Document:

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EMPLOYMENT AGREEMENT

     AGREEMENT made as of the 1st day of October, 2005, by and among BICUS SERVICES CORPORATION, a
Pennsylvania corporation, FINANCIAL PACIFIC INSURANCE COMPANY, a California corporation, MERCER
INSURANCE COMPANY, a Pennsylvania corporation, and ROBERT T. KINGSLEY.

     Bicus Services Corporation, a wholly-owned subsidiary of Mercer Insurance Company, desires to
employ Mr. Kingsley, and Mr. Kingsley 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 and FPIC hereby agree to employ the Executive, and the
Executive hereby agrees to serve the Company and FPIC, 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
1, 2007; provided, however, that commencing on October 1, 2006 and each October 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year beyond the term
otherwise established unless, prior to such renewal date, the Company shall not have given a Notice
of Extension.

     4. Position and Duties. The Executive shall serve as President of FPIC, and he shall
have such responsibilities, duties and authority as may, from time to time, be generally associated
with such position. In addition, the Executive shall serve in such capacity, with respect to the
Company, Mercer Insurance Company and each Subsidiary or Affiliate, as the Board of Directors of
the Company, Mercer Insurance Company and 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, FPIC, the Subsidiaries and the
Affiliate; provided, however, that nothing herein shall be construed as (i) requiring the Executive
to commit a substantial amount of his working time to work that must be physically performed in New
Jersey or Pennsylvania, or (ii) 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.

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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 $250,000. 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 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, 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:

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          (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 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

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to pay or fund any disability insurance premiums on behalf of the Executive shall be suspended
while his Disability continues, provided the cessation of payment or funding does not result in the
termination of disability benefits. Any amounts otherwise due under Subparagraph (b) shall be
reduced (but not below zero) by the dollar amount of disability benefits received by him pursuant
to plans or policies funded, directly at its cost, by the Company or its Affiliates.

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

          (e) Death During Remaining Term of Agreement.

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

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

          (f) Compensation and Benefits Upon Expiration of Remaining Term of Agreement. Upon
the expiration of the remaining term of this Agreement following the Executive’s termination for
Disability, and provided his Disability then continues, he shall be entitled to receive the
compensation and benefits provided under the terms of the Company or an Affiliates’ long-term
disability plan in effect on the Date of Termination or, if greater, at the expiration of such
remaining term. Such compensation and benefits shall continue until the earlier of (i) his death,
or (ii) the later of (A) his attainment of age 65, or (B) the date specified in 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

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purposes of the preceding sentence, the Company or the Affiliate shall be deemed to have
provided compensation and benefits at no tax cost to him if it pays an additional amount to him or
on his behalf, with respect to the compensation and benefits which would otherwise be nontaxable to
him, calculated in a manner consistent with the provisions of Paragraph 12.

     7. Termination By Reason of Death.

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

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

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

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

          (4) Subject to the following sentence, the surviving spouse shall be paid benefits
determined by reference to the excess of (i) the aggregate retirement benefits the Executive
would have accrued under the terms of each tax-qualified and non-qualified Defined Benefit
Plan as in effect immediately prior to the Date of Termination, had he (A) continued to be
employed for a period of one year following the Date of Termination, and (B) received (on a
pro rated basis, as appropriate) the greater of (I) the highest compensation taken into
account under each such plan with respect to one of the two years immediately preceding the
year in which the Date of Termination occurs, or (II) his annualized base compensation in
effect immediately prior to the Date of 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.

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

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

     8. Termination By the Company for Cause.

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

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

     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.

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

     10. Termination By the Company Without Disability or Cause.

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

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

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          (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 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

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(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 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

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such payment cannot be finally determined on or before such day, the Company shall pay on such
day an estimate of the minimum amount of such payment and shall pay the remainder of such payment
(together with interest calculated in a manner similar to that described in Subparagraph (b)) as
soon as the amount thereof can be determined. In the event that the amount of an estimated payment
exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by
the Company to the Executive, payable on the 30th day after demand by the Company (together with
interest calculated in a manner similar to that described in Subparagraph (b)).

