test based on one or
more of the following areas of performance of the Corporation, a Subsidiary, or
any division, department or group of either: (a) earnings, (b) cash flow, (c)
revenue, (d) financial ratios, (e) market performance, (f) shareholder return,
(g) operating profits (including earnings before interest, taxes, depreciation
and amortization), (h) earnings per share, (i) return on assets, (j) return on
equity, (k) return on investment, (l) stock price and (m) expense reduction.
Performance Criteria shall be derived from the financial statements of the
Corporation and its Subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied, or, for Performance Criteria that
cannot be so derived, under a methodology established by the Committee prior to
the issuance of a Performance Grant that is consistently applied.

         2.21.    "Performance Goal". A goal established by the Committee, with
respect to an Award intended to constitute a Performance Grant, that relates to
one or more Performance Criteria. A Performance Goal shall relate to such period
of time, not less than one year (unless coupled with a vesting schedule of at
least one year) or more than three years, as may be specified by the Committee
at the time of the awarding of a Performance Grant.

         2.22.    "Performance Grant". An Award, the vesting or receipt without
restriction of which, is conditioned on the satisfaction of one or more
Performance Goals.

         2.23     "Plan". The Mercer Insurance Group, Inc. 2003 Stock-Based
Incentive Plan.

         2.24     "Reference Value". The dollar amount fixed as such at the date
of the grant of an SAR, which amount shall not be less than the Fair Market
Value of the Common Stock on such date.

         2.25     "Restricted Stock". A grant of Common Stock pursuant to the
provisions of the Plan, which grant is subject to such restrictions and other
conditions as may be specified by the Committee at the time of such grant.

         2.26     "Retirement". The termination of a Participant's employment
following attainment of age 65.

         2.27     "SAR". A stock appreciation right, which represents the
potential right to receive the increase (if any) in the Fair Market Value of a
share of Common Stock on the date of the exercise of such right over the
Reference Value of such share on the date the right is granted.

         2.28     "Securities Act". The Securities Act of 1933, as amended.

         2.29     "Stock Option" or "Option". A grant of a right to purchase
Common Stock pursuant to the provisions of the Plan.

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         2.30     "Subsidiary". A subsidiary corporation, as defined in Code
Section 424(f), that is a subsidiary of a relevant corporation.

         2.31     "Tandem SAR". An SAR granted in connection with the concurrent
grant of an Option, which SAR shall expire to the extent the related Option is
exercised and vice versa.

                            ARTICLE 3. ADMINISTRATION

         3.1      The Committee. The Plan shall be administered by the
Compensation Committee of the Board or any successor committee. The Committee
shall be composed of three or more members of the Board, all of whom are (a)
"non-employee directors" as such term is defined under the rules and regulations
adopted from time to time by the Securities and Exchange Commission pursuant to
Section 16(b) of the Exchange Act, (b) "outside directors" within the meaning of
Code Section 162(m), and (iii) "independent" within the meaning of any
applicable Nasdaq Stock Market listing requirement or the requirement of any
other market or exchange on which the Common Stock is listed. The Board may from
time to time remove members from, or add members to, the Committee. Vacancies on
the Committee, howsoever caused, shall be filled by the Board.

         3.2      Powers of the Committee.

                  (a)      The Committee shall be vested with full authority to
         make such rules and regulations as it deems necessary or desirable to
         administer the Plan and to interpret the provisions of the Plan, unless
         otherwise determined by a majority of the disinterested members of the
         Board. Any determination, decision or action of the Committee in
         connection with the construction, interpretation, administration or
         application of the Plan shall be final, conclusive and binding upon all
         Participants and any person claiming under or through a Participant,
         unless otherwise determined by a majority of the disinterested members
         of the Board.

