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
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (section)240.14a-11(c)
or (section)240.14a-12
Erie Indemnity Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) 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:
-------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by the
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[LOGO]
ERIE INDEMNITY COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 29, 1997
---------------
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 4:00 p.m., local time, on Tuesday, April 29, 1997, 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 14 directors of the Company to serve until the Company's 1998
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 1997;
3. To consider and act upon a proposal to adopt a long-term incentive plan
for senior executives of the Company;
4. 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 Tuesday, March
18, 1997, as the record date for the determination of the holders of the
Company's Class A Common Stock and the holders of the Company's Class B Common
Stock entitled to notice of and to vote at the Annual Meeting.
A copy of the Company's Annual Report for the year ended December 31, 1996
is being mailed to holders of the Company's Class A Common Stock and Class B
Common Stock together with this Notice.
[LOGO]
Holders of Class A Common Stock (as to proposal 3 above only) and Holders
of Class B Common Stock (as to all items of business) 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,
/s/ Jan R. Van Gorder
-------------------------------------
Jan R. Van Gorder,
Executive Vice President,
Secretary and General Counsel
April 1, 1997
Erie, Pennsylvania
ERIE INDEMNITY COMPANY
100 Erie Insurance Place
Erie, Pennsylvania 16530
---------------
PROXY STATEMENT
--------------
This Proxy Statement, and the form of proxy enclosed herewith which are
first being mailed to the shareholders of Erie Indemnity Company (the "Company")
on or about April 1, 1997, are furnished in connection with the solicitation of
proxies by the Board of Directors of the Company to be voted at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at 4:00 p.m., local
time, on Tuesday, April 29, 1997, and at any adjournment, postponement or
continuation thereof, at the Auditorium of the F.W. Hirt - Perry Square
Building, 100 Erie Insurance Place (Sixth and French Streets), Erie,
Pennsylvania 16530.
Shares represented by proxies in the accompanying form, if properly signed
and returned, will be voted in accordance with the specifications made thereon
by the shareholders. Any proxy representing shares of Class B Common Stock not
specifying to the contrary will be voted for the election of the nominees for
director named below, for the ratification of the selection of Brown, Schwab,
Bergquist & Co. as independent public accountants for the Company for 1997 and
for the proposal to adopt a long-term incentive plan as described below. Any
proxy representing shares of Class A Common Stock not specifying to the contrary
will be voted for the proposal to adopt a long-term incentive plan for senior
executives of the Company as described below. A stockholder 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, 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.
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. 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 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 A Common
Stock or Class B Common Stock in their names or in the names of nominees for
their reasonable expenses in sending proxies and proxy material to beneficial
owners.
As of the close of business March 18, 1997, the Company had outstanding
67,032,000 shares of Class A Common Stock and 3,070 shares of Class B Common
Stock, which are the only authorized classes of stock. Under the Company's
Articles of Incorporation, "sole voting power is vested in the Class B Stock and
only the holders thereof shall be entitled to cast any vote in any meeting or
informal action except insofar as any applicable law shall permit Class A shares
to vote as a class in regard to any change in the rights, preferences and
privileges attaching to said Class A Stock." As a company registered and traded
on the NASDAQ National Market, the Company is required under NASDAQ rules to
submit certain compensation plan proposals to a vote of all shareholders of the
stock traded on NASDAQ. Because the proposal would establish a long-term
incentive plan for senior executives of the Company and the Class A Common Stock
is traded on NASDAQ, the holders of the Company's Class A Common Stock, voting
-1-
as a class, have the right to cast one vote per share on the proposal to adopt
the long-term incentive plan. Holders of Class A Common Stock of record at the
close of business on March 18, 1997 will be entitled to vote on the proposal at
the Annual Meeting. Approval of the proposed long-term incentive plan for senior
executives of the Company requires the affirmative vote of a majority of the
votes cast at the Annual Meeting by the holders of the outstanding shares of
Class A Common Stock and Class B Common Stock each voting separately as a class.
A majority of the votes entitled to be cast in respect of the outstanding shares
of Class A Common Stock and Class B Common Stock will constitute a quorum at the
Annual Meeting for the proposal to adopt the long-term incentive plan. Shares
held by brokers or nominees as to which the broker or nominee does not have
discretionary voting power, i.e. broker nonvotes, and abstentions from voting
for the proposal, will not be considered votes cast on the proposal and will
have no effect on the approval of the proposal, other than to reduce the number
of affirmative votes needed for approval.
Holders of Class B Common Stock of record at the close of business on March
18, 1997 will be entitled to vote on all matters to come before the Annual
Meeting. Each share of Class B Common Stock is entitled to one vote. 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 ratification of the
selection of independent auditors. Cumulative voting rights do not exist with
respect to the election of directors. The 14 nominees for director receiving the
highest number of votes cast by the holders of Class B Common Stock in person or
by proxy at the Annual Meeting will be elected as directors. Approval of the
ratification of the selection of Brown, Schwab, Bergquist & Co. as independent
public accountants for 1997 will require the affirmative vote of a majority of
the Class B votes cast at the Annual Meeting. Broker nonvotes will be treated as
not present and not entitled to vote for nominees for election as directors.
Abstentions will be treated as the withholding of authority to vote for nominees
for election as directors. Abstentions from voting and broker nonvotes will have
no effect on the election of directors since they will not represent votes cast
at the Annual Meeting for the purpose of electing directors.
The H.O. Hirt Trusts collectively own 2,340 shares of the Company's Class B
Common Stock, which, since 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 are F. William Hirt, Susan Hirt Hagen and
Mellon Bank, N.A. Under the provisions of the H.O. Hirt Trusts, the shares of
the Company's Class B Common Stock held by the H.O. Hirt Trusts are to be voted
as directed by a majority of the three trustees. If at least a majority of the
trustees of both of the H.O. Hirt Trusts agree to vote for the election of the
14 nominees for director named below and for ratification of the selection of
Brown, Schwab, Bergquist & Co. as independent public accountants for 1997, such
nominees will be elected as directors of the Company and the selection of Brown,
Schwab, Bergquist & Co. as independent public accountants for 1997 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 nominees 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.
-2-
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth as of February 28, 1997 the amount and
percentage of the Company's outstanding Class A Common Stock and Class B Common
Stock 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 nominee for director, (iii) each current
executive officer named in the Summary Compensation Table and (iv) all named
executive officers and directors of the Company as a group.
Shares of Shares of
Class A Percent of Class B Percent of
Common Stock Outstanding Common Stock Outstanding
Name of Individual or Beneficially Class A Beneficially Class B
Identity of Group Owned(1)(2) Common Stock(3) Owned(1)(2) Common Stock(3)
- --------------------- ----------- --------------- ----------- ---------------
5% Holders:
Black Interests Limited
Partnership(4) 8,726,250 13.02 390 12.70
Erie Pennsylvania
Samuel P. Black
& Associates, Inc.(4) 24,000 -- -- --
Erie, Pennsylvania
Hagen Family Limited
Partnership(5)(6) 10,092,900 15.06 1 --
Erie, Pennsylvania
Susan Hirt Hagen(5)(6)(7) 6,658,800 9.93 12 --
Erie, Pennsylvania
H.O. Hirt Trusts(5)(7) -- -- 2,340 76.22
Erie, Pennsylvania
Hirt Family Limited
Partnership(8) 11,130,000 16.60 -- --
Erie, Pennsylvania
F. William Hirt(7)(8) 2,719,215 4.06 10 --
Erie, Pennsylvania
Estate of Edward B. Young 3,613,000 5.39 180 5.86
Erie, Pennsylvania
Directors(9):
Peter B. Bartlett 3,000 -- -- --
Samuel P. Black, III(4) -- -- 10 --
J. Ralph Borneman, Jr. 60,000 -- -- --
Patricia A. Goldman 1,650 -- -- --
Thomas B. Hagen(5)(6) 5,100 -- 3 --
Irvin H. Kochel 120,000 -- -- --
Edmund J. Mehl 9,675 -- -- --
Stephen A. Milne 21,839 -- -- --
John M. Petersen (10) 2,685,592 4.00 1 --
Seth E. Schofield 13,952 -- -- --
Jan R. Van Gorder 157,700 -- 1 --
Harry H. Weil 300 -- -- --
-3-
Shares of Shares of
Class A Percent of Class B Percent of
Common Stock Outstanding Common Stock Outstanding
Name of Individual or Beneficially Class A Beneficially Class B
Identity of Group Owned(1)(2) Common Stock(3) Owned(1)(2) Common Stock(3)
- --------------------- ----------- --------------- ----------- ---------------
Executive Officers(11):
John J. Brinling, Jr. 13,354 -- -- --
Alvin L. Irwin (12) 143,582 -- -- --
Thomas M. Sider 107,083 -- -- --
All Directors and
Executive Officers as
a Group (17 persons) 42,693,992 63.69 2,768 90.16
- ------------------
(1) Information furnished by the named persons.