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

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

     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,

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however, that the trustee shall be a financial institution independent of the Company; and
provided further, that in no event shall the Company be entitled to withdraw funds from the trust
for its benefit, or otherwise voluntarily assign or alienate such funds, until such time as all
compensation and benefits required hereunder are paid and provided. The determination of the
extent of required funding, including any supplemental funding in the event of adverse investment
performance of trust assets, shall be made by an actuary or a certified public accountant retained
by each party. To the extent such professionals cannot agree on the proper level of funding, they
shall select a third such professional whose determination shall be binding upon the parties.
Notwithstanding the foregoing, the Company and its Affiliates shall remain liable for all
compensation and benefits required to be paid or provided hereunder.

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

          (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

11

 

otherwise than by his wrongful act or omission; and provided further, that he may disclose any
knowledge of insurance, financial, legal and economic principles, concepts and ideas which are not
solely and exclusively derived from the business plans and activities of the Company.

     19. Covenants Not to Compete or to Solicit.

          (a) Noncompetition. During his employment, and if the Executive’s employment
terminates under Paragraph 8 or 9 prior to a Change in Control, then, in consideration for the
purchase of his equity interest in Financial Pacific Insurance Group, Inc. and his participation in
stock-based compensation plans of Mercer Insurance Group, Inc., for a period of 12 months after the
Date of Termination, the Executive agrees he will not, without the written consent in writing of
the Board of Directors of the Company, endeavor to entice away from the Company, a Subsidiary or
any Affiliate, or otherwise interfere with the relationship of the Company, a Subsidiary or any
Affiliate with any person who is, or was within the then most recent 12 month period, a customer,
agent or supplier of the Company, a Subsidiary or any Affiliate. If at the time of the enforcement
of this paragraph a court holds that the duration, scope, or area restrictions stated herein are
unreasonable under the circumstances then existing and, thus, unenforceable, the Company and the
Executive agree that the maximum duration, scope, or area reasonable under such circumstances shall
be substituted for the stated duration, scope, or area.

          (b) Nonsolicitation. During his employment, and if the Executive’s employment
terminates under Paragraph 8 or 9 prior to a Change in Control, then for a period of 12 months
after the Date of Termination, the Executive shall not, whether on his own behalf or on behalf of
any other individual or business entity, solicit, endeavor to entice away from the Company, a
Subsidiary or any Affiliate, or otherwise interfere with the relationship of the Company, a
Subsidiary or any Affiliate with any person who is, or was within the then most recent 12 month
period, an employee or associate thereof; provided, however, that this subparagraph shall not apply
following the occurrence of a Change in Control.

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

     21. Additional Equitable Remedy. The Executive acknowledges and agrees that the
Company’s remedy at law for a breach or a threatened breach of the provisions of Paragraphs 18 and
19 would be inadequate; and, in recognition of this fact and notwithstanding the provisions of
Paragraph 20, in the event of such a breach or threatened breach by him, it is agreed that the
Company shall be entitled to request equitable relief in the form of specific performance,

12

 

temporary restraining order, temporary or permanent injunction, or any other equitable remedy
which may then be available. Nothing in this paragraph shall be construed as prohibiting the
Company from pursuing any other remedy available under this Agreement for such a breach or
threatened breach.

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

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

     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. Robert T. Kingsley

39302 Granite Bay Place

Davis, CA 95616

13

 

          If to Mercer, or the Company—

10 North Highway 31

P.O. Box 278

Pennington, NJ 08534

Attention: President and Chief Executive Officer

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.

14

 

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

     34. No Attachment. Except as otherwise provided by law, no right to receive
compensation or benefits under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to set off,
execution, attachment, levy, or similar process, and any attempt, voluntary or involuntary, to
effect any such action shall be null and void.

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

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

     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 State of California.

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

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

	 	 	 	 	 
	 	 	 
	 	 	Robert T. Kingsley
	 
	 	 	 	 
	 	 	BICUS SERVICE CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Attest:	 	 
	 
	 	 	 	 
	 	 	MERCER 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, documented 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 Robert T. Kingsley, an individual residing in Davis, CA.

