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)(1) and 0-11.
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
1) Amount Previously Paid:
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[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 1999
To the Holders of Class A Common Stock and Class B Common Stock of ERIE
INDEMNITY COMPANY:
The Annual Meeting of Shareholders of Erie Indemnity Company (the
"Company") will be held at 3:00 p.m., local time, on Tuesday, April 27,
1999, 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 11 Directors of the Company to serve until the Company's
2000 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 1999; and
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment, postponement or continuation
thereof.
The Board of Directors has fixed the close of business on Thursday,
March 18, 1999 as the record date for the determination of the holders of
Class B Common Stock entitled to notice of and to vote at the Annual
Meeting. Holders of Class A Common Stock do not have the right to vote on
any of the matters to be acted upon at the Annual Meeting.
In the event that the Annual Meeting is adjourned, pursuant to Section
1756(b)(1) of the Pennsylvania Business Corporation Law (the "BCL"), those
shareholders entitled to vote who attend a meeting of shareholders that was
previously adjourned for lack of a quorum shall constitute a quorum for the
purpose of electing directors even though the number of shareholders
present at such adjourned meeting constitute less than a quorum as fixed in
the Company's Bylaws.
For purposes other than the election of directors, pursuant to Section
1756(b)(2) of the BCL, notice is hereby given that those shareholders
entitled to vote who attend a meeting of shareholders that has been
previously adjourned for one or more periods aggregating at least fifteen
days because of an absence of a quorum, shall constitute a quorum for
acting upon any matter set forth in this notice even though the number of
shareholders present at such adjourned meeting is less than a quorum as
fixed in the Company's Bylaws.
(OVER)
A copy of the Company's Annual Report for the year ended December 31,
1998 and this Notice are being mailed to holders of Class A Common Stock
and Class B Common Stock. Holders of Class B Common Stock will also receive
a form of Proxy and a Proxy Statement in accordance with Securities and
Exchange Commission ("SEC") rules.
Holders of Class B Common Stock are requested to complete, sign and
return the enclosed form of proxy in the envelope provided, whether or not
they expect to attend the Annual Meeting in person.
By Order of the Board of Directors,
/s/ Jan R. Van Gorder
Jan R. Van Gorder,
Senior Executive Vice President,
Secretary and General Counsel
April 1, 1999
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 holders of Class B Common Stock of Erie
Indemnity Company (the "Company") on or about April 1, 1999, 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 to be held at
3:00 p.m., local time, on Tuesday, April 27, 1999 and at any adjournment,
postponement or continuation thereof (the "Annual Meeting"), at the
Auditorium of the F.W. Hirt-Perry Square Building, 100 Erie Insurance Place
(Sixth and French Streets), Erie, Pennsylvania 16530.
Shares of Class B Common Stock represented by proxies in the
accompanying form, if properly signed and returned, will be voted in
accordance with the specifications made thereon by the holders of Class B
Common Stock. Any proxy representing shares of Class B Common Stock not
specifying to the contrary will be voted for the election of the nominees
for director named below and for the ratification of the selection of
Brown, Schwab, Bergquist & Co. as independent public accountants for the
Company for 1999. A holder of Class B Common Stock who signs and returns a
proxy in the accompanying form may revoke it at any time before it is voted
by giving written notice of revocation, 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 B Common Stock in their names or in the names of
nominees for their reasonable expenses in sending proxy material to
beneficial owners.
Only holders of Class B Common Stock of record at the close of business
on March 18, 1999 will be entitled to vote at the Annual Meeting. Each
share of Class B Common Stock is entitled to one vote. Except as may be
otherwise provided in Sections 1756(b)(1) and (2) of the BCL in the case of
adjourned meetings, a majority of the outstanding shares of Class B Common
Stock will constitute a quorum at the Annual Meeting for the election of
directors and for ratification of the selection of independent auditors.
