SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/_/ Confidential for use of the Commission only
(as permitted by Rule 14a-6(e)(2))
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to ss. 240.14a-12
Erie Indemnity Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than 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)(1) 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):
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
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: _________________________________________________
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3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 2000
To the Holders of Class A Common Stock and
Class B Common Stock of ERIE INDEMNITY COMPANY:
The Annual Meeting of Shareholders of Erie Indemnity Company (the
"Company") 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 for the following purposes:
1. To elect 12 Directors of the Company to serve until the Company's
2001 Annual Meeting of Shareholders and until their successors are
elected;
2. To ratify the selection of Brown, Schwab, Bergquist & Co. as independent
public accountants for the Company for 2000; and
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment, postponement or continuation
thereof.
The Board of Directors has 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. 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.
In the event that the Annual Meeting is adjourned, pursuant to Section
1756(b)(1) of the Pennsylvania Business Corporation Law (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 Company's
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 Company's Bylaws.
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A copy of the Company's Annual Report for the year ended December 31, 1999
has been previously sent to all holders of Class A Common Stock and Class B
Common Stock. This Notice and Proxy Statement are being mailed to holders of
Class A Common Stock and Class B Common Stock. Holders of Class B Common Stock
will also receive a form of proxy in accordance with Securities and Exchange
Commission ("SEC") rules.
Holders of Class B Common Stock are requested to complete, sign and return
the enclosed form of proxy in the envelope provided, whether or not they expect
to attend the Annual Meeting in person.
By Order of the Board of Directors,
Jan R. Van Gorder,
Senior Executive Vice President,
Secretary and General Counsel
April 12, 2000
Erie, Pennsylvania
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ERIE INDEMNITY COMPANY
100 Erie Insurance Place
Erie, Pennsylvania 16530
PROXY STATEMENT
This Proxy Statement, which is first being mailed to the holders of Class A
Common Stock and Class B Common Stock of Erie Indemnity Company (the "Company")
on or about April 12, 2000, is furnished in connection with the solicitation of
proxies by the Board of Directors of the Company from holders of Class B Common
Stock to be voted at the Annual Meeting of Shareholders to be held at 3:00 p.m.,
local time, on Tuesday, April 25, 2000 and at any adjournment, postponement or
continuation thereof (the "Annual Meeting"), at the Auditorium of the F.W.
Hirt-Perry Square Building, 100 Erie Insurance Place (Sixth and French Streets),
Erie, Pennsylvania 16530. Holders of Class B Common Stock will also receive a
form of proxy in accordance with Securities and Exchange Commission ("SEC")
rules.
Shares of Class B Common Stock represented by proxies in the accompanying
form, if properly signed and returned, will be voted in accordance with the
specifications made thereon by the holders of Class B Common Stock. Any proxy
representing shares of Class B Common Stock not specifying to the contrary will
be voted for the election of the candidates for director named below who were
nominated by the Nominating Committee of the Company's Board of Directors and
for the ratification of the selection of Brown, Schwab, Bergquist & Co. as
independent public accountants for the Company for 2000. A holder of Class B
Common Stock who signs and returns a proxy in the accompanying form may revoke
it at any time before it is voted by giving written notice of revocation to the
Secretary of the Company, by furnishing a duly executed proxy bearing a later
date to the Secretary of the Company or by attending the Annual Meeting and
voting in person. For the reasons stated under "Mrs. Hagen's Proposals to Obtain
Control of the Company," the Board of Directors intends to instruct its proxy
holders to use their discretionary authority to vote against a series of
proposals Susan Hirt Hagen ("Mrs. Hagen") may present at the Annual Meeting as
part of her attempt to replace the Company's Board of Directors with directors
selected by her as part of Mrs. Hagen's announced attempt to obtain control of
the Company.
The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing this
Proxy Statement. The Company estimates that the total amount to be spent for its
solicitation of proxies will be $50,000, including expenditures for attorneys,
solicitors and costs for advertising, printing, transportation, postage and
related expenses. As of April 7, 2000, the Company's total expenses paid in
furtherance of or in connection with this solicitation were approximately
$5,000. Such solicitation will be made by mail and may also be made on behalf of
the Company in person or by telephone by the Company's regular officers and
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employees, none of whom will receive special compensation for such services. The
Company, upon request therefor, will also reimburse brokers, nominees,
fiduciaries and custodians or persons holding shares of Class B Common Stock in
their names or in the names of nominees for their reasonable expenses in
forwarding the Company's proxy material to beneficial owners.
Only holders of Class B Common Stock of record at the close of business on
March 20, 2000 will be entitled to vote at the Annual Meeting. Each share of
Class B Common Stock is entitled to one vote. 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 and for ratification of the selection of
independent public accountants. Cumulative voting rights do not exist with
respect to the election of directors. The 12 candidates for election as a
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. 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 candidates for election as directors. Abstentions from
voting and broker nonvotes will have no effect on the election of directors
because they will not represent votes cast at the Annual Meeting.
As of the close of business on March 20, 2000, the Company had 64,799,251
outstanding shares of Class A Common Stock, which are not entitled to vote on
any of the matters to be acted upon at the Annual Meeting, and 3,070 outstanding
shares of Class B Common Stock, which have the exclusive right to vote on all
matters to be acted upon at the Annual Meeting.
The H.O. Hirt Trusts collectively own 2,340 shares of Class B Common Stock,
which, because such shares represent 76.22% of the outstanding shares of Class B
Common Stock, is sufficient 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 H.O. Hirt Trusts are voted in the same manner. The trustees of the
H.O. Hirt Trusts as of the record date for the Annual Meeting are F. William
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Hirt, Mrs. Hagen and Bankers Trust Company ("Bankers Trust"). On March 3, 1999,
Bankers Trust advised the Orphans' Court Division of the Court of Common Pleas
of Erie County, Pennsylvania (the "Court") of Bankers Trust's resignation as the
corporate co-trustee of the H.O. Hirt Trusts. As of the date of this Proxy
Statement, the Court is considering two candidates for successor corporate
co-trustee: First Union National Bank, which was proposed by F. William Hirt,
and Sentinel Trust Company, which was proposed by Mrs. Hagen. The Company does
not know whom the Court will appoint as successor corporate co-trustee or
whether such appointment will be effective before or after the Annual Meeting.
See "Legal Proceedings."
Under the provisions of the H.O. Hirt Trusts, the shares of Class B Common
Stock held by the H.O. Hirt 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 H.O. Hirt Trusts vote for the election of the 12 candidates for
director named below who have been nominated by the Nominating Committee of the
Company's Board of Directors and for ratification of the selection of Brown,
Schwab, Bergquist & Co. as the Company's independent public accountants for
2000, such candidates will be elected as directors of the Company 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 H.O. Hirt Trusts are not voted for such
candidates or for such ratification. The Company has not been advised at this
time, however, how the trustees of the H.O. Hirt Trusts intend to vote at the
Annual Meeting.
Reference is made to "Legal Proceedings" in this Proxy Statement for
further information regarding litigation involving the H.O. Hirt Trusts and the
Annual Meeting.
The Company is a Pennsylvania business corporation formed in 1925 to be the
attorney-in-fact for Erie Insurance Exchange (the "Exchange"), a
Pennsylvania-domiciled reciprocal insurance exchange whereby the subscribers
exchange insurance contracts among themselves for the purpose of providing
indemnity among themselves from losses through a common attorney-in-fact. Each
subscriber gives a power of attorney under which the attorney-in-fact represents
each subscriber in exchanging insurance contracts with other subscribers. The
Company's principal business activity consists of management of the Exchange.
The Company receives management fees from the Exchange as compensation for
acting as attorney-in-fact for the Exchange, managing the business and affairs
of the Exchange and paying certain general administrative expenses, including
sales commissions, salaries, employee benefits, taxes, rent, depreciation, data
processing and other expenses of the Exchange not part of the settlement of
losses or the management of investments. These management fees account for the
majority of the Company's consolidated revenues.
The Company is also engaged in the property/casualty insurance business
through its wholly owned subsidiaries, Erie Insurance Company ("Erie Insurance
Co."), Erie Insurance Company of New York ("Erie NY") and Erie Insurance
Property & Casualty Company ("EI P&C") and through its management of Flagship
City Insurance Company ("Flagship"), a subsidiary of the Exchange. In addition,
the Company holds investments in both affiliated and unaffiliated entities,
including a 21.6% common stock interest in Erie Family Life Insurance Company
("EFL"), a life insurance company of which 52.2% is owned by the Exchange.
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BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth as of February 29, 2000 the amount of the
outstanding Class A Common Stock and Class B Common Stock and shares of Common
Stock of EFL beneficially owned by (i) each person who is known by the Company
to own beneficially more than 5% of its outstanding Class A Common Stock or
Class B Common Stock, (ii) each director and nominated candidate for director,
(iii) each current executive officer named in the Summary Compensation Table and
(iv) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Shares of Shares of Shares of
Class A Percent of Class B Percent of Common
Common Outstanding Common Outstanding Stock
Stock Class A Stock Class B of EFL
Name of Individual Beneficially Common Beneficially Common Beneficially
or Identity of Group Owned(1)(2) Stock(3) Owned(1)(2) Stock (3) Owned(1)(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5% Holders:
Black Interests Limited 8,726,250 13.47% 390 12.70% --
Partnership(4)
Erie, Pennsylvania
Samuel P. Black & 24,000 -- -- -- 2,730(12)
Associates, Inc.(4)
Erie, Pennsylvania
Samuel P. Black, III(4) 129,750 -- 20 -- 129,667(12)
Erie, Pennsylvania
Hagen Family Limited 10,092,900 15.57 1 -- 154,182
Partnership(5)(6)
Erie, Pennsylvania
Susan Hirt Hagen (5)(6)(7) 6,658,800 10.28 12 -- 600(13)
Erie, Pennsylvania
H.O. Hirt Trusts (5)(7) -- -- 2,340 76.22 --
Erie, Pennsylvania
Hirt Family Limited 11,830,000 18.26 -- -- 166,934(14)
Partnership(8)
Erie, Pennsylvania
F. William Hirt (7)(8) 1,807,740 2.79 20 -- 100
Erie, Pennsylvania
June M. Young 2,923,749 4.50 180 5.86 109,539
Erie, Pennsylvania
</TABLE>
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<TABLE>
<CAPTION>
Shares of Shares of Shares of
Class A Percent of Class B Percent of Common
Common Outstanding Common Outstanding Stock
Stock Class A Stock Class B of EFL
Name of Individual Beneficially Common Beneficially Common Beneficially
or Identity of Group Owned(1)(2) Stock(3) Owned(1)(2) Stock(3) Owned(1)(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Directors(9):
Peter B. Bartlett 3,000 -- -- -- --
J. Ralph Borneman, Jr. 60,000 -- -- -- 1,536
Patricia A. Goldman 1,650 -- -- -- 100
Gwendolyn S. King 300 -- -- -- --
Martin J. Lippert -- -- -- -- --
Stephen A. Milne 23,855 -- -- -- 220
John M. Petersen(10) 2,438,632 3.76% 1 -- 92,141
Jan R. Van Gorder 128,590 -- 1 -- 75
Harry H. Weil 300 -- -- -- 100
Robert C. Wilburn 2,000 -- -- -- 500
Executive Officers (11):
John J. Brinling, Jr. 14,044 -- -- -- 1,260(15)
Philip A. Garcia 90,163 -- -- -- 1,275
Jeffrey A. Ludrof 519 -- -- -- --
All Directors and Executive 42,137,619 64.98% 2,785 90.72% 552,290
Officers as a Group
(17 persons)
</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 the person 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
and all shares of Common Stock of EFL 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. The table does not reflect shares of Class A Common Stock
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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) Mrs. Hagen and her husband, Thomas B. Hagen, are limited partners of the
Hagen Family Limited 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 described in footnote (2), the maximum beneficial ownership of
Class A Common Stock and Class B Common Stock which Mrs. Hagen and Thomas
B. Hagen together could be deemed beneficially to have is 16,756,800 shares
of Class A Common Stock, or 25.86% 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 that Mr. and Mrs. Hagen together could be deemed to have would be
19,603,200 shares of Class A Common Stock, or 30.25% 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 Mrs. Hagen. The foregoing information is also based
on a Schedule 13D filed by Mrs. Hagen with the SEC on December 10, 1999,
Amendment No. 1 thereto filed with the SEC on December 29, 1999 and
Amendment No. 2 thereto filed with the SEC on March 24, 2000.