     “FPIC” means Financial Pacific Insurance Company.

     “Good Reason” means:

     (a) at any time 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;

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

     (vi) requiring the Executive to commute to his principal place of employment a
distance greater than 45 miles from the current headquarters of FPIC in Rocklin,
California; 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;

4

 

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

     (vi) requiring the Executive to be based 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.

5

 

     “Mercer” means Mercer 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.

     “Notice of Nonextension” means a written notice delivered to or by the Executive which advises
that the Agreement will not be extended as provided in Paragraph 3.

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

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

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

     “Regulator” means any state or federal governmental agency now or hereafter responsible for
the regulation of the Company or any Subsidiary or Affiliate.

     “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 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.

6exv10w5

 

—/06

MERCER INSURANCE GROUP, INC.

2004 STOCK INCENTIVE PLAN

Effective June 16, 2004

(As Approved by Shareholders on June 16, 2004)

Amended January 18, 2006

 

 

MERCER INSURANCE GROUP, INC.

2004 STOCK INCENTIVE PLAN

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	ARTICLE	 	 	 	PAGE
	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
	 	 	8	 
	 
	 	 	 	 	 	 
	ARTICLE 7.

	 	TERM, VESTING AND EXERCISE OF OPTIONS
	 	 	9	 
	 
	 	 	 	 	 	 
	ARTICLE 8.

	 	EXERCISE OF OPTIONS FOLLOWING TERMINATION OF EMPLOYMENT OR SERVICE
	 	 	10	 
	 
	 	 	 	 	 	 
	ARTICLE 9.

	 	RESTRICTED STOCK
	 	 	11	 
	 
	 	 	 	 	 	 
	ARTICLE 10.

	 	ADJUSTMENT PROVISIONS
	 	 	13	 
	 
	 	 	 	 	 	 
	ARTICLE 11.

	 	GENERAL PROVISIONS
	 	 	14	 

 

 

ARTICLE 1. PURPOSE OF THE PLAN; TYPES OF AWARDS

     1.1 Purpose. The Mercer Insurance Group, Inc. 2004 Stock Incentive Plan is intended
to provide selected employees and non-employee directors of Mercer Insurance Group and its
Subsidiaries with an opportunity to acquire Common Stock of the Corporation. The Plan is designed
to help the Corporation attract, retain and motivate employees and non-employee directors 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 a participant’s
level of responsibility and performance.

     1.2 Authorized Plan Awards. Incentive Stock Options, Nonqualified Stock Options, and
Restricted Stock may be awarded within the limitations of the Plan herein described.

ARTICLE 2. DEFINITIONS

     2.1 “Agreement.” A written or electronic agreement between the Corporation and a Participant
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 a Stock Option or Restricted Stock.

     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 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
(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 providing for a sale, exchange, transfer or other
disposition of all or substantially all of the assets of the Corporation to another entity, 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 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

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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 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 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 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.

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     2.6 “Code of Conduct.” The policies and procedures related to employment of employees by the
Corporation or a Subsidiary set forth in the Corporation’s employee handbook. The Code of Conduct
may be amended and updated at any time. The term “Code of Conduct” shall also include any other
policy or procedure that may be adopted by the Corporation or a Subsidiary and communicated to
Employees and Non-Employee Directors of the Corporation or a Subsidiary.

     2.7 “Committee.” The Compensation Committee of the Board.

     2.8 “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.

     2.9 “Corporation.” Mercer Insurance Group, Inc., a Pennsylvania corporation.

     2.10 “Employee.” Any common law employee of the Corporation or a Subsidiary. An Employee
does not include any individual who: (i) does not receive payment for services directly from the
Corporation’s or a Subsidiary’s payroll; (ii) is employed by an employment agency that is not a
Subsidiary; or (iii) who renders services pursuant to a written arrangement that expressly provides
that the service provider is not eligible for participation in the Plan, regardless if such person
is later determined by the Internal Revenue Service or a court of law to be a common law employee.

     2.11 “Exchange Act.” The Securities Exchange Act of 1934, as amended.

     2.12 “Incentive Stock Option.” A Stock Option intended to satisfy the requirements of Code
Section 422(b).