Cumulative voting rights do not exist with respect to the election of
directors. The 11 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. Ratification of the
selection of Brown, Schwab, Bergquist & Co. as the Company's independent
public accountants for 1999 will require the affirmative vote of a majority
of the votes cast at the Annual Meeting by the holders of the Class B
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Common Stock. Shares of Class B Common Stock held by brokers or nominees as
to which voting instructions have not been received from the beneficial
owner or person otherwise entitled to vote and as to which the broker or
nominee does not have discretionary voting power, i.e., broker nonvotes,
will be treated as not present and not entitled to vote for nominees for
election as directors. Abstentions will be treated as the withholding of
authority to vote for nominees for election as directors. Abstentions from
voting and broker nonvotes will have no effect on the election of directors
because they will not represent votes cast at the Annual Meeting.
As of the close of business on March 18, 1999, the Company had
outstanding 66,928,705 shares of Class A Common Stock, which are not
entitled to vote on any of the matters to be acted upon at the Annual
Meeting, and 3,070 shares of Class B Common Stock which have the exclusive
right to vote on all matters to be acted upon at the Annual Meeting.
The H.O. Hirt Trusts collectively own 2,340 shares of Class B Common
Stock, which, because such shares represent 76.22% of the outstanding
shares of Class B Common Stock, is sufficient to determine the outcome of
any matter submitted to a vote of the holders of the Class B Common Stock,
assuming all of the shares held by the H.O. Hirt Trusts are voted in the
same manner. The trustees of the H.O. Hirt Trusts as of the record date for
the Annual Meeting are F. William Hirt, Susan Hirt Hagen and Bankers Trust
Company ("Bankers Trust"). Under the provisions of the H.O. Hirt Trusts,
the shares of Class B Common Stock held by the H.O. Hirt Trusts are to be
voted as directed by a majority of trustees then in office. If at least a
majority of the trustees then in office of both of the H.O. Hirt Trusts
vote for the election of the 11 nominees for director named below and for
ratification of the selection of Brown, Schwab, Bergquist & Co. as the
Company's independent public accountants for 1999, such nominees will be
elected as directors of the Company and the selection of Brown, Schwab,
Bergquist & Co. as the Company's independent public accountants for 1999
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.
Reference is made to "Legal Proceedings" in this Proxy Statement
regarding litigation involving the H.O. Hirt Trusts.
The Company is a Pennsylvania business corporation formed in 1925 to be
the attorney-in-fact for Erie Insurance Exchange (the "Exchange"), a
Pennsylvania-domiciled reciprocal insurance exchange. The Company's
principal business activity consists of management of the Exchange. The
Company is also engaged in the property/casualty insurance business through
its wholly-owned subsidiaries, Erie Insurance Company ("Erie Insurance
Co."), Erie Insurance Company of New York ("Erie NY") and Erie Insurance
Property & Casualty Company ("EI P&C") and through its management of
Flagship City Insurance Company ("Flagship"), a subsidiary of the Exchange.
In addition, the Company holds investments in both affiliated and
unaffiliated entities, including a 21.6% common stock interest in Erie
Family Life Insurance Company ("EFL"), a life insurance company of which
52.2% is owned by the Exchange.
