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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12.
</TABLE>
ERIE INDEMNITY COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
SUSAN HIRT HAGEN
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
REVISED PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED MARCH 24, 2000
[LETTERHEAD OF SUSAN HIRT HAGEN]
March , 2000
Dear Fellow Shareholder:
Over the past year or so, it has become increasingly evident to me that the
current Board of Directors of Erie Indemnity Company is not acting in the
long-term interests of the Company, its Shareholders and its many
constituencies. I believe that the Board of Directors and its management have
demonstrated an alarming lack of judgment and a belief that they are not
accountable to the Shareholders who elect them to office. As a result, I am
seeking your support to elect a new Board of Directors for the Company at the
upcoming Annual Meeting of Shareholders scheduled for April 25, 2000.
My concerns stem from my close connections with the Company over my
lifetime. As many of you are aware, I have been a Co-Trustee of the H.O. Hirt
Trusts since they were created in 1967 by my father, the Co-Founder and Chief
Executive for 50 years of the Erie Indemnity Company and Erie Insurance
Exchange. Today, the Trusts control 76.22% of the Class B voting stock of the
Company. I have also been a shareholder of the Company for 45 years, and I am
now the beneficial owner of 38.5% of the Class B voting stock, which together
with ownership of Class A non-voting shares by me and my family interests,
represents the largest (28%) investment in the Company. What you may not know,
however, is that I have been a Director of the Company and related companies for
the last 20 years, and I am third in seniority of the 13 current Directors.
Nonetheless, when the Nominating Committee and the Board of Directors at a
special Board meeting held on March 14(th) rejected my slate of candidates for
election as Directors at the upcoming Annual Meeting, the Nominating Committee
and the Board failed to renominate me to serve on the Board for another term,
despite my long-time service to and significant stakes in the Company. I believe
this is just another example of the hostile attitude that the current Board and
management have adopted toward the interests of the Shareholders and the
heritage of the Company.
The slate of nominees that I am proposing are individuals of integrity,
experience and diverse disciplines who are committed to protecting the unique
corporate culture of the Company. The election of my nominees for Director would
provide management with the support necessary to focus the Company on the
long-term interests of its Shareholders and other constituencies.
Because the Board of Directors has given every indication that it will not
allow me to nominate my slate for election to the Board at the Annual Meeting,
thereby causing me to suffer irreparable harm, I believe I have been left with
no other choice but to pursue in court my right to nominate and elect a slate of
Directors other than those nominated by the current Board. In the event that the
court does not affirm my right prior to the Annual Meeting, I am also seeking
the vote of Class B shareholders to (a) remove all of the Directors of the
Company immediately following their election at the Annual Meeting, (b) amend
the Bylaws to allow the Shareholders to fix the number of Directors on the
Board, (c) reduce the number of Directors on the Board to 11, and (d) nominate
my slate for election as Directors of the Company to fill the vacancies on the
Board so created. This latter course of action, however, is no substitute for my
ability to exercise the fundamental right of a Shareholder to nominate
directors. Consequently, I will continue to pursue this right through
appropriate court action.
The accompanying Proxy Statement provides additional information concerning
my proposals.
Thank you very much for your kind consideration. Class B shareholders,
please sign, date and return today the enclosed GOLD Proxy card in the enclosed
postage prepaid envelope. Regardless of how many shares you own, your vote is
very important.
Sincerely,
/s/SUSAN HIRT HAGEN
Susan Hirt Hagen
<PAGE> 3
REVISED PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED MARCH 24, 2000
PROXY STATEMENT
OF
SUSAN HIRT HAGEN
IN OPPOSITION TO THE BOARD OF DIRECTORS
OF
ERIE INDEMNITY COMPANY
------------------------
2000 ANNUAL MEETING OF SHAREHOLDERS
INTRODUCTION
This Proxy Statement (the "Proxy Statement") and the accompanying form of
Proxy are being furnished by Susan Hirt Hagen, a Director of Erie Indemnity
Company (the "Company") and beneficial owner of 38.5% of the Class B Common
Stock of the Company (the "Class B Common Stock"), to the holders of shares of
Class B Common Stock, on or about March , 2000, in connection with the
solicitation by Mrs. Hagen of proxies to be voted at the 2000 Annual Meeting of
Shareholders (the "Annual Meeting"). On March 7, 2000, the Company's Board of
Directors designated that the Annual Meeting will be held at 3:00 p.m., local
time, on Tuesday, April 25, 2000 at the Auditorium of the F.W. Hirt-Perry Square
Building, 100 Erie Insurance Place (Sixth and French Streets), Erie,
Pennsylvania 16530.
Mrs. Hagen is the direct beneficial owner of 12 shares of Class B Common
Stock and the beneficiary of one of the two trusts (the "Trusts") under a trust
agreement created by her father, Henry Orth Hirt, co-founder of the Company. The
Trusts beneficially own 2,340 shares of Class B Common Stock, representing
76.22% of the Class B Common Stock outstanding. Each of Mrs. Hagen and her
brother, F. William Hirt, the Chairman of the Board of the Company, is the
beneficiary of one of the trusts, each of which holds 1,170 shares, or 38.1%, of
the Class B Common Stock. Thus, Mrs. Hagen beneficially owns 38.5% of the
outstanding shares of Class B Common Stock. In addition, Mrs. Hagen and her
family interests constitute the largest investor in the Company, owning 28%
(nearly $600 million) of its economic value.
Mrs. Hagen is soliciting proxies from the holders of outstanding shares of
Class B Common Stock in order to:
- Elect the following individuals as Directors of the Company at the Annual
Meeting: Kenneth B. Frank, Patricia Garrison-Corbin, Susan Hirt Hagen,
Samuel P. Katz, Claude C. Lilly, III, Ph.D., Henry N. Nassau, Esq.,
Mitchell S. Rosenthal, M.D., General Perry M. Smith, Ph.D., Charles D.
Snelling, William H. Starbuck, Ph.D. and James M. Trapp, Esq.
(collectively, the "Hagen Nominees").
The Hagen Nominees are being proposed by Mrs. Hagen as a unified slate
inasmuch as each Hagen Nominee has agreed not to serve, stand for election or
become a Director of the Company as part of a slate of nominees proposed by any
other party unless such slate contains a number of Hagen Nominees sufficient to
constitute a majority of the members of the Board. See "Proposal 1 -- Nominees
for Election as Director -- the Hagen Nominees." Mrs. Hagen, however, has
retained the right to waive this condition. Any such waiver will be publicly
disclosed if and when made by Mrs. Hagen.
Since Mrs. Hagen will suffer irreparable harm if the current Board of
Directors of the Company (the "Board") persists in its view that Mrs. Hagen
cannot nominate the Hagen Nominees at the Annual Meeting (see "Proposal
1 -- Nominees for Election as Directors -- Voting"), Mrs. Hagen is pursuing in
court her right to nominate and elect a slate of Directors other than those
nominated by the current Board. See "Legal Proceedings" below. In case the court
does not reach a determination in favor of Mrs. Hagen prior to the Annual
Meeting, Mrs. Hagen is also soliciting proxies from the holders of outstanding
shares of Class B
<PAGE> 4
Common Stock in order to take the following actions at the Annual Meeting, as
permitted by the Company's Bylaws (the "Bylaws"):
- Remove all of the Directors of the Company immediately following their
election at the Annual Meeting;
- Amend the Bylaws to allow the Shareholders to fix the number of members
of the Board;
- Reduce the size of the Board to eleven (11) Directors; and
- Nominate the Hagen Nominees for election as Directors of the Company to
fill the vacancies on the Board (collectively, the "Alternative
Proposal").
Although Mrs. Hagen will propose the Alternative Proposal at the Annual Meeting
if left with no other option, it is her view that this alternative is no
substitute for the Shareholders' fundamental right to nominate Directors.
Consequently, Mrs. Hagen is seeking preliminary injunctive relief to secure that
right for herself and all other Shareholders. See "Legal Proceedings" below.
If elected, the Hagen Nominees will constitute the entire Board.
CLASS B SHAREHOLDERS WILL SOON RECEIVE A PROXY CARD FROM THE COMPANY. PLEASE
RETURN ONLY MRS. HAGEN'S GOLD PROXY CARD AND DO NOT RETURN ANY COMPANY PROXY
CARD UNDER ANY CIRCUMSTANCES, EVEN TO VOTE FOR THE BOARD'S NOMINEES. IF YOU
RETURN BOTH PROXY CARDS THERE IS A DANGER THAT YOUR SHARES WILL NOT BE VOTED AS
YOU DESIRE, BECAUSE ONLY THE LATEST DATED PROXY CARD YOU SUBMIT COUNTS.