(6) Excludes 5,100 shares of Class A Common Stock and 3 shares of Class B
Common Stock of the Company owned by Thomas B. Hagen, Mrs. Hagen's husband.
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 Mrs. Hagen. Each of the H.O. Hirt Trusts is the
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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 as of the date of this Proxy Statement are F. William Hirt, Mrs.
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. See "Legal Proceedings."
(8) F. William Hirt is the general partner of the Hirt Family Limited
Partnership and has the sole right to vote such shares. Under the rules of
the SEC described in footnote (2), 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 21.13% 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 25.54% 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 of Class A Common Stock held in the Petersen Family Limited
Partnership for which John M. Petersen is the general partner and retains
the right to vote such shares. The total EFL shares include 30,000 EFL
shares held by his wife, Gertrude E. Petersen.
(11) Excludes executive officers listed under "Directors."
(12) Includes 1,000 EFL shares held of record by Mr. Black's father, Samuel P.
Black, Jr. for whom Samuel P. Black, III holds a durable power of attorney;
59,368 EFL shares held by the Samuel P. Black, Jr. 1996 Charitable
Remainder Trust of which Samuel P. Black, III would be a beneficiary and
60,000 EFL shares held by the Black Family Foundation of which Samuel P.
Black, III is an officer. Samuel P. Black, III is President, Treasurer and
Secretary of Samuel P. Black & Associates, Inc. which holds of record 2,730
EFL shares. Samuel P. Black, III directly owns 4,479 EFL shares and two
children of Samuel P. Black, III each own 2,400 EFL shares.
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(13) Includes 300 EFL shares owned directly by Mrs. Hagen and 300 EFL shares
held by Mrs. Hagen's husband, Thomas B. Hagen.
(14) Of this total, 169,934 EFL shares are held in a trust established by F.W.
Hirt and are held by the Hirt Family Limited Partnership. Mr. Hirt is the
general partner of the Hirt Family Limited Partnership and retains the
right to vote such shares. Mr. Hirt owns 100 EFL shares of record and
beneficially.
(15) Includes 630 EFL shares held by John J. Brinling, Jr., and 315 EFL shares
held in an IRA for John J. Brinling, Jr. and 315 EFL shares held in an IRA
for his wife.
Section 16(a) Beneficial Ownership Reporting Compliance
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 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. Based upon written representations received by the
Company from its officers and directors and 10% or greater shareholders, and the
Company's review of the monthly statements of changes of ownership filed with
the Company by its officers and directors and 10% greater shareholders during
1999, the Company believes that all such filings required during 1999 were made
on a timely basis.
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ELECTION OF DIRECTORS
Introduction
The election of directors of the Company by the holders of its Class B
Common Stock is governed by provisions of the Pennsylvania Insurance Company Law
in addition to provisions of the BCL, the Pennsylvania Associations Code and the
Company's Bylaws. The following discussion summarizes these statutory
provisions, and describes the process undertaken by the Nominating Committee in
connection with the nomination of candidates for election as directors by Class
B Shareholders at the Annual Meeting.
Background of the Company's Nominating Committee
Section 1405(c)(4) of the Pennsylvania Insurance Company Law, which is
applicable to the Company, provides that the board of directors of a domestic
insurer shall establish one or more committees comprised solely of directors who
are not officers or employees of the insurer or of any entity controlling,
controlled by or under common control with the insurer and who are not
beneficial owners of a controlling interest in the voting stock of the insurer
or any such entity, and that such committee or committees shall have
responsibility for recommending the selection of the insurer's independent
certified public accountants, reviewing the insurer's financial condition, the
scope and results of the insurer's independent audit and any internal audit,
nominating candidates for director for election by shareholders, evaluating the
performance of officers deemed to be principal officers of the insurer and
recommending to the board of directors the selection and compensation of the
principal officers. Section 103 of the Pennsylvania Associations Code provides
that the BCL is subordinated in favor of any statute regulating the business of
any association promulgated by a department of the Commonwealth of Pennsylvania.
The Company has received an opinion from its counsel, Duane, Morris &
Heckscher LLP, to the effect that under the foregoing provisions of Pennsylvania
law the Nominating Committee has the exclusive authority to nominate candidates
for election as directors of the Company by the holders of the Company's Class B
Common Stock.
In a proceeding pending in the Court, Mrs. Hagen and Bankers Trust are
contesting the Company's position that the foregoing Pennsylvania statute grants
exclusivity to the Nominating Committee to nominate candidates for election as
directors by shareholders, and Mrs. Hagen and Bankers Trust are also seeking a
judicial determination that any holder of Class B Common Stock has the right to
nominate at the Annual Meeting candidates for election as directors of the
Company at the Special Meeting. See "Pending Litigation."
Section 3.09 of the Company's Bylaws is consistent with this statutory
provision and provides that (i) the Company's Board of Directors shall appoint
annually a Nominating Committee which shall consist of not less than three
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directors who are not officers or employees of the Company or of any entity
controlling, controlled by or under common control with the Company and who are
not beneficial owners of a controlling interest in the voting securities of the
Company, and (ii) the Nominating Committee shall, prior to each annual meeting
of shareholders, determine and nominate candidates for the office of directors
of the Company to be elected by the shareholders to serve terms as established
by the Bylaws and until their successors are appointed.
In accordance with this Bylaw provision, on April 27, 1999, the Company's
Board of Directors designated, without dissent, a Nominating Committee
consisting of Patricia A. Goldman ("Ms. Goldman"), Chairperson, Peter B.
Bartlett, Samuel P. Black, III and J. Ralph Borneman, Jr. On December 14, 1999,
Gwendolyn S. King was also designated as a member of the Nominating Committee by
unanimous vote of the Company's Board of Directors. None of these persons is an
officer or employee of the Company or of any entity controlling, controlled by
or under common control with the Company or a beneficial owner of a controlling
interest in the voting stock of the Company or any such entity.
Establishment of Shareholder Nominating Procedures
On August 16, 1999, the Company's Board of Directors voted in favor of
amending the Company's Bylaws to add Section 2.07(a) to the Company's Bylaws for
the purpose of establishing a fair and reasonable process by which any holder of
Class A Common Stock or Class B Common Stock could propose to the Nominating
Committee one or more persons whom the shareholder believes would be an
appropriate candidate for nomination by the Nominating Committee for election by
shareholders as a director at a forthcoming meeting of shareholders at which
directors are to be elected. Mrs. Hagen dissented from this action, and had
proposed Bylaws amendments that would not have granted holders of Class A Common
Stock the right to submit director proposals to the Nominating Committee. The
Company believes such a process is an important shareholder right, and that
proposals from shareholders will assist the Nominating Committee in the exercise
of its responsibility to nominate candidates for election as directors by the
shareholders. Section 2.07(a) of the Company's Bylaws establishes a time period
in which any such proposal must be submitted, and specifies the information
required to be submitted about any person so proposed so that the Nominating
Committee would have adequate time and information to review the information
submitted, interview the proposed candidate if the Nominating Committee so
desired and determine whether to nominate the person proposed as a candidate for
election as a director by shareholders.
Under Section 2.07(a) of the Company's Bylaws, the names of persons
proposed to the Nominating Committee and the requisite supporting information in
respect of directors to be elected by shareholders at the April 25, 2000 annual
meeting of shareholders were required to be submitted not before December 1,
1999 and not later than December 31, 1999.
10
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Shareholder Proposals of Persons for Nominating Committee Consideration
By letter dated December 20, 1999 to the Company, F. William Hirt proposed
one person (Cyrus K. Wellman) for consideration by the Nominating Committee for
nomination as a candidate for election as a director by the shareholders at the
Annual Meeting.
By letter dated December 29, 1999 to the Company, Mrs. Hagen proposed 11
persons as the Hagen Nominees (Mrs. Hagen, Kenneth B. Frank, Patricia
Garrison-Corbin, Samuel P. Katz, Claude C. Lilly, III, Henry N. Nassau, Mitchell
S. Rosenthal, Perry M. Smith, Charles D. Snelling, William H. Starbuck and James
M. Trapp) for consideration by the Nominating Committee for nomination as
candidates for election as directors by shareholders at the Annual Meeting. Mrs.
Hagen's letter stated, however, that these persons agreed to be included as
nominees "only so long as all the Hagen Nominees are included in such slate and
only so long as the Hagen Nominees, if elected, would constitute a majority of
the Board." See "Mrs. Hagen's Proposals to Obtain Control of the Company."
By letter dated December 20, 1999 to the Chairperson of the Nominating
Committee, Michael J.A. Smith ("Mr. Smith"), the principal trust officer
assigned to the H.O. Hirt Trusts by Bankers Trust, which resigned as the
corporate co-trustee of the H.O. Hirt Trusts on March 3, 1999, identified two
candidates, Dr. Lilly, who is also one of the Hagen Nominees, and Christine
Bancheri.
The Company's Position as to the Exclusivity of Nominations of Director
Candidates by the Nominating Committee
The Company believes that Pennsylvania law unambiguously grants a
nominating committee of a Pennsylvania-domiciled insurance holding company, such
as the Company, the exclusive authority to nominate candidates for election as
directors by shareholders of the insurance holding company. The Company's belief
is supported by the opinion of Duane, Morris & Heckscher LLP as the Company's
legal counsel. The correctness of the Company's belief is currently being
contested in an action pending in the Court brought by Mrs. Hagen and in which
Bankers Trust has joined. Both Mrs. Hagen and Bankers Trust believe that the
Company's belief is incorrect and that the shareholders of a
Pennsylvania-domiciled insurance holding company may nominate candidates for
election as directors by shareholders without the requirement that such
candidates have been nominated by the Nominating Committee. See "Pending
Litigation" for further information regarding this litigation.
Because the Company cannot predict what decision the Court will make or if
the Court will make a decision before the Annual Meeting, the Company believes
the following actions are in order:
11
<PAGE>
o The Company will not permit Mrs. Hagen to nominate the Hagen Nominees at
the Annual Meeting unless there is a Court decision before the Annual
Meeting requiring the Company to do so;
o The Company will permit Mrs. Hagen to nominate the Hagen Nominees at the
Annual Meeting if there is a Court decision before the Annual Meeting
requiring the Company to do so;
o The Company will allow Mrs. Hagen's shareholder proposal to be considered
which includes the following proposed actions:
o remove all directors elected at the Annual Meeting immediately
following their election;
o amend the Bylaws to replace the first sentence of Section 3.02 to
authorize the shareholders at a duly organized annual or special
meeting to fix the exact number of directors, in addition to the
existing authority of the Board to do so;
o reduce and fix the number of directors at 11 directors; and
o nominate the Hagen Nominees for election as directors.
See "Mrs. Hagen's Proposals to Obtain Control of the Company."
Furthermore, Section 1758(b) of the BCL provides that if the bylaws of a
corporation provide a fair and reasonable procedure for the nomination of
candidates for any office, only candidates who have been duly nominated in
accordance therewith shall be eligible for election. The Company believes that
its Bylaws set forth a fair and reasonable procedure for the nomination of
candidates for director in that they are neither onerous nor inconsistent with
applicable law and, therefore, that only candidates nominated by the Nominating
Committee are eligible for election as directors at the Annual Meeting.
Actions Taken by the Nominating Committee
The Nominating Committee held a meeting on January 6, 2000 to discuss the
Schedule 13D filed by Mrs. Hagen on December 10, 1999 and Amendment No. 1
thereto filed by Mrs. Hagen on December 29, 1999, in which Mrs. Hagen disclosed
the actions contemplated by her as to the election of directors at the 2000
Annual Meeting. The Nominating Committee discussed the process it would follow
in nominating candidates for election as directors by the shareholders at the
2000 Annual Meeting in accordance with the procedures established by the
Pennsylvania Insurance Company Law. The Nominating Committee also decided to
retain the law firm of Covington & Burling, Washington, D.C. as its independent
legal counsel, and to retain the executive search firm of Heidrick & Struggles,
12
<PAGE>
Inc. to assist the Nominating Committee in conducting interviews of Ms.
Bancheri, Dr. Lilly and Mr. Wellman as candidates who had been proposed to the
Nominating Committee for consideration on an individual basis and not as part of
a group willing to be nominated only if all members of the group would be
nominated.
The Nominating Committee next met on February 14, 2000, and Mr. Smith, at
the invitation of the Nominating Committee, attended a portion of the meeting.