4
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth as of February 26, 1999 the amount and
percentage of the outstanding Class A Common Stock and Class B Common Stock
beneficially owned by (i) each person who is known by 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 Percent of Shares of Percent of
Class A Outstanding Class B Outstanding
Common Class A Common Class B
Stock Common Stock Common
Name of Individual Beneficially Stock(3) Beneficially Stock(3)
or Identity of Group Owned(1)(2) Owned(1)(2)
--------------------------------------------------------------------------------------------------------
5% Holders:
Black Interests Limited 8,726,250 13.02% 390 12.70%
Partnership(4)
Erie, Pennsylvania
Samuel P. Black & Associates, 24,000 --- --- ---
Inc.(4)
Erie, Pennsylvania
Samuel P. Black, III(4) 129,750 --- 20 ---
Erie, Pennsylvania
Hagen Family Limited 10,092,900 15.06 1 ---
Partnership(5)(6)
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 11,830,000 17.65 --- ---
Partnership(8)
Erie, Pennsylvania
F. William Hirt (7)(8) 1,861,287 2.78 20 ---
Erie, Pennsylvania
Estate of Edward B. Young 3,557,440 5.31 180 5.86
Erie, Pennsylvania
5
Shares of Percent of Shares of Percent of
Class A Outstanding Class B Outstanding
Common Class A Common Class B
Stock Common Stock Common
Name of Individual Beneficially Stock(3) Beneficially Stock(3)
or Identity of Group Owned(1)(2) Owned(1)(2)
--------------------------------------------------------------------------------------------------------
Directors (9):
Peter B. Bartlett 3,000 --- --- ---
J. Ralph Borneman, Jr. 60,000 --- --- ---
Patricia A. Goldman 1,650 --- --- ---
Edmund J. Mehl 10,545 --- --- ---
Stephen A. Milne 24,281 --- --- ---
John M. Petersen(10) 2,557,402 3.82% 1 ---
Jan R. Van Gorder 144,090 --- 1 ---
Harry H. Weil 300 --- --- ---
Executive Officers (11):
John J. Brinling, Jr. 14,044 --- --- ---
Philip A. Garcia 90,365 --- --- ---
Douglas F. Ziegler 105,876 --- --- ---
All Directors and Executive 42,334,540 63.16% 2,785 90.72%
Officers as a Group (14 persons)
-----------------
(1) Information furnished by the named persons.
(2) Under the rules of the SEC, a person is deemed to be the
beneficial owner of securities if he has, or shares, "voting
power" (which includes the power to vote, or to direct the voting
of, such securities) or "investment power" (which includes the
power to dispose, or to direct the disposition, of such
securities). Under these rules, more than one person may be deemed
to be the beneficial owner of the same securities. Securities
beneficially owned also include securities owned jointly, in whole
or in part, or individually by the person's spouse, minor children
or other relatives who share the same home. The information set
forth in the above table includes all shares of Class A Common
Stock and Class B Common Stock over which the named individuals,
individually or together, share voting power or investment power,
adjusted, however, to 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.
6
(4) Samuel P. Black, III is President of Samuel P. Black & Associates.
Samuel P. Black, III is the managing general partner and a limited
partner of Black Interests Limited Partnership. Samuel P. Black,
III has the right to vote the shares held by Samuel P. Black &
Associates and Black Interests Limited Partnership. Samuel P.
Black, III has sole voting power over 129,750 shares of Class A
Common Stock and 10 shares of Class B Common Stock he owns
directly and also has voting power over 10 shares of Class B
Common Stock owned by his father Samuel P. Black, Jr. for whom he
holds a durable power of attorney.
(5) Susan Hirt Hagen and her husband, Thomas B. Hagen, are limited
partners of this partnership. Mr. Hagen is the general partner of
the partnership and has the sole right to vote such shares. Under
the rules of the SEC described in footnote (2), the maximum
beneficial ownership of Class A Common Stock and Class B Common
Stock which Susan Hirt Hagen and Thomas B. Hagen together could be
deemed beneficially to have is 16,756,800 shares of Class A Common
Stock, or 25.0% of the outstanding shares of Class A Common Stock,
and 1,186 shares of Class B Common Stock, or 38.6% of the
outstanding shares of Class B Common Stock. Mr. and Mrs. Hagen
together could also be deemed the beneficial owners of an
additional 2,846,400 shares of Class A Common Stock issuable upon
the conversion of the 1,186 shares of Class B Common Stock they
together could be deemed to own beneficially. If all 1,186 shares
of Class B Common Stock Mr. and Mrs. Hagen together could be
deemed to own beneficially were converted into Class A Common
Stock, the maximum beneficial ownership of Class A Common Stock
that Mr. and Mrs. Hagen together could be deemed to have would be
19,603,200 shares of Class A Common Stock, or 28.06% of the then
outstanding shares of Class A Common Stock. Thomas B. Hagen
disclaims beneficial ownership of the shares of Class A Common
Stock and Class B Common Stock owned by Susan Hirt Hagen.