Mrs. Hagen is proposing her own slate of nominees for election to the Board
because she believes that the Board is not focused on, and is not operating the
Company in accordance with, the long-term interests of the Shareholders who
elect them to office. Mrs. Hagen has no confidence whatsoever in the current
Board and management's ability to continue to be the stewards of the
Shareholders' interests and in their ability to lead the Company through the
current extremely competitive environment and into an ever changing business and
technological world. Mrs. Hagen believes that the election of the Hagen Nominees
would provide management with the support necessary to focus the Company on the
long-term interests of its Shareholders and other constituencies. Mrs. Hagen
believes that the Hagen Nominees are individuals of integrity and experience who
have impeccable credentials in a wide variety of disciplines and are committed
to protecting the unique corporate culture of the Company. For further
information concerning the reasons for the solicitation, see "-- Reasons for the
Solicitation" below.
VOTING
At its March 7, 2000 meeting, the Board fixed the close of business on
Monday, March 20, 2000 as the record date for the determination of the holders
of Class B Common Stock entitled to notice of and to vote at the Annual Meeting.
On such date, there were shares of Class B Common Stock outstanding and
entitled to vote at the Annual Meeting. On all matters, including the election
of Directors, each holder of
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<PAGE> 5
Class B Common Stock will have one vote for each share held. Holders of Class A
Common Stock do not have the right to vote on any of the matters to be acted
upon at the Annual Meeting.
Except as may be otherwise provided in Sections 1756(b)(1) and (2) of the
Pennsylvania Business Corporation Law (the "BCL") in the case of adjourned
meetings, a majority of the outstanding shares of Class B Common Stock will
constitute a quorum at the Annual Meeting for the election of Directors, the
approval of the Alternative Proposal and the ratification of the selection of
independent auditors. Cumulative voting rights do not exist with respect to the
election of Directors. The nominees for Director receiving the highest number of
votes cast by the holders of Class B Common Stock in person or by proxy at the
Annual Meeting will be elected as Directors. The approval of the Alternative
Proposal and the ratification of the selection of Brown, Schwab, Bergquist & Co.
as the Company's independent public accountants for 2000 will require the
affirmative vote of a majority of the votes cast at the Annual Meeting by the
holders of the Class B Common Stock. Shares of Class B Common Stock held by
brokers or nominees as to which voting instructions have not been received from
the beneficial owner or person otherwise entitled to vote and as to which the
broker or nominee does not have discretionary voting power, i.e., broker
nonvotes, will be treated as not present and not entitled to vote for nominees
for election as Directors. Abstentions will be treated as the withholding of
authority to vote for nominees for election as Directors, the Alternative
Proposal and the ratification of the selection of Brown, Schwab, Bergquist & Co.
Abstentions from voting and broker nonvotes will have no effect on the election
of Directors, the Alternative Proposal or the ratification of the selection of
Brown, Schwab, Bergquist & Co. because they will not represent votes cast at the
Annual Meeting.
The Trusts collectively own 2,340 shares of Class B Common Stock. Because
such shares represent 76.22% of the outstanding shares of Class B Common Stock,
the Trusts own sufficient shares to determine the outcome of any matter
submitted to a vote of the holders of the Class B Common Stock, assuming all of
the shares held by the Trusts are voted in the same manner. The trustees of the
Trusts as of the record date for the Annual Meeting are F. William Hirt, Susan
Hirt Hagen and Bankers Trust Company of New York ("Bankers Trust"). Under the
provisions of the Trusts, the shares of Class B Common Stock held by the Trusts
are to be voted as directed by a majority of trustees then in office. If at
least a majority of the trustees then in office of both of the Trusts vote for
the election of the Hagen Nominees, for the Alternative Proposal and for the
ratification of the selection of Brown, Schwab, Bergquist & Co. as the Company's
independent public accountants for 2000, such nominees will be elected as
Directors of the Company, the Alternative Proposal will be approved and the
selection of Brown, Schwab, Bergquist & Co. as the Company's independent public
accountants for 2000 will be ratified, even if all shares of Class B Common
Stock other than those held by the Trusts are not voted for such nominees, for
the Alternative Proposal or for such ratification.
If the enclosed form of Proxy is executed and returned, it may nevertheless
be revoked by the person giving it any time before the vote at the Annual
Meeting either by filing with the Secretary of the Company a written notice of
revocation or a proxy bearing a later date than the most recently submitted
proxy or by attending the Annual Meeting and voting in person. The execution of
a proxy will not affect a Shareholder's right to attend the Annual Meeting and
vote in person, but attendance at the Annual Meeting will not, by itself, revoke
a proxy.
Unless contrary instructions are indicated on the enclosed GOLD Proxy, all
shares of Class B Common Stock represented by valid Proxies received pursuant to
this solicitation (which have not been revoked as described above) will be voted
(a) FOR the election of the Hagen Nominees, (b) FOR the Alternative Proposal,
(c) FOR the ratification of the selection of Brown, Schwab, Bergquist & Co. as
the Company's independent public accountants for 2000 and (d) at the discretion
of the Proxy holder(s), on such other business as may properly come before the
Annual Meeting, including any adjournment(s) or postponements(s) thereof.
CLASS B SHAREHOLDERS WISHING TO VOTE FOR THE HAGEN NOMINEES MUST SUBMIT THE
ENCLOSED GOLD PROXY CARD AND SHOULD NOT SUBMIT THE COMPANY'S PROXY CARD. IF THE
HAGEN NOMINEES ARE ELECTED, THE BOARD WILL CONSIST OF THE 11 HAGEN NOMINEES AND
THE ONE NOMINEE OF THE COMPANY WHO RECEIVES THE HIGHEST VOTE TOTAL. SHAREHOLDERS
WHO VOTE THEIR SHARES WITH THE
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ENCLOSED GOLD PROXY CARD WILL BE VOTING FOR ONLY 11 OF THE 12 POSITIONS ON THE
BOARD. ANY SHAREHOLDER WHO DESIRES TO VOTE FOR ALL OF THE HAGEN NOMINEES AND ONE
OF THE COMPANY'S NOMINEES (WHICH COULD INCLUDE F. WILLIAM HIRT) SHOULD ATTEND
THE ANNUAL MEETING AND FILL OUT A BALLOT.
In the event that the Annual Meeting is adjourned, pursuant to Section
1756(b)(1) of the BCL, those Shareholders entitled to vote who attend a meeting
of Shareholders that was previously adjourned for lack of a quorum shall
constitute a quorum for the purpose of electing Directors even though the number
of Shareholders present at such adjourned meeting constitutes less than a quorum
as fixed in the Bylaws.
For purposes other than the election of Directors, pursuant to Section
1756(b)(2) of the BCL, notice is hereby given that those Shareholders entitled
to vote who attend a meeting of Shareholders that has been previously adjourned
for one or more periods aggregating at least fifteen days because of an absence
of a quorum, shall constitute a quorum for acting upon any matter set forth in
this notice even though the number of Shareholders present at such adjourned
meeting is less than a quorum as fixed in the Bylaws.
Class B Shareholders having already returned a Company proxy card, even if
to withhold authority to vote, please sign, date and return the enclosed GOLD
Proxy card in the enclosed postage-prepaid envelope; only the latest dated proxy
counts. Execution of the GOLD Proxy card will revoke any earlier dated proxy for
the Annual Meeting. Therefore, if you sign and deliver both the GOLD Proxy card
and the proxy card provided by the Company, the latest dated proxy is the one
that counts and the earlier dated proxy will be revoked. Regardless of how many
shares you own, your vote is very important.
If your shares of Class B Common Stock are held in the name of a brokerage
firm, bank, nominee or other institution, only that entity can execute a proxy.
Accordingly, please contact the person responsible for your account and give
instructions for a proxy to be signed representing your shares.
THE VOTE OF CLASS B SHAREHOLDERS AT THIS YEAR'S ANNUAL MEETING
IS ESPECIALLY IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED GOLD
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY.
PROPOSAL 1
NOMINEES FOR ELECTION AS DIRECTORS
GENERAL
The Bylaws provide that the Board shall consist of not less than 7 nor more
than 16 Directors, with the exact number to be fixed from time to time by
resolution of the Board. At the 1999 Annual Meeting of Shareholders, 11 persons
were elected to serve as Directors on the Board until the 2000 annual meeting of
Shareholders and until his or her successor had been duly elected. A vacancy on
the Board was created, however, when Edmund J. Mehl resigned from the Board on
September 13, 1999. (Mr. Mehl was to have retired from the Board at the 1999
annual meeting of shareholders when he reached the mandatory retirement age,
however, the Board did not apply the Bylaw provision providing for such
retirement to Mr. Mehl and extended his retirement date to the 2000 annual
meeting of shareholders.) In addition, on September 13, 1999, the Board, by
resolution, increased the number of persons to serve on the Board from 11 to 13.
To fill these newly-created vacancies, the Board appointed three new Directors.
Subsequently, at a special meeting of the Board held on March 14, 2000, the
Board reduced the number of persons to serve on the Board from 13 to 12. This
reduction will be effective at the Annual Meeting. Under the Bylaws any vacancy
occurring on the Board for any reason may be filled by a majority vote of the
Directors then remaining in office until the next succeeding annual meeting of
the Company's Shareholders.