                  (b)      Subject to the terms, provisions and conditions of
         the Plan and subject to review and approval by a majority of the
         disinterested members of the Board, the Committee shall have exclusive
         jurisdiction to:

                           (i)      determine and select the Employees to be
                  granted Awards (it being understood that more than one Award
                  may be granted to the same person);

                           (ii)     determine the number of shares subject to
                  each Award;

                           (iii)    determine the date or dates when the Awards
                  will be granted;

                           (iv)     determine the exercise price of shares
                  subject to Options in accordance with Article 6;

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                           (v)      determine the date or dates when an Option
                  may be exercised within the term of the Option specified
                  pursuant to Article 7;

                           (vi)     determine whether an Option constitutes an
                  Incentive Stock Option or a Nonqualified Stock Option;

                           (vii)    determine the Reference Value applicable to
                  SARs (including Tandem SARs) granted under the Plan;

                           (viii)   prescribe the form, which shall be
                  consistent with the Plan document, of the Agreement evidencing
                  any Awards granted under the Plan; and

                           (ix)     prescribe such administrative forms as are
                  deemed necessary for the proper operation of the Plan,
                  including, if deemed appropriate, a beneficiary designation
                  form.

         3.3      Liability. No member of the Board or the Committee shall be
liable for any action or determination made in good faith by the Board or the
Committee with respect to this Plan or any Awards granted under this Plan.

         3.4      Establishment and Certification of Performance Goals. The
Committee shall establish, prior to grant, Performance Goals with respect to
each Award intended to constitute a Performance Grant. Notwithstanding anything
herein to the contrary, no Option or SAR (including a Tandem SAR) that is
intended to constitute a Performance Grant may be exercised until the
Performance Goal or Goals applicable thereto is or are certified as having been
satisfied by the Committee, nor shall any share of Restricted Stock that is
intended to constitute a Performance Grant be released to a Participant until
such certification is made.

         3.5      Performance Grants Not Mandatory. Nothing herein shall be
construed as requiring that any Award be made a Performance Grant.

                   ARTICLE 4. COMMON STOCK SUBJECT TO THE PLAN

         4.1      Common Stock Authorized. The aggregate number of shares of
Common Stock with respect to which Awards may be granted under this Plan shall
not exceed 14% of the shares of Common Stock offered and sold in the Initial
Public Offering; provided, however, that Restricted Stock Awards made under this
Plan shall not exceed 4% of the shares of Common Stock so offered and sold. The
limitation established by the preceding sentence shall be subject to adjustment
as provided in Article 11.

         4.2      Shares Available. The Common Stock to be issued under the Plan
shall be the Corporation's Common Stock which shall be made available at the
discretion of the Board, either from authorized but unissued Common Stock or
from Common Stock acquired by the Corporation, including shares purchased in the
open market.

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         4.3      Use and Replenishment of Authorized Shares. All Awards shall
be charged, on a share-for-share basis, against the shares authorized under
Section 4.1; provided, however, that shares subject to a Tandem SAR shall be
charged against the authorized shares only once for the overall number of shares
subject thereto and not for both the number of shares subject to the SAR portion
of the Award and the number of shares subject to the Option portion of the
Award. The provisions of the preceding sentence shall apply whether an exercised
SAR is settled in cash or stock, or partly in both. In the event that any
outstanding Award under the Plan for any reason expires, terminates or is
forfeited, the shares of Common Stock allocable to such expiration, termination
or forfeiture may thereafter again be made subject to an Award under the Plan;
provided, however, shares subject to a Tandem SAR shall be replenished only once
for the overall number of shares subject thereto and not for both the number of
shares subject to the SAR portion of the Award and the number of shares subject
to the Option portion of the Award.

                             ARTICLE 5. ELIGIBILITY

         5.1      Participation. Except as otherwise provided herein, Awards
shall be granted by the Committee only to persons who are Employees and shall be
ratified by a majority of the disinterested members of the Board.

         5.2      Incentive Stock Option Eligibility. Notwithstanding any other
provision of the Plan to the contrary, an individual who owns more than ten
percent of the total combined voting power of all classes of outstanding stock
of the Corporation shall not be eligible for the grant of an Incentive Stock
Option, unless the special requirements set forth in Sections 6.1 and 7.1 are
satisfied. For purposes of this section, in determining stock ownership, an
individual shall be considered as owning the stock owned, directly or
indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate or trust shall be
considered as being owned proportionately by or for its shareholders, partners
or beneficiaries. "Outstanding stock" shall include all stock actually issued
and outstanding immediately before the grant of the Option. "Outstanding stock"
shall not include shares authorized for issue under outstanding options held by
an Optionee or by any other person.