(6) Excludes 5,100 shares of Class A Common Stock and 3 shares of
Class B Common Stock of the Company owned by Thomas B. Hagen, the
husband of Susan Hirt Hagen. Mrs. Hagen disclaims beneficial
ownership of these shares.
(7) There are two H.O. Hirt Trusts, one for the benefit of F. William
Hirt and one for the benefit of Susan Hirt Hagen. Each of the H.O.
Hirt Trusts is the record owner of 1,170 shares of Class B Common
Stock, or 38.11% of the outstanding shares of Class B Common
Stock. The trustees of the H.O. Hirt Trusts are F. William Hirt,
Susan Hirt Hagen and Bankers Trust. Mr. Hirt and Mrs. Hagen, who
are brother and sister, are each the beneficial owner of 1,170
shares of Class B Common Stock held by the H.O. Hirt Trusts.
7
(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
Class A Common Stock and Class B Common Stock which F. William
Hirt could be deemed beneficially to have is 13,691,287 shares of
Class A Common Stock, or 20.4% of the outstanding shares of Class
A Common Stock, and 1,190 shares of Class B Common Stock, or 38.8%
of the outstanding shares of Class B Common Stock. F. William Hirt
could also be deemed the beneficial owner of an additional
2,856,000 shares of Class A Common Stock issuable upon the
conversion of the 1,190 shares of Class B Common Stock he is
deemed to own beneficially. If all 1,190 shares of Class B Common
Stock F. William Hirt could be deemed to own beneficially were
converted into Class A Common Stock, the maximum beneficial
ownership of Class A Common Stock that F. William Hirt could be
deemed to have would be 16,547,287 shares of Class A Common Stock,
or 23.7% of the then outstanding shares of Class A Common Stock.
(9) Excludes directors listed under "5% Owners."
(10) Mr. Petersen disclaims beneficial ownership of 120,000 shares of
Class A Common Stock owned by his wife, Gertrude E. Petersen,
which have not been included in the total listed herein. However,
these totals include 200,000 shares held in the Petersen Family
Limited Partnership for which John Petersen is the general partner
and retains the right to vote such shares.
(11) Excludes executive officers listed under "Directors."
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires that the officers and directors of a corporation,
such as the Company, which has a class of equity securities registered
under Section 12 of the Exchange Act, as well as persons who own 10% or
more of a class of equity securities of such a corporation, file reports of
their ownership of such securities, as well as monthly statements of
changes in such ownership, with the corporation and the SEC. Based upon
written representations received by the Company from its officers and
directors and 10% or greater shareholders, and the Company's review of the
monthly statements of changes of ownership filed with the Company by its
officers and directors and 10% greater shareholders during 1998, the
Company believes that all such filings required during 1998 were made on a
timely basis.
ELECTION OF DIRECTORS
Nominees for Election
The Company's Bylaws provide that the Board of Directors shall consist
of not less than 7, nor more than 16 directors, with the exact number to be
fixed from time to time by resolution of the Board of Directors. The Board
of Directors has set, by resolution, the number of directors at 11.
In 1998, the Board of Directors consisted of 12 persons, each of whom
was elected to serve until the 1999 annual meeting of shareholders and
until his or her successor has been duly elected.
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Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the election of the nominees named below, all of whom
are currently directors of the Company. If a nominee becomes unavailable
for any reason, it is intended that the proxies will be voted for a
substitute nominee selected by the Nominating Committee of the Board of
Directors. The Board of Directors has no reason to believe the nominees
named will be unable to serve if elected. Any vacancy occurring on the
Board of Directors for any reason may be filled by a majority vote of the
directors then remaining in office until the next succeeding annual meeting
of the Company's shareholders.