One of the purposes of the meeting was to advise Mr. Smith in person of the
process the Nominating Committee was following in determining nominees for
director at the 2000 Annual Meeting of Shareholders and to consult with Bankers
Trust. Upon the conclusion of its discussions with Mr. Smith, the Nominating
Committee requested that Ms. Goldman as Chairperson arrange for Heidrick &
Struggles to interview Ms. Bancheri and Mr. Wellman.
The Nominating Committee next met on February 29, 2000. The purpose of the
meeting was to receive and discuss the report of Heidrick & Struggles on its
interviews with Ms. Bancheri and Mr. Wellman. The Nominating Committee requested
that Ms. Goldman arrange an interview between the Nominating Committee and Ms.
Bancheri. Ms. Goldman also informed the members of the Nominating Committee of
conversations with Mr. Smith of Bankers Trust regarding the Nominating
Committee's schedule and that Mr. Smith had neither met in person with nor knew
the candidates he had identified to the Nominating Committee. Ms. Goldman
further reported on an exchange of correspondence she had had with counsel for
Mrs. Hagen regarding the conditions under which the director candidates proposed
by Mrs. Hagen would be interviewed as individual candidates by the Nominating
Committee. Dr. Lilly, one of the Hagen Nominees, had refused to be interviewed
by representatives of the Nominating Committee unless all of the other Hagen
Nominees were also interviewed. The Nominating Committee unanimously reached the
conclusion that it would not conduct interviews of Mrs. Hagen's candidates on
the condition imposed by Mrs. Hagen (that all Hagen Nominees be nominated as a
group and that none of them be nominated individually) because the Nominating
Committee believed the candidates proposed on that condition lacked the
independence that is desirable of a director of a public company.
The Nominating Committee also met on March 7, 2000 for the purpose of
interviewing Ms. Bancheri.
The Decision Not to Renominate Mrs. Hagen
The Nominating Committee next met on March 10, 2000 for the purpose of
nominating candidates for election as directors by the shareholders at the 2000
Annual Meeting. After extensive discussion, the Nominating Committee determined
not to renominate Mrs. Hagen as a candidate for election as a director by
shareholders at the 2000 Annual Meeting. The Nominating Committee unanimously
adopted a written report, prepared with the assistance of Covington & Burling as
13
<PAGE>
the Nominating Committee's independent legal counsel, setting forth the facts
and circumstances that caused the Nominating Committee to reach its decision not
to renominate Mrs. Hagen.
Based upon its decision not to renominate Mrs. Hagen, the Nominating
Committee recommended to the Board of Directors that the size of the Company's
Board of Directors be reduced from 13 persons to 12 persons, and the Nominating
Committee nominated 12 persons (Peter B. Bartlett, Samuel P. Black, III, J.
Ralph Borneman, Jr., Patricia A. Goldman, F. William Hirt, Gwendolyn S. King,
Martin J. Lippert, Stephen A. Milne, John M. Petersen, Jan R. Van Gorder, Harry
H. Weil and Robert C. Wilburn), each of whom is currently a director of the
Company, as candidates for election as directors by the Class B shareholders of
the Company at the Annual Meeting.
At its March 14, 2000 meeting, the Board of Directors accepted the report
of the Nominating Committee and approved, by a unanimous vote with the exception
of Mrs. Hagen, a motion to establish the size of the Company's Board of
Directors at 12 persons and unanimously accepted, with the exception of Mrs.
Hagen, the nomination by the Nominating Committee of the candidates for election
as directors by the shareholders at the Annual Meeting set forth under
"Candidates for Election."
Candidates for Election
The Company's Bylaws provide that the Board of Directors 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 of Directors. The Board of
Directors has set, by resolution, the number of directors to be elected at the
Annual Meeting at 12, which is one less than the number of directors currently
in office.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the election of the nominees named below, all of whom are
currently directors of the Company and each of whom was nominated for election
by the Nominating Committee of the Board of Directors. If a nominee becomes
unavailable for any reason, it is intended that the proxies will be voted for a
substitute nominee selected by the Nominating Committee of the Board of
Directors. The Board of Directors has no reason to believe the nominees named
will be unable to serve if elected. Any vacancy occurring on the Board of
Directors 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.
14
<PAGE>
The names of the candidates for director nominated by the Nominating
Committee, together with certain information regarding them, are as follows:
<TABLE>
<CAPTION>
Age Principal Occupation for Past
As of Five Years and Positions with Director
Name 4/1/00 the Erie Insurance Group Since
- ---- ------ ------------------------------ -------
<S> <C> <C> <C>
Peter B. Bartlett 66 Partner, Brown Brothers Harriman 1994
(3C)(4)(6C) & Co. since 1974; Director, the Company,
EFL, Erie Insurance Co. and Kennametal, Inc.
Samuel P. Black, III 58 President, Treasurer and Secretary, Samuel P. 1997
(2)(4)(5)(6) Black & Associates, Inc., insurance agency;
Director, the Company, Erie Insurance Co.,
EFL, Flagship and EI P&C.
J. Ralph Borneman, Jr., CIC, 61 President and Chief Executive Officer, Body- 1992
(3)(4) Borneman Associates, Inc., insurance agency;
President, Body-Borneman, Ltd. and Body-
Borneman Inc., insurance agencies; Director,
the Company, EFL, Erie Insurance Co., Erie NY
and National Penn Bancshares.
Patricia A. Goldman 58 Retired; Senior Vice President for 1994
(2)(4C) Communications, USAir, Inc. from 1988
to 1994; Director, the Company, EFL,
Erie Insurance Co. and Crown Central
Petroleum Company.
F. William Hirt, CPCU 74 Chairman of the Board of the Company, EFL, 1965
(1C) Erie Insurance Co., EI P&C and Flagship since
September 1993; Chairman of the Board of
Erie NY since April 1994; Chairman of the
Executive Committee of the Company and EFL
since November 1990; Interim President and
Chief Executive Officer of the Company, EFL,
Erie Insurance Co., EI P&C, Flagship and Erie
NY from January 1, 1996 to February 12, 1996;
Chairman of the Board, Chief Executive Officer
and Chairman of the Executive Committee of the
Company, EFL and Erie Insurance Co. for more
than five years prior thereto; Director, the
Company, EFL, Erie Insurance Co., Erie NY,
EI P&C and Flagship.
Gwendolyn S. King 59 Retired; Senior Vice President for 1999
(4) Corporate and Public Affairs, PECO
Energy Company 1992-1998; Director,
the Company, Erie Insurance Co., EFL,
Lockheed Martin Corp., Monsanto Company,
and Marsh & McLennan Companies.
Martin J. Lippert 40 Vice Chairman, Executive Vice President 1999
(2) and Chief Information Officer of Systems and
Technology, Royal Bank of Canada since 1997;
various management positions with Mellon Bank,
N.A. from 1981 to 1997; Director, the Company,
Erie Insurance Co. and EFL.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Age Principal Occupation for Past
As of Five Years and Positions with Director
Name 4/1/00 the Erie Insurance Group Since
- ---- ------ ------------------------------ -------
<S> <C> <C> <C>
Stephen A. Milne, CIC 51 President, Chief Executive Officer and a 1996
(1)(6) Director of the Company, EFL and Erie
Insurance Co. since February 12, 1996 and
President and Chief Executive Officer of
Flagship, EI P&C and Erie NY since March 11,
1996; Executive Vice President Insurance
Operations of the Company, Erie Insurance Co.,
Flagship, EI P&C and Erie NY January 11,
1994 to February 12, 1996. Owner,
Bennett-Damascus Insurance Agency March
1991 to December 31, 1993; Senior Vice
President-Agency Division, the Company,
EFL and Erie Insurance Co. 1988 to 1991;
Director, the Company, Erie Insurance Co.,
EFL, Flagship, EI P&C and Erie NY.
John M. Petersen 71 Retired; President and Chief Executive Officer of 1979
(1) the Company, EFL, Erie Insurance Co., Flagship,
EI P&C 1993 to 1995 and Erie NY 1994 to 1995;
President, Treasurer and Chief Financial Officer
of the Company, Erie Insurance Co. and EFL from
November 1990 and of Flagship and EI P&C from
1992 and 1993, respectively, to September 1993;
President, Treasurer and Chief Financial Officer
of EFL and Executive Vice President, Treasurer
and Chief Financial Officer of the Company and
Erie Insurance Co. for more than five years prior
thereto; Director, the Company, EFL, Erie
Insurance Co., Flagship, EI P&C, Erie NY and
Spectrum Control.
Jan R. Van Gorder, Esq. 52 Senior Executive Vice President, Secretary and 1990
(1) General Counsel of the Company, EFL and Erie
Insurance Co. since 1990, and of Flagship and
EI P&C since 1992 and 1993, respectively and of
Erie NY since April 1994; Senior Vice President,
Secretary and General Counsel of the Company, EFL
and Erie Insurance Co. for more than five years
prior thereto; Director, the Company, EFL, Erie
Insurance Co., Flagship, EI P&C and Erie NY.
Harry H. Weil, Esq. 66 Retired; Counsel, Reed Smith Shaw & McClay, 1994
(2C)(3)(6) Attorneys, 1998 to 1999; Partner 1969 to 1997;
Director, the Company, Erie Insurance Co., EFL
and Calgon Carbon Corporation.
Robert C. Wilburn 56 Distinguished Service Professor, Carnegie Mellon 1999
(3) University since 1999; President and Chief
Executive Officer, Colonial Williamsburg
Foundation from 1992 to 1999; President, Carnegie
Institute Library of Pittsburgh from 1984 to 1992.
Director the Company, Erie Insurance Co. and EFL.
</TABLE>
- -------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Compensation Committee.
(4) Member of the Nominating Committee.
(5) Member of the Charitable Giving Committee.
(6) Member of Investment Committee.
C Designates Committee Chairperson.
16
<PAGE>
The Board of Directors met seven times in 1999. The standing committees of
the Company's Board of Directors are the Executive Committee, the Audit
Committee, the Executive Compensation Committee, the Nominating Committee, the
Charitable Giving Committee and the Investment Committee.
The Executive Committee, which did not meet during 1999, has the authority,
subject to certain limitations, to exercise the power of the Board of Directors
between regular meetings.
The Audit Committee, which met four times during 1999, has responsibility,
consistent with the requirements of Section 1405(c)(4) of the Pennsylvania
Insurance Company Law and the Company's Bylaws, for recommending to the Board of
Directors the selection of independent public accountants, reviewing the scope
and results of the audit and reviewing the adequacy of the Company's accounting,
financial, internal and operating controls.
The Executive Compensation Committee, which met twice during 1999, has
responsibility, consistent with the requirements of Section 1405(c)(4) of the
Pennsylvania Insurance Company Law and the Company's Bylaws, for recommending to
the Board of Directors, at least annually, the compensation of the three highest
paid officers of the Company and such other officers as the Board of Directors
may designate, recommending all forms of direct compensation, including any
incentive programs, that would be appropriate for management and employees of
the Company and such other responsibilities as the Board of Directors may
designate. See "Executive Compensation--Compensation Committee Interlocks and
Insider Participation."
The Nominating Committee, which met ten times during 1999, has
responsibility, consistent with the requirements of Section 1405(c)(4) of the
Pennsylvania Insurance Company Law and the Company's Bylaws, for conducting
searches for and the nomination of a slate of candidates to stand for election
to the Board of Directors at the Company's Annual Meeting of Shareholders and to
nominate candidates to fill vacancies on the Board of Directors between annual
meetings of shareholders. See also "Legal Proceedings."
The Charitable Giving Committee, which met four times during 1999, has
responsibility for recommending to the Chief Executive Officer charitable gifts
by the Company within a budgetary limit established by the Board of Directors.
17
<PAGE>
The Investment Committee, which met four times in 1999, has responsibility
to assist the Company's Board of Directors in its general oversight of the
investments of the Company.
All directors hold office until their respective successors are elected or
until their earlier death, resignation or removal. Officers serve at the
discretion of the Board of Directors. There are no family relationships between
any directors or executive officers of the Company, except that F. William Hirt,
Chairman of the Board, Chairman of the Executive Committee and a director, is
the brother of Mrs. Hagen, a director.
The Board of Directors recommends a vote FOR the 12 candidates for director
nominated by the Nominating Committee.