     2.13 “Non-Employee Director.” A member of the Board who is not an Employee.

     2.14 “Nonqualified Stock Option.” A Stock Option which does not satisfy the requirements of
Code Section 422(b).

     2.15 “Optionee.” A Participant who is awarded a Stock Option pursuant to the provisions of
the Plan.

     2.16 “Participant.” An Employee or Non-Employee Director to whom an Award has been granted
and remains outstanding.

     2.17 “Performance Criteria.” Any objective determination based on one or more of the
following areas of performance of the Corporation, a Subsidiary, or any division, department or
group of either which includes, but is not limited to: (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, (m) asset
quality, (n) expense reduction, (o) systems conversion, (p) special projects as determined by the
Committee, and (q) acquisition integration initiatives. Performance Criteria shall be established
by the Committee prior to the issuance of a Performance Grant.

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     2.18 “Performance Goal.” One or more goals established by the Committee, with respect to an
Award intended to constitute a Performance Grant, that relate 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 five years, as may be specified by the
Committee at the time of the awarding of a Performance Grant.

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

     2.20 “Plan.” The Mercer Insurance Group, Inc. 2004 Stock Incentive Plan.

     2.21 “Restricted Stock.” An award of Common Stock pursuant to the provisions of the Plan,
which award is subject to such restrictions and other conditions, including achievement of one or
more performance goals, as may be specified by the Committee at the time of such award.

     2.22 “Retirement.” The termination of a Participant’s employment following the first day of
the month coincident with or next following attainment of age 65, as the term “Normal Retirement
Date” is defined in the Mercer Insurance Group, Inc. Employee Stock Ownership Plan, or attainment
of age 55 and the completion of five (5) years service as described in the Mercer Insurance Group,
Inc. Employee Stock Ownership Plan.

     2.23 “Securities Act.” The Securities Act of 1933, as amended.

     2.24 “Stock Option” or “Option.” A grant of a right to purchase Common Stock pursuant to the
provisions of the Plan.

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

     2.26 “Termination or Dismissal For Cause.” Termination of an Employee by the Corporation or a
Subsidiary or dismissal of a Non-Employee Director from the Board after:

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

          (b) such Employee or Non-Employee Director 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 Employee or Non-Employee Director for a period
of 45 consecutive days;

          (c) a determination by the Committee that such Employee willfully failed to follow the lawful
instructions of the Board or any officer of the Corporation or a Subsidiary after such Employee’s
receipt of written notice of such instructions, other than a failure resulting from the Employee’s
incapacity because of physical or mental illness;

          (d) a determination by the Committee that the willful or continued failure by such Employee or
Non-Employee Director to substantially and satisfactorily perform his duties with

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the Corporation or a Subsidiary (other than any such failure resulting from the Employee or
Non-Employee Director being “disabled” (as defined in the Corporation’s group long term disability
policy) or as a result of physical or mental illness), within a reasonable period of time after a
demand for substantial performance or notice of lack of substantial or satisfactory performance is
delivered to the Employee or Non-Employee Director, which demand identifies the manner in which the
Employee or Non-Employee Director has not substantially or satisfactorily performed his or her
duties; or

          (e) a determination by the Committee that such Employee or Non-Employee Director has failed to
conform to the Corporation’s Code of Conduct.

     For purposes of the Plan, no act, or failure to act, on a Employee’s or Non-Employee
Director’s part shall be deemed “willful” unless done, or omitted to be done, by such Employee or
Non-Employee Director not in good faith and without reasonable belief that such Employee’s or
Non-Employee Director’s action or omission was in the best interest of the Corporation or a
Subsidiary.

ARTICLE 3. ADMINISTRATION

     3.1 The Committee. The Plan shall be administered by the Compensation Committee of
the Board composed of two 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, and (b) “outside
directors” within the meaning of Code Section 162(m). The Board may from time to time remove
members from, or add members to, the Committee. Vacancies on the Committee, however 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 and Non-Employee Directors 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;

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

          (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 Performance Criteria and establish Performance Goals with respect
thereto, to be applied to an Award; and

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

     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. Except as may otherwise be provided in Article 8 hereof, no Option that is
intended to constitute a Performance Grant may be exercised until the Performance Goal or Goals
applicable thereto is or are satisfied, nor shall any share of Restricted Stock that is intended to
constitute a Performance Grant be released to a Participant until the Performance Goal or Goals
applicable thereto is or are satisfied.