On December 29, 1999, in compliance with the Bylaws as amended by the Board
on August 16, 1999, Mrs. Hagen delivered a Notice of Shareholder Proposals With
Respect to the Annual Meeting (the "Notice") to the Nominating Committee of the
Board (the "Nominating Committee") and the Secretary of the Company. The Notice
contained three alternative proposals in respect of the Annual Meeting: (i) the
inclusion of the Hagen Nominees in the Board's slate of Directors for election
to the Board at the Annual Meeting; (ii) if the Board did not include the Hagen
Nominees in its slate, the nomination of the Hagen
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Nominees by Mrs. Hagen; and (iii) if the Board did not allow Mrs. Hagen to
nominate the Hagen Nominees at the Annual Meeting (for reasons discussed below),
the (a) removal of all the Directors of the Company immediately following their
election at the Annual Meeting, (b) the amendment of the Bylaws to allow the
Shareholders to fix the number of Board members, (c) the reduction of the number
of Directors on the Board to 11, and (d) the nomination of the Hagen Nominees
for election as Directors of the Company to fill the vacancies on the Board so
created.
Mrs. Hagen was forced to submit three alternative proposals because of the
position the Board takes with respect to her nomination of the Hagen Nominees as
Directors at the Annual Meeting. Typically, a shareholder of a public
corporation who complies with advance notice requirements of the type set forth
in the Bylaws would be ensured that his or her nominees would be placed before
the shareholders for consideration at an annual meeting of shareholders.
However, the Board has taken the position that only the Nominating Committee of
the Company has the power to nominate Directors for election to the Board, even
though Mrs. Hagen has been advised by counsel that the right of a Shareholder to
nominate Directors is clearly contemplated by the Bylaws and Pennsylvania law.
Therefore, Mrs. Hagen expected that the Company would not permit her to propose
the Hagen Nominees for election at the Annual Meeting. Mrs. Hagen's prediction
of the Company's reaction towards her nomination of Directors was confirmed by
the Board's most recent actions.
In February 2000, the Nominating Committee contacted one of Mrs. Hagen's
eleven nominees for an interview. On February 23, Mrs. Hagen notified the Chair
of the Nominating Committee that she requested that such nominee decline to be
interviewed at that time until a process could be established to permit the
other Hagen Nominees to be interviewed by the Nominating Committee as well. Mrs.
Hagen further stated that she did not object to her candidates being
interviewed; in fact, she welcomed it, as did all her candidates. However, Mrs.
Hagen felt that to single out just one for an interview from all of the highly
qualified Hagen Nominees, each of whom Mrs. Hagen believes has more than the
necessary experience and talent to serve ably on the Board, gave the appearance
of prejudgment against the others before giving each one an opportunity to make
his or her own presentation on behalf of themselves and the slate. In response,
the Nominating Committee notified Mrs. Hagen on March 1, 2000 that it refused to
interview the Hagen Nominees, claiming that their alignment as a group called
into question their independence. Mrs. Hagen found the Nominating Committee's
reluctance to interview the ten individuals proposed as part of her slate
surprising, especially in light of the fact that such individuals met every
legal requirement for service as a director of an insurance holding company,
including the requirement that one-third or more of the members of a board be
persons who are not officers or employees of the insurer or owners of a
controlling interest in the insurer.
On February 29, 2000, Mrs. Hagen sent a letter to the Board requesting that
it include the following resolutions in its agenda for consideration at its
March 7th meeting:
RESOLVED, That in addition to those nominees who have been recommended
by the Board's Nominating Committee and approved by the Board of Directors
for nomination, the following named persons, who have been duly proposed
for nomination to the Company's Board of Directors in accordance with
Section 2.07(a) of the Company's Bylaws by Susan Hirt Hagen in her capacity
as a Class B voting shareholder, be and hereby are authorized to be placed
in nomination for election as Directors of the Company at the April 25,
2000 Annual Meeting of Shareholders:
Kenneth B. Frank
Patricia Garrison-Corbin
Susan Hirt Hagen
Samuel P. Katz
Claude C. Lilly, III, Ph.D.; CLU, CPCU
Henry N. Nassau, Esq.
Mitchell S. Rosenthal, M.D.
Perry M. Smith, Ph.D.; Major General, USAF (Ret.)
Charles D. Snelling
William H. Starbuck, Ph.D.
James M. Trapp, Esq.
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FURTHER RESOLVED, That any information necessary and/or appropriate
for the above named nominees to the Company's Board of Directors be
included in the Company's Proxy Statement for such meeting which Proxy
Statement shall set forth that such persons have been proposed, and will be
accepted, for nomination at that time.
At the March 7th Board meeting, the Nominating Committee informed the Board
that it was not ready to present its report and would therefore have to defer
presentation of its slate of nominees for Director at the Annual Meeting. Mrs.
Hagen thereupon proposed the adoption of the foregoing resolutions. Mrs. Hagen's
proposal was seconded by two directors, F. William Hirt, Chairman of the Board,
and Stephen A. Milne, President and CEO of the Company. However, immediately
after it was seconded, Jan Van Gorder, a Director and the Executive Vice
President, General Counsel and Secretary of the Company, made a motion that Mrs.
Hagen's proposal be tabled; Mr. Van Gorder's motion was seconded and adopted by
the Board over Mrs. Hagen's sole dissenting vote. At that point, Mrs. Hagen
advised the Board that she deemed the tabling of her motion to be a rejection of
her proposal. In an effort to gauge the Board's position on the issue, during
the course of the meeting, Mrs. Hagen polled the Board with respect to each
member's view on a voting Shareholder's right to nominate candidates for
election to the Board. A substantial majority of the Board members, including
the Chair of the Nominating Committee, expressed the view that the right to
nominate individuals to the Company's Board Directors lies exclusively with the
Nominating Committee. In adopting this view, half of these Directors cited their
reliance on the opinion of the Company's outside counsel. Although one of these
Directors (the second largest Class B shareholder) expressed "no comment," none
of the Directors supported Mrs. Hagen's view that Class B shareholders have the
right to nominate as well as vote.
Subsequently, at a special meeting of the Board held on March 14, 2000, the
Nominating Committee presented its slate of nominees for election as Directors
at the Annual Meeting. The Nominating Committee Chair reported the Committee's
recommendation that the size of the Board be reduced from 13 to 12 and that the
Board's slate include all of the current Board members, other than Mrs. Hagen.
In addition, Mr. Van Gorder moved to take Mrs. Hagen's resolutions previously
introduced by her at the March 7th meeting off of the table. This motion was
seconded by Harry H. Weil and Mrs. Hagen's resolutions were then defeated by a
vote of 12 to 1, with Mrs. Hagen casting the only vote in favor of her
resolutions. Mrs. Hagen believes that the Committee's actions make it clear that
the Board intends to block every effort on her part to exercise her fundamental
right as a Shareholder to nominate candidates for election as a Director. The
Nominating Committee also rejected two potential candidates who Bankers Trust,
the corporate co-trustee of the Trusts, had previously informally recommended to
the Committee.
Inasmuch as the Board continues to adhere to its position that a
Shareholder is not entitled to nominate candidates to the Board and therefore
deny her the right to nominate the Hagen Nominees at the Annual Meeting, thereby
causing her to suffer irreparable harm, Mrs. Hagen is seeking a declaratory
judgement to vindicate that right as a matter of Pennsylvania law. See "Legal
Proceedings" below. If this right is not affirmed by the courts prior to the
Annual Meeting, Mrs. Hagen will propose the Alternative Proposal for adoption at
the Annual Meeting. For further information concerning the Alternative Proposal,
see "-- Proposal 2 -- the Alternative Proposal" below. Although if left with no
other option, Mrs. Hagen will propose the Alternative Proposal, it is Mrs.
Hagen's view that the Alternative Proposal is no substitute for her fundamental
right as a Shareholder to nominate Directors. Therefore, she will continue to
seek to secure that right for herself and all other voting Shareholders through
appropriate court action.
Mrs. Hagen recommends that the holders of outstanding shares of Class B
Common Stock vote for the election of the Hagen Nominees. Each of the Hagen
Nominees has consented to be named in this Proxy Statement and to serve as
Director of the Company if elected. Mrs. Hagen is the only Hagen Nominee who is
presently a member of the Board. Mrs. Hagen has no reason to believe that any
Hagen Nominee will refuse to act or be unable to accept election; however, in
the event that a nominee is unable to accept election, Proxies solicited by Mrs.
Hagen will be voted in favor of the remaining nominees and for such other
persons as may be designated by Mrs. Hagen, unless she is directed by Proxy to
do otherwise.
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THE HAGEN NOMINEES
The information below concerning age, principal occupation, directorships
and beneficial ownership of stock of the Company has been furnished by the
respective Hagen Nominees. Unless otherwise indicated, the principal occupation
of each of the Hagen Nominees has been the same for the last five years, and
such person possesses sole voting and investment power with respect to the
shares of Common Stock of the Company indicated as beneficially owned by such
person. Other than Mrs. Hagen, who is the sister of F. William Hirt, Chairman of
the Board, Chairman of the Executive Committee and a Director of the Company,
there are no family relationships between the Hagen Nominees and any of the
Directors or executive officers of the Company.