18
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company during
each of the three fiscal years ended December 31, 1999, 1998 and 1997 to the
Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company during 1999 for services rendered
in all capacities to the Company, EFL, the Exchange and their subsidiaries and
affiliates.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------
Name and Other Annual All Other
Principal Compensa- Compensa-
Position Year Salary($) Bonus($)(1) tion($)(2) tion($)(3)
- --------- ---- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Milne, Stephen A. 1999 633,600 495,201 2,595 64,649
President and Chief 1998 587,892 436,683 2,924 66,051
Executive Officer 1997 539,462 173,989 1,722 66,219
Van Gorder, Jan R. 1999 335,482 150,653 2,614 26,492
Senior Executive 1998 321,032 142,340 3,439 27,887
Vice President, 1997 321,032 102,761 2,976 26,263
Secretary and
General Counsel
Garcia, Philip A. 1999 244,720 119,302 763 13,475
Executive Vice 1998 224,040 97,641 779 20,677
President and Chief 1997 160,703 58,555 572 4,470
Financial Officer
Brinling, Jr., John J. 1999 238,168 101,575 2,454 24,875
Executive Vice 1998 224,686 102,132 3,279 25,731
President 1997 214,395 68,166 2,835 27,209
Ludrof, Jeffrey A. 1999 216,432 95,769 76 13,063
Executive Vice 1998 171,019 74,860 0 5,444
President 1997 159,831 0 0 3,581
Insurance Operations
</TABLE>
- ---------------
(1) The amounts indicated in the bonus column above represent amounts earned by
the named executives during 1999 under the Annual Incentive Plan. The
purpose of the Annual Incentive Plan is to promote the best interests of
the Exchange while enhancing shareholder value of the Company by basing a
portion of selected employees' compensation on the performance of such
employee and the Company. Performance measures are established by the
Executive Compensation Committee based on the attainment of individual
performance goals and the Company's financial goals compared to a selected
peer group. The amounts indicated also include reimbursement of club
19
<PAGE>
initiation fees for Mr. Milne in the amount of $56,912 and a special merit
bonus of $90,662 in addition to reimbursement for other minor perquisites.
For the other named executives, the amounts indicated include reimbursement
for minor perquisites in the amounts of $10,192, $16,794, $3,804 and $7,985
for Messrs. Van Gorder, Garcia, Brinling and Ludrof, respectively.
(2) Amounts indicated in the "Other Annual Compensation" column include the
taxable value of group term life insurance in excess of $50,000 and the
associated tax reimbursement for the named executive officers. The amounts
exclude Long Term Incentive Plan benefits awarded in February 2000. See
"Long Term Incentive Plan Awards in Last Fiscal Year" table.
(3) Amounts shown include matching contributions made by the Company pursuant
to the Employee Savings Plan, premiums paid by the Company on behalf of the
named individuals on the split dollar life insurance policies and
miscellaneous expense reimbursements. For the year 1999, contributions made
to the Employee Savings Plan amounted to $14,308, $9,084, $7,145, $6,461
and $6,365, on behalf of Messrs. Milne, Van Gorder, Brinling, Garcia and
Ludrof, respectively. Premiums paid during 1999 for split dollar life
insurance policies for Messrs. Milne, Van Gorder, Brinling, Garcia and
Ludrof, respectively, were: $50,341, $17,408, $17,730, $7,014 and $6,698.
The Company is entitled to recover the premiums from any proceeds paid on
such split dollar life insurance policies and has retained a collateral
interest in each policy to the extent of the premiums paid with respect to
such policies.
Agreements with Executive Officers
The Company has entered into employment agreements with the following
senior executive officers of the Company: Stephen A. Milne, President and Chief
Executive Officer of the Company; Jan R. Van Gorder, Senior Executive Vice
President, Secretary and General Counsel of the Company; Philip A. Garcia,
Executive Vice President and Chief Financial Officer of the Company; John J.
Brinling, Jr., Executive Vice President of EFL and Jeffrey A. Ludrof, Executive
Vice President of the Company. At a meeting of the Board of Directors held on
December 14, 1999, the Board of Directors extended the term of each executive
officer's employment agreement for one year. The employment agreements have the
following principal terms:
(a) A four-year term for Mr. Milne, expiring in December 2003, and for the
other executives a two-year term expiring in December 2001, unless the agreement
is theretofore terminated in accordance with its terms, with or without cause,
or due to the disability or death of the officer or notice of nonrenewal is
given by the Company or the executive 30 days before any anniversary date;
(b) A minimum annual base salary at least equal to the executive's annual
base salary at the time the agreement was executed, subject to periodic review
20
<PAGE>
to reflect the executive's performance and responsibilities, competitive
compensation levels and the impact of inflation;
(c) The eligibility of the executive under the Company's incentive
compensation programs and employee benefit plans;
(d) The establishment of the terms and conditions upon which the
executive's employment may be terminated by the Company and the compensation of
the executive in such circumstances. The agreements provide generally, among
other things, that if the employment of an executive is terminated without Cause
(as defined in the agreement) by the Company or by the executive for Good Reason
(as defined in the agreement) then the executive shall be entitled to receive:
(i) an amount equal to the sum of three times the executive's highest annual
base salary during the preceding three years plus an amount equal to three times
the total of the executive's highest award during the preceding three years
under the Company's Annual Incentive Plan; (ii) any award or other compensation
to which the executive is entitled under the Company's Long-Term Incentive Plan;
(iii) continuing participation in any employee benefit plans for a period of
three years following termination to the extent the executive and his dependents
were eligible to participate in such programs immediately prior to the
executive's termination and (iv) immediate vesting and nonforfeitability of
accrued benefits under the Company's Supplemental Retirement Plan for Certain
Members of the Erie Insurance Group Retirement Plan for Employees ("Supplemental
Employee Retirement Plan");
(e) Provisions relating to confidentiality and nondisclosure following an
executive's termination; and
(f) An agreement by the executive not to compete with the Company for a
period of one year following his termination, unless his termination was without
Cause.
Stock Options and Stock Appreciation Rights
The Company does not have a stock option plan, nor has it ever granted any
stock option or stock appreciation right to any of the persons named in the
Summary Compensation Table.
Long-Term Incentive Plan
The Company has established a Long-Term Incentive Plan that is designed to
enhance the growth and profitability of the Company by providing the incentive
of long-term rewards to key employees who are capable of having a significant
impact on the performance of the Company; to attract and retain employees of
outstanding competence and ability and to further align the interests of such
employees with those of the shareholders of the Company. The Long-Term Incentive
Plan was approved by shareholders in 1997 as a performance-based plan under the
Internal Revenue Code of 1986, as amended (the "Code"). Each of the named
21
<PAGE>
executives has been granted awards of phantom share units under the Company's
Long-Term Incentive Plan based upon a target award calculated as a percentage of
the executive's base salary. The total value of any phantom share units will be
determined at the end of the performance period based upon the growth in the
Company's retained earnings. Each executive will then be entitled to receive
restricted shares of Class A Common Stock equal to the dollar value of the
phantom share units at the end of the performance period. The vesting period for
the restricted shares of Class A Common Stock issued to each executive is three
years after the end of the performance period. If an executive ceases to be an
employee prior to the end of the performance period, the executive forfeits all
phantom share units awarded. If an executive ceases to be an employee prior to
the end of the vesting period, the executive forfeits all unvested restricted
shares previously granted. The following table sets forth target awards granted
to the Company's five highest paid executive officers (i) for the three-year
performance period of 1999 through 2001, (ii) for the three-year performance
period of 1998 through 2000 and (iii) for the three-year performance period of
1997 through 1999.
LONG TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Performance
Number of Shares, or Other Period
Units or Other Until Maturation Estimated Future Payouts Under
Name Rights (#) or Payout Non-Stock Price Based Plans
- ------------------------------------------------------------------------------------------------------
Phantom
Share
Units Threshold Target Maximum
------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Milne, Stephen A. 45,656 1997-1999 0 $188,812 (1)
76,286 1998-2000 0 377,623 (1)
79,863 1999-2001 0 420,000 (1)
Van Gorder, Jan R. 27,170 1997-1999 0 $112,361 (1)
22,699 1998-2000 0 112,361 (1)
33,574 1999-2001 0 176,568 (1)
Garcia, Philip A. 12,668 1997-1999 0 $ 52,390 (1)
14,155 1998-2000 0 70,070 (1)
24,054 1999-2001 0 126,500 (1)
Brinling, John J., Jr. 18,145 1997-1999 0 $ 75,038 (1)
15,159 1998-2000 0 75,038 (1)
23,767 1999-2001 0 124,992 (1)
Ludrof, Jeffrey A. 13,493 1997-1999 0 $ 55,801 (1)
12,062 1998-2000 0 59,707 (1)
23,673 1999-2001 0 124,498 (1)
</TABLE>
- ----------------
(1) There is no maximum payout limitation for a specific performance period.
However, the maximum value of phantom share units that may be earned by any
named executive in any year shall not exceed $500,000.
22
<PAGE>
Pension Plan
The following table sets forth the estimated total annual benefits payable
upon retirement at age 65 under the Erie Insurance Group Retirement Plan for
Employees and the Supplemental Employee Retirement Plan (collectively, the
"Retirement Plans").
23
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
- -------------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ----------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
$150,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $ 90,000
200,000 60,000 80,000 100,000 120,000 120,000
250,000 75,000 100,000 125,000 150,000 150,000
300,000 90,000 120,000 150,000 180,000 180,000
350,000 105,000 140,000 175,000 210,000 210,000
400,000 120,000 160,000 200,000 240,000 240,000
450,000 135,000 180,000 225,000 270,000 270,000
500,000 150,000 200,000 250,000 300,000 300,000
550,000 165,000 220,000 275,000 330,000 330,000
600,000 180,000 240,000 300,000 360,000 360,000
650,000 195,000 260,000 325,000 390,000 390,000
700,000 210,000 280,000 350,000 420,000 420,000
750,000 225,000 300,000 375,000 450,000 450,000
800,000 240,000 320,000 400,000 480,000 480,000
</TABLE>
The compensation covered by the Retirement Plans is the base salary
reported in the Summary Compensation Table.
Under the Retirement Plans, credited years of service is capped at 30
years. Credited years of service for each of the individuals named in the
Summary Compensation Table is as follows: Stephen A. Milne--23 years, Jan R. Van
Gorder--19 years, John J. Brinling, Jr.--30 years, Philip A. Garcia--19 years
and Jeffrey A. Ludrof - 19 years.
The benefits under the Retirement Plans are computed on the basis of
straight-life annuity amounts and a life annuity with a ten-year certain
benefit. The benefits listed in the Pension Plan Table are not subject to
deduction for Social Security or other offset amounts. The information in the
foregoing table does not reflect certain limitations imposed by the Code.
Beginning in 1994, the Code prohibits the inclusion of earnings in excess of
$150,000 per year (adjusted periodically for cost of living increases) in the
average earnings used to calculate benefits. The Code also limits the maximum
annual pension (currently $135,000, but adjusted periodically for cost of living
increases) that can be paid to each eligible employee. A Supplemental Employee
Retirement Plan for senior management is in effect which provides benefits in
excess of the earnings limitations imposed by the Code similar to those provided
to all other full-time employees as if the Code limitations were not in effect.
Those benefits are incorporated into the Pension Plan Table.
24
<PAGE>
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 of Directors and its committees.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee (the "Compensation Committee") of the
Company presently consists of Peter B. Bartlett, Chairman, J. Ralph Borneman,
Jr., Harry H. Weil and Robert C. Wilburn. No member of the Compensation
Committee is a former or current officer or employee of the Company, the
Exchange, EFL or any of their respective subsidiaries or affiliates(1).
Furthermore, no executive officer of the Company serves as a member of a
compensation committee of another entity, one of whose executive officers serves
on the Compensation Committee or as a director of the Company, nor does any
executive officer of the Company serve as a director of another entity, one of
whose executive officers serves on the Compensation Committee(1)
Report of the Executive Compensation Committee of the Company
Consistent with Section 1405(c)(4) of the Pennsylvania Insurance Company
Law and the Company's Bylaws, the Compensation Committee is charged with the
duty of recommending to the Board of Directors the compensation of the three
highest paid officers of the Company and such other officers as are determined
by the Board of Directors; recommending to the Board of Directors all forms of
bonus compensation, including incentive programs, that would be appropriate for
the Company and to undertake such other responsibilities as may be delegated to
the Compensation Committee by the Board of Directors. The Board of Directors has
authorized the Compensation Committee to consider the compensation of the four
highest paid officers, including the Chief Executive Officer. The Compensation
Committee is currently composed of four directors who are not officers or
employees of the Company, the Exchange or EFL or any of their affiliates or
subsidiaries. The purpose of the Compensation Committee is to determine the
level and composition of compensation that is sufficient to attract and retain
top quality executives for the Company.