                      ARTICLE 6. STOCK OPTIONS IN GENERAL

         6.1      Exercise Price. The exercise price of an Option to purchase a
share of Common Stock shall be, in the case of an Incentive Stock Option, not
less than 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted, except that the exercise price shall be not less than
110% of such Fair Market Value in the case of an Incentive Stock Option granted
to any individual described in Section 5.2. The exercise price of an Option to
purchase a share of Common Stock shall be, in the case of a Nonqualified Stock
Option, not less than 100% percent of the Fair Market Value of a share of Common
Stock on the date the Option is granted. The exercise price shall be subject to
adjustment as provided in Article 11.

         6.2      Limitation on Incentive Stock Options. The aggregate Fair
Market Value

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(determined as of the date an Option is granted) of the Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any individual in any calendar year (under the Plan and all other plans
maintained by the Corporation and Subsidiaries) shall not exceed $100,000.

         6.3      Determination of Fair Market Value.

                  (a)      During such time as the Common Stock is not listed on
         an established stock exchange or exchanges but is quoted on the NASDAQ
         National Market System, the Fair Market Value per share of the Common
         Stock shall be the closing sale price for such a share on the relevant
         day. If no sale of Common Stock has occurred on that day, the Fair
         Market Value shall be determined by reference to such price for the
         next preceding day on which a sale occurred.

                  (b)      During such time as the Common Stock is not listed on
         an established stock exchange or quoted on the NASDAQ National Market
         System, the Fair Market Value per share of the Common Stock shall be
         the mean between the closing "bid" and "asked" prices for such a share
         on the relevant day. If no closing "bid" and "asked" prices are quoted
         for that day, the Fair Market Value shall be determined by reference to
         such prices for the next preceding day on which such closing prices
         were quoted.

                  (c)      If the Common Stock is listed on an established stock
         exchange or exchanges, the Fair Market Value per share of the Common
         Stock shall be the composite closing sale price for such a share on the
         relevant day. If no sale of Common Stock has occurred on that day, the
         Fair Market Value shall be determined by reference to such price for
         the next preceding day on which a sale occurred.

                  (d)      In the event that the Common Stock is not traded on
         an established stock exchange or quoted on the NASDAQ National Market
         System, and no closing "bid" and "asked" prices are available on a
         relevant day, then the Fair Market Value per share of Common Stock will
         be the price established by the Committee in good faith.

         In connection with determining the Fair Market Value of a share of
Common Stock on any relevant day, the Committee may use any source deemed
reliable; and its determination shall be final and binding on all affected
persons, absent clear error.

         6.4      Limitation on Option Awards. Commencing on the Effective Date,
grants under this Plan (and any plan of the Corporation or a Subsidiary
providing for stock option awards) to an Employee described in Code Section
162(m)(3) shall not exceed, in the aggregate, Options to acquire 125,000 shares
of Common Stock during any period of 12 consecutive months. Such limitation
shall be subject to adjustment in the manner described in Article 11. The
limitation in this section shall not include Options that are granted as part of
Tandem SARs.

         6.5      Transferability of Options.

                  (a)      Except as provided in Subsection (b), an Option
         granted hereunder shall

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         not be transferable other than by will or the laws of descent and
         distribution, and such Option shall be exercisable, during the
         Optionee's lifetime, only by him or her.

                  (b)      An Optionee may, with the prior approval of the
         Committee, transfer a Nonqualified Stock Option (but not a Nonqualified
         Stock Option that is part of a Tandem SAR) for no consideration to or
         for the benefit of one or more members of the Optionee's "immediate
         family" (including a trust, partnership or limited liability company
         for the benefit of one or more of such members), subject to such limits
         as the Committee may impose, and the transferee shall remain subject to
         all terms and conditions applicable to the Option prior to its
         transfer. The term "immediate family" shall mean an Optionee's spouse,
         parents, children, stepchildren, adoptive relationships, sisters,
         brothers and grandchildren (and, for this purpose, shall also include
         the Optionee).