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED ON PERCENT
NAME AGE PRINCIPAL OCCUPATION FEBRUARY 22, 2000(1) OF CLASS
- ---- --- ---------------------------- ---------------------------- --------
<S> <C> <C> <C> <C>
Kenneth B. Frank.................. 55 Founder, President and CEO, -- --
the Technology Group, Inc.
(a software development
company)
Patricia Garrison-Corbin.......... 52 Founder, President and CEO, -- --
P.G. Corbin & Company, Inc.,
(a financial advisory firm
that provides investment
management services to
municipalities)(2)
Susan Hirt Hagen.................. 64 Co-Trustee, H.O. Hirt 16,751,700 Class A Shares 25.0%
Trusts; Managing Partner, 1,182 Class B Shares 38.5%
Hagen, Herr & Peppin;(3) (4)(5)(6)(7)
Samuel P. Katz.................... 50 1997-Present: Founder, -- --
President and CEO of Enter
Sport Capital Advisors, Inc.
(a private investment
development and consulting
firm); 1994-1997: Partner,
Stafford Capital Partners,
L.P. (an investment company
and developer).
Claude C. Lilly, III, Ph.D.; CLU,
CPCU............................ 53 July 1998-Present: Interim -- --
Dean, Belk College of
Business Administration,
University of North Carolina
Charlotte ("Belk"); August
1997-Present: James H.
Harris Chair of Risk
Management and Insurance,
Belk; August 1995-January
1996: CEO, Quinstone, Inc.
(a manufacturing business).
Henry N. Nassau, Esq. ............ 45 May 1999-Present: Managing -- --
Director, General Counsel &
Secretary, Internet Capital
Group, Inc. (NASDAQ: ICGE)
(an internet holding
company); September 1997-
May 1999: Partner and
Chairman of the Business
Department, Dechert, Price &
Rhoades (a law firm).(8)(9)
Mitchell S. Rosenthal, M.D. ...... 65 President and CEO, Phoenix -- --
House Foundation (operator
of substance abuse
programs.(10)
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED ON PERCENT
NAME AGE PRINCIPAL OCCUPATION FEBRUARY 22, 2000(1) OF CLASS
- ---- --- ---------------------------- ---------------------------- --------
<S> <C> <C> <C> <C>
Perry M. Smith, Ph.D.; Major
General, USAF (Ret.)............ 65 President and CEO, Visionary -- --
Leadership, Ltd (a
leadership, strategic
planning and ethics
company).(11)
Charles D. Snelling............... 68 President and Director, -- --
Western Lehigh Valley Corp.
(a land development
company).(9)(12)
William H. Starbuck, Ph.D. ....... 61 ITT Professor of Creative 100 Class A Shares *
Management, Stern School of
Business Administration, New
York University; President
and Member of the Board of
Governors Academy of
Management (a professional
association).
James M. Trapp, Esq. ............. 65 1997-Present: Of Counsel, -- --
McDermott, Will & Emery;
1961-1997: Partner or
Associate, McDermott, Will &
Emery; 1961-1997: President,
James M. Trapp, P.C.
</TABLE>
- ---------------
* Less than 1%
(1) Under the rules of the Securities and Exchange Commission ("SEC"), a person
is deemed to be the beneficial owner of securities if he or she has, or
shares, "voting power" (which includes the power to vote, or to direct the
voting of, such securities) or "investment power" (which includes the power
to dispose, or to direct the disposition, of such securities). Under these
rules, more than one person may be deemed to be the beneficial owner of the
same securities. Securities beneficially owned also include securities
owned jointly, in whole or in part, or individually by the person's spouse,
minor children or other relatives who share the same home. The information
set forth in the above table includes all shares of Class A Common Stock
and Class B Common Stock over which the named individuals, individually or
together, share voting power or investment power, adjusted, however, to
reflect shares as to which the named individuals disclaim beneficial
ownership. The table does not reflect shares of Class A Common Stock
issuable upon conversion of shares of Class B Common Stock, each of which
is currently convertible into 2,400 shares of Class A Common Stock.
(2) Ms. Corbin is also the sole stockholder of the managing partner of the
Delancy Capital Group (an asset brokerage firm) and the sole stockholder
and Director of P.G. Corbin Asset Management, Inc. (an asset brokerage
firm).
(3) Since 1980, Mrs. Hagen has also been a Director of the Company, Erie Family
Life Insurance Company (an affiliated entity of the Company) and Erie
Insurance Company (a subsidiary the Company). Mrs. Hagen is also a Director
of the following affiliates and subsidiaries of the Company: Flagship City
Insurance Company, Erie Insurance Property & Casualty Company and Erie
Insurance Company of New York.
(4) Mrs. Hagen and her husband, Thomas B. Hagen, are limited partners of the
Hagen Family Limited partnership which owns 10,092,900 shares of Class A
Common Stock and 1 share of Class B Common Stock. Mr. Hagen is the general
partner of the partnership and has the sole right to vote such shares.
Under SEC rules, the maximum beneficial ownership of Class A Common Stock
and Class B Common Stock which Susan Hirt Hagen and Thomas B. Hagen
together could be deemed beneficially to have is 16,756,800 shares of Class
A Common Stock, or 25.0% of the outstanding shares of Class A Common Stock,
and 1,186 shares of Class B Common Stock, or 38.6% of the outstanding
shares of Class B Common Stock. Mr. and Mrs. Hagen together could also be
deemed the beneficial owners of an additional 2,846,400 shares of Class A
Common Stock issuable upon the conversion of the 1,186 shares of Class B
Common Stock they together could be deemed to own beneficially. If all
1,186 shares of
8
<PAGE> 11
Class B Common Stock Mr. and Mrs. Hagen together could be deemed to own
beneficially were converted into Class A Common Stock, the maximum beneficial
ownership of Class A Common Stock that Mr. and Mrs. Hagen together could be
deemed to have would be 19,603,200 shares of Class A Common Stock, or
28.06% of the then outstanding shares of Class A Common Stock. Thomas B.
Hagen disclaims beneficial ownership of the shares of Class A Common Stock
and Class B Common Stock owned by Susan Hirt Hagen.
(5) Excludes 5,100 shares of Class A Common Stock and 3 shares of Class B
Common Stock owned by Thomas B. Hagen, the husband of Susan Hirt Hagen.
Mrs. Hagen disclaims beneficial ownership of these shares.
(6) There are two H.O. Hirt Trusts, one for the benefit of F. William Hirt and
one for the benefit of Susan Hirt Hagen. Each of the H.O. Hirt Trusts is
the record owner of 1,170 shares of Class B Common Stock, or 38.11% of the
outstanding shares of Class B Common Stock. The trustees of the H.O. Hirt
Trusts are F. William Hirt, Susan Hirt Hagen and Bankers Trust. Mr. Hirt
and Mrs. Hagen, who are brother and sister, are each the beneficial owner
of 1,170 shares of Class B Common Stock held by the H.O. Hirt Trusts.
(7) Although Class B shareholders have a right to convert one Class B share
into 2,400 Class A shares, that right with respect to 2,340 Class B shares
held by the H.O. Hirt Trusts as referenced in footnote 6 above is
significantly restricted under the terms of the Trust Agreement. The Trust
Agreement provides that in any such exchange or disposition, the
affirmative vote of the corporate co-trustee is required in addition to one
or both of the individual trustees. In addition, the Trust Agreement
requires that if a disposition is made, which can be done only under
limited conditions, then all, but not less than all, of those Class B
shares must be so disposed; thereby in effect bringing the Trusts to an
end.
(8) Since 1999, Mr. Nassau has also been a Director of CourtLink and Justice
Link, Inc. (a legal internet company) and Albert Abela Corporation (an
international food and hospitality corporation).
(9) Charles D. Snelling and Henry N. Nassau, along with Mrs. Hagen's husband,
Thomas B. Hagen, serve as Directors of Bliley Electric Company (a private
electronics component manufacturer) owned by Roger W. Richards, legal
counsel for the Hagen Family.
(10) Dr. Rosenthal is also a Director of INAMED Corporation (NASDAQ: IMDC) (a
global surgical medical device company).
(11) General Smith is also a Contributing Editor to U.S. News & World Report and
from 1991 to 1998, he served as a military analyst and special consultant
to CNN.
(12) Mr. Snelling also sits on the board of Axicon Technologies, Inc. (a high
technology gear and power transmission company).