- -------------
(1) J. Ralph Borneman, Jr. is the President and a principal shareholder of
Body-Borneman Associates, Inc., Body-Borneman, Inc. and Body-Borneman,
Ltd., all of which are independent insurance agencies representing a number
of insurers, including the insurance subsidiaries of the Company, EFL and
the Exchange and its insurance subsidiary and which receive commissions in
the ordinary course of business from such insurance companies. Under the
provision of Section 162(m) of the Code relating to qualified plans, Mr.
Borneman is not deemed independent for purposes of approving
performance-based incentive plans. Mr. Borneman has excused himself from
voting on such plans as a member of the Compensation Committee.
25
<PAGE>
The objectives of the Company's executive compensation practices are: (1)
to attract, reward and retain key executive talent and (2) to motivate executive
officers to perform to the best of their abilities and to achieve short-term and
long-term corporate objectives that will contribute to the overall goal of
enhancing shareholder value and policyholder security. To that end, compensation
comparisons are made to benchmark positions at other insurers in terms of
compensation levels and composition of the total compensation mix.
Under Section 162(m) of the Code, the Company is not allowed a federal
income tax deduction for compensation, under certain circumstances, paid to
certain executive officers to the extent that such compensation exceeds $1
million per officer in any fiscal year. No officer of the Company has received
compensation in excess of $1 million in any fiscal year to date, with the
exception of Stephen A. Milne, President and Chief Executive Officer of the
Company, in 1999 and 1998. The Compensation Committee may consider adopting
policies with respect to this limitation on deductibility when appropriate.
The Compensation Committee reviewed the salary ranges and base salaries of
the four highest paid executives, including the Chief Executive Officer, in
1999. The Compensation Committee has position descriptions for the four highest
paid executives of the Company, including the Chief Executive Officer, which
define the responsibilities and duties of each position. The position
descriptions also delineate the functional areas of accountability and the
qualifications and skills required to perform such responsibilities and duties.
The Compensation Committee then reviewed the salary ranges for the Chief
Executive Officer and the other three highest paid executives, comparing the
ranges to third party data compiled for similar positions with other property
and casualty insurers. In reviewing the salary ranges for the four highest paid
executives, including the Chief Executive Officer, the Compensation Committee
referenced Sibson's Management Compensation Survey published annually by Sibson
& Company, Inc., which summarized compensation data for more than 100 insurance
companies. The data is reported by position, company asset size and premium
volume. The unique aspects of each position, its duties and responsibilities,
the effect on the performance of the Company, the number of employees supervised
directly and other criteria were also considered in setting the base salaries.
The Compensation Committee also consulted data obtained from Towers Perrin, a
nationally recognized consulting firm with specific expertise in the insurance
industry, to make recommendations regarding executive compensation.
The level of compensation for each executive reflects his or her skills,
experience and job performance. Normally, base salary will not be less than the
minimum for the salary range established for each position. Executives with a
broader range of skills, experience and consistently high performance with the
26
<PAGE>
Company may receive compensation above the midpoint for the established salary
range.
Compensation for the Chief Executive Officer consists primarily of salary,
annual incentive and long-term incentive payments and minor perquisites which
amount to less than 10% of the Chief Executive Officer's salary and bonus. The
Board of Directors approved adoption of an annual incentive plan and long-term
incentive plan for senior executives of the Company as recommended by the
Executive Committee at its meeting of March 11, 1997 (the "Annual Incentive
Plan" and the "Long-Term Incentive Plan," respectively).
The purpose of the Annual Incentive Plan is to promote the best interests
of the Exchange while enhancing shareholder value of the Company and to promote
the attainment of significant business objectives for the Company, its
subsidiaries and affiliates by basing a portion of the executives' compensation
on the attainment of both premium growth and underwriting profitability goals.
The annual incentive awards will be paid in cash only. Annual Incentive Plan
target award levels, expressed as a percentage of base salary, are established
annually by the Compensation Committee. Payments under the Annual Incentive Plan
are based on a combination of individual executive performance and the Company's
performance.
The Long-Term Incentive Plan, which was approved by shareholders on April
29, 1997, for purposes of qualifying the plan as a performance-based plan under
Section 162(m) of the Code, is designed to maximize returns to shareholders by
linking executive compensation to the overall profitability of the Company.
Target award amounts, expressed as a percentage of base salary, are determined
by comparisons to peer companies and approved by the Compensation Committee.
Performance factors applicable to the Company, such as property and
casualty insurance loss ratios, investment portfolio returns, overall Company
profitability, as well as other factors are considered in evaluating the Chief
Executive Officer's performance. Such performance factors were considered in
approving Mr. Milne's 1999 compensation. Compensation of the next three most
highly compensated individuals is determined by the Compensation Committee and
is based upon the factors and processes enumerated, i.e., a determination of a
salary range based upon market data and evaluation of the executive with respect
to the executive's job description and his or her position within the salary
range.
Compensation of the next highest paid executives (other than the Chief
Executive Officer and the next three highest paid executives) is based upon the
Company's established standard compensation policies and is not determined by
the Compensation Committee.
27
<PAGE>
Erie Indemnity Company Executive Compensation Committee:
Peter B. Bartlett, Chairman
J. Ralph Borneman, Jr.
Harry H. Weil
Robert C. Wilburn
December 14, 1999
28
<PAGE>
Comparison of Cumulative Total Shareholder Return on the Class A Common Stock
with Certain Averages
The following graph depicts the cumulative total shareholder return for the
periods indicated for the Class A Common Stock compared to the Standard & Poor's
500 Stock Index, the Standard & Poor's Property Casualty Insurance Index and the
Standard & Poor's Multi-Line Insurance Index.
CUMULATIVE TOTAL SHAREHOLDER RETURN COMPARISON(1)
[In the paper version, the performance graph is included as a graphic.]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Erie Indemnity Company $100 $157 $242 $233 $251 $264
Standard & Poor's 500 Index 100 137 169 225 289 350
Standard & Poor's Property-Casualty
Insurance Index(2) 100 135 164 234 213 155
S&P Multi-Line Insurance Index(2) 100 147 178 278 312 413
</TABLE>
- -----------------
(1) Assumes $100.00 invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year in the Class A
Common Stock, Standard & Poor's Multi-line Insurance Index and Standard &
Poor's 500 Stock Index.
(2) The Standard & Poor's Multi-Line Insurance Index was used as a comparative
index in prior years. The Company believes that this index is no longer
representative of comparable size companies and contains only three
companies in its index. Therefore, the Company intends to compare its Class
A Common Stock cumulative total shareholder return this year and in future
years against the Standard & Poor's Property-Casualty Insurance Index.
Cumulative Total Return assumes reinvestment of dividends.
29
<PAGE>
CERTAIN TRANSACTIONS
Directors Borneman and Black are officers and principal shareholders of
insurance agencies which receive insurance commissions in the ordinary course of
business from the insurance companies managed by the Company in accordance with
the companies' standard commission schedules and agents' contracts. Such
payments made in 1999 to the agencies for commissions written on insurance
policies from the property and casualty insurers and EFL amounted to $2,976,832
and $472,633 for the Borneman and the Black insurance agencies, respectively.
Director Borneman, in his capacity as an insurance agent, based on
competitive bids originally placed a worker's compensation insurance policy in
1998 covering employees of the Company with Fireman's Fund Insurance Company and
the Company has reviewed the policy each year since. The premium for this policy
for 2000-2001 was approximately $800,000. Although Mr. Borneman received no
compensation in connection with the placement of that policy in 1998, he
received a commission of $4,500 in 1999 and in the future he may be entitled to
receive additional commissions from Fireman's Fund in accordance with Fireman's
Fund's standard commission schedules and agents' contracts for placing that
insurance policy.
John M. Petersen, a director and former President and Chief Executive
Officer, and previous Chief Investment Officer of the Erie Insurance Group of
Companies, who retired as an executive officer of the Company on December 31,
1995, entered into a consulting arrangement with the Company effective January
2, 1996. Under the terms of the arrangement, the Company engaged Mr. Petersen as
a consultant to furnish the Company and its pension trust, the Exchange and EFL
with investment services with respect to their investments in common stocks. As
compensation for services rendered by Mr. Petersen, a fee of .15 of 1 percent,
on an annualized basis, of the total fair market value of the common stocks
under management, is paid to Mr. Petersen. The Company also pays for all
necessary and reasonable expenses related to Mr. Petersen's consulting services
performed under this arrangement. The compensation paid to Mr. Petersen under
this arrangement in 1999 by the Exchange, the Company, the pension trust and EFL
was $4,565,267, $137,688, $141,767, and $100,049, respectively.
The following tables summarize the total return (the sum of unrealized
gain, realized gain and dividends) for the common stock portfolio of the
Exchange under the direction of Mr. Petersen for the five years ended December
31, 1999 and the period January 1, 2000 to March 3, 2000 compared to the total
return for the Standard & Poor's 500 Index, a standard index used by many
managers of equity investments, for the same periods. For the period reviewed,
the Exchange common stock portfolio outperformed the Standard & Poor's 500 Index
by $1.3 billion and by $53.4 million for the Other Erie Entities.
30
<PAGE>
<TABLE>
<CAPTION>
Standard & Poor's Variance from
Period The Exchange 500 Index Total Return S&P 500
- ------ ------------ --------- ------------ -------------
(dollars in millions)
<S> <C> <C> <C> <C>
Year ended December 31, 1995 44.45% 37.54% $467.7 $72.7
Year ended December 31, 1996 35.41 22.94 391.4 137.8
Year ended December 31, 1997 27.51 33.36 401.4 (85.4)
Year ended December 31, 1998 42.58 28.58 794.1 261.1
Year ended December 31, 1999 43.16 21.04 1,139.7 584.1
Period January 1 to March 3, 2000 4.13 -3.88 157.7 305.9
For Entire Period 38.04 26.49 3,352.0 1,276.2
</TABLE>
The same information for 1999 and the period January 1, 2000 to March 3,
2000 for the Company, the pension trust and EFL has been as follows:
<TABLE>
<CAPTION>
Standard & Poor's Variance from
Period Other Erie Entities 500 Index Total Return S&P 500
- ------ ------------------- --------- ------------ -------------
(dollars in millions)
<S> <C> <C> <C> <C>
Year ended December 31, 1999 32.73% 21.04% $73.3 $26.2
Period January 1 to March 3, 2000 5.52 -3.88 16.0 27.2
For Entire Period 33.27 13.78 89.3 53.4
</TABLE>
Director Bartlett is a partner of Brown Brothers Harriman & Co. ("Brown
Brothers"). During 1999, the Company and its affiliates invested approximately
$26 million in various limited partnerships of which Brown Brothers through its
Corporate Finance Division is the general partner, and, as the general partner,
was paid management fees by the partnerships, of which $820,872 was the combined
amount allocable to the Company, the Exchange and EFL based upon their limited
partnership interests. The Company and its affiliates also purchased other
investments in 1999 with a cost of approximately $19.8 million through Brown
Brothers, and placement fees paid Brown Brothers by the investee companies on
these investments amounted to $250,000. As of December 31, 1999, the market
value of all investments acquired from January 1997 through December 1999 by the
Company and its affiliates in Brown Brothers-managed limited partnerships was
approximately $73 million, or less than 1% of the investment portfolios of the
entities involved. Director Bartlett has not and will not receive any
partnership distribution of earnings or any other compensation from Brown
Brothers with respect to any income earned by Brown Brothers or its Corporate
Finance Division from the management of the investments by the Company and its
affiliates in such limited partnerships or facility fees paid by the investee
companies.