(2) Under the rules of the Securities and Exchange Commission (the "SEC"), a
person is deemed to be the beneficial owner of securities if he 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 of the Company 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
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) Mr. Black is a general partner, and a limited partner of Black Interests
Limited Partnership and has the sole right to vote such shares. Mr. Black
is President and Treasurer, a director and the controlling shareholder of
Samuel P. Black & Associates, Inc.
(5) Susan Hirt Hagen and her husband Thomas B. Hagen are limited partners of
this partnership. Mr. Hagen is the general partner of the partnership and
has the sole right to vote such shares. Under the rules of the SEC
described in footnote (2), the maximum beneficial ownership of the
Company's Class A Common Stock and the Company's Class B Common Stock which
Susan Hirt Hagen and Thomas B. Hagen together could be deemed to have is
16,756,800 shares of the Company's Class A Common Stock, or 25.0% of the
outstanding shares of the Company's Class A Common Stock, and 1,186 shares
of the Company's Class B Common Stock, or 38.6% of the outstanding shares
of the Company's Class B Common Stock. Mr. and Mrs. Hagen together could
also be deemed the beneficial owners of an additional 2,846,400 shares of
the Company's Class A Common Stock issuable upon the conversion of the
1,186 shares of the Company's Class B Common Stock they together could be
deemed to own. If all 1,186 shares of the Company's Class B Common Stock
Mr. and Mrs. Hagen together could be deemed to own, were converted into the
Company's Class A Common Stock, the maximum beneficial ownership of the
Company's Class A Common Stock that Mr. and Mrs. Hagen together could be
deemed to have, would be 19,603,200 shares of the Company's Class A Common
Stock, or 28.05% of the then outstanding shares of the Company's Class A
Common Stock. Thomas B. Hagen disclaims beneficial ownership of the shares
of the Company's Class A Common Stock and Class B Common Stock owned by
Susan Hirt Hagen.
-4-
(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, the husband of Susan
Hirt Hagen. Mrs. Hagen disclaims beneficial ownership of said shares.
(7) There are two H.O. Hirt Trusts, one for the benefit of F. William Hirt and
one for the benefit of Susan Hirt Hagen. Each of the H.O. Hirt Trusts is
the record owner of 1,170 shares of Class B Common Stock, or 38.11% of the
outstanding shares of the Company's Class B Common Stock. The trustees of
the H.O. Hirt Trusts are F. William Hirt, Susan Hirt Hagen and Mellon Bank,
N.A. 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 Trust.
(8) F. William Hirt is the general partner of this partnership and has the sole
right to vote such shares. Under the rules of the SEC described in footnote
(2), the maximum beneficial ownership of the Company's Class A Common Stock
and the Company's Class B Common Stock which F. William Hirt could be
deemed to have is 13,849,215 shares of the Company's Class A Common Stock,
or 20.7% of the outstanding shares of the Company's Class A Common Stock,
and 1,180 shares of the Company's Class B Common Stock, or 38.4% of the
outstanding shares of the Company's Class B Common Stock. F. William Hirt
could also be deemed the beneficial owner of an additional 2,832,000 shares
of the Company's Class A Common Stock issuable upon the conversion of the
1,180 shares of the Company's Class B Common Stock he is deemed to own. If
all 1,180 shares of the Company's Class B Common Stock F. William Hirt
could be deemed to own, were converted into the Company's Class A Common
Stock, the maximum beneficial ownership of the Company's Class A Common
Stock that F. William Hirt could be deemed to have, would be 16,681,215
shares of the Company's Class A Common Stock, or 23.9% of the then
outstanding shares of the Company's 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.
(11) Excludes executive officers listed under "Directors".
(12) Mr. Irwin retired on December 31, 1996.
Section 16 of the Securities Exchange Act of 1934 (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 more than 10% 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 the Company's review of the monthly
statements of changes of ownership filed with the Company by its officers and
directors during 1996 the Company believes that all such filings required during
1996 were made on a timely basis.
-5-
ELECTION OF DIRECTORS
Nominees for Election
The Company's bylaws provide that the Board of Directors shall consist of
not less than seven (7), nor more than sixteen (16) directors, with the exact
number to be fixed from time to time by resolution of the Board of Directors.
The Board has set, by resolution, the number of directors at 14.
In 1996, the Company's Board of Directors consisted of 14 persons, each of
whom was elected to serve until the 1997 annual meeting of shareholders and
until his or her successor has been duly elected.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the election of the nominees named below, all of whom (with
the exception of Samuel P. Black, III who is nominated for the first time) are
currently directors of the Company. If a nominee becomes unavailable for any
reason, it is intended that the proxies will be voted for a substitute nominee
selected by the Company's Board of Directors. The Company's Board of Directors
has no reason to believe the nominees named will be unable to serve if elected.
Any vacancy occurring on the Company's 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.
The Nominating Committee of the Board of Directors of the Company will
consider written nominations for candidates for nomination for election as
directors from the holders of the Company's Class B Common Stock. Any such
nomination should be sent to the Company at its principal executive offices,
attention: Secretary and such nomination must set forth the name, age, address
and principal occupation or employment of each such nominee and the number of
shares of the Company's Class A Common Stock and Class B Common Stock owned by
such nominee.
The names of the nominees for director, together with certain information
regarding them, are as follows:
Age Principal Occupation for Past
As of Five Years and Positions with Director
Name 4/1/97 the Erie Insurance Group Since
- ---- ------ ------------------------ -----
Peter B. Bartlett (3C)(4)(6) 63 Partner, Brown Brothers Harriman 1994
& Co. since 1974; Director, the Company,
Kennametal, Inc., Finmar Reinsurance
Corporation until March 1995 and The
Swedish American Chamber of Commerce,
Inc.
Samuel P. Black, III 54 President and Treasurer, Samuel Nominee
P. Black & Associates, Inc., insurance
agency; President & Treasurer, Cutri-
Sergi Company, a life and employee
benefits insurance agency.
-6-
J. Ralph Borneman, Jr., 58 President and Chief Executive 1992
CIC(3)(4) Officer, Body-Borneman Associates, Inc.,
insurance agency; President, Body-
Borneman, Ltd. and Body-Borneman Inc.,
insurance agencies; Director, the Company,
EFL, Erie Insurance Co., Erie Insurance
Company of New York ("Erie NY") and Na-
tional Penn Bancshares.
Patricia A. Goldman 55 Retired; Senior Vice President 1994
(2)(4) for Communications, USAir, Inc. from 1988
to 1994; Director, the Company, EFL, Erie
Insurance Co., Crown Central Petroleum
Corporation, and National Postal Forum.
Susan Hirt Hagen(1)(5C) 61 Managing Partner, Hagen, Herr 1980
& Peppin, Group Relations Consultants,
since 1990; Associate, Center for Practice of
Conflict Management 1972-1990; Director,
the Company, EFL and Erie Insurance Co.
since 1980; Director, Erie P&C, Flagship
and Erie NY since 1995.
Thomas B. Hagen(5) 61 Chairman, Hagen & Co., consulting 1979
1994-1995 and from 1997; Chairman,
Team Pennsylvania Foundation since 1997;
Secretary of Commerce and Secretary of
Community & Economic Development of
the Commonwealth of Pennsylvania from
1995 to 1997; Special Consultant to the
Chairman of the Company from 1993 to 1995;
Chairman and Chief Executive Officer of the
Company, EFL and Erie Insurance Co. from
1990, and of Flagship and Erie P&C from 1992
and 1993, respectively, to 1993; President of
the Company and Erie Insurance Co. and
Executive Vice President of EFL from 1982
to 1990; Director, the Company, EFL, Erie
Insurance Co., and GPU, Inc.
F. William Hirt, CPCU(1C) 71 Chairman of the Board of the 1965
Company, EFL, Erie Insurance Co., Erie
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
-7-
Chief Executive Officer of the Company, EFL,
Erie Insurance Co., Erie 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 P&C, Flagship and
Integra Financial Corporation.
Dr. Irvin H. Kochel(2)(5) 73 Retired Assistant Vice President, 1970
Emeritus, The Pennsylvania State Univer-
sity; Director, the Company, EFL and Erie
Insurance Co.
Edmund J. Mehl (1)(2C)(4) 73 Retired Chairman and Chief 1969
Executive Officer, Dispatch Printing, Inc.;
Director, the Company, EFL, Erie P&C,
Flagship, Erie Insurance Co. and Erie NY.
Stephen A. Milne(1) 48 President, Chief Executive Officer and a 1996
Director of the Company, EFL, and Erie
Insurance Co. since February 12, 1996 and
President and Chief Executive Officer of
Flagship, Erie P&C, and Erie NY since March
11, 1996; Executive Vice President-Insurance
Operations of the Company, Erie Insurance
Co., Flagship, Erie P&C, and Erie NY January
11, 1994- February 12, 1996. Owner,
Bennett-Damascus Insurance Agency March
1991-December 31, 1993; Senior Vice
President-Agency Division, the Company, EFL,
and Erie Insurance Co. 1988-1991; Director
Flagship, and Erie P&C, 1996-present;
Director, Erie NY 1994-present.