9
<PAGE> 12
Each Hagen Nominee (other than Mrs. Hagen) has entered into an
Indemnification Agreement with Mrs. Hagen pursuant to which: (i) each other
Hagen Nominee has agreed to be named as a nominee for election as a Director of
the Company at the Annual Meeting; (ii) each other Hagen Nominee (unless
previously approved by Mrs. Hagen in writing) has agreed that each will not
serve as a nominee for election as a Director of the Company, or to otherwise
stand for election as or become a Director of the Company, as part of a slate of
nominees proposed by any other party (including the Board or the Nominating
Committee), other than Mrs. Hagen, unless such slate includes a number of
nominees proposed by Mrs. Hagen sufficient to constitute a majority of the
members of the Board of the Company; and (iii) Mrs. Hagen has agreed to
indemnify each other Hagen Nominee from and against any losses incurred by such
Hagen Nominee resulting from, relating to or arising out of the nomination of
such Hagen Nominee for election as a Director of the Company at the Annual
Meeting. The foregoing indemnification agreements do not apply to the service of
the Hagen Nominees as Directors if elected, and there will be no ongoing
arrangements between Mrs. Hagen and the other Hagen Nominees with regard to
their service on the Board -- including the manner in which they vote. If
elected, each of the Hagen Nominees will be bound by his or her fiduciary duties
to the Company and its Shareholders, not by any obligations that he or she may
have had to Mrs. Hagen under the indemnification agreements. Beyond the four
corners of the Indemnification Agreement document itself, Mrs. Hagen has made no
gifts, promises or requests or given any indication of expectations, acts or
rewards in connection with any of the Hagen Nominees. Given the backgrounds and
character of the Hagen Nominees, Mrs. Hagen believes that the Hagen Nominees
will be truly independent in every sense of the word.
MRS. HAGEN RECOMMENDS THAT HOLDERS OF CLASS B COMMON STOCK
VOTE IN FAVOR OF THE HAGEN NOMINEES LISTED ABOVE AND
NOT VOTE IN FAVOR OF ANY OF THE NOMINEES OF THE COMPANY.
PROPOSAL 2
THE ALTERNATIVE PROPOSAL
As is discussed above, because the Nominating Committee will not include
the Hagen Nominees in its slate of Directors for election to the Board at the
Annual Meeting and because Mrs. Hagen believes the Company will also deny her
the right to nominate the Hagen Nominees at the Annual Meeting, thereby causing
her irreparable harm, she is seeking a declaratory judgement to vindicate that
right as a matter of Pennsylvania law. See "Legal Proceedings" below. In the
event that Mrs. Hagen's right to nominate candidates for election at the Annual
Meeting is not affirmed by the courts on a timely basis, Mrs. Hagen will propose
the Alternative Proposal at the Annual Meeting, as permitted by the Bylaws. The
Alternative Proposal consists of the following:
- The removal of all the Directors immediately following their election at
the Annual Meeting;
- The amendment of the Bylaws by the adoption of the following resolution:
RESOLVED, that the Bylaws of this Corporation be amended by deleting
the first sentence of Section 3.02 and replacing it with a new first
sentence, which shall read as follows:
"The Board of Directors shall consist of not less than seven (7), nor
more than sixteen (16), Directors (the exact number to be fixed from
time by resolution of the Board or by vote of the Shareholders) at
any duly organized annual or special meeting of Shareholders, to
serve until the ensuing Annual Meeting and until a successor is
elected and qualified or until his or her earlier death, resignation
or removal.";
- The reduction and the fixing of the number of Directors on the Board to
eleven (11) Directors; and
- The nomination of the Hagen Nominees for election as Directors of the
Company to fill the vacancies on the Board so created.
10
<PAGE> 13
HOW THE ALTERNATIVE PROPOSAL WORKS
The current Board's position -- that only persons nominated by the
Nominating Committee can stand for election to the Board at the Annual
Meeting -- is intended to prevent the Shareholders, including the Trusts' 76.22%
controlling interest, from exercising their fundamental right to nominate and
elect the Directors of the Company. If the Alternative Proposal is approved,
however, this right will be returned to the Shareholders. Under the Bylaws, the
entire Board may be removed from office without cause by a vote of the
Shareholders. In case the Board is so removed, new Directors may be elected by
the Shareholders at the same meeting. Consequently, the Alternative Proposal
provides that, as soon as the Company's nominees are elected as Directors at the
Annual Meeting, the Shareholders will vote to remove them from office and elect
the Hagen Nominees.
In addition, in order to avoid permanent increases in the number of
Directors by the Board (which can set the number up to 16 Directors), the
Alternative Proposal amends the Bylaws to allow Shareholders to be able to fix
the number of Directors (which currently can only be accomplished by the Board)
and at the same time reduces the number of Directors currently on the Board from
13 to 11.
Although Mrs. Hagen will propose the Alternative Proposal at the Annual
Meeting if left with no other option, it is her view that this alternative is no
substitute for her fundamental right as a Shareholder to nominate Directors.
Consequently, Mrs. Hagen is seeking preliminary injunctive relief to secure that
right for herself and all other Shareholders. See "Legal Proceedings" below.
MRS. HAGEN RECOMMENDS THAT HOLDERS OF CLASS B COMMON STOCK
VOTE IN FAVOR OF THE ALTERNATIVE PROPOSAL IN CASE SHE IS NOT
PERMITTED TO NOMINATE THE HAGEN NOMINEES AT THE ANNUAL MEETING.
REASONS FOR THE SOLICITATION
BACKGROUND
Henry Orth Hirt created the Trusts to preserve the unified ownership and
control of the Company. To Mrs. Hagen's disappointment, however, it has become
increasingly evident to Mrs. Hagen that the current Board has lost the
recognition that it serves as a steward for the rights of others and is not
acting in the long-term interests of the Company, its Shareholders and its many
constituencies. Mrs. Hagen believes that the Board has demonstrated an alarming
lack of judgment and a belief that it is not accountable to the Shareholders who
elect them to office. It is her view that the Board has embarked on a strategy
to abrogate the rights of voting Shareholders, making it impossible for the
trustees to discharge their fundamental obligation to generations of
beneficiaries of preserving unified ownership and control of the Company.
MRS. HAGEN BELIEVES THAT THE BOARD'S ACTIONS ARE HOSTILE TO THE INTERESTS OF THE
COMPANY'S SHAREHOLDERS
The Board's hostile attitude to the interests of the Company's Shareholders
is demonstrated by its actions during 1999. On January 26, 1999, Bankers Trust
replaced Mellon Bank as corporate co-trustee of the Trusts after Mellon Bank
resigned. Soon after its appointment, and on behalf of the Trusts as majority
Shareholder, Bankers Trust asked the Board to postpone the 1999 Annual Meeting
for a minimal period of 30 days so it could meet with and educate itself about
the nominees for the Board. Mrs. Hagen as a co-trustee supported Bankers Trust
in that request, thus having two out of the three trustees in agreement. The
Board denied this request. At the same time, the Board refused to make the
nominees available to Bankers Trust for individual interviews, and the Chairman
of the Board claimed through counsel that such individual interviews were
neither necessary nor appropriate, despite the fact that the Trusts are the
single largest voting Shareholder of the Company with 76% of the voting stock.
11
<PAGE> 14
MRS. HAGEN BELIEVES THAT THE BOARD HAS EFFECTIVELY DISENFRANCHISED THE COMPANY'S
SHAREHOLDERS
The Board maintains that candidates for election to the Board can only be
nominated by the Nominating Committee to the exclusion of the Trusts and all
other voting Shareholders. Bankers Trust sought a court determination that this
view was in opposition to the Bylaws and Pennsylvania law. Mrs. Hagen as a
co-trustee supported Bankers Trust's position. However, the Board and the Board
Chairman, as a co-trustee, asked the court to dismiss the case. Acting in a
manner clearly intended to perpetuate its control of the Company and to preempt
the litigation that would conclusively resolve whether Pennsylvania law allows
Shareholders to nominate candidates to the Board, the Board amended the Bylaws
on June 15, 1999 to make the Nominating Committee the exclusive source of
nominations for the Board.
In response, Bankers Trust and Mrs. Hagen caused the Trusts to call a
Special Meeting of the Shareholders of the Company to repeal this amendment. The
Board authorized the Secretary of the Company to refuse to honor this call for a
Special Meeting. Requests for Shareholder lists of the Company also were
refused. Although the Board, under pressure from the Trusts, repealed this
amendment in part on August 16, 1999, the Board still asserts that the
Nominating Committee is the only source of nominations to the Board. On July 15,
1999, the Court of Common Pleas of Erie County, Pennsylvania, Orphans Court
Division (in which this issue was litigated) held that the matter was not ready
for adjudication at the time.
Then, on Monday, September 13, 1999, with only one business day's notice to
the Directors and Bankers Trust by the Nominating Committee, the Board appointed
three new Directors. As a result, Bankers Trust and Mrs. Hagen were unable to
consult with the Board in connection with these appointments or to interview the
new Directors. By claiming that the Nominating Committee has the sole right to
nominate Directors, and by appointing new Directors without giving the
co-trustees an opportunity to participate, the Board has, in Mrs. Hagen's view,
demonstrated that it considers itself to be a self-perpetuating,
self-referential body not accountable to Shareholders. Mrs. Hagen believes that
a Board which considers itself elected until mandatory retirement age and not
subject to ordinary principles of corporate democracy is unacceptable. Because
she views the Board's conduct as a frontal assault on the foundation of the
Trusts that she is duty bound as a co-trustee to defend, Mrs. Hagen believes she
is obligated to seek the replacement of this Board with one that is not opposed
to the fundamental rights of the voting Shareholders.