                ARTICLE 7. TERM, VESTING AND EXERCISE OF OPTIONS

         7.1      Term and Vesting. Each Option granted under the Plan shall
terminate on the date determined by the Committee and approved by a majority of
the disinterested members of the Board, and specified in the Agreement;
provided, however, that (i) each intended Incentive Stock Option granted to an
individual described in Section 5.2 shall terminate not later than five years
after the date of grant, (ii) each other intended Incentive Stock Option shall
terminate not later than ten years after the date of grant, and (iii) each
Option granted under the Plan which is intended to be a Nonqualified Stock
Option shall terminate not later than ten years and one month after the date of
grant. Each Option granted under the Plan shall be exercisable (i.e., become
vested) only after the earlier of the date on which (i) the Optionee has
completed one year of continuous employment with the Corporation or a Subsidiary
immediately following the date of the grant of the Option (or such later date as
may be specified in an Agreement, including a date that may be tied to the
satisfaction of one or more Performance Goals) or (ii) unless otherwise provided
in an Agreement, a Change in Control occurs. Notwithstanding the preceding
sentence, any Option Agreement may provide that vesting will be accelerated in
the event of death or Disability. An Option may be exercised only during the
continuance of the Optionee's employment, except as provided in Article 8.

         7.2      Exercise.

                  (a)      A person electing to exercise an Option shall give
         written notice to the Corporation of such election and of the number of
         shares he or she has elected to purchase, in such form as the Committee
         shall have prescribed or approved, and shall at the time of exercise
         tender the full exercise price of the shares he or she has elected to
         purchase. The exercise price shall be paid in full, in cash, upon the
         exercise of the Option; provided, however, that in lieu of cash, with
         the approval of the Committee at or prior to exercise, an Optionee may
         exercise an Option by tendering to the Corporation shares of Common
         Stock owned by him or her and having a Fair Market Value equal to the
         cash exercise price applicable to the Option (with the Fair Market
         Value of such stock to be determined in the manner provided in Section
         6.3) or by delivering such combination of cash and such shares as the
         Committee in its sole discretion may approve.

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         Notwithstanding the foregoing, Common Stock may not be tendered as
         payment unless it has been held, beneficially and of record, for at
         least six months (or such longer time as may be required by applicable
         securities law or accounting principles to avoid adverse consequences
         to the Corporation or a Participant).

                  (b)      A person holding more than one Option at any relevant
         time may, in accordance with the provisions of the Plan, elect to
         exercise such Options in any order.

                  (c)      At the request of the Participant and to the extent
         permitted by applicable law, the Committee may, in its sole discretion,
         selectively approve arrangements whereby the Participant irrevocably
         authorizes a third party to sell shares of Common Stock (or a
         sufficient portion of the shares) acquired upon the exercise of an
         Option and to remit to the Corporation a sufficient portion of the
         sales proceeds to pay the entire exercise price and any tax withholding
         required as a result of such exercise.

                  (d)      In the case of the death of a Participant, any vested
         Award shall be exercisable by his or her estate (or the person to whom
         the Option is lawfully distributed by the estate) in accordance with
         the conditions and limitations of the Plan, unless a valid beneficiary
         designation form providing otherwise is on file with the Corporation.

                                   ARTICLE 8.
            EXERCISE OF OPTIONS FOLLOWING TERMINATION OF EMPLOYMENT

         8.1      Retirement. In the event of an Optionee's termination of
employment due to Retirement, the vested portion of his or her Option shall
lapse at the earlier of the expiration of the term of the Option or:

                  (a)      in the case of an Incentive Stock Option, three
         months from the date of Retirement; and

                  (b)      in the case of a Nonqualified Stock Option, up to 24
         months from the date of Retirement (as specified in the relevant
         Agreement).

         8.2      Death or Disability. In the event of termination of an
Optionee's employment due to his or her death or Disability, the vested portion
of his or her Option shall lapse at the earlier of (a) the expiration of the
term of the Option, or (b) one year after termination due to such a cause.

         8.3      Termination For Cause. In the event of an Optionee's
termination of employment "for cause," the vested portion of his or her Option
shall lapse on the date of such termination. Termination "for cause" shall mean
the Optionee was terminated after:

                  (a)      any government regulatory agency recommends or orders
         in writing that the Corporation or a Subsidiary terminate the
         employment of the Optionee or relieve him or her of his or her duties;

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<PAGE>

                  (b)      the Optionee is convicted of or enters a plea of
         guilty or nolo contendere to a felony, a crime of falsehood, or a crime
         involving fraud or moral turpitude, or the actual incarceration of the
         Optionee for a period of 45 consecutive days; or

                  (c)      the Optionee willfully fails to follow the lawful
         instructions of the Board (or the board of directors of a Subsidiary)
         after receipt of written notice of such instructions, other than a
         failure resulting from the Optionee's incapacity because of physical or
         mental illness.