John M. Petersen(1)(6) 68 Retired President and Chief 1979
Executive Officer of the Company, EFL,
Erie Insurance Co., Flagship, Erie P&C
1993-1995, and Erie NY 1994-1995; Presi-
dent, Treasurer and Chief Financial Officer
of the Company, Erie Insurance Co. and
EFL from November 1990, and of Flagship
-8-
and Erie P&C from 1992 and 1993, respec-
tively, to September 1993; President, Trea-
surer 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, Erie P&C, Erie
NY, and Spectrum Control.
Seth E. Schofield (3)(4C) 57 Retired; Chairman of the Board and Chief Executive 1991
Officer, USAir, Inc. July 1992 to January
1996; President and Chief Executive Of-
ficer, USAir, Inc. from June 1991 to July
1992; President and Chief Operating
Officer, USAir, Inc. from 1990 to June
1991; Executive Vice President, USAir, Inc.
from 1989 to June 1990; Director, the Com-
pany, EFL, Erie Insurance Co., PNC Bank,
N.A., USX Corporation, Calgon Carbon
Corporation.
Jan R. Van Gorder, Esq.(1) 49 Senior Executive Vice President, 1990
Secretary and General Counsel of the
Company, EFL and Erie Insurance Co. since
1990, and of Flagship and Erie P&C since
1992 and 1993, respectively and of Erie NY
since April 1994; Senior Vice President,
Secretary and General Counsel of the Com-
pany, EFL and Erie Insurance Co. for more
than five years prior thereto; Director, the
Company, EFL, Erie Insurance Co., Flagship,
Erie P&C and Erie NY.
Harry H. Weil (2)(3)(6C) 63 Senior Partner, Reed Smith Shaw & McClay, 1994
Attorneys, since 1980, Partner 1969 to 1980,
Associate 1964 to 1969; Director, the
Company, Erie Insurance Company, EFL,
Calgon Carbon Corporation and Pittsburgh
Tube Company.
-9-
(1) Member of the Executive Committee of the Company's Board of Directors.
(2) Member of the Audit Committee of the Company's Board of Directors.
(3) Member of the Executive Compensation Committee of the Company's Board of
Directors.
(4) Member of the Nominating Committee of the Company's Board of Directors.
(5) Member of the Charitable Giving Committee of the Company's Board of
Directors.
(6) Member of Investment Committee.
C Designates Committee chairperson.
The Board of Directors met seven times in 1996. The standing committees of
the Company's Board of Directors are the Executive Committee, the Audit
Committee, the Executive Compensation Committee, the Nominating Committee and
the Charitable Giving Committee. The Executive Committee, which met five times
during 1996, has the authority, subject to certain limitations, to exercise the
power of the Board of Directors between regular meetings. The Audit Committee,
which met three times during 1996, has responsibility 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 seven times during 1996, has responsibility
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 four
times during 1996, has responsibility for conducting searches for and the
nomination of a slate of candidates to stand for election to the Board of
Directors at its annual election and to nominate candidates to fill vacancies
on the Board of Directors between meetings of shareholders. The Charitable
Giving Committee, which met three times during 1996, has responsibility for
recommending to the Chief Executive Officer charitable gifts by the Company
within a budgetary limit established by the Board of Directors. The Investment
Committee, formed in 1996, 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 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
Susan Hirt Hagen, a director. Thomas B. Hagen, a director, is the husband of
Susan Hirt Hagen, a director.
The Board recommends a vote FOR all nominees.
-10-
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid by the Company during each
of the three fiscal years ended December 31, 1994, 1995, and 1996, to the Chief
Executive Officer of the Company and the four other most highly compensated
executive officers of the Company during 1996 for services rendered in all
capacities to the Company, EFL, Erie Insurance Exchange (the "Exchange") and
their subsidiaries and affiliates.
Annual Compensation
ERIE INDEMNITY COMPANY
SEC 12/31/96
- -------------------------------------------------------------------------------
NAME YEAR SALARY BONUS OTHER ALL OTHER
ANNUAL COMP. (1)
COMP.
- -------------------------------------------------------------------------------
Hirt, W. (2) 1996 0 11,220 0
CEO 1/1/96
through 2/11/96
- -------------------------------------------------------------------------------
Milne, S. (3) 1996 467,305 39,351 1,014 26,020
CEO-2/12/96 1995 245,611 26,623 927 39,993
through 12/31/96 1994 189,512 34,943 965 4,433
- -------------------------------------------------------------------------------
Van Gorder, J. 1996 312,555 25,433 1,014 26,431
Ex. VP, Sec. & 1995 296,095 26,725 1,029 29,625
General Counsel 1994 278,442 25,590 1,029 14,834
- -------------------------------------------------------------------------------
Sider, T. 1996 267,295 26,844 1,014 24,231
Ex. VP & CFO 1995 231,901 26,696 941 22,410
1994 190,049 22,571 941 21,109
- -------------------------------------------------------------------------------
Brinling, J. 1996 202,126 34,652 946 24,098
Ex. VP 1995 184,104 20,853 877 28,837
1994 176,365 19,527 877 22,682
- -------------------------------------------------------------------------------
Irwin, A. (4) 1996 175,868 19,436 6,060 633,680
Sr. VP 1995 171,273 17,978 6,325 3,192
1994 167,072 16,360 3,665 3,010
- -------------------------------------------------------------------------------
(1) All Other Compensation
Amounts shown include matching contributions made by the Company pursuant
to the Company's Employee Savings Plan and premiums paid by the Company on
behalf of the named individuals on the Split Dollar Plan insurance policies. For
the year 1996, contributions made to the Employee Savings Plans amounted to
$-0-, $11,729, $8,869, $8,024, $6,026 and $4,278 on behalf of Messrs. Hirt,
Milne, Van Gorder, Sider, Brinling, and Irwin, respectively. For the year 1995,
contributions to the Employee Savings
-11-
Plan amounted to $-0-, $5,424, $6,849, $6,143, $4,910, and $3,192 on behalf of
Messrs. Hirt, Milne, Van Gorder, Sider, Brinling, and Irwin. For the year 1994,
contributions made to the Employee Savings Plan amounted to $-0-, $4,433,
$6,190, $4,788, $4,478 and $3,010 on behalf of Messrs. Hirt, Milne, Van Gorder,
Sider, Brinling, and Irwin respectively. Premiums paid during 1996 for Split
Dollar Life insurance policies for Messrs. Hirt, Milne, Van Gorder, Sider,
Brinling, and Irwin, respectively, are as follows: $-0-, $14,291, $17,742,
$16,207, $18,072, and $-0-. Premiums paid during 1995 for Split Dollar Life
insurance policies for Messrs. Hirt, Milne, Van Gorder, Sider, Brinling, and
Irwin, respectively, are as follows: $-0-, $28,786, $17,420, $16,267, $18,144,
and $-0-. Premiums paid during 1994 for Split Dollar Life insurance policies for
Messrs. Hirt, Milne, Van Gorder, Sider, Brinling, and Irwin are as follows:
$-0-, $-0-, $8,644, $16,321, $18,204, and $-0-. 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. The total benefit accruing to
Mr. Irwin under the Supplemental Employee Retirement Plan of the Company
amounted to $629,402 and is reported on the table in 1996.
(2) Mr. Hirt served as interim Chief Executive Officer of the Company for the
period January 1, 1996 through February 11, 1996 on an unpaid basis.
(3) Mr. Milne became President and Chief Executive Officer of the Company and a
Company Director on February 12, 1996.
(4) Mr. Irwin retired from the Company on December 31, 1996 after 30 years of
service.
Agreements with Executive Officers
Upon the recommendation of the Executive Compensation Committee of the
Company's Board of Directors the Company entered into employment agreements in
November, 1995 with the following four of the Company's senior executive
officers: John J. Brinling, Jr., Executive Vice President of EFL; Stephen A.
Milne, President and Chief Executive Officer; Thomas M. Sider, Executive Vice
President and Chief Financial Officer of the Company, and Jan R. Van Gorder,
Senior Executive Vice President, Secretary and General Counsel of the Company.
The employment agreements have the following principal terms:
(a) A three year term expiring in November, 1998, 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 non-renewal 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
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
-12-
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 an amount equal to the sum of: (i)
three times his highest annual base salary during the preceding three years plus
an amount equal to the total of the executive's highest awards during the
preceding three years under the Company's bonus and other short-term incentive
compensation plans; (ii) any award or other compensation to which the executive
is entitled under any of the Company's incentive compensation programs and
employee benefit plans as well as for the continuing participation, for a period
of three years following termination, in all life, medical and dental insurance
programs and other benefit plans to the extent the executive and his dependents
were eligible to participate in such programs immediately prior to his
termination; and (iii) accrued benefits under the Company's Supplemental
Executive Retirement Plan become immediately vested and nonforfeitable.
(e) Provisions relating to confidentiality and non-disclosure 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.
Pension Plan
The following table sets forth the estimated annual benefits payable upon
retirement at age 65 under the Erie Insurance Group Retirement Plan for
Employees.