MRS. HAGEN BELIEVES THAT THE BOARD HAS INAPPROPRIATELY REWARDED INSIDERS
Beginning in 1992, F. William Hirt made regular gifts of Company stock
(worth approximately $1 million when made, and having a current market value of
nearly $2 million) to six persons who were senior officers and Directors of the
Company. In Mrs. Hagen's view, these gifts, which had not been disclosed to the
Board, were violative of Company policy, created a disturbing appearance of
impropriety and called into serious question the judgment and ethics of the
participants. The gifts were discontinued after discovery in 1998 by Mrs. Hagen
accompanied by her demand for the resignation of certain Directors. Although a
special committee of Directors appointed by the Board to investigate this
extraordinary conduct by its fellow Board members concluded that no violations
of law, Company policy or fiduciary duty had occurred, Mrs. Hagen remains
convinced that the gifts were simply wrong. In fact, despite the conclusions of
the Board's own special committee, the Board contemporaneously adopted new
Bylaws prohibiting Directors and officers of the Company from accepting gifts of
more than an insignificant value from any person associated with the Company.
Under the existing Bylaws, the gifts would not only be prohibited, but would
have to be returned.
MRS. HAGEN BELIEVES THAT THE BOARD IS COMPROMISING THE LONG-TERM INTERESTS OF
THE SHAREHOLDERS
The Company opposes any attempt by the co-trustees of the Trusts to examine
or question the Company's actions, and effectively prevents the co-trustees from
performing their fiduciary duty to protect the interests of the Trusts and to
act in accordance with the intent of the Company's founder. In addition, the
Company initially ignored and then delayed responding to Mrs. Hagen's several
requests to provide her with information which she felt necessary to examine in
order to comply with her fiduciary duties as a Director. Mrs. Hagen believes
that this type of conduct, which effectively insulates the Board from any
accountability to Shareholders, demonstrates that the Directors are more
interested in entrenching their position as Directors
12
<PAGE> 15
rather than operating the Company in accordance with the long-term interest of
the Company's Shareholders. She is convinced that this attitude will result over
time in the erosion of the Company's singular corporate culture, business
philosophy and financial performance.
MRS. HAGEN BELIEVES THAT THERE IS NO OTHER SOLUTION -- AN ALTERNATIVE BOARD MUST
BE ELECTED
Based on the foregoing, Mrs. Hagen has determined that she has no
alternative but to propose an alternative slate of Directors for election at the
Annual Meeting who would be committed to ordinary principles of corporate
democracy. Mrs. Hagen believes that her slate allows the Shareholders of the
Company the opportunity to elect a Board that will protect the unique corporate
culture of the Company, be accountable and responsive to the Company's
Shareholders and implement a program to protect the long-term interests of the
Company, its Shareholders and its other constituencies. Mrs. Hagen believes that
the actions she is taking are consistent with the past actions and concerns of
Bankers Trust as corporate trustee.
DIRECTOR COMPENSATION
The annual retainer for the Company's Directors is $25,000, plus $1,500 for
each meeting attended and $1,500 for each committee meeting attended plus an
additional $2,000 per year for each committee chairperson. In addition, all
Directors are reimbursed for their expenses incurred in attending meetings.
Officers of the Company who serve as Directors are not compensated for
attendance at meetings of the Board and its committees.
LEGAL PROCEEDINGS
In March 1999, Bankers Trust submitted its resignation as corporate
co-trustee of the Trusts. As a result, a proceeding was initiated in the Court
of Common Pleas of Erie County, Pennsylvania, Orphans Court Division (the
"Court") to select a replacement corporate co-trustee. Mrs. Hagen favors
Sentinel Trust Company of Houston while F.W. Hirt, favors First Union National
Bank of Philadelphia ("First Union"). Mrs. Hagen and other Trust beneficiaries
oppose the appointment of First Union because it is involved in direct insurance
sales competition with the Company, its subsidiaries, affiliates and its loyal
independent agents. On January 20, 2000, the Company filed a memorandum with the
Court supporting the appointment of First Union as the replacement trustee. On
February 23, the Court issued an order stating that it would take the necessary
steps to select a replacement co-trustee only after the parties applied for and
received a ruling from the Internal Revenue Service with respect to the tax
treatment of the plan chosen to fund the corporate co-trustee. On March 6, the
Company filed a Motion for Reconsideration and/or Clarification, and on March 8,
F. William Hirt filed a Motion for Reconsideration, of the foregoing order of
the Court. On March 15, the Court issued an order denying both the Company's and
Mr. Hirt's motions.
On March 9, 2000, Mrs. Hagen delivered a Complaint, a Motion for a
Preliminary Injunction and a supporting Memorandum of Law (collectively, the
"Complaint") to President Judge William R. Cunningham of the Erie County,
Pennsylvania, Court of Common Pleas. Mrs. Hagen is the plaintiff and moving
party and the Company is the defendant and respondent in this matter. On March
14, 2000, Judge Cunningham signed a Rule to Show Cause setting a hearing date
for Mrs. Hagen's Motion for a Preliminary Injunction for April 3, 2000 at 10:00
a.m. Thereafter, on March 14, 2000, the Complaint, was filed with the Court's
prothonotary and service of original process was promptly effected upon the
Company. The Complaint seeks to enforce Mrs. Hagen's right as a Class B
Shareholder of the Company to nominate candidates for the Board and to have
those candidates put to a vote at a Shareholders' meeting. Mrs. Hagen has asked
for preliminary injunctive relief because her rights are clear as a matter of
law and because the Company's denial of her rights must be resolved prior to the
Annual Meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires that the officers and Directors of a corporation, such
as the Company, which has a class of equity securities registered under Section
12 of the Exchange Act, as well as persons who own 10% or more of a class of
equity securities
13
<PAGE> 16
of such a corporation, file reports of their ownership of such securities, as
well as monthly statements of changes in such ownership, with the corporation
and the SEC. In accordance with section 16 of the Exchange Act, Mrs. Hagen, who
is the only Hagen Nominee required to file such reports, has made all such
necessary filings on a timely basis during 1999.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth, as of February 26, 1999, based on the
information contained in the Company's Proxy Statement for the 1999 Annual
Meeting, the amount and percentage of the outstanding Class A Common Stock and
Class B Common Stock beneficially owned by (i) each person who is known by Mrs.
Hagen to own beneficially more than 5% of the Company's outstanding Class A
Common Stock or Class B Common Stock, (ii) each Director and Company Nominees
for Director, (iii) each current executive officer named in the Summary
Compensation Table of the Company's 1999 Proxy Statement and (iv) all named
executive officers and Directors of the Company as a group. The information set
in the table includes all shares of Class A Common Stock and Class B Common
Stock over which the named individuals, individually or together, share voting
power or investment power, adjusted, however, to eliminate the reporting of
shares more than once in order not to overstate the aggregate beneficial
ownership of such persons and to reflect shares as to which the named
individuals disclaim beneficial ownership.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
SHARES OF CLASS A CLASS B OUTSTANDING
COMMON STOCK PERCENT OF COMMON STOCK CLASS B
BENEFICIALLY OUTSTANDING CLASS A BENEFICIALLY COMMON
NAME OF INDIVIDUAL OR IDENTITY OF GROUP OWNED(1)(2) COMMON STOCK(3) OWNED(1)(2) STOCK(3)
- --------------------------------------- ----------------- ------------------- ------------ -----------
<S> <C> <C> <C> <C>
5% SHAREHOLDERS
Black Interests Limited
Partnership(4)....................... 8,726,250 13.02% 390 12.70%
Erie, Pennsylvania
Samuel P. Black & Associates,
Inc.(4).............................. 24,000 -- -- --
Erie, Pennsylvania
Samuel P. Black, III(4)................ 129,750 -- 20 --
Erie, Pennsylvania
Hagen Family Limited
Partnership(5)(6).................... 10,092,900 15.06% 1 --
Erie, Pennsylvania
Susan Hirt Hagen(5)(6)(7)(12).......... 6,658,800 9.93% 12 --
Erie, Pennsylvania
H.O. Hirt Trusts(5)(7)(12)............. -- -- 2,340 76.22%
Erie, Pennsylvania
Hirt Family Limited Partnership(8)..... 11,830,000 17.65% -- --
Erie, Pennsylvania
F. William Hirt(7)(8)(12).............. 1,861,287 2.78% 20 --
Erie, Pennsylvania
Estate of Edward B. Young.............. 3,557,440 5.31% 180 5.86%
Erie, Pennsylvania
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
SHARES OF CLASS A CLASS B OUTSTANDING
COMMON STOCK PERCENT OF COMMON STOCK CLASS B
BENEFICIALLY OUTSTANDING CLASS A BENEFICIALLY COMMON
NAME OF INDIVIDUAL OR IDENTITY OF GROUP OWNED(1)(2) COMMON STOCK(3) OWNED(1)(2) STOCK(3)
- --------------------------------------- ----------------- ------------------- ------------ -----------
<S> <C> <C> <C> <C>
COMPANY DIRECTORS(9)
Peter B. Bartlett...................... 3,000 -- -- --
J. Ralph Borneman, Jr.................. 60,000 -- -- --
Patricia A. Goldman.................... 1,650 -- -- --
Gwendolyn S. King
Martin J. Lippert
Edmund J. Mehl......................... 10,545 -- -- --
Stephen A. Milne....................... 24,281 -- -- --
John M. Petersen(10)................... 2,557,402 3.82% 1 --
Jan R. Van Gorder...................... 144,090 -- 1 --
Harry H. Weil.......................... 300 -- -- --
Robert Charles Wilburn.................