         8.4      Special Termination Provisions.

                  (a)      Notwithstanding anything herein to the contrary, in
         the case of a corporate downsizing, the Retirement of an Optionee or
         other circumstances where it is deemed equitable to do so, the
         Committee may, in its discretion and subject to the approval of a
         majority of the disinterested members of the Board, waive the one-year
         (or other) continuous service requirement for vesting specified in an
         Agreement pursuant to Section 7.1 and permit the exercise of an Option
         held by an Optionee prior to the satisfaction of such requirement. Any
         such waiver may be made with retroactive effect, provided it is made
         within 60 days following the Optionee's termination of employment.

                  (b)      In the event the Committee waives the continuous
         service requirement with respect to an Option and the circumstance of
         an Optionee's termination of employment is described in Section 8.1 or
         8.2, the affected Option will lapse as otherwise provided in the
         relevant section.

                  (c)      Notwithstanding anything herein to the contrary, in
         the case of a corporate downsizing or other circumstances where it is
         deemed equitable to do so, the Committee may, in its discretion and
         subject to the approval of a majority of the disinterested members of
         the Board, waive the otherwise applicable lapse provision of the Option
         of a Participant and permit its exercise until a date which is the
         earlier of the expiration of the term of the Option or:

                           (i)      in the case of an Incentive Stock Option,
                  three months from the date of termination of employment; and

                           (ii)     in the case of a Nonqualified Stock Option,
                  up to 24 months from the date of termination of employment (as
                  specified in the relevant resolution).

                  (d)      No exercise of discretion under this section with
         respect to an event or person shall create an obligation to exercise
         such discretion in any similar or same circumstance.

         8.5      Other Termination By the Corporation or Optionee. Except as
otherwise provided elsewhere in this article, (a) in the event of an Optionee's
termination of employment at the election of the Corporation or a Subsidiary,
his or her Option shall lapse at the earlier of (i)

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the expiration of the term of the Option, or (ii) three months after such
termination; and (b) in the event of termination of employment at the election
of an Optionee, his or her Option shall lapse on the date of such termination.

                          ARTICLE 9. RESTRICTED STOCK

         9.1      In General. Restricted Stock Awards shall be subject to such
terms and conditions as may be specified in the Agreement issued to a
Participant to evidence the grant of such Award. Among other things, a
Restricted Stock Award shall be subject to a vesting schedule or Performance
Goals, or both.

         9.2      Minimum Vesting Period for Certain Awards. In the case of a
Restricted Stock Award that is not intended to constitute a Performance Grant,
such Award shall not fully vest over a period of less than three years;
provided, however, that this minimum vesting period shall not be construed as
precluding terms in an Agreement that may accelerate vesting of an Award by
reason of death, Disability or the occurrence of a Change in Control.

         9.3      Limitation on Restricted Stock Awards. Commencing on the
Effective Date, grants under this Plan (and any other plan of the Corporation or
a Subsidiary providing for restricted stock awards) to any Employee described in
Code Section 162(m)(3) shall not exceed, in the aggregate, Restricted Stock
Awards for 60,000 shares of Common Stock during any period of 12 consecutive
months. Such limitation shall be subject to adjustment in the manner described
in Article 11.

         9.4      Issuance and Retention of Share Certificates By Corporation.
One or more share certificates shall be issued upon the grant of a Restricted
Stock Award; but until such time as the Restricted Stock shall vest or otherwise
become distributable by reason of satisfaction of one or more Performance Goals,
the Corporation shall retain such share certificates.

         9.5      Stock Powers. At the time of the grant of a Restricted Stock
Award, the Participant to whom the grant is made shall deliver such stock
powers, endorsed in blank, as may be requested by the Corporation.