PENSION PLAN TABLE
Years of Service
----------------
Remuneration 15 20 25 30 35
- ------------ --------- --------- --------- --------- ---------
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
The compensation covered by such plan is the base salary reported in the
Summary Compensation Table.
-13-
Under the pension plan, 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 - 19 years, Jan R. Van Gorder
- - 16 years, Thomas M. Sider - 26 years, John J. Brinling, Jr. - 29 years and
Alvin Irwin - 30 years.
The benefits under such plan 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 Internal Revenue Code of 1986, as
amended (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 $120,000, but
adjusted annually 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 Internal Revenue Code of 1986 as amended.
Director Compensation
Effective January 1, 1995, the annual retainer for directors of all members
of the Group, including the registrant, increased to $15,000, plus $1,200 for
each meeting attended and $800 for each committee meeting attended (unless the
committee meeting is held the same day as a Board of Directors meeting, for
which committee meeting $500 is paid) plus an additional $2000 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. Director Petersen also is compensated pursuant to
a consulting arrangement as disclosed on page 18 in "Certain Transactions."
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee (the "Committee") of the Company
presently consists of Peter B. Bartlett, Chairman, J. Ralph Borneman, Jr., Seth
E. Schofield and Harry H. Weil. No member of the Committee is a former or
current officer or employee of the Company, the Exchange, EFL or any of their
respective subsidiaries or affiliates. 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 Committee of the Company 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
Committee of the Company. Mr. Borneman 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 Company's insurance
subsidiaries, EFL and the Exchange and its insurance subsidiary.
-14-
Report of the Executive Compensation Committee of the Company
The 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 it by the Board of Directors. The Board
has authorized the Compensation Committee to consider the compensation of the
four highest paid officers, including the CEO. The Committee is 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 Committee is to
determine the level and composition of compensation that is sufficient to
attract and retain top quality executives for the Company.
The objectives of the executive compensation practices are to (1) 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
stockholder and policyholder value. 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 federal tax laws, the Company is not allowed a federal income tax
deduction for compensation, under certain circumstances, paid to certain
executive officers to the extent that 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. The Compensation Committee
may consider adopting policies with respect to this limitation on deductibility
when appropriate.
The Committee reviewed the salary ranges and base salaries of the four
highest paid executives including the Chief Executive Officer, in 1996. The
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 Committee then
reviews the salary ranges for the Chief Executive Officer and the other three
highest paid senior 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 Committee references Sibson's Management
Compensation Survey published annually by Sibson & Company, Inc., which
summarizes compensation data for more than 100 insurance companies. The data is
reported by position and by company asset size and by 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 are also considered in setting the base salaries. The Committee
also secured the services of Towers Perrin, a nationally recognized consulting
firm with specific expertise in the insurance industry, to do a detailed
analysis of competitive compensation levels and to make recommendations
regarding executive compensation. In addition, Towers Perrin made specific
recommendations to the Committee regarding the compensation for Mr. Milne as he
assumed the responsibilities of Chief Executive Officer.
-15-
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
Company may receive compensation above the midpoint for the established salary
range.
Compensation for the Chief Executive Officer consists primarily of salary
and bonus, and minor perquisites which amount to less than 10% of the Chief
Executive Officer's salary and bonus. No long-term incentive plans (which
provide incentives for performance occurring over longer periods of time) are
currently utilized in determining the compensation of the Chief Executive
Officer, although external data indicates its prevalence among competitor
companies. Stock options, stock appreciation rights and restricted stock are not
currently part of the executive compensation package for any executives of the
Company. The Executive Compensation Committee recommended to the Board of
Directors at its meeting of March 11, 1997 that the Board adopt an annual
incentive plan and long-term incentive plan for senior executives of the
Company. The purpose of these plans is to more closely align an individual's
compensation opportunities with the impact of the individual's contributions on
the overall performance of the Company. The purpose of the annual incentive plan
is to promote the best interests of the Erie Insurance 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 plan will be paid in
cash only. The Board approved adoption of the annual incentive plan and
long-term incentive plan as recommended by the Executive Compensation Committee
at its meeting of March 11, 1997.
The long-term incentive plan is presented in this proxy as a proposal to
shareholders for approval and is designed to maximize returns to stockholders by
linking the compensation of key executives to the overall profitability and
success of the Company.
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 indirectly in evaluating
the Chief Executive Officer's performance. Such performance factors were
considered in approving Mr. Milne's 1996 compensation.
Compensation of the next three most highly compensated individuals is
determined by the 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 four
highest paid executives) is based upon the Company's established standard
compensation policies and is not determined by the Committee. As with the Chief
Executive Officer and the next three most highly compensated executive officers,
no long-term incentive plans are currently maintained for these executives. As
indicated, however, the Executive Compensation Committee has recommended, and
the Board has approved, an annual incentive plan to be effective in fiscal year
1997, and subject to shareholder approval, a long-term incentive plan.
-16-
Erie Indemnity Company Executive Compensation Committee:
Peter B. Bartlett, Chairman
J. Ralph Borneman, Jr.
Seth E. Schofield
Harry H. Weil
Comparison of Cumulative Total Shareholder Return on the Company's Class A
Common Stock With Certain Averages
The following graph depicts the cumulative total shareholder return for the
periods indicated for the Company's Class A nonvoting Common Stock compared to
the Standard & Poor's 500 Stock Index and the Standard & Poor's Multi-Line
Insurance Index.
-17-
ERIE INDEMNITY COMPANY
SEC Comparative Performance Graph
Assumes Dividends Reinvested
[GRAPHIC]
In the printed version there appears a line graph depicting the following
plot point:
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Erie Indemnity Company $100 $233 $441 $569 $897 $1,418
Standard & Poor's 500 Index $100 $108 $118 $120 $165 $ 203
S&P Multi-Line Insurance Index $100 $114 $128 $134 $197 $ 239
- -------------------
Indexed Cumulative Total Shareholder Return
-------------------------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Erie Indemnity Company $100 $233 $441 $569 $897 $1,418
Standard & Poor's 500 Index $100 $108 $118 $120 $165 $ 203
S&P Multi-Line Insurance Index $100 $114 $128 $134 $197 $ 239
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 Erie Indemnity
Company Class A Common Stock, Standard & Poor's Multiline Insurance Index and
Standard & Poor's 500 Stock Index.
Cumulative total return assumes reinvestment of dividends.
-18-
Certain Transactions
Directors Black and Borneman 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
such companies' standard commission schedules and agents' contracts.
Director and former President and CEO, and previous Chief Investment
Officer of the Erie Insurance Group of Companies, John M. Petersen, who retired
as an employee 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 Erie Insurance Exchange, and Erie Family Life
Insurance Company, 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 stock 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. In 1996, the compensation paid to Mr.
Petersen, under this arrangement, totalled $2,078,758.
Relationships Among the Company, the Exchange and EFL and Their
Subsidiaries and Affiliates
Since the formation of the Company and the Exchange in 1925, the Company,
as the attorney-in-fact appointed by the policyholders of the Exchange, has
managed the property and casualty insurance operations of the Exchange. The
Company's operations are interrelated with the operations of the Exchange, and
the Company's results of operations are largely dependent on the success of the
Exchange.
The Company believes that its various transactions with the Exchange and
EFL which are summarized herein, are fair and reasonable and have been on terms
no less favorable to the Company than the terms that could have been negotiated
with an independent third party.
Pursuant to the Subscribers Agreement by which the Company serves as
attorney-in-fact for the Exchange, the Company's Board of Directors establishes
periodically an annual management fee for the Company's services as
attorney-in-fact which may not exceed 25% of the direct and assumed written
premiums of the Exchange. Such percentage was 25% from July 1, 1991 through
March 31, 1995 and was 23% from July 1, 1990 to June 30, 1991. The Company's
Board of Directors has the ability to establish the percentage charged at its
discretion, within the parameters described above. On March 2, 1995, the Board
of Directors reduced the management fee from 25% to 24.5% for the period April
1, 1995 through March 31, 1996. On December 12, 1995 the Board of Directors
reduced the management fee from 24.5% to 24.0% for the period April 1, 1996
through December 31, 1996. On December 12, 1996, the Board of Directors voted to
maintain the 24% management fee rate through December 31, 1997. Based on the
1996 affiliated assumed and direct premiums written by the Exchange, a 1/2
percent reduction in the management fee rate equates to about an $8.5 million
reduction in management fee revenue for the Company. The activities performed by
the Company as attorney-in-fact for the Exchange include insurance underwriting,
policy issuance, policy exchange and cancellation, processing of invoices for
premiums, the establishing and monitoring of loss reserves, oversight of
reinsurance transactions, investment management, payment of insurance
commissions to insurance agents, compliance with rules and regulations of
supervisory authorities and monitoring of legal affairs. The Company is
obligated to conduct these activities at its own expense, and realizes profits
or losses depending upon whether its costs of providing such services is less
-19-
than the amount it receives from the Exchange, in which case the Company has a
profit from acting as attorney-in-fact, or greater, in which case the Company
has a loss from such activities. The Exchange, however, bears the financial
responsibility for the payment of insurance losses, loss adjustment expenses,
investment expenses, legal expenses, assessments, damages, licenses, fees,
establishment of reserves and taxes. For the five years ended December 31, 1996,
1995, 1994, 1993, and 1992, the management fees paid by the Exchange to the
Company were $442,904,376, $420,003,739, $407,275,573, $375,038,960, and
$337,551,358, respectively.