LEGAL PROCEEDINGS
Initiation of Lawsuit to Remove Mellon Bank, N.A. as a Trustee of the
H.O. Hirt Trusts
On April 2, 1998, Mrs. Hagen, a director, filed duplicate petitions in the
Court seeking the removal of Mellon Bank N.A. ("Mellon") as a co-trustee of the
H.O. Hirt Trusts. The principal basis asserted by Mrs. Hagen at that time for
31
<PAGE>
the removal of Mellon was the allegation that Mellon, as the owner of an
insurance agency, was a competitor of the Company. Among the relief requested by
Mrs. Hagen in the petitions was the grant of a preliminary injunction against
Mellon from voting the Class B Common Stock held by the H.O. Hirt Trusts for the
purpose of the election of directors at the Company's April 28, 1998 Annual
Meeting of Shareholders. Because of the potential substantial harm to the
Company if the preliminary injunction was granted, the Company filed a petition
to intervene in the preliminary injunction proceedings which the Court granted
on April 21, 1998. On the same date, the Court denied Mrs. Hagen's request for a
preliminary injunction. On April 28, 1998, the Company's 1998 Annual Meeting of
Shareholders was held as scheduled and each of the candidates for election as a
director of the Company named in the Company's April 1, 1998 proxy statement was
elected as a director of the Company with the affirmative votes of Mellon and F.
William Hirt as a majority of the trustees of the H.O. Hirt Trusts.
On June 3, 1998, the Company, because of its substantial interest in the
outcome of any matter involving a change in Mellon's status as a co-trustee of
the H.O. Hirt Trusts, petitioned the Court to intervene in the trial of the
issues remaining under Mrs. Hagen's petitions to remove Mellon as a co-trustee.
On June 24, 1998, the Court denied the Company's petition, and, on July 13,
1998, the Company appealed the Court's denial to the Superior Court of
Pennsylvania. On August 5, 1998, Mrs. Hagen, a director of the Company, filed a
motion with the Superior Court of Pennsylvania to quash the Company's appeal. On
August 17, 1998, the Company filed its response to Mrs. Hagen's motion to quash
the Company's appeal. On October 19, 1998, the Superior Court of Pennsylvania
denied without prejudice Mrs. Hagen's motion to quash the Company's appeal, and
the Superior Court of Pennsylvania established a schedule for the submission of
briefs on the merits of the Company's appeal.
During June and July 1998, substantial discovery took place involving Mrs.
Hagen's petitions to remove Mellon as co-trustee. Preceding the scheduled trial
date of July 30, 1998, discussions took place between counsel for Mellon and
counsel for Mrs. Hagen concerning a possible basis for settlement of the pending
litigation. These discussions involved the circumstances under which Mellon
might resign as co-trustee of the H.O. Hirt Trusts and the establishment of
procedures pursuant to which a successor trustee would be appointed by the Court
or by agreement of Mrs. Hagen and F. William Hirt. After a hearing conducted on
July 30, 1998, the Court by letter advised counsel for all parties that the
Court would not approve the settlement proposal that had been presented during
the July 30, 1998 hearing, and that Mellon was to advise the Court on or before
August 21, 1998 whether a revised settlement proposal would be submitted or
whether the matter should be scheduled for trial by the Court for some later
unspecified date.
On August 4, 1998, the Company filed a further petition with the Court
seeking the right to intervene in the proceedings insofar as the proceedings
would entail the possible approval of any settlement of the petitions to remove
Mellon as co-trustee or the appointment of a successor trustee to Mellon. On
October 21, 1998, Mellon submitted to the Court a Petition to Resign Pursuant to
32
<PAGE>
and upon the Fulfillment of Certain Conditions Precedent (the "Mellon
Petition"). On October 29, 1998, the Court conducted a hearing at which time,
among other things, the Court heard testimony from two potential successor
corporate trustees to Mellon, each of which potential successors (either Bankers
Trust or Bank Boston), the Court was advised, had the approval of Mellon, Mrs.
Hagen and F. William Hirt. During that same hearing, the Court indicated that it
would accept the Mellon Petition and would in the future enter an order
providing for the granting of the Mellon Petition, in conjunction with a further
hearing on the matter of the appointment of a successor corporate co-trustee and
the final Court approval thereof. On November 2, 1998, the Court scheduled such
a further hearing for January 6, 1999.
On January 6, 1999, with the concurrence of all parties, the Court accepted
the resignation of Mellon as co-trustee of the H.O. Trusts and released Mellon
from all further obligations with respect to the H.O. Hirt Trusts. On the same
date, the Court appointed Bankers Trust as the successor co-trustee of the H.O.
Hirt Trusts. On January 26, 1999, the Court assessed $637,500 in costs incurred
by Mellon in connection with the removal litigation against Mrs. Hagen.
Mrs. Hagen's Petition for Injunction Directed to Gifts Made by F. William Hirt
In response to an interrogatory addressed to F. William Hirt as part of the
Mellon removal litigation, F. William Hirt indicated that he and his wife had
made a series of gifts of Class A Common Stock between 1994 and 1997 aggregating
$10.3 million (market value at time of gift) to certain Company personnel,
various other friends and a series of charitable institutions, in addition to
gifts to each of their two daughters. The recipients of the gifts who were
directors of the Company were:
<TABLE>
<CAPTION>
Market Value
Name Positions with the Company At Date of Gifts
- ---- -------------------------- ----------------
<S> <C> <C>
Seth E. Schofield Director (until October 22, 1998) $209,483
Stephen A. Milne President, Chief Executive Officer and a Director $340,097
John M. Petersen Retired Chief Executive Officer, Consultant and a Director $169,438
Jan R. Van Gorder Senior Executive Vice President, Secretary and General $ 84,719
Counsel and a Director
</TABLE>
On October 16, 1998, Mrs. Hagen, without any authorization from the Company
or the Board of Directors to do so, wrote to each of these recipients accusing
them of violating the Company's conflict of interest policies. Mrs. Hagen
demanded their resignation as directors of the Company not later than October
23, 1998 and threatened them with litigation and adverse publicity.
33
<PAGE>
The following events thereafter occurred:
(i) Seth Schofield resigned as a director of the Company on October 22,
1998 and in his letter of resignation advised the remaining members of the Board
of Directors that his resignation was tendered not because he believed Mrs.
Hagen's allegations were meritorious, but because he believed he had become a
lightning rod for certain actions undertaken by Mrs. Hagen and that his
resignation might provide a foundation for more harmonious Board interaction;
(ii) The other three directors retained individual counsel (David H.
Pittinsky of Ballard, Spahr, Andrews & Ingersoll LLP) who advised Mrs. Hagen's
counsel that her demands were unjustified, baseless and rejected; and
(iii) The Company held a special meeting of its Board of Directors on
October 27, 1998.
At the October 27, 1998 special meeting and at the December 16, 1998
regular meeting, the Board of Directors took the following actions:
(i) Appointed a special committee (the "Special Committee") of the Board of
Directors (consisting of Harry H. Weil, Peter B. Bartlett, Samuel P. Black, III,
J. Ralph Borneman, Jr., Patricia A. Goldman and Edmund J. Mehl, who constituted
all of the members of the Board of Directors other than Mrs. Hagen, F. William
Hirt and the three remaining directors who received gifts) to investigate the
circumstances of the gifts, to determine whether the gifts violated any
applicable law, breached any applicable fiduciary duty, violated any applicable
policy of the Company, were consistent with generally accepted principles of
corporate governance, constituted significant improper payment to such
recipients and to determine, in the business judgment of the Special Committee,
whether any action should have been taken by the Company;
(ii) Ratified the action of the Company under the BCL and the Company's
Bylaws and upon receipt of appropriate undertakings, which were received, in
paying expenses incurred by the three individuals in retaining counsel to advise
them in connection with Mrs. Hagen's October 16, 1998 letter and in defending
any resulting legal proceedings; and
(iii) Constituted the members of the Special Committee as the Nominating
Committee of the Board of Directors for the purpose of nominating candidates for
director for election by the shareholders at the 1999 Annual Meeting.
At both the October 27, 1998 and the December 16, 1998 Board of Directors
meetings, Mrs. Hagen voted against each of the actions taken and stated her
opinion, for unspecified reasons, that none of the members of the Special
Committee was independent.
34
<PAGE>
Special Committee Report
The Special Committee, consistent with Pennsylvania law and good corporate
governance, retained Covington & Burling, Washington, D.C., as independent legal
counsel and undertook a comprehensive investigation of the circumstances
involving the gifts. At a March 9, 1999 meeting of the Board of Directors, the
Special Committee presented its unanimous report, which contained both
conclusions and recommendations. The report concluded in summary that F. William
Hirt's gifts did not influence the recipients' actions with respect to matters
affecting the Company and that the evidence overwhelmingly established F.
William Hirt's and the gift recipients' integrity and good faith.
Conclusions of the Special Committee
The Special Committee reached the following conclusions with respect to the
gifts made by Mr. and Mrs. Hirt to Stephen A. Milne, John M. Petersen, Jan R.
Van Gorder and Seth E. Schofield:
1. With the advice of counsel, the Special Committee concluded that it was
disinterested and capable of objective judgment under Pennsylvania law with
respect to the conclusions reached in the report of the Special Committee.
2. No violation of criminal law occurred.
3. No director had breached his fiduciary duty.
4. No Company policy or principle of corporate governance had been
violated.
5. F. William Hirt's intent in giving the gifts was generosity toward
particular friends. The Special Committee found no evidence that influencing
directors on any Board issue or vote was any part of Mr. Hirt's intent.
6. The intent of the directors who received gifts was entirely to accept a
gift they believed to be appropriate. The Special Committee found no evidence
that their (the directors who received gifts) votes on any issue were affected
by the gifts.
7. The Special Committee found no evidence to cast doubt on the integrity
or good faith of the directors who accepted gifts. Rather, the evidence showed
that all times the recipients believed their actions were in the best interests
of the Company and its shareholders.
35
<PAGE>
Recommendations of the Special Committee
The Special Committee stated its belief that the current discord on the
Board of Directors is destructive and that actions that are entirely innocent
may appear otherwise in such an atmosphere. The Special Committee also stated
its belief that the Board of Directors should maintain control over compensation
for directors and senior management, and that there is potential for very large
shareholders to affect that compensation in a company such as the Company. The
Special Committee, therefore, recommended that a Bylaw be adopted by the Board
of Directors that would prohibit a director or officer from accepting gifts of
other than nominal or insignificant value from, among others, other directors or
officers, requiring certain notification to the Board of Directors relating to
gifts and excluding gifts among members of an individual's family from the
proscription of the proposed Bylaw. After extensive discussion, the Board of
Directors at its March 9, 1999 meeting adopted without dissent the new Bylaw
proposed by the Special Committee.
On March 10, 1999, the Company filed the report of the Special Committee
with the Court. On March 11, 1999, the Court conducted a hearing on Mrs. Hagen's
petition following which, on March 17, 1999, Mrs. Hagen withdrew her petition.
Petition for Declaratory Judgment Filed by Bankers Trust
On May 6, 1999, Bankers Trust filed a Petition For A Citation to Show Cause
Why Declaratory Relief Should Not Be Granted (the "Declaratory Judgment
Petition"). The Declaratory Judgment Petition sought a determination whether
Section 1405(c)(4) of the Pennsylvania Insurance Company Law provides the
exclusive means by which persons may be nominated and elected to the Company's
Board of Directors or whether shareholders independently have the power to
nominate and elect to the Board of Directors persons other than those nominated
by the Nominating Committee of the Board of Directors.
On May 25, 1999, the Company and F. William Hirt filed preliminary
objections to the Declaratory Judgment Petition, seeking its dismissal. On May
25, 1999, Mrs. Hagen joined in support of the Declaratory Judgment Petition.
On June 16, 1999, Mrs. Hagen filed a motion seeking leave to amend her
prior response supporting the Declaratory Judgment Petition, so as to assert a
claim against the Company in the nature of a request for an injunction against
certain bylaw amendments adopted by the Company effective June 15, 1999 relative
to the nomination and election of directors.
On June 29, 1999, the Court conducted a hearing on the matter of the
Declaratory Judgment Petition. On July 15, 1999, the Court sustained the
preliminary objections which had been filed by the Company and by F. William
Hirt and the Court dismissed the Declaratory Judgment Petition and also
dismissed Mrs. Hagen's petition to amend.
36
<PAGE>
Legal Proceedings to Appoint a Successor Corporate Co-Trustee to Bankers
Trust
On March 3, 1999, Bankers Trust filed with the Court its Petition to Accept
Resignation of Trustee (the "Bankers Trust Petition"), by which Bankers Trust
requested that the Court accept its resignation as corporate co-trustee of the
H.O. Hirt Trusts.
On May 7, 1999, the Court conducted a hearing on the Bankers Trust
Petition, at which time the Court issued an Order accepting the resignation of
Bankers Trust pending the appointment by the Court of a successor corporate
co-trustee.