         9.6      Release of Shares. Within 30 days following the date on which
a Participant becomes entitled under an Agreement to receive shares of
previously Restricted Stock, the Corporation shall deliver to him or her a
certificate evidencing the ownership of such shares, together with an amount of
cash (without interest) equal to the dividends that have been paid on such
shares with respect to record dates occurring on and after the date of the
related Award.

         9.7      Forfeiture of Restricted Stock Awards. In the event of the
forfeiture of a Restricted Stock Award, by reason of the termination of
employment prior to vesting, the failure to achieve a Performance Goal or
otherwise, the Corporation shall take such steps as may be necessary to cancel
the affected shares and return the same to its treasury.

         9.8      Assignment, Transfer, Etc. of Restricted Stock Rights. The
potential rights of a

                                       12

<PAGE>

Participant to shares of Restricted Stock may not be assigned, transferred,
sold, pledged, hypothecated or otherwise encumbered or disposed of until such
time as unrestricted certificates for such shares are received by him or her;
provided, however, that the Committee may permit a transfer of a type described
in Section 6.5(b).

                      ARTICLE 10. STOCK APPRECIATION RIGHTS

         10.1     In General. SARs and Tandem SARs shall be subject to such
terms and conditions as may be specified in the Agreement issued to the
Participant to evidence the grant of such an Award. Among other things, SARs and
Tandem SARs shall be subject to a vesting schedule or Performance Goals, or
both.

         10.2     Term, Vesting and Exercise Following Termination. SARs shall
be subject to the Plan's term and vesting rules, and the rules for exercise
following termination of service, applicable to Nonqualified Stock Options;
provided, however, that in the case of a Tandem SAR, such SAR shall be subject
to the same term and vesting rules, and the rules for exercise following
termination of service, applicable to its related Option.

         10.3     Exercise Procedures and Payment. SARs and Tandem SARs shall be
subject to such exercise procedures as may be established by the Committee in
the relevant Agreement. Payment required upon the exercise of a SAR or Tandem
SAR shall be made within 30 days of exercise and may be made in cash, stock or
partly in both, as specified by the Committee in the relevant Agreement or
otherwise.

         10.4     Limitation on SAR Awards. Commencing on the Effective Date,
grants under this Plan (and any other plan of the Corporation or a Subsidiary
providing for SAR awards) to any Employee described in Code Section 162(m)(3)
shall not exceed, in the aggregate, SAR Awards for 125,000 shares of Common
Stock during any period of 12 consecutive months. Such limitation shall be
subject to adjustment in the manner described in Article 11. The limitation in
this section shall also include SARs granted in the form of Tandem SARs.

         10.5     Certain Additional Provisions and Conditions. The Agreement
evidencing the grant of any Tandem SAR under the Plan shall contain such
additional provisions and conditions as may be necessary to comply with any
applicable securities law and exchange-related requirements and, in the case of
a Tandem SAR that includes an intended Incentive Stock Option, such provisions
and conditions as may be necessary to qualify the Option as such.

         10.6     Assignment, Transfer, Etc. of SARs. The rights of a
Participant under a SAR (including a Tandem SAR) shall not be transferable other
than by will or the laws of descent and distribution and such SAR (or Tandem
SAR) shall be exercisable, during the Participant's lifetime, only by him or
her.

                                       13

<PAGE>

                       ARTICLE 11. ADJUSTMENT PROVISIONS

         11.1     Share Adjustments.

                  (a)      In the event that the shares of Common Stock of the
         Corporation, as presently constituted, shall be changed into or
         exchanged for a different number or kind of shares of stock or other
         securities of the Corporation, or if the number of such shares of
         Common Stock shall be changed through the payment of a stock dividend,
         stock split or reverse stock split, then (i) the shares of Common Stock
         authorized hereunder to be made the subject of Awards, (ii) the shares
         of Common Stock then subject to outstanding Awards and the exercise
         price or Reference Value thereof (where relevant), (iii) the maximum
         number of Awards that may be granted within a 12-month period and (iv)
         the nature and terms of the shares of stock or securities subject to
         Awards hereunder shall be increased, decreased or otherwise changed to
         such extent and in such manner as may be necessary or appropriate to
         reflect any of the foregoing events.