     3.5 No Waiver of Performance Goals. Except as may otherwise be provided in Article 8
hereof, the Committee or the Board shall not waive any Performance Goals with respect to the grant
of any Award hereunder.

     3.6 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.

          (a) The initial total aggregate number of shares of Common Stock for which Options may be
granted under the Plan or which may be awarded as Restricted Stock under the Plan shall not exceed
876,555. Notwithstanding the foregoing, the number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first trading day of January of each
calendar year during the term of the Plan, beginning with calendar year 2005, by an amount equal to
one percent (1%) of the shares of Common Stock outstanding on the last trading day in December of
the immediately preceding calendar year. No Incentive Stock Options may be granted on the basis of
the additional shares of Common Stock resulting from such annual increases. The limitation
established by the preceding sentence shall also be subject to adjustment as provided in Article
10.

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          (b) The maximum aggregate number of shares of Common Stock for which Restricted Stock may be
awarded under the Plan shall not exceed 250,000. The limitation established by the preceding
sentence shall be subject to adjustment in proportion to any increase in the total number of shares
available for issuance under the Plan as provided in Section 4.1(a) above and Article 10.

          (c) The maximum aggregate number of shares of Common Stock for which Incentive Stock Options
may be granted under the Plan shall not exceed 500,000. The limitation established by the
preceding sentence shall be subject to adjustment as provided in Article 10.

          (d) The maximum aggregate number of shares of Common Stock for which Awards may be granted
under the Plan to non-employee directors shall not exceed 350,000. The limitation established by
the preceding sentence shall be subject to adjustment as provided in Article 10.

          (e) If any Option is exercised by tendering Common Stock, either actually or by attestation,
to the Corporation as full or partial payment in connection with the exercise of such Option under
the Plan, or if the tax withholding requirements are satisfied through such tender, only the number
of shares of Common Stock issued net of the Common Stock tendered shall be deemed delivered for
purposes of determining the maximum number of shares available for Awards under the Plan.

     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. 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.

ARTICLE 5. ELIGIBILITY

     5.1 Participation. Awards shall be granted by the Committee only to persons who are
Employees and Non-Employee Directors.

     5.2 Incentive Stock Option Eligibility. Incentive Stock Option Awards may only be
granted to Employees of the Corporation. 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

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Option. “Outstanding stock” shall not include shares authorized for issue under outstanding
Options held by the 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 the second sentence of 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% of the fair market value of a share of Common Stock on the date the Option is
granted. In no event shall the exercise price of any Option granted be less than the fair market
value (as determined under Code Section 409A and the guidance promulgated thereunder) on the date
of grant. The exercise price shall be subject to adjustment pursuant to the limited circumstances
set forth in Article 10.

     6.2 Limitation on Incentive Stock Options. The aggregate fair market value
(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) If the Common Stock is not listed on an established stock exchange or exchanges but is
listed on NASDAQ, the fair market value per share shall be the closing sale price for the Common
Stock on the day an Option is granted. 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) If the Common Stock is not listed on an established stock exchange or on NASDAQ, fair
market value per share shall be the mean between the closing dealer “bid” and “asked” prices for
the Common Stock for the day an Option is granted, and if no “bid” and “asked” prices are quoted
for the day an Option is granted, the fair market value shall be determined by reference to such
prices on the next preceding day on which such prices were quoted.

          (c) If the Common Stock is listed on an established stock exchange or exchanges, the fair
market value shall be deemed to be the closing price of Common Stock on such stock exchange or
exchanges on the day an Option is granted. If no sale of Common Stock has been made on any stock
exchange 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 on
NASDAQ, and no closing dealer “bid” and “asked” prices are available on the day an Option is
granted, then fair market value will be the price established by the Committee in good faith.