On December 15, 1999 and on January 27, 2000, the Court conducted hearings
on the selection of a successor corporate trustee, including the presentation of
testimony by two successor trustee candidates.
On February 23, 2000, the Court entered an Order directing F. William Hirt
and Mrs. Hagen to finalize certain matters relating to a so-called "funding
plan" for the payment of a successor corporate co-trustee and to make
application to the Internal Revenue Service for a private letter ruling on the
tax treatment of the finalized "funding plan." Under its Order of February 23,
2000, the Court indicated that upon the receipt of the private letter ruling
from the Internal Revenue Service, the Court would then select the successor
corporate co-trustee.
On March 6, 2000, the Company filed a motion for reconsideration and/or
clarification of the Court's February 23, 2000 Order. The motion requested that
the Court (i) reconsider its schedule for designating a successor corporate
co-trustee due to the March 3, 1999 resignation and make that designation
presently and (ii) reconsider and/or clarify the Court's prohibition on the
Company's involvement in a finalized funding plan for payment of the corporate
co-trustees fees because several of the proposed funding alternatives could only
be implemented through actions to be undertaken by the Company. On March 8,
2000, F. William Hirt also filed a motion for reconsideration. On March 15,
2000, the Court denied the Company's and F. William Hirt's motions. On March 24,
2000, the Company and F. William Hirt filed appeals to the Superior Court of the
Court's February 23, 2000 Order.
Petition for Declaratory Judgment and Motion for Preliminary Injunction Filed
by Mrs. Hagen; Bankers Trust Joinder Therein
On March 9, 2000, Mrs. Hagen delivered a complaint, a motion for a
preliminary injunction and a memorandum of law to the President Judge of the
Court. On March 14, 2000, the President Judge established a hearing date of
April 3, 2000 for Mrs. Hagen's motion for a preliminary injunction and the
hearing was held as scheduled on April 3, 2000. The outcome of this litigation
will determine whether or not the Company will permit the nomination of the
Hagen Nominees at the Annual Meeting. If the Court either denies Mrs. Hagen's
request for a preliminary injunction or renders no decision as to Mrs. Hagen's
37
<PAGE>
request for a preliminary injunction prior to the Annual Meeting, the Company
will not permit the nomination of the Hagen Nominees at the Annual Meeting, and
the Company will permit the nomination of the Hagen Nominees at the Annual
Meeting only if the Court grants Mrs. Hagen's request for a preliminary
injunction prior to the Annual Meeting. The Company will in any event permit
Mrs. Hagen to make her other proposals. See "Election of Directors - The
Company's Position as to the Exclusivity of Nomination of Director Candidates by
the Nominating Committee" and "Mrs. Hagen's Proposals to Obtain Control of the
Company."
Mrs. Hagen's complaint seeks declaratory relief in the form of an order
that (i) the Nominating Committee of the Company's Board of Directors does not
have the exclusive right to nominate candidates for election as directors of the
Company by shareholders, (ii) any holder of Class B Common Stock may nominate
candidates for election as directors of the Company by shareholders and vote on
those nominees and (iii) Mrs. Hagen has the right to submit the Hagen Nominees
to a vote of Class B shareholders at the Annual Meeting.
Mrs. Hagen's motion for a preliminary injunction seeks a preliminary
injunction enjoining the Company from taking any action to prevent, delay or
otherwise hinder Mrs. Hagen from submitting the Hagen Nominees to a vote of
Class B shareholders at the Annual Meeting. Bankers Trust has joined in Mrs.
Hagen's complaint and motion.
On March 30, 2000, the Company filed responses to Mrs. Hagen's complaint
and motion for preliminary injunction as well as a memorandum of law in
opposition to Mrs. Hagen's motion for preliminary injunction. The responses set
forth the Company's belief that the facts and legal theories on which Mrs.
Hagen's motion for preliminary injunction and complaint are based are in error.
The Court held a hearing on Mrs. Hagen's motion on April 3, 2000. During
the cross-examination of Mrs. Hagen, Mrs. Hagen responded, inter alia, that she
could not remember who in addition to her lawyers, had assisted her in the
selection of the Hagen Nominees and that she did not personally know a majority
of the Hagen Nominees.
See "Election of Directors" for further information regarding the Company's
analysis of the correct role of the Nominating Committee under applicable law
and the validity of the Company's position relating thereto.
MRS. HAGEN'S PROPOSALS TO OBTAIN CONTROL OF THE COMPANY
In a letter dated December 29, 1999, Mrs. Hagen submitted to the Company a
notice, purported by her to be in accordance with the requirements of Sections
2.07(a) and (b) of the Company's Bylaws, of three shareholder proposals in
respect of the Annual Meeting. Mrs. Hagen's letter identified her proposals as
follows:
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<PAGE>
"(1) I propose the following persons (the "Hagen Nominees") for
consideration by the Nominating Committee of the Company as part of its
slate of directors for election to the Board of Directors of the
Company (the "Board") at the Annual Meeting:
Kenneth B. Frank
Patricia Garrison-Corbin
Susan Hirt Hagen
Samuel P. Katz
Claude C. Lilly, III, Ph.D.; CLU, CPCU
Henry N. Nassau
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
I believe the Hagen Nominees are appropriate candidates for election at
the Annual Meeting. Each Hagen Nominees (including myself) has agreed
to be included in the Nominating Committee's slate or any other slate
only so long as all the Hagen Nominees are included in such slate, and
only so long as the Hagen Nominees, if elected, would constitute a
majority of the Board.
"(2) If the Nominating Committee does not include the Hagen Nominees in
its slate of directors for election to the Board at the Annual Meeting,
this Notice constitutes my proposal to nominate the Hagen Nominees for
election as directors of the Company at the Annual Meeting. I will
appear at the Annual Meeting to nominate the Hagen Nominees for
election to the Board.
"(3) If I am not permitted to nominate the Hagen Nominees for election
at the Annual Meeting, this Notice constitutes my proposal for
submission to the shareholders of the Company at the Annual Meeting (a)
to remove all directors elected at the Annual Meeting immediately
following their election; (b) to amend the Bylaws 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), the majority
of whom shall be citizens and residents of the United States, each of
whom shall be at least eighteen (18) years of age, elected at the
Annual 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.
"(c) to reduce and fix the number of directors on the Board to eleven
(11) directors; and
39
<PAGE>
"(d) to nominate the Hagen Nominees for election as directors of the
Company to fill the vacancies on the Board. I will appear at the Annual
Meeting to present this proposal."
On March 9, 2000, Mrs. Hagen filed preliminary proxy materials with the SEC
regarding her proposed solicitation of proxies to vote for the Hagen Nominees
for director at the Annual Meeting in opposition to the candidates for director
nominated by the Nominating Committee. On March 15, 2000 and March 24, 2000,
Mrs. Hagen filed revised preliminary proxy material with the SEC.
Mrs. Hagen's revised preliminary proxy material, in addition to describing
the Hagen Nominees for whom she proposes to solicit proxies for election as
director, describes her proposed solicitation of proxies for the following other
proposals in the event the Court has not reached a decision in favor of Mrs.
Hagen prior to the Annual Meeting: (i) removal of all of the directors of the
Company immediately following their election at the Annual Meeting; (ii)
amendment of the Company's Bylaws to allow the shareholders to fix the number of
members constituting the Company's Board of Directors; (iii) reduction of the
size of the Company's Board of Directors to 11 persons and (iv) nomination of
the Hagen Nominees for election as directors of the Company to fill the
vacancies that would exist in the Board of Directors if the Company's
shareholders were to vote to remove the directors they had just elected.
The Board of Directors intends to instruct its proxy holders to use their
discretionary authority to withhold authority for the election of the Hagen
Nominees, in the event it is judicially determined that the nomination of the
Hagen Nominees at the Annual Meeting is legally valid, and, in any event, to
vote against Mrs. Hagen's other proposals if she presents her other proposals at
the Annual Meeting. Each member of the Company's Board of Directors, with the
exception of Mrs. Hagen, individually recommends that shareholders vote against
the election of the Hagen Nominees, in the event it is judicially determined
that the nomination of the Hagen Nominees at the Annual Meeting is legally
valid, and, in any event, each of the other proposals of Mrs. Hagen for the
following reasons:
(i) The Nominating Committee, composed entirely of independent directors,
unanimously determined not to nominate any candidate proposed by Mrs. Hagen for
the reasons set forth under "Election of Directors," including the refusal of
Mrs. Hagen's proposed candidates to agree to interviews with the Nominating
Committee and the lack of independence of Mrs. Hagen's proposed candidates.
(ii) None of the director candidates proposed by Mrs. Hagen, other than
herself, has any experience as a director of an insurance company.
(iii) Several of the director candidates proposed by Mrs. Hagen would be
shortly ineligible to serve under the age limits established by the Company's
Bylaws.
40
<PAGE>
(iv) The director candidates proposed by Mrs. Hagen are ineligible to serve
under the applicable Pennsylvania law because only candidates duly nominated by
the Nominating Committee are eligible for election as directors at the Annual
Meeting.
(v) The wholesale replacement of the existing members of the Company's
Board of Directors, under which the Company has achieved record results year
after year is likely to have a material adverse effect on the Company and
therefore adversely effect the value of the Company's Class A Common Stock and
Class B Common Stock and have a destablizing effect on the Company's management,
employees and agents.
(vi) The election of a Board of Directors beholden to a single person (Mrs.
Hagen) is likely to impact negatively the Company's competitive position and
make more difficult the retention of a number of the Company's important
relationships with employees, agents and policyholders.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Unless instructed to the contrary, it is intended that votes will be cast
pursuant to the proxies for the ratification of the selection of Brown, Schwab,
Bergquist & Co. as the Company's independent public accountants for 2000. The
Company has been advised by Brown, Schwab, Bergquist & Co. that none of its
members has any financial interest in the Company.
A representative of Brown, Schwab, Bergquist & Co. will attend the Annual
Meeting, will have the opportunity to make a statement, if he or she desires to
do so, and will be available to respond to any appropriate questions presented
by shareholders at the Annual Meeting.
The Board of Directors recommends a vote FOR the ratification of the
selection of Brown, Schwab, Bergquist & Co. as the Company's independent public
accountants for 2000.
41
<PAGE>
INFORMATION CONCERNING SOLICITATION PARTICIPANTS
Under applicable regulations of the SEC, each director of the Company and
each candidate for director nominated by the Nominating Committee set forth
under "Election of Directors -- Candidates for Election" is deemed a
"participant" in the solicitation of proxies under this Proxy Statement. The
name and principal occupation of these persons (the "Participants") is set forth
under "Election of Directors -- Candidates for Election." References to
"Participants" in this section do not include Mrs. Hagen, who was not nominated
by the Nominating Committee as a candidate for election as a director by the
shareholders at the Annual Meeting. The number of shares of Class A Common Stock
and Class B Common Stock of the Company and of Common Stock of EFL owned by each
Participant is set forth under "Beneficial Ownership of Common Stock." The
following table sets forth the name and business address of each Participant as
well as any transaction by each Participant in Class A Common Stock within the
past two years. No Participant engaged in any transaction involving Class B
Common Stock in the past two years.
<TABLE>
<CAPTION>
Date of
Name and Business Address Transaction Type of Transaction Number of Shares
- ------------------------- ----------- ------------------- ----------------
<S> <C> <C> <C>
Peter B. Bartlett -- -- --
Partner
Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
Samuel P. Black, III -- -- --
President, Treasurer and Secretary
Samuel P. Black & Associates,Inc.
400 French Street
Erie, PA 16507
J. Ralph Borneman, Jr. -- -- --
President and Chief Executive
Officer
Body-Borneman Associates, Inc.
President
Body-Borneman, Inc.
17 E. Philadelphia Avenue
Boyertown, PA 19512-1125
Patricia A. Goldman -- -- --
3026-1/2 Q Street, N.W.