                  (b)      If there shall be any other change in the number or
         kind of the outstanding shares of the Common Stock of the Corporation,
         or of any stock or other securities into which such Common Stock shall
         have been changed, or for which it shall have been exchanged, and if a
         majority of the disinterested members of the Board shall, in its sole
         discretion, determine that such change equitably requires an adjustment
         in any Award which was theretofore granted or which may thereafter be
         granted under the Plan, then such adjustment shall be made in
         accordance with such determination.

                  (c)      The grant of an Award pursuant to the Plan shall not
         affect in any way the right or power of the Corporation to make
         adjustments, reclassifications, reorganizations or changes of its
         capital or business structure, to merge, to consolidate, to dissolve,
         to liquidate or to sell or transfer all or any part of its business or
         assets.

         11.2     Corporate Changes. A liquidation or dissolution of the
Corporation, a merger or consolidation in which the Corporation is not the
surviving Corporation or a sale of all or substantially all of the Corporation's
assets, shall cause each outstanding Award to terminate, except to the extent
that another corporation may and does, in the transaction, assume and continue
the Award or substitute its own awards and/or otherwise provides for the payment
of value therefor. In the case of an event described in the preceding sentence,
vested and nonvested Awards may be treated differently.

         11.3     Fractional Shares. Fractional shares resulting from any
adjustment in Awards pursuant to this article may be settled as a majority of
the disinterested members of the Board shall determine.

         11.4     Binding Determination. To the extent that the foregoing
adjustments relate to stock or securities of the Corporation, such adjustments
shall be made by a majority of the disinterested members of the Board, whose
determination in that respect shall be final, binding and conclusive. Notice of
any adjustment shall be given by the Corporation to each holder of an Award
which shall have been so adjusted.

                                       14

<PAGE>

           ARTICLE 12. SPECIAL PROVISIONS RELATING TO DIRECTOR AWARDS

         12.1     In General. Subject to Section 12.2, Awards granted to
Directors shall be subject to the same terms and conditions as are applicable to
Awards granted to Employees, except for any term or condition that is clearly
not applicable or otherwise should be construed differently under the
circumstances.

         12.2     Special Provisions. The following provisions shall, with
respect to Director Awards, supersede any contrary provision in this Plan
document.

                  (a)      Termination of Service In General. References herein
         to an individual's employment or termination of employment shall be
         deemed references to a Director's service or termination of service as
         a member of the Board or the board of directors of a Subsidiary.

                  (b)      Special Termination Provision. The provisions of
         Section 8.5(a) shall apply in the case of a termination described in
         Section 8.5(b).

                  (c)      Grant of Awards. The Board, acting as a whole, shall
         grant all Awards to Directors and specify the conditions and
         limitations applicable to such Awards.

                  (d)      Limitation on Awards. Commencing on the Effective
         Date, grants under this Plan to any Director shall not exceed 50% of
         the relevant limitation applicable to Employees.

                  (e)      Retirement of Director. Notwithstanding Section 2.26,
         in the case of a Director, the term "Retirement" shall mean his or her
         termination of service as such following the attainment of age 70.

                         ARTICLE 13. GENERAL PROVISIONS

         13.1     Effective Date; Issuance of Awards. The Plan shall be deemed
adopted and its Effective Date shall be the date of the Initial Public Offering;
provided, however, that the Plan shall be subject to approval by the
shareholders of the Corporation no earlier than 6 nor later than 12 months after
the Initial Public Offering. Until such time as the shareholders approve the
Plan, no Awards shall be granted hereunder.

         13.2     Termination of the Plan. Unless previously terminated by the
Board, the Plan shall terminate on, and no Award shall be granted after, the day
immediately preceding the tenth anniversary of the Effective Date.

         13.3     Limitation on Termination, Amendment or Modification.

                  (a)      The Board may at any time terminate, amend, modify or
         suspend the Plan, provided that, without the approval of the
         shareholders of the Corporation, no amendment

                                       15

<PAGE>

         or modification shall be made solely by the Board which:

                           (i)      increases the maximum number of shares of
                  Common Stock as to which Awards may be granted under the Plan;

                           (ii)     changes the class of eligible Participants;
                  or

                           (iii)    otherwise requires the approval of
                  shareholders under applicable state law or under applicable
                  federal law to avoid potential liability or adverse
                  consequences to the Corporation or a Participant.