The Company also receives a fee of 7 percent of voluntary reinsurance
premiums assumed from non-affiliated insurers as compensation for the management
and administration of this business on behalf of the Exchange. Prior to the
service agreement on non-affiliated assumed reinsurance, which was effective
January 1, 1995, the Company received a management fee based on premiums written
and was responsible for the payment of brokerage commissions. Service agreement
revenue from the management of non-affiliated assumed reinsurance business was
$5,069,140 in 1996 and $4,401,232 in 1995.
The Company's subsidiary, Erie Insurance Co., has participated in a
reinsurance pool with the Exchange since January 1, 1992 whereby Erie Insurance
Co. transfers, or cedes to the Exchange all of its direct premiums written and
the Exchange retrocedes to Erie Insurance Co. a 5% participation of the pooled
business, which also includes all of the property and casualty insurance
business of the Exchange. All premiums, losses, loss adjustment expenses and
other underwriting expenses are prorated among the parties on the basis of their
participation in the pool. The pooling agreement does not legally discharge Erie
Insurance Co. from its primary liability for the full amount of the policies
ceded. However, it makes the Exchange liable to Erie Insurance Co. to the extent
of the business ceded. The pooling agreement provides that it may be amended or
terminated at the end of any calendar year by agreement of the parties.
Effective January 1, 1995, the pooling agreement was amended to provide that the
Exchange's share of the pool was reduced to 94.5% and that Erie Insurance Co.
and Erie NY have a 5.5% share of the pool. Prior to January 1, 1992, all
property and casualty business of Erie Insurance Co. was reinsured 100% with the
Exchange under the terms of a quota share reinsurance treaty. Erie P&C and
Flagship, a subsidiary of the Exchange, reinsure 100% of their property and
casualty insurance business with the Exchange under the terms of a quota share
reinsurance treaty.
The property/casualty affiliated insurance companies of the Erie Insurance
Group periodically purchase annuities from EFL for use in connection with the
structured settlement of insurance claims. The Company's share of such
purchases, through its subsidiaries, Erie Insurance Co. and Erie NY, amounted to
$742,772, $1,235,722, $583,263, and $383,516 for the years ended December 31,
1996, 1995, 1994, and 1993, respectively, and the reserves held by EFL at
December 31, 1996 for such annuities were approximately $5,175,280. The increase
in annuity purchases for structured settlements is due to a greater emphasis by
Erie claims management on utilizing structured settlements in claims
resolutions. In addition, the Erie Insurance Group Retirement Plan for Employees
has, from time to time, purchased individual annuities from EFL for each retired
vested employee or beneficiary receiving benefits. Such purchases amounted to
$4,894,046, $6,024,125, and $8,880,714, for the years ended December 31, 1996,
1995, and 1994, respectively. The annuities purchased in 1994 included annuities
for those individuals that retired from the Company or its subsidiaries in 1993,
1994, and 1995. The reserves held by EFL at December 31, 1996 for all such
annuities were approximately $32,812,000.
-20-
The Company and its subsidiaries, the Exchange and its subsidiaries and EFL
share a corporate home office complex in Erie, Pennsylvania. The complex
contains 545,880 square feet, and is owned by the Exchange.
The Company operates 20 field offices in 8 states. Of these offices, 16
provide both agency support and claims services and are referred to as "Branch
Offices", while the remaining four provide only claims services and are
considered "Claims Offices".
The Company owns 3 of its field offices. Three others are owned by and
leased from the Exchange. The rent for the home office and the three field
offices paid to the Exchange totaled $10,949,000 in 1996. One office is owned by
and leased from EFL at an annual rental in 1996 of $423,120. The remaining 10
offices are leased from various unaffiliated parties. The Company is reimbursed
by its affiliates for a percentage of the rent for office space used by its
affiliates.
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 1997. 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 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 Brown,
Schwab, Bergquist & Co. as the Company's independent public accountants.
-21-
APPROVAL OF THE ERIE INDEMNITY COMPANY
LONG-TERM INCENTIVE PLAN
The Board of Directors of the Company has approved the Erie Indemnity
Company Long-Term Incentive Plan (the "Plan"). Pursuant to the rules of the
NASDAQ National Market System on which the Company's Class A (non-voting) Common
Stock is traded, the Plan is being submitted to the holders of Class A Common
Stock, as well as the holders of Class B (voting) Common Stock, of the Company
for approval.
The purposes of the Plan are (i) 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;
(ii) to attract and retain employees of outstanding competence and ability; and
(iii) to further align the interests of such employees with those of
shareholders of the Company.
The Company's Board of Directors recommends that shareholders vote FOR
approval of the Plan.
Summary of the Plan
The following summary of the Plan is qualified in its entirety by reference
to the complete text of the Plan, a copy of which is attached as Exhibit A to
this Proxy Statement.
Term. The effective date of the Plan is January 1, 1997, subject to
approval of the Plan by the shareholders of the Company. The Plan does not have
a fixed expiration date.
Administration. The Plan will be administered by the Executive Compensation
Committee of the Company's Board of Directors or, in certain events, by the full
Board or a committee of the Board comprised solely of outside directors (the
"Plan Administrator"). The Plan Administrator has sole and complete authority to
make awards under the Plan, to determine the terms and conditions of such
awards, and to interpret and make all other determinations affecting the Plan.
Participation and Award Estimates. Participation in the Plan is limited to
officers and other salaried key employees of the Company and its majority-owned
subsidiaries who are selected from time to time by the Plan Administrator. A
total of approximately 14 employees are eligible for selection by the Plan
Administrator to participate in the Plan. Participation in the Plan does not
preclude participation in any other employee benefit plans of the Company and
does not create any rights to continued employment with the Company. Because the
grant of awards under the Plan is at the discretion of the Plan Administrator,
it is not possible to indicate at this time which persons may receive awards
under the Plan or the amount of such awards.
Operation of the Plan.
Phantom Share Units. The Plan provides for the grant, in the discretion of
the Plan Administrator after receiving the recommendations of chief executive
officer of the Company, of Phantom Share Units to Participants in the Plan. In
connection with any such grant, the Plan Administrator will establish a
-22-
performance period, which may not be less than three years, and performance
objectives for such performance period. Within 90 days after the end of the
performance period, the Plan Administrator will determine the value of the
Phantom Share Units held by each participant for such performance period based
on the extent to which the related performance objectives are achieved. Each
participant will then be entitled to receive that number of shares of restricted
Class A Common Stock of the Company equal to the value of the Phantom Share
Units held by such participant, based on the average fair market, as defined, of
the Class A Common Stock of the Company during the 30 days following the end of
the performance period.
In the event of the death, disability or retirement (as defined under the
Company's retirement plan) of a participant prior to the end of a performance
period, the number of Phantom Share Units held by such participant will be
determined as of the end of the fiscal year in which such event occurs. If a
participant ceases to be an employee of the Company prior to the end of a
performance period for any other reason, the participant will forfeit all
Phantom Share Units previously granted under the Plan.
Restricted Class A Common Stock. The restricted Class A Common Stock, if
any, granted to a participant at the end of a performance period will vest over
a period of not more than three years. The vesting period applicable to any such
shares will be established by the Plan Administrator at the time of grant of the
related Phantom Share Units. Until such shares vest, the certificates
representing such shares will be held by the Company for the account of the
participant and the participant will have all the rights of a shareholder,
including the right to receive dividends, except that (i) the participant will
not be entitled to receive a certificate representing such shares, (ii) the
shares may not be transferred, sold, assigned, pledged or otherwise encumbered,
and (iii) all of such shares shall be forfeited unless, with certain exceptions,
the participant remains in the continuous employment of the Company for the
entire vesting period. If the participant is employed by the Company at the end
of the vesting period, the participant will be entitled to receive certificates
for the Class A Common Stock credited to his account under the Plan free and
clear of all restrictions.
In the event of the death or disability of a participant after the end of
the performance period but prior to the end of a vesting period applicable to
any restricted Class A Common Stock, the participant, or his estate, will be
entitled to receive the shares of Class A Common Stock in his account without
restrictions. If a participant retires during such period (i.e., voluntarily
terminates employment after age 55 with at least 5 years of service), the
participant will not forfeit his shares, but the other restrictions on such
shares will still apply for the remainder of the applicable vesting period.
Finally, if a participant ceases to be an employee of the Company for any other
reason during such period, the participant will forfeit the Class A Common Stock
to which he would otherwise be entitled.