EXECUTIVE OFFICERS(11)
John J. Brinling, Jr................... 14,044 -- -- --
Philip A. Garcia....................... 90,365 -- -- --
Douglas F. Ziegler..................... 105,876 -- -- --
All Directors and Executive Officers as
a Group (17 persons)................. 42,334,540 63.16% 2,785 90.72%
</TABLE>
- ---------------
(1) Information furnished by the named persons.
(2) Under the rules of the SEC, a person is deemed to be the beneficial owner
of securities if he or she has, or shares, "voting power" (which includes
the power to vote, or to direct the voting of, such securities) or
"investment power" (which includes the power to dispose, or to direct the
disposition, of such securities). Under these rules, more than one person
may be deemed to be the beneficial owner of the same securities. Securities
beneficially owned also include securities owned jointly, in whole or in
part, or individually by the person's spouse, minor children or other
relatives who share the same home. The table does not reflect shares of
Class A Common Stock issuable upon conversion of shares of Class B Common
Stock, each of which is currently convertible into 2,400 shares of Class A
Common Stock.
(3) Less than 1% unless otherwise indicated.
(4) Samuel P. Black, III is President of Samuel P. Black & Associates. Samuel
P. Black, III is the managing general partner and a limited partner of
Black Interests Limited Partnership. Samuel P. Black, III has the right to
vote the shares held by Samuel P. Black & Associates and Black Interests
Limited Partnership. Samuel P. Black, III has sole voting power over
129,750 shares of Class A Common Stock and 10 shares of Class B Common
Stock he owns directly and also has voting power over 10 shares of Class B
Common Stock owned by his father Samuel P. Black, Jr. for whom he holds a
durable power of attorney.
(5) Susan Hirt Hagen and her husband, Thomas B. Hagen, are limited partners of
this partnership. Mr. Hagen is the general partner of the partnership and
has the sole right to vote such shares. Under the rules of the SEC, the
maximum beneficial ownership of Class A Common Stock and Class B Common
Stock which Susan Hirt Hagen and Thomas B. Hagen together could be deemed
beneficially to have is 16,756,800 shares of Class A Common Stock, or 25.0%
of the outstanding shares of Class A Common Stock, and 1,186 shares of
Class B Common Stock, or 38.6% of the outstanding shares of Class B Common
Stock. Mr. and Mrs. Hagen together could also be deemed the beneficial
owners of an additional 2,846,400 shares of Class A Common Stock issuable
upon the conversion of the 1,186 shares of Class B Common Stock they
together could be deemed to own beneficially. If all 1,186 shares of Class
B Common Stock Mr. and Mrs. Hagen together could be deemed to own
beneficially were converted into Class A Common Stock, the maximum
beneficial ownership of Class A Common Stock
15
<PAGE> 18
that Mr. and Mrs. Hagen together could be deemed to have would be 19,603,200
shares of Class A Common Stock, or 28.06% of the then outstanding shares of
Class A Common Stock. Thomas B. Hagen disclaims beneficial ownership of the
shares of Class A Common Stock and Class B Common Stock owned by Susan Hirt
Hagen.
(6) Excludes 5,100 shares of Class A Common Stock and 3 shares of Class B
Common Stock owned by Thomas B. Hagen, the husband of Susan Hirt Hagen.
Mrs. Hagen disclaims beneficial ownership of these shares.
(7) There are two H.O. Hirt Trusts, one for the benefit of F. William Hirt and
one for the benefit of Susan Hirt Hagen. Each of the H.O. Hirt Trusts is
the record owner of 1,170 shares of Class B Common Stock, or 38.11% of the
outstanding shares of Class B Common Stock. The trustees of the H.O. Hirt
Trusts are F. William Hirt, Susan Hirt Hagen and Bankers Trust. Mr. Hirt
and Mrs. Hagen, who are brother and sister, are each the beneficial owner
of 1,170 shares of Class B Common Stock held by the H.O. Hirt Trusts.
(8) F. William Hirt is the general partner of this partnership and has the sole
right to vote such shares. Under the rules of the SEC, the maximum
beneficial ownership of Class A Common Stock and Class B Common Stock which
F. William Hirt could be deemed beneficially to have is 13,691,287 shares
of Class A Common Stock, or 20.4% of the outstanding shares of Class A
Common Stock, and 1,190 shares of Class B Common Stock, or 38.8% of the
outstanding shares of Class B Common Stock. F. William Hirt could also be
deemed the beneficial owner of an additional 2,856,000 shares of Class A
Common Stock issuable upon the conversion of the 1,190 shares of Class B
Common Stock he is deemed to own beneficially. If all 1,190 shares of Class
B Common Stock F. William Hirt could be deemed to own beneficially were
converted into Class A Common Stock, the maximum beneficial ownership of
Class A Common Stock that F. William Hirt could be deemed to have would be
16,547,287 shares of Class A Common Stock, or 23.7% of the then outstanding
shares of Class A Common Stock.
(9) Excludes Directors listed under "5% Owners."
(10) Mr. Petersen disclaims beneficial ownership of 120,000 shares of Class A
Common Stock owned by his wife, Gertrude E. Petersen, which have not been
included in the total listed herein. However, these totals include 200,000
shares held in the Petersen Family Limited Partnership for which John
Petersen is the general partner and retains the right to vote such shares.
(11) Excludes executive officers listed under "Directors."
(12) Although Class B shareholders have a right to convert one Class B share
into 2,400 Class A shares, that right with respect to 2,340 Class B shares
held by the H.O. Hirt Trusts as referenced in footnotes (5) and (8) above
for Susan Hirt Hagen and F. William Hirt, respectively, is significantly
restricted under the terms of the Trust Agreement. The Trust Agreement
provides that in any such exchange or disposition, the affirmative vote of
the corporate co-trustee is required in addition to one or both of the
individual trustees. In addition, the Trust Agreement requires that if a
disposition is made, which can be done only under limited conditions, then
all, but not less than all, of those Class B shares must be so disposed;
thereby, in effect, bringing the Trusts to an end.
COST AND METHOD OF SOLICITATION
Mrs. Hagen will initially bear the costs of this solicitation. While no
precise estimate of this cost can be made at the present time, Mrs. Hagen
currently estimates that she will spend less than a total of $5,000 for her
solicitation of proxies, including expenditures for attorneys, solicitors and
advertising, printing, transportation and related expenses. As of March 24,
2000, Mrs. Hagen had not yet incurred any proxy solicitation expenses. In
addition to soliciting proxies by mail, Mrs. Hagen may solicit proxies in person
or by telephone or telecopy. Mrs. Hagen will also reimburse brokers,
fiduciaries, custodians and other nominees, as well as persons holding stock for
others who have the right to give voting instructions, for out-of-pocket
expenses incurred in forwarding this proxy statement and related materials to,
and obtaining instructions or authorizations relating to such materials from,
beneficial owners of the Company's capital stock. Mrs. Hagen intends to seek
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<PAGE> 19
reimbursement from the Company of all of her costs associated with her effort to
nominate individuals for election to the Board at the Annual Meeting, including
by bringing appropriate litigation if that should be necessary.
INFORMATION CONCERNING PERSONS WHO MAY SOLICIT PROXIES
Under the applicable regulations of the SEC, each of the Hagen Nominees is
deemed to be a "participant" in Mrs. Hagen's solicitation of proxies. The
following table sets forth the name, business address and principal occupation
of the Hagen Nominees and any other person who may solicit proxies from
Shareholders of the Company on behalf of Mrs. Hagen ("Participants"). The number
of shares of capital stock of the Company owned by each of the Hagen Nominees is
set forth in the table under "Nominees for Director." The number of shares of
capital stock of the Company owned by each other Participant is set forth below.
Unless otherwise indicated, none of the Participants has purchased or sold
Common Stock of the Company within the past two years.
NAME, PRINCIPAL OCCUPATION AND BUSINESS ADDRESS(1)
PATRICIA GARRISON-CORBIN
Founder, President and CEO,
P.C. Corbin & Company, Inc.
Two Commerce Square, Suite 3420
2001 Market Street
Philadelphia, PA 19103
KENNETH B. FRANK
Founder, President and CEO,
Technology Group, Inc.
36 South Charles Street
Baltimore, Maryland 21209
SUSAN HIRT HAGEN
Co-Trustee
H.O. Hirt Trusts
100 State Street, Suite 440
Erie, PA 16507-1456
SAMUEL P. KATZ
Founder, President & CEO
Enter Sport Capital Advisors, Inc.