                  (b)      No amendment, modification, suspension or termination
         of the Plan shall in any manner affect any Award theretofore granted
         under the Plan without the consent of the Participant or any person
         validly claiming under or through the Participant.

         13.4     No Right to Grant of Award or Continued Employment. Nothing
contained in this Plan or otherwise shall be construed to (a) require the grant
of an Award to an individual who qualifies as an Employee, or (b) confer upon a
Participant any right to continue in the employ of the Corporation or any
Subsidiary or limit in any respect the right of the Corporation or of any
Subsidiary to terminate the Participant's employment at any time and for any
reason.

         13.5     Certain Rules of Interpretation. Without limiting the power of
the Committee to interpret the provisions of the Plan, the following rules shall
apply in connection with the administration of the Plan:

                  (a)      Except as otherwise provided herein, nonvested Awards
         shall be forfeited immediately upon a Participant's termination of
         employment.

                  (b)      The transfer of a Participant's employment between
         and among the Corporation and a Subsidiary shall not constitute
         termination of employment.

                  (c)      A Participant, who is employed by a Subsidiary, shall
         be deemed to have terminated employment in the event and on the day
         such entity ceases to qualify as a Subsidiary.

         13.6     Withholding Taxes.

                  (a)      Subject to the provisions of Subsection (b), the
         Corporation will require, where sufficient funds are not otherwise
         available, that a Participant pay or reimburse to it any withholding
         taxes at such time as withholding is required by law.

                  (b)      With the permission of the Committee, a Participant
         may satisfy the withholding obligation described in Subsection (a), in
         whole or in part, by electing to have the Corporation withhold shares
         of Common Stock (otherwise issuable to him or her) having a Fair Market
         Value equal to the amount required to be withheld. An election by a
         Participant to have shares withheld for this purpose shall be subject
         to such

                                       16

<PAGE>

         conditions as may then be imposed thereon by any applicable tax or
         securities law.

         13.7     Listing and Registration of Shares.

                  (a)      No Option or SAR granted pursuant to the Plan shall
         be exercisable in whole or in part, and no share certificate shall be
         delivered with respect to an Award, if at any relevant time a majority
         of the disinterested members of the Board shall determine in its
         discretion that the listing, registration or qualification of the
         shares of Common Stock subject to an Award on any securities exchange
         or under any applicable law, or the consent or approval of any
         governmental regulatory body, is necessary or desirable as a condition
         of, or in connection with, such Award, until such listing,
         registration, qualification, consent or approval shall have been
         effected or obtained free of any conditions not acceptable to a
         majority of the disinterested members of the Board.

                  (b)      If a registration statement under the Securities Act
         with respect to the shares issuable under the Plan is not in effect at
         any relevant time, as a condition of the issuance of the shares, a
         Participant (or any person claiming through a Participant) shall give
         the Committee a written statement, satisfactory in form and substance
         to the Committee, that he or she is acquiring the shares for his or her
         own account for investment and not with a view to their distribution.
         The Corporation may place upon any stock certificate for shares issued
         under the Plan the following legend or such other legend as the
         Committee may prescribe to prevent disposition of the shares in
         violation of the Securities Act or other applicable law:

                  'THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT") AND MAY
                  NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR
                  OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
                  STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN
                  OPINION OF COUNSEL FOR THE CORPORATION THAT REGISTRATION IS
                  NOT REQUIRED.'

         13.8     Disinterested Director. For purposes of this Plan, a director
shall be deemed "disinterested" if such person could qualify as a member of the
Committee under Section 3.1.

         13.9     Gender; Number. Words of one gender, wherever used herein,
shall be construed to include each other gender, as the context requires. Words
used herein in the singular form shall include the plural form, as the context
requires, and vice versa.

         13.10    Applicable Law. Except to the extent preempted by federal law,
this Plan document, and the Agreements issued pursuant hereto, shall be
construed, administered and enforced in accordance with the domestic internal
law of the Commonwealth of Pennsylvania.

         13.11    Headings. The headings of the several articles and sections of
this Plan document have been inserted for convenience of reference only and
shall not be used in the construction of the same.

                                       17

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