In any case, the Plan Administrator may, in its sole discretion, permit a
participant to retain the Phantom Share Units or restricted Class A Common Stock
that would otherwise by forfeited under the terms of the Plan.
In order to avoid dilution, the Company will satisfy its obligations
under the Plan by purchasing shares of Class A Common Stock in the open market.
If such purchases are not practicable because such stock is not readily
available in the marketplace or such purchase would artificially affect the
market price of the Class A Common Stock, then the Company may issue deferred
stock units in lieu of restricted Class A Common Stock and may pay cash in lieu
of the issuance of Class A Common Stock at the expiration of the applicable
vesting period.
-23-
Performance Objectives and Section 162(m). The performance objectives
established by the Plan Administrator for any performance period shall be based
upon one or more of the following performance measures: (i) retained earnings
per share plus dividend, (ii) earnings or earnings per share, (iii) assets or
return on assets, (iv) shareholder's equity or return on shareholder's equity,
(v) revenues, (vi) costs, (vii) gross profit margin, (viii) investment earnings,
(ix) loss ratio, (x) combined ratio, or (xi) any other measure determined by the
Plan Administrator to be in the best interests of the Company.
Section 162(m) of the Internal Revenue Code of 1986, as amended, provides
in general that compensation in excess of $1.0 million per year paid to the
chief executive officer and the four other most highly compensated officers of a
public company is not deductible to the corporation; however, certain
performance-based compensation may be excluded from this deductibility
limitation if, among other things, (i) the compensation is paid solely on
account of the attainment of one or more performance goals, (ii) the performance
goals are established by a compensation committee consisting solely of two or
more outside directors, (iii) the material terms under which the compensation is
to be paid, including the performance goals, are disclosed to and approved by
the shareholders prior to payment, and (iv) prior to payment, the compensation
committee must certify that the performance goals were in fact satisfied.
Approval of the Plan by the shareholders of the Company will constitute approval
of the Plan, including approval of the performance objectives, for purposes of
Section 162(m). It is the current intention of the Plan Administrator to ensure
that all otherwise tax deductible compensation payable under the Plan be
excludable from the limitation on deductibility imposed by Section 162(m);
however, the Plan Administrator retains the ability to make awards under the
Plan which are not eligible for exclusion from Section 162(m) in the event that
it determines that the making of such awards is in the best interests of the
Company.
Maximum Annual Award. In order to satisfy the requirements of Section
162(m), the Company has established the maximum value of Phantom Share Units
that may be earned by any participant under the Plan in any year which shall not
exceed 500,000 dollars. It is not anticipated that any award under the Plan will
reach the maximum award in the near future.
Adjustments. With certain exceptions, the Plan Administrator may, in its
discretion, at any time adjust the performance objectives applicable to any
Phantom Share Units, adjust the manner in which such performance objectives are
measured, shorten the performance period, or shorten the vesting period with
respect to any restricted Class A Common Stock if it determines that conditions
so warrant. Further, the number of Phantom Share Units and shares of restricted
Class A Common Stock shall be appropriately adjusted by the Plan Administrator
for stock dividends, stock splits, recapitalizations, mergers or other changes
in the capitalization of the Company.
Amendment and Termination of the Plan. The Board of Directors of the
Company may modify, amend or terminate the Plan at any time except that no
modification, amendment or termination may adversely affect the rights of a
participant under an award previously made to him without his consent.
Federal Income Tax Consequences. There will be no Federal income tax
consequences to participants or to the Company upon the grant of Phantom Share
Units or upon the issuance of restricted Class A Common Stock. Participants will
recognize income for Federal income tax purposes in an amount equal to the fair
market value of the shares received (determined as of the date on which the
shares become transferable or not subject to a substantial risk of forfeiture,
whichever occurs first) and the Company will be entitled to a deduction in a
like amount. The Plan Administrator may, in its sole discretion, permit a
-24-
participant to defer the receipt of all or a portion of the Class A Common Stock
payable upon lapse of applicable restrictions. Further, the Plan Administrator
may, in its sole discretion, permit a participant to defer the receipt of all or
a portion of the Class A Common Stock payable upon lapse of applicable
restrictions. Further, the Plan Administrator may permit a participant to
satisfy any income tax withholding obligation of the Company with respect to any
award under the Plan by withholding a portion of the shares of Class A Common
Stock otherwise payable to the participant or by delivering previously owned
shares of Class A Common Stock.
The affirmative vote of a majority of the shares of Class A Common Stock
and Class B Common Stock, each voting as a class, is required for approval of
the Plan.
Because executive officers of the Company (two of whom are members of the
Board of Directors) are eligible to receive awards under the Plan, each of them
has a personal interest in the adoption of the Plan.
The Board of Directors recommends a vote FOR the approval of the Long-Term
Incentive Plan.
-25-
ANNUAL REPORT
A copy of the Company's Annual Report for 1996 is being mailed to the
holders of the Company's Class A Common Stock and Class B Common Stock with this
Proxy Statement.
SHAREHOLDER PROPOSALS
Any holder of the Company's Class B Common Stock who, in accordance with
and subject to the provisions of the proxy rules of the SEC, wishes to submit a
proposal for inclusion in the Company's proxy statement for its 1998 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 20, 1997.
OTHER PROPOSALS
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,
but if any matters are properly presented, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance with their
judgment.
By Order of the Board of Directors,
/s/ Jan R. Van Gorder
----------------------------------
Jan R. Van Gorder,
Executive Vice President,
Secretary and General Counsel
April 1, 1997
-26-
EXHIBIT A
ERIE INDEMNITY COMPANY
LONG-TERM INCENTIVE PLAN
1. GENERAL
1.1 Purpose.
The purposes of the Long-Term Incentive Plan (the "Plan") are: (a) to
enhance the growth and profitability of Erie Indemnity Company, a
Pennsylvania business corporation ("Erie"), and its subsidiaries and
affiliates by providing the incentive of long-term rewards to key employees
who are capable of having a significant impact on the performance of Erie
and its subsidiaries and affiliates; (b) to attract and retain employees of
outstanding competence and ability; (c) to further align the interests of
such employees with those of shareholders of Erie.
1.2 Definitions.
For the purpose of the Plan, the following terms shall have the meanings
indicated:
(a) "Board of Directors" or "Board" shall mean the Board of Directors of
Erie.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended,
including any successor law thereto.
(c) "Company" shall mean Erie and any corporation, partnership, or other
organization of which Erie, directly or indirectly, owns or controls
not less than 50% of the total combined voting power of all classes of
stock or other equity interests. For purposes of this Plan, the terms
"Erie" and "Company" shall include any successor thereto.
(d) "Common Stock" shall mean the Class A (non-voting) Common Stock of
Erie and a "share of Common Stock" shall mean one share of Common
Stock.
(e) "Disability" shall mean total and permanent disability within the
meaning of Section 22(e)(3) of the Code.
(f) "Fair Market Value" of shares of Common Stock on any given date(s)
shall be: (a) the daily average of the high and low sales prices on
the NASDAQ National Market System of such shares on the date(s) in
question, or, if the shares of Common Stock shall not have been traded
on any such date(s), the closing price on the NASDAQ National Market
System on the first day prior thereto on which the shares of Common
Stock were so traded; or (b) if the shares of Common
-1-
Stock are not traded on the NASDAQ National Market System, such other
amount as may be determined by the Plan Administrator by any fair and
reasonable means.
(g) "Participant" shall mean any key employee who has met the eligibility
requirements set forth in Section 1.4 hereof and to whom a grant has
been made and is outstanding under the Plan.
(h) "Performance Period" shall mean, in relation to Phantom Share Units,
any period, for which performance objectives have been established
pursuant to Article 2.
(i) "Phantom Share Unit" shall mean a right, granted to a Participant
pursuant to Article 2.
(j) "Plan Administrator" shall mean: (i) the Executive Compensation
Committee of the Board of Directors (the "Committee"), or its
functional successor, unless some other Board committee has been
designated by the Board of Directors to administer the Plan or any
portion of the Plan; or (ii) in the event that the Committee is not
comprised of two or more "Non-Employee Directors" within the meaning
of Rule 16b-3(a)(3) promulgated under Section 16 of the Securities
Exchange Act of 1934, then the Plan Administrator shall, with respect
to officers and directors subject to Section 16, be the Board.
(k) "Restricted Share" shall mean a share of Common Stock, granted to a
Participant pursuant to Article 3, subject to the restrictions set
forth in Section 3.1 hereof.
(l) "Retirement" shall mean the cessation of employment with the Company
after reaching age 55 and having completed at least 5 years of
service.
(m) "Vesting Period" shall mean in relation to Restricted Shares
receivable in payment for Phantom Share Units, the period of time
during which such shares are subject to restrictions on
transferability and may be forfeited if the Participant's employment
is terminated.