One Bala Avenue, Suite 320
Bala Cynwyd, PA 19004
CLAUDE C. LILLY, III, PH.D.
Interim Dean
Belk College of Business Administration
University of North Carolina Charlotte
9201 University City Boulevard
Charlotte, NC 28223
HENRY N. NASSAU, ESQ.
Managing Director, General Counsel & Secretary
Internet Capital Group, Inc.
435 Devon Park Drive, Suite 803
Wayne, PA 19087
MITCHELL S. ROSENTHAL, M.D.
President & CEO
Phoenix House
164 West 74th Street
New York, NY 10023
GENERAL PERRY M. SMITH
President & CEO
Visionary Leadership, Ltd.
P.O. Box 15666
Augusta, GA 30919-1666
CHARLES D. SNELLING
President and Director
Western Lehigh Valley Corp.
711 Hamilton Mall
Allentown, PA 18101-2407
WILLIAM H. STARBUCK, PH.D.(2)
ITT Professor of Creative Management
Stern School of Business Administration
New York University
44 West 4th Street
New York, NY 10012-1126
JAMES M. TRAPP, ESQ.
Of Counsel
McDermott, Will & Emery
227 West Monroe Street, Suite 3100
Chicago, IL 60606-5096
17
<PAGE> 20
- ---------------
(1) The companies named in the table above, to the extent that the Participant
are officers of such companies, are deemed to be associates of such
Participants. The addresses of such associates are as given above.
(2) Dr. Starbuck purchased 100 shares of Class A Common Stock on December 27,
1999.
Except as described in this Proxy Statement, none of the Participants nor
any of their respective affiliates or associates (together, the "Participant
Affiliates"), (i) directly or indirectly beneficially owns any securities of the
Company or of any subsidiary of the Company or (ii) has had any relationship
with the Company in any capacity other than as a Shareholder, employee, officer
or Director. Furthermore, except as described in this Proxy Statement, no
Participant or Participant Affiliate is either a party to any transaction or
series of transactions since January 1, 1998, or has knowledge of any currently
proposed transaction or series of transactions, (i) to which the Company or any
of its subsidiaries was or is to be a party, (ii) in which the amount involved
exceeds $60,000, and (iii) in which any Participant or Participant Affiliate had
or will have, a direct or indirect material interest.
Except as described in this Proxy Statement, no Participant or Participant
Affiliates has entered into any agreement or understanding with any person
respecting any (i) future employment by the Company or its affiliates or (ii)
any transactions to which the Company or any of its affiliates will or may be a
party. Except as described in this Proxy Statement, there are no contracts,
arrangements or understandings by any Participant or Participant Affiliates
within the past year with any person with respect to any capital stock of the
Company.
SHAREHOLDER PROPOSALS
Any holder of Class B Common Stock who, in accordance with and subject to
the provisions of the proxy rules of the SEC, wishes to submit a proposal for
inclusion in the Company's proxy statement for its 2001 Annual Meeting of
Shareholders must deliver such proposal in writing by not later than December 1,
2000 to the Company's Secretary at the Company's principal executive offices at
100 Erie Insurance Place, Erie, Pennsylvania 16530.
Under the Bylaws as amended by the Board on August 16, 1999, if a
Shareholder intends to submit a proposal (other than nominations of candidates
for Director) at the 2001 Annual Meeting of Shareholders which is not eligible
for inclusion in the proxy materials relating to that meeting in accordance with
the previous paragraph, the Company must receive written notice thereof not less
than 90 nor more than 120 calendar days prior to the anniversary date on which
the Company first mailed its proxy statement to Shareholders for the previous
annual meeting of Shareholders. If, however, the annual meeting of Shareholders
is called for a date which is not within 30 calendar days before or after the
anniversary date of the previous annual meeting of Shareholders, any such notice
must be received within five business days after the earlier of the date the
Company shall have mailed notice of the annual meeting to its Shareholders or
publicly disclosed the meeting date. In the case of a special meeting of
Shareholders, the Company must receive written notice within five business days
after the earlier of the date the corporation shall have mailed notice of the
special meeting to its Shareholders or publicly disclosed the meeting date. Such
notice shall set forth the information required under the proxy solicitation
rules of the SEC if proxies were solicited for Shareholder consideration of such
matter at a meeting of Shareholders.
If a Shareholder intends to nominate candidates for Director at the 2001
Annual Meeting of Shareholders, the Company's Nominating Committee must receive
a written proposal thereof not less than 90 nor more than 120 calendar days
prior to the anniversary date on which the Company first mailed its proxy
statement to Shareholders for the previous annual meeting of Shareholders. If,
however, the annual meeting of Shareholders is called for a date which is not
within 30 calendar days before or after the anniversary date of the previous
annual meeting of Shareholders, any such proposal must be received within five
business days after the earlier of the date the Company shall have mailed notice
of the annual meeting to its Shareholders or publicly disclosed the meeting
date. In the case of a special meeting of Shareholders, the Company's Nominating
Committee must receive the written proposal within five business days after the
earlier of the date the
18
<PAGE> 21
corporation shall have mailed notice of the special meeting to its Shareholders
or publicly disclosed the meeting date. Such written proposal must set for (a)
the Shareholder's name and address, (b) the name, age, business address and, if
known, residence address of each person so proposed, (c) the principal
occupation or employment for the past five years of each person so proposed, (d)
the number of shares of capital stock beneficially owned by each person so
proposed and the earliest date of acquisition of such capital stock, (e) a
description of any arrangement or understanding between each person so proposed
and the proposing Shareholder with respect to such person's proposal, election
as a Director, and actions to be proposed and taken by such person if elected as
Director, (f) the written consent of each person so proposed to serve as
Director if nominated and elected as a Director and (g) such other information
regarding each such person as would be required under the proxy solicitation
rules of the SEC if proxies were solicited for the election as a Director of
each person so proposed.
SUSAN HIRT HAGEN
March , 2000
19
<PAGE> 22
IMPORTANT
1. Be sure to vote on the GOLD Proxy card. Mrs. Hagen urges you not to sign any
proxy card which is sent to you by the Company.
2. If any of your shares are held in the name of a bank, broker or other
nominee, please contact the person responsible for your account and direct
him or her to vote on the GOLD Proxy "FOR" the Hagen Nominees, "FOR" the
Alternative Proposal and "FOR" the approval of Brown, Schwab, Bergquist & Co.
as the Company's independent public accountants for 2000.
<PAGE> 23
REVISED PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED MARCH 24, 2000
ERIE INDEMNITY COMPANY
CLASS B COMMON STOCK PROXY
THIS PROXY IS SOLICITED ON BEHALF OF SUSAN HIRT HAGEN
I hereby appoint Susan Hirt Hagen as my proxy, with power of substitution,
to vote all shares of Class B Common Stock of Erie Indemnity Company (the
"Company") which I am entitled to vote at the Annual Meeting of Shareholders of
the Company, to be held at the Auditorium of the F.W. Hirt-Perry Square
Building, 100 Erie Insurance Place (Sixth and French Streets), Erie,
Pennsylvania 16530 at 3:00 p.m., local time, on Tuesday, April 25, 2000, and at
any adjournment, postponement or continuation thereof, as follows:
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS SPECIFIED. IF A CHOICE IS NOT SPECIFIED,
THE PROXY WILL BE VOTED FOR THE NOMINEES LISTED BELOW, FOR THE
ALTERNATIVE PROPOSAL AND FOR THE RATIFICATION OF BROWN,
SCHWAB, BERGQUIST & CO. AS INDEPENDENT PUBLIC ACCOUNTANTS FOR
THE COMPANY FOR 2000.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[X] Please mark your votes as in this example.
1. Election of Directors Nominees: Kenneth B. Frank, Patricia Garrison Corbin,
Susan Hirt Hagen, Samuel P. Katz,
Claude C. Lilly, III, Ph.D., Henry
N. Nassau, Esq., Mitchell S.
Rosenthal, M.D., General Perry M. Smith,
Ph.D., Charles D. Snelling,
William H. Starbuck, Ph.D. and
James M. Trapp, Esq.
FOR the nominees listed above WITHHOLD AUTHORITY to vote for
the nominees listed above
[_] [_]
INSTRUCTION: To withhold authority to vote for any individual nominee or nominees, write
that nominee's name in the space provided below.
-------------------------------------------------------------------
2. The Alternative Proposal
FOR AGAINST ABSTAIN
[_] [_] [_]
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
3. Approve Appointment of Brown, Schwab, Bergquist & Co. as Auditors for fiscal 2000
FOR AGAINST ABSTAIN
[_] [_] [_]
4. In her discretion, on any other matters that may properly come before the meeting.
</TABLE>
Please sign exactly as your name appears hereon. When shares are held by
two or more persons, all of them should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by the
authorized person.
<TABLE>
<S> <C>
Date
-------------------- -------------------------
(SIGNATURE)
-------------------------
(SIGNATURE IF HELD JOINTLY)
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING
THE ENCLOSED ENVELOPE.