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          (e) 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. Awards under this Plan (and any other 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 50,000 shares of Common
Stock during any period of 12 consecutive months; provided, however, that the preceding clause was
not intended to apply and shall not apply to grants of Options made prior to January 1, 2005. Such
limitation shall be subject to adjustment in the manner described in Article 10.

     6.5 Transferability of Options.

          (a) Except as provided in Subsection (b), an Option granted hereunder shall 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 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 specified in the Agreement; provided, however, that (i) each
intended Incentive Stock Option granted to an individual described in the second sentence of
Section 5.2 shall terminate not later than five years after the date of the 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 fully exercisable (i.e., become 100% vested) only after the earlier
of the date on which (i) the Optionee has completed one year of continuous employment with, or
service with respect to, 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); (ii) unless otherwise provided
in an Agreement, a Change in Control occurs; and (iii) unless otherwise provided in an Agreement,
the Optionee’s death, being “disabled” (as defined in the Corporation’s long term disability
policy) or Retirement after completing three or more years of service from the date of the grant of
the Option. Except as provided in Article 8 an Option may be exercised only during the continuance
of the Optionee’s employment, with or service with respect to, the Corporation.

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     7.2 Exercise.

          (a) A person electing to exercise an Option shall give notice to the Corporation of such
election and of the number of shares he or she has elected to purchase and shall at the time of
exercise tender the full exercise price of the shares he or she has elected to purchase. The
exercise notice shall be delivered to the Corporation in person, by certified mail, or by such
other method (including electronic transmission) and in such form as determined by the Committee.
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; further provided, however, that no such manner of exercise shall be permitted if such
exercise would violate Section 402 of the Sarbanes-Oxley Act of 2002. Notwithstanding the
foregoing, Common Stock acquired pursuant to the exercise of an Incentive Stock Option may not be
tendered as payment unless the holding period requirements of Code Section 422(a)(1) have been
satisfied, and Common Stock not acquired pursuant to the exercise of an Incentive Stock Option may
not be tendered as payment unless it has been held, beneficially and of record, for at least 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.

ARTICLE 8. EXERCISE OF OPTIONS FOLLOWING TERMINATION OF EMPLOYMENT OR SERVICE

     8.1 Retirement; Other Termination by Corporation or Subsidiary; Change in Control. In
the event of an Optionee’s termination of employment or service as a Non-Employee Director (i) due
to Retirement, (ii) by the Corporation or a Subsidiary other than Termination for Cause, or (iii)
due to a Change in Control, such Optionee’s Option shall lapse at the earlier of the expiration of
the term of such Option or:

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

          (b) in the case of a Nonqualified Stock Option, one year from the date of such termination of
employment or service as a Non-Employee Director.

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     8.2 Death or Total Disability. In the event of an Optionee’s termination of
employment or service as a Non-Employee Director due to death or being “disabled” (as defined in
the Corporation’s group long term disability policy), such Optionee’s Option shall lapse at the
earlier of the expiration of the term of such Option or:

          (a) in the case of an Incentive Stock Option, one year from the date of such termination of
employment; and

          (b) in the case of a Nonqualified Stock Option, one year from the date of such termination of
employment or service as a Non-Employee Director.

     8.3 Termination or Dismissal For Cause; Other Termination by Optionee. In the event
of an Optionee’s Termination or Dismissal For Cause, or in the event of termination of employment
at the election of an Optionee, such Optionee’s Option shall lapse upon such termination.

     8.4 Special Termination Provisions for Options.

          (a) In the event that an Optionee’s employment or service as a Non-Employee Director is
terminated and the Committee deems it 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 any
continuous service requirement for vesting (but not any Performance Goal or Goals) specified in an
Agreement pursuant to Section 7.1 and permit exercise of an Option held by such Optionee prior to
the satisfaction of such continuous service requirement. Any such waiver may be made with
retroactive effect, provided it is made within 60 days following the Optionee’s termination of
employment or service as a Non-Employee Director.