1.3 Administration.
The Plan shall be administered by the Plan Administrator and the Plan
Administrator shall act in accordance with the procedures established under
Erie's Articles of Incorporation, By-laws and under any resolution of the
Board. Subject to the provisions of the Plan, the Plan Administrator shall
have sole and complete authority to: (i) subject to Section 1.4 hereof,
select Participants after receiving the recommendations of the
-2-
management of the Company; (ii) determine the number of Phantom Share Units
or Restricted Shares subject to each grant; (iii) determine the time or
times when grants are to be made or are to be effective; (iv) determine the
terms and conditions, including the performance objectives, subject to
which grants may be made; (v) extend the term of any grant; (vi) prescribe
the form or forms of the instruments evidencing any grants made hereunder,
provided that such forms are consistent with the Plan; (vii) adopt, amend,
and rescind such rules and regulations as, in its opinion, may be advisable
for the administration of the Plan; (viii) construe and interpret the Plan
and all rules, regulations, and instruments utilized thereunder; and (ix)
make all determinations deemed advisable or necessary for the
administration of the Plan. All determinations by the Plan Administrator
shall be final and binding.
1.4 Eligibility and Participation.
Participation in the Plan shall be limited to officers (who may also be
members of the Board of Directors) and other salaried key employees of the
Company as identified by the Plan Administrator to participate in the Plan.
2. PROVISIONS APPLICABLE TO PHANTOM SHARE UNITS
2.1 Performance Periods.
The Plan Administrator shall establish Performance Periods applicable to
Phantom Share Units. Each such Performance Period shall commence with the
beginning of a fiscal year in which performance objectives are established
and have a duration of not less than three consecutive fiscal years.
2.2 Performance Objectives.
The Plan Administrator shall establish one or more performance objectives
for each Performance Period , provided that such performance objectives
shall be established prior to the grant of any Phantom Share Units with
respect to such period. Performance objectives shall be based on one or
more of the following measures: (i) retained earnings per share plus
dividend, (ii) earnings or earnings per share, (iii) assets or return on
assets, (iv) shareholder's equity or return on shareholder's equity, (v)
revenues, (vi) costs, (vii) gross profit margin, (viii) investment
earnings, (ix) loss ratio, (x) combined ratio, or (xi) any other measure
determined by the Plan Administrator to be in the best interests of the
Company. The Plan Administrator may, in its discretion, establish
performance objectives for the Company as a whole or for only the business
unit of the Company in which a given Participant is involved, or a
combination thereof.
-3-
2.3 Grants of Phantom Share Units.
The Plan Administrator may select employees to become Participants (subject
to the provisions of Section 1.4 hereof) and grant Phantom Share Units to
such Participants at any time prior to or during the first fiscal year of a
Performance Period. Before making grants, the Plan Administrator shall
receive the recommendations of the Chief Executive Officer of the Company,
which will take into account such factors as level of responsibility,
current and past performance, and performance potential. Each grant to a
Participant shall be evidenced by a written instrument stating the number
of Phantom Share Units granted, the target value of each Phantom Share
Unit, the Performance Period, the performance objective or objectives, the
Vesting Periods and restrictions applicable to Restricted Shares receivable
in payment for Phantom Share Units and any other terms, conditions and
rights with respect to such grant.
2.4 Adjustment With Respect to Phantom Share Units.
Any other provision of the Plan to the contrary notwithstanding, the Plan
Administrator may at any time adjust performance objectives (up or down),
adjust the way performance objectives are measured, or shorten any
Performance Period, if it is determined that conditions, including, but not
limited to, changes in the economy, changes in competitive conditions,
changes in laws or governmental regulations, changes in generally accepted
accounting principles, changes in the Company's accounting policies,
acquisitions or dispositions, stock redemptions, reductions or increases in
the management fee rate payable to Erie by Erie Insurance Exchange,
reductions to shareholders' equity due to reductions or increases in net
unrealized gain on available-for-sale securities or the occurrence of other
events impacting the performance objectives, so warrant; provided, however,
that the Plan Administrator may not make any such adjustment that would
increase the economic benefit to any "covered employee" as defined in
Section 162(m) of the Code.
2.5. Maximum Annual Award.
The maximum value of Phantom Share Units that may be earned by any
Participant in any year shall not exceed $500,000.
2.6 Payment for Phantom Share Units.
Within 90 days after the end of any Performance Period, the Plan
Administrator shall determine the total dollar value of Phantom Share Units
held by each Participant for such Performance Period. Payment for Phantom
Share Units shall be in the form of Restricted Shares and shall be subject
to the terms and conditions of Section 3 hereof. Such Common Stock shall be
purchased in the open market, provided however, that if the Common Stock of
the Company is not readily available in the marketplace, or purchase
-4-
of the Common Stock for Restricted Shares would artificially affect the
price of the Common Stock, in the sole discretion of the Plan
Administrator, Restricted Shares shall be payable in deferred stock units
equal in value to the number of shares of Common Stock that would have been
paid to the Participant had the Common Stock been available in the
marketplace. The number of Restricted Shares (or stock unit equivalents)
granted shall be equal to the actual total value of the Phantom Share Units
at the end of the Performance Period divided by the monthly average price
of the Fair Market Value of the Common Stock for the month following the
end of the Performance Period, rounded up to the nearest whole share.
2.7 Termination of Employment.
(a) Prior to the end of a Performance Period:
(i) Death, Disability or Normal Retirement: If a Participant ceases
to be an employee of the Company prior to the end of a
Performance Period by reason of death, Disability or Normal
Retirement (as defined in the Company's qualified Retirement Plan
for Employees), the Performance Period for outstanding Phantom
Share Units shall be deemed to end as of the end of the fiscal
year in which such event occurred. The total dollar value of
Phantom Share Units held by such Participant shall be based upon
performance during the reduced Performance Period and will be
paid in the form of shares of Common Stock in the manner provided
for by Section 2.6. Any shares of Common Stock payable pursuant
to this Section 2.7, shall be free of any restrictions or risk of
forfeiture under the Plan and shall be registered in the name of
the Participant or the Participant's beneficiary or estate, as
the case may be, as soon as practicable after the end of the
applicable Performance Period.
(ii) Other Terminations: If a Participant ceases to be an employee
prior to the end of a Performance Period for any reason other
than death, Disability or Normal Retirement, the Participant
shall immediately forfeit all Phantom Share Units previously
granted under the Plan. The Plan Administrator may, however, in
its sole discretion, permit a Participant to retain all or a
portion of his Phantom Share Units if it finds that the
circumstances in the particular case so warrant.
(b) After the end of a Performance Period, but prior to the end of a
Vesting Period:
(i) Death or Disability: If a Participant ceases to be an employee of
the Company by reason of death or Disability, the Vesting Period
shall be deemed to have ended and shares of Common Stock held by
the Company
-5-
with respect to Restricted Shares earned by such Participant
shall be paid as soon as practicable in the manner set forth in
3.4 hereof
(ii) Retirement: The Retirement of a Participant shall not constitute
a termination of employment for purposes of this Section 2(b),
and such Participant shall not forfeit any Common Stock held by
the Company with respect to Restricted Shares earned by such
Participant.
(iii) Other Terminations: If a Participant ceases to be an employee
prior to the end of a Vesting Period for any reason other than
death, Disability or Retirement, the Participant shall
immediately forfeit all unvested Restricted Shares previously
granted with respect to such Vesting Period in accordance with
the provisions of Section 3.2(c) hereof, unless the Plan
Administrator, in its sole discretion, finds that the
circumstances in the particular case so warrant and allows a
Participant whose employment has so terminated to retain any or
all of the Restricted Shares granted to such Participant.
3. PROVISIONS APPLICABLE TO RESTRICTED SHARES
3.1 Vesting Periods.
At the time a Phantom Share Unit award is made, the Plan Administrator
shall establish a Vesting Period applicable to Restricted Stock which shall
not be more than three years. The Plan Administrator may provide for the
lapse of all or a portion of such Vesting Period in installments and may
accelerate or waive such Vesting Period, in whole or in part, based on such
factors as the Plan Administrator may determine.
3.2 Rights and Restrictions Governing Restricted Shares.
At the time of payment in Restricted Shares, subject to the receipt by the
Company of any applicable consideration for such Restricted Shares, one or
more certificates representing the appropriate number of shares of Common
Stock granted to a Participant shall be registered either in his name or
for his benefit either individually or collectively with others, but shall
be held by the Company for the account of the Participant. The Participant
shall have all rights of a holder as to such shares of Common Stock,
including the right to receive dividends, subject to the following
restrictions: (a) the Participant shall not be entitled to delivery of
certificates representing such shares of Common Stock and any other such
securities until the expiration of the applicable Vesting Period; (b) none
of the Restricted Shares may be sold, transferred, assigned, pledged, or
otherwise encumbered or disposed of during the applicable Vesting Period;
and (c) all of the Restricted Shares shall be forfeited and all rights of
the Participant to such Restricted
-6-
Shares shall terminate without further obligation on the part of the
Company unless the Participant remains in the continuous employment of the
Company for the entire Vesting Period or portion thereof in relation to
which such Restricted Shares were granted, except as otherwise allowed by
Section 2.7 hereof. At the time of payment in Restricted Shares, if the
Common Stock of the Company is not readily available in the marketplace, or
purchase of the Common stock would artificially affect the price of the
Common Stock, in the sole discretion of the Plan Administrator, then in
that event, the Company shall have the option to pay to the Participant in
cash the Fair Market Value of the Restricted Shares on such payment date.