Washington, D.C. 20007
F. William Hirt 01/06/98 Disposition by Gift 2,730
Chairman of the Board 01/08/98 Disposition by Gift 690
Erie Indemnity Company 01/12/98 Disposition by Gift 5,600
100 Erie Insurance Place 01/16/98 Disposition by Gift 30
Erie, PA 16530 03/10/98 Disposition by Gift 10,000
03/17/98 Disposition by Gift 6,800
06/24/99 Disposition by Gift 37,100
12/10/99 Disposition by Gift 615
12/20/99 Disposition by Gift 13,832
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Date of
Name and Business Address Transaction Type of Transaction Number of Shares
- ------------------------- ----------- ------------------- ----------------
<S> <C> <C> <C>
Gwendolyn S. King 11/26/99 Purchase 300
1506 Hamilton Street, N.W.
Washington, D.C. 20011
Martin J. Lippert -- -- --
Vice Chairman, Executive Vice
President and Chief Information
Officer of Systems and Technology
Royal Bank of Canada
315 Front Street West, 8th Floor
Toronto, Ontario M5V 3A4
Canada
Stephen A. Milne 01/06/98 Acquired by Gift 2,730
President and Chief Executive 01/16/98 Acquired by Gift 30
Officer 02/11/98 Disposition by Gift 318
Erie Indemnity Company 05/26/99 Disposition by Gift 426
100 Erie Insurance Place
Erie, PA 16530
John M. Petersen 03/10/98 Disposition by Gift 690
124 Voyageur Drive 07/16/98 Disposition by Gift 3,000
Erie, PA 16505 07/02/99 Disposition by Gift 3,500
09/03/99 Disposition by Gift 35,620
09/27/99 Disposition by Gift 33,250
11/12/99 Disposition by Gift 31,400
12/29/99 Disposition by Gift 15,000
Jan R. Van Gorder 11/19/98 Disposition by Gift 4,000
Senior Executive Vice President, 11/19/99 Sale 15,000
Secretary and General Counsel 12/30/99 Disposition by Gift 500
Erie Indemnity Company
100 Erie Insurance Place
Erie, PA 16530
Harry H. Weil -- -- --
7 Foxwood Drive
Pittsburgh, PA 15238
Robert C. Wilburn 11/09/99 Purchase 2,000
Distinguished Service Professor
Carnegie Mellon University
P.O. Box 248
New Derry, PA 15671-0248
</TABLE>
43
<PAGE>
Except as described in other sections of this Proxy Statement, there are no
contracts, arrangements or understandings by any Participant or any of the
Participant's respective affiliates or associates within the past year with any
person with respect to the Class A Common Stock or Class B Common Stock of the
Company. Furthermore, except as described in other sections of this Proxy
Statement, none of the Participants nor any of their respective affiliates or
associates (i) directly or indirectly beneficially owns any securities of the
Company or of any subsidiary of the Company, (ii) has had any relationship with
the Company in any capacity other than as a shareholder, employee, officer or
director, (iii) is either a party to any transaction or series of transactions
since January 1, 1999, or has knowledge of any currently proposed transaction or
series of transactions, (a) to which the Company or any of its subsidiaries was
or is to be a party, (b) in which the amount involved exceeds $60,000 and (c) in
which any Participant or any affiliate or associate of a Participant had or will
have a direct or indirect material interest or (iv) has entered into any
agreement or understanding with any person respecting any (a) future employment
by the Company or its affiliates or (b) any transactions to which the Company or
any of its affiliates will or may be a party.
ANNUAL REPORT
A copy of the Company's Annual Report for 1999 has previously been mailed
to all holders of Class A Common Stock and Class B Common Stock.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the provisions of
Rule 14a-8 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 to the Company's Secretary at
the Company's principal executive offices at 100 Erie Insurance Place, Erie,
Pennsylvania 16530, not later than December 12, 2000.
Pursuant to Section 2.07 of the Company's Bylaws, if a shareholder desires
to present at the 2001 Annual Meeting of Shareholders (i) a proposal to the
Nominating Committee relating to candidates for consideration and decision as to
their nomination for election as directors by shareholders or (ii) a proposal
relating to other than nominations for and election of directors, otherwise than
pursuant to Rule 14a-8 of the proxy rules of the SEC, such shareholder must
comply with the provisions for shareholder proposals set forth in Section 2.07
of the Bylaws, including the delivery of such proposal in writing to the
Company's Secretary, 100 Erie Insurance Place, Erie, Pennsylvania 16530, no
earlier than December 12, 2000 and not later than January 11, 2001, as follows:
44
<PAGE>
Section 2.07. Shareholder Proposals.
(a) Shareholder Proposals Relating to Candidates for Election as Directors.
(1) A Shareholder, whether or not entitled to vote in the election of
Directors, may propose to the Nominating Committee of the Board of Directors one
or more persons who the Shareholder believes would be appropriate candidates for
election by Shareholders as a Director at any meeting of Shareholders at which
Directors are to be elected. Such proposal shall be made by notice in writing,
delivered in person or by first class United States mail postage prepaid or by
reputable overnight delivery service, to the Nominating Committee of the Board
of Directors of the corporation to the attention of the Secretary of the
corporation at the principal office of the corporation, within the time limits
specified herein and otherwise in accordance with this Section 2.07(a).
(2) In the case of an annual meeting of Shareholders, any such written
proposal by a Shareholder must be received by the Nominating Committee not less
than 90 calendar days nor more than 120 calendar days before the first
anniversary of the date on which the corporation first mailed its proxy
statement to Shareholders for the annual meeting of Shareholders in the
immediately preceding year; provided, however, that in the case of an annual
meeting of Shareholders that is called for a date which is not within 30
calendar days before or after the first anniversary date of the annual meeting
of Shareholders in the immediately preceding year, any such written proposal by
a Shareholder must be received by the Nominating Committee within five business
days after the earlier of the date the corporation shall have mailed notice to
its Shareholders that an annual meeting of Shareholders will be held, issued a
press release, filed a periodic report with the Securities and Exchange
Commission (the "SEC"), or otherwise publicly disseminated notice that an annual
meeting of Shareholders will be held.
(3) In the case of a special meeting of Shareholders, any such written
proposal by a Shareholder must be received by the Nominating Committee within
five business days after the earlier of the date that the corporation shall have
mailed notice to its Shareholders that a special meeting of Shareholders will be
held, issued a press release, filed a periodic report with the SEC, or otherwise
publicly disseminated notice that a special meeting of Shareholders will be
held.
(4) Such written proposal by a Shareholder shall set forth (A) the name and
address of the Shareholder who has made the proposal, (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 of the corporation
beneficially owned within the meaning of SEC Rule 13d-3 by each person so
proposed and the earliest date of acquisition of any such capital stock, (E) a
45
<PAGE>
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 or taken by such person if elected as
a Director, (F) the written consent of each person so proposed to serve as a
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 to be solicited for the election as a Director
of each person so proposed.
(5) If a written proposal by a Shareholder submitted to the Nominating
Committee fails, in the reasonable judgment of the Nominating Committee, to
contain the information specified in clause (4) hereof or is otherwise
deficient, the Chairperson of the Nominating Committee shall, as promptly as is
practicable under the circumstances, provide written notice to the Shareholder
of such failure or deficiency in the written proposal by a Shareholder and such
Shareholder shall have five business days from receipt of such notice to submit
a revised proposal that corrects such failure or deficiency in all material
respects.
(b) Shareholder Proposals Relating to Matters Other Than
Candidates for Election as Directors.
(1) A Shareholder of the corporation may bring a matter (other than a
proposal to the Nominating Committee of a candidate for election as a Director
which is covered by subsection (a) of this Section 2.07) before a meeting of
Shareholders only if (A) such matter is a proper matter for Shareholder action
and such Shareholder shall have provided notice in writing, delivered in person
or by first class United States mail postage prepaid or by reputable overnight
delivery service, to the Secretary of the corporation at the principal office of
the corporation, within the time limits specified herein or (B) the Shareholder
complies with the provisions of Rule 14a-8 under the Securities Exchange Act of
1934 (as amended) relating to inclusion of Shareholder proposals in the
corporation's proxy statement.
(2) In the case of an annual meeting of Shareholders, any such written
notice of presentation of a matter by a Shareholder must be received by the
Secretary of the corporation not less than 90 calendar days nor more than 120
days before the first anniversary of the date on which the corporation first
mailed its proxy statement to Shareholders for the annual meeting of
Shareholders in the immediately preceding year; provided, however, that in the
case of an annual meeting of Shareholders that is called for a date which is not
within 30 calendar days before or after the first anniversary date of the annual
meeting of Shareholders in the immediately preceding year, any such written
notice of presentation by a Shareholder of a matter must be received by the
Secretary of the corporation within five business days after the earlier of the
date the corporation shall have mailed notice to its Shareholders that an annual
meeting of Shareholders will be held, issued a press release, filed a periodic
report with the SEC, or otherwise publicly disseminated that an annual meeting
of Shareholders will be held.
46
<PAGE>
(3) In the case of a special meeting of Shareholders, any such written
notice of presentation of a matter by a Shareholder must be received by the
Secretary of the corporation within five business days after the earlier of the
date the corporation shall have mailed notice to its Shareholders that a special
meeting of Shareholders will be held, issued a press release, filed a periodic
report with the SEC, or otherwise publicly disseminated notice that a special
meeting of Shareholders will be held.
(4) Such written notice of presentation of a matter by a Shareholder shall
set forth information regarding such matter equivalent to the information
regarding such matter that would be required under the proxy solicitation rules
of the SEC if proxies were solicited for Shareholder consideration of such
matter at a meeting of Shareholders.
(5) If a written notice of presentation of a matter submitted by a
Shareholder to the Board of Directors fails, in the reasonable judgment of the
Board of Directors, to contain the information specified in clause (4) hereof or
is otherwise deficient, the Chairperson of the Board of Directors shall, as
promptly as is practicable under the circumstances, provide written notice to
the Shareholder who submitted the written notice of presentation of a matter of
such failure or deficiency in the written notice of presentation of a matter and
such Shareholder shall have five business days from receipt of such notice to
submit a revised written notice of presentation of a matter that corrects such
failure or deficiency in all material respects.
(6) Only matters submitted in accordance with the foregoing provisions of
this Section 2.07(b) shall be eligible for presentation at such meeting of
Shareholders, and any matter not submitted to the Board of Directors in
accordance with such provisions shall not be considered or acted upon at such
meeting of Shareholders.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual Meeting
and in this Proxy Statement under the caption "Mrs. Hagen's Proposals to Obtain
Control of the Company," but if any matters are properly presented, execution of
the proxy enclosed herewith shall confer discretionary authority upon the
persons named to vote on any matter presented at the Annual Meeting unless
prohibited by applicable provisions of the Exchange Act. By Order of the Board
of Directors,
Jan R. Van Gorder,
Senior Executive Vice President,
Secretary and General Counsel
April 12, 2000
Erie, Pennsylvania
47
<PAGE>
ERIE INDEMNITY COMPANY
CLASS B COMMON STOCK
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 25, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints F. William Hirt, Stephen A.
Milne and Jan R. Van Gorder, and each or any of them, proxies of the
undersigned, with full power of substitution, to vote all of the shares of Class
B Common Stock of Erie Indemnity Company (the "Company") which the undersigned
may be 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 on April
25, 2000 at 3:00 p.m., and at any adjournment, postponement or continuation
thereof, as follows:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
to vote for the candidates
listed below
INSTRUCTION: To withhold authority to vote for any individual candidate, strike
a line through the candidate's name in the list below.
Peter B. Bartlett, Samuel P. Black, III, J. Ralph Borneman, Jr., Patricia A.
Goldman, F. William Hirt, Gwendolyn S. King, Martin J. Lippert, Stephen A.
Milne, John M. Petersen, Jan R. Van Gorder, Harry H. Weil, Robert C. Wilburn.
2. PROPOSAL TO RATIFY THE SELECTION OF BROWN, SCHWAB, BERGQUIST & CO. AS THE
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY FOR 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxy holders on behalf of and at the direction of the
Board of Directors of Erie Indemnity Company, are authorized to vote with
respect to matters incident to the conduct of the Annual Meeting and upon such
other business as may properly come before the Annual Meeting, pursuant to SEC
Rules and any adjournment, postponement or continuation thereof.
(OVER)
<PAGE>
If the Hagen Proposals described in the accompanying Proxy Statement are
properly presented at the Annual Meeting, the proxies, in their discretion,
intend to vote the shares represented by this proxy AGAINST each of the Hagen
Proposals.
This proxy will be voted as specified. If a choice is not specified, the proxy
will be voted FOR the candidates for Director named above and FOR the
ratification of Brown, Schwab, Bergquist & Co. as independent public accountants
for the Company for 2000.
This proxy should be dated, signed by the shareholder(s) and returned promptly
to the Company in the enclosed envelope. Persons signing in a fiduciary capacity
should so indicate.
_________________________________(SEAL)
_________________________________(SEAL)
______________________________________
Date:__________________, 2000