          (b) In the event the Committee waives the continuous service requirement with respect to an
Option as set forth in Section 8.4(a) above and the circumstance of an Optionee’s termination of
employment or service as a Non-Employee Director is described in Section 8.1, the affected Option
will lapse as otherwise provided in the relevant section.

          (c) In the event the Committee waives the continuous service requirement with respect to an
Option as set forth in Section 8.4(a) above, such Option shall lapse at the earlier of the
expiration of the term of such 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, one year from the date of termination
of employment or service as a Non-Employee Director.

ARTICLE 9. RESTRICTED STOCK

     9.1 In General. Each Restricted Stock Award 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. Subject to Section 3.6, a Restricted Stock Award shall be subject to a vesting
schedule or Performance Goals, or both.

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     9.2 Minimum Vesting Period for Certain Restricted Stock Awards. Each Restricted Stock
Award granted to a Participant shall be fully exercisable (i.e., become 100% vested) only after the
earlier of the date on which (i) the Participant has completed one year of continuous employment
with, or service with respect to, the Corporation or a Subsidiary immediately following the date
that the Restricted Stock was awarded (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); (ii)
unless otherwise provided in an Agreement, a Change in Control occurs; or (iii) unless otherwise
provided in an Agreement, the Participant’s death, being “disabled” (as defined in the
Corporation’s group long term disability policy) or Retirement after completing three or more years
of service from the date of the Award.

     9.3 Waiver of Vesting Period for Certain Restricted Stock Awards. In the event that a
Participant’s employment or service as a Non-Employee Director is terminated and the Committee
deems it 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 any minimum vesting period (but not any
Performance Goal or Goals) with respect to a Restricted Stock Award held by such Participant. Any
such waiver may be made with retroactive effect, provided it is made within 60 days following such
Participant’s termination of employment or service as a Non-Employee Director.

     9.4 Limitation on Restricted Stock Awards. 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 25,000
shares of Common Stock during any period of 12 consecutive months; provided, however, that the
preceding clause was not intended to apply and shall not apply to Restricted Stock Awards made
prior to January 1, 2005. Such limitation shall be subject to adjustment in the manner described
in Article 10.

     9.5 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.

     9.6 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.

     9.7 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.

     9.8 Forfeiture of Restricted Stock Awards. In the event of the forfeiture of a
Restricted Stock Award, by reason of a Participant’s termination of employment or termination of
service as a Non-Employee Director prior to vesting, the failure to achieve a Performance Goal or

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otherwise, the Corporation shall take such steps as may be necessary to cancel the affected
shares and return the same to its treasury.

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

ARTICLE 10. ADJUSTMENT PROVISIONS

     10.1 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 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.

     10.2 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.

     10.3 Fractional Shares. Fractional shares resulting from any adjustment in Awards
pursuant to this article may be settled as the Committee shall determine.

     10.4 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

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conclusive. Notice of any adjustment shall be given by the Corporation to each holder of an
Award which shall have been so adjusted.

ARTICLE 11. GENERAL PROVISIONS

     11.1 Effective Date. The Plan shall become effective upon the approval of the Plan by
the shareholders of the Corporation within 12 months of adoption by the Board.

     11.2 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 its adoption by the Board.

     11.3 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 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 (except as provided in Section 10.1);

          (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.

     11.4 No Right to Grant of Award or Continued Employment or Service. 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 Non-Employee Director, or (b) confer upon a Participant any right
to continue in the employ or service 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 or
service at any time and for any reason.

     11.5 No Obligation. No exercise of discretion under this Plan with respect to an
event or person shall create an obligation to exercise such discretion in any similar or same
circumstance, except as otherwise provided or required by law.

     11.6 Withholding Taxes.

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

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          (b) With the permission of the Committee, a Participant who is an Employee 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 who is an Employee
to have shares withheld for this purpose shall be subject to such conditions as may then be imposed
thereon by any applicable securities law.

     11.7 Listing and Registration of Shares.

          (a) No Option granted pursuant to the Plan shall be exercisable in whole or in part, and no
share certificate shall be delivered, if at any relevant time the Committee determines 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 the Committee.

          (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 or
electronic 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.’

     11.8 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.

     11.9 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.

     11.10 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.

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     11.11 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.

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