3.3 Adjustment with Respect to Restricted Shares.
Any other provisions of the Plan to the contrary notwithstanding, the Plan
Administrator may at any time shorten any Vesting Period, if it determines
that conditions, including but not limited to, changes in the economy,
changes in competitive conditions, changes in laws or governmental
regulations, changes in generally accepted accounting principles, changes
in the Company's accounting policies, acquisitions or dispositions, or the
occurrence of other unusual, unforeseen, or extraordinary events, so
warrant.
3.4 Payment of Restricted Shares.
In the event that a Participant is still employed by the Company at the end
of the Vesting Period or portion thereof, all applicable restrictions shall
lapse as to Restricted Shares granted in relation to such Vesting Period,
and one or more stock certificates for the appropriate number of shares of
Common Stock, free of restrictions, shall be delivered to the Participant
or such shares shall be credited to a brokerage account if the Participant
so directs.
3.5 Deferral of Payment.
The Plan Administrator may, in its sole discretion, offer a Participant the
right, by execution of a written agreement, to defer the receipt of all or
any portion of the payment, if any, for Restricted Shares. If such an
election to defer is made, the Common Stock receivable in payment for
Restricted Shares shall be deferred as stock units equal in number to the
number of shares of Common Stock that would have been paid to the
Participant. Such stock units shall represent only a contractual right and
shall not give the Participant any interest, right, or title to any Common
Stock during the deferral period. The cash receivable in payment for
fractional shares receivable for Restricted Shares shall be deferred as
cash units. Deferred cash units may be credited annually with an
appreciation factor specified in the deferred compensation agreement, which
will include dividend equivalents. At the end of the deferral period,
deferred stock units and cash units shall be paid in Common Stock, except
that any payment attributable to
-7-
fractional shares shall be paid in cash. All other terms and conditions of
deferred payments shall be as contained in a written deferred compensation
agreement.
4. MISCELLANEOUS
4.1 Designation of Beneficiary.
A Participant may designate, in a writing delivered to the Company before
his death, a person or persons to receive, in the event of his death, any
rights to which he would be entitled under the Plan. A Participant may also
designate an alternate beneficiary to receive payments if the primary
beneficiary does not survive the Participant. A Participant may designate
more than one person as his beneficiary or alternate beneficiary, in which
case such persons would receive payments as joint tenants with a right of
survivorship. A beneficiary designation may be changed or revoked by a
Participant at any time by filing a written statement of such change or
revocation with the Company. If a Participant fails to designate a
beneficiary, then his estate shall be deemed to be his beneficiary.
4.2 Employment Rights.
Neither the Plan nor any action taken hereunder shall be construed as
giving any employee of the Company the right to become a Participant, and a
grant under the Plan shall not be construed as giving any Participant any
right to be retained in the employ of the Company.
4.3 Nontransferability.
A Participant's rights under the Plan, including the right to any amounts
or shares payable, may not be assigned, pledged, or otherwise transferred
except, in the event of a Participant's death, to his designated
beneficiary or, in the absence of such a designation, by will or the laws
of descent and distribution.
4.4 Withholding.
The Company shall have the right, before any payment is made or a
certificate for any shares is delivered or any shares are credited to any
brokerage account, to deduct or withhold from any payment under the Plan
any Federal, state, local or other taxes, including transfer taxes,
required by law to be withheld or to require the Participant or his
beneficiary or estate, as the case may be, to pay any amount, or the
balance of any amount, required to be withheld.
-8-
If and to the extent withholding of any Federal, state or local tax is
required in connection with the lapse of restrictions with respect to
Restricted Shares earned pursuant to Phantom Share Units, the Participant
may elect to pay such amount in cash or: (i) have the Company hold back
from the shares to be delivered, stock having a value calculated to satisfy
such withholding obligations; (ii) deliver previously-owned shares of
Common Stock held by the Participant having a value equal to the tax
withholding obligation provided that the previously owned shares have been
held for at least six months; or (iii) utilize a combination of the
foregoing procedures.
4.5 Relationship to Other Benefits.
No payment under the Plan shall be taken into account in determining any
benefits under any retirement, group insurance, or other employee benefit
plan of the Company. The Plan shall not preclude the shareholders of Erie,
the Board of Directors or any committee thereof, or the Company from
authorizing or approving other employee benefit plans or forms or incentive
compensation, nor shall it limit or prevent the continued operation of
other incentive compensation plans or other employee benefit plans of the
Company or the participation in any such plans by Participants in the Plan.
4.6 No Trust or Fund Created.
Neither the Plan nor any grant made hereunder shall create or be construed
to create a trust or separate fund of any kind or a fiduciary relationship
between the Company and a Participant or any other person. To the extent
that any person acquires a right to receive payments from the Company
pursuant to a grant under the Plan, such right shall be no greater than the
right of any unsecured general creditor of the Company.
4.7 Expenses.
The expenses of administering the Plan shall be borne by the Company.
4.8 Indemnification.
Service on the Committee shall constitute service as a member of the Board
of Directors so that members of the Committee shall be entitled to
indemnification and reimbursement as directors of the Company pursuant to
its Articles of Incorporation, By-Laws, or resolutions of its Board of
Directors or shareholders.
4.9 Tax Litigation.
The Company shall have the right to contest, at its expense, any tax ruling
or decision, administrative or judicial, on any issue that is related to
the Plan and that the Company
-9-
believes to be important to Participants in the Plan and to conduct any
such contest or any litigation arising therefrom to a final decision.
4.10 Antidulution.
Phantom Share Units and Restricted Shares shall be subject to appropriate
adjustment by the Plan Administrator as to the number and price of shares
of Common Stock or other considerations subject to such grants in the event
of changes in the outstanding shares by reason of stock dividends, stock
splits, recapitalizations, reorganizations, mergers, consolidations,
combinations, exchanges, or other relevant changes in capitalization
occurring after the date of grant.
5. AMENDMENT AND TERMINATION
The Board of Directors may modify, amend, or terminate the Plan at any time
except that, no modification, amendment, or termination of the Plan shall
adversely affect the rights of a Participant under a grant previously made
to him without the consent of such Participant.
6. INTERPRETATION
6.1 Governmental and Other Regulations.
The Plan and any grant hereunder shall be subject to all applicable Federal
and state laws, rules, and regulations and to such approvals by any
regulatory or governmental agency that may, in the opinion of the counsel
for the Company, be required.
6.2 Governing Law.
The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts entered into and performed entirely in such State.
7. EFFECTIVE DATE AND SHAREHOLDER APPROVAL
The Plan shall be effective as of January 1, 1997.
-10-
ERIE INDEMNITY COMPANY
CLASS A COMMON STOCK
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 29, 1997
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
A 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
29, 1997 at 4:00 p.m., and at any adjournment, postponement or continuation
thereof, as follows:
1. A PROPOSAL TO ADOPT THE LONG-TERM INCENTIVE PLAN FOR SENIOR EXECUTIVES OF
THE COMPANY.
|_| FOR |_| AGAINST |_| ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and any
adjournment, postponement or continuation thereof.
This proxy will be voted as specified. If a choice is not specified, the proxy
will be voted FOR the proposal to adopt the long-term incentive plan.
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:____________________, 1997
ERIE INDEMNITY COMPANY
CLASS B COMMON STOCK
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 29, 1997
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
29, 1997 at 4:00 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 nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.
Peter B. Bartlett, Samuel P. Black, III, J. Ralph Borneman, Jr., Patricia
A. Goldman, Susan Hirt Hagen, Thomas B. Hagen, F. William Hirt, Irvin H. Kochel,
Edmund J. Mehl, Stephen A. Milne, John M. Petersen, Seth E. Schofield, Jan R.
Van Gorder, Harry H. Weil.
2. PROPOSAL TO RATIFY THE SELECTION OF BROWN, SCHWAB, BERGQUIST & CO.
AS THE INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY FOR 1997.
|_| FOR |_| AGAINST |_| ABSTAIN
3. A PROPOSAL TO ADOPT THE LONG-TERM INCENTIVE PLAN FOR SENIOR
EXECUTIVES OF THE COMPANY.
|_| FOR |_| AGAINST |_| ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and any
adjournment, postponement or continuation thereof.
This proxy will be voted as specified. If a choice is not specified, the proxy
will be voted FOR the nominees for Director, FOR the ratification of Brown,
Schwab, Bergquist & Co. as independent public accountants for the Company for
1997 and FOR the proposal to adopt the long-term incentive plan.
(continued on reverse side)
This proxy should be dated, signed by the shareholder(s) and returned promptly
to the Company in the en closed envelope. Persons signing in a fiduciary
capacity should so indicate.
(SEAL)
-----------------------------
(SEAL)
-----------------------------
-----------------------------
Date:____________________, 1997
(continued from other side)