The Nominating Committee of the Board of Directors will consider
written nominations for candidates for nomination for election as directors
from the holders of Class B Common Stock. Any such nomination should be
sent to the Company at its principal executive offices to the attention of
the corporate 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 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 4/1/99 the Erie Insurance Group Since
------------------------------------------------------------------------------------------------------
Peter B. Bartlett (3C)(4)(6) 65 Partner, Brown Brothers Harriman 1994
& Co. since 1974; Director, the Company,
EFL, Erie Insurance Co. and Kennametal, Inc.
Samuel P. Black, III (2)(4)(5) 57 President, Treasurer and Secretary, Samuel P. 1997
Black & Associates, Inc., insurance agency;
Director, the Company, Erie Insurance Co.,
EFL, Flagship and EI P&C.
J. Ralph Borneman, Jr.,CIC 60 President and Chief Executive Officer, Body- 1992
(3)(4) Borneman Associates, Inc., insurance agency;
President, Body-Borneman, Ltd. and Body-
Borneman Inc., insurance agencies; Director,
the Company, EFL, Erie Insurance Co., Erie NY
and National Penn Bancshares.
Patricia A. Goldman (2)(4C) 57 Retired; Senior Vice President for 1994
Communications, USAir, Inc. from 1988
to 1994; Director, the Company, EFL,
Erie Insurance Co. and Crown Central
Petroleum Company.
9
Age Principal Occupation for Past
As of Five Years and Positions with Director
Name 4/1/99 the Erie Insurance Group Since
--------------------------------------------------------------------------------------------------------
Susan Hirt Hagen (1)(5C) 63 Managing Partner, Hagen, Herr & Peppin, 1980
Group Relations Consultants, since 1990;
Director, the Company, EFL and Erie Insurance
Co. since 1980; Director, EI P&C, Flagship and
Erie NY since 1995.
F. William Hirt, CPCU (1C) 73 Chairman of the Board of the Company, EFL, 1965
Erie Insurance Co., EI P&C and Flagship since
September 1993; Chairman of the Board of Erie NY
since April 1994; Chairman of the Executive
Committee of the Company and EFL since November
1990; Interim President and Chief Executive Officer
of the Company, EFL, Erie Insurance Co., EI P&C,
Flagship and Erie NY from January 1, 1996 to
February 12, 1996; Chairman of the Board, Chief
Executive Officer and Chairman of the Executive
Committee of the Company, EFL and Erie Insurance Co.
for more than five years prior thereto; Director,
the Company, EFL, Erie Insurance Co., Erie NY,
EI P&C and Flagship.
Edmund J. Mehl (1)(2C) 75 Retired Chairman and Chief Executive Officer, 1969
Dispatch Printing, Inc.; Director, the Company,
EFL, EI P&C, Flagship, Erie Insurance Co. and
ERIE NY.
Stephen A. Milne, CIC (1)(6) 50 President, Chief Executive Officer and a Director 1996
of the Company, EFL and Erie Insurance Co. since
February 12, 1996 and President and Chief Executive
Officer of Flagship, EI P&C and Erie NY since
March 11, 1996; Executive Vice President Insurance
Operations of the Company, Erie Insurance Co.,
Flagship, EI P&C and Erie NY January 11, 1994-
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 EI P&C, since 1996 and Director,
Erie NY since 1994.
10
Age Principal Occupation for Past
As of Five Years and Positions with Director
Name 4/1/99 the Erie Insurance Group Since
-------------------------------------------------------------------------------------------------------
John M. Petersen (1)(6) 70 Retired President and Chief Executive Officer of 1979
the Company, EFL, Erie Insurance Co., Flagship,
EI P&C 1993-1995 and Erie NY 1994-1995; President,
Treasurer and Chief Financial Officer of the
Company, Erie Insurance Co. and EFL from November
1990 and of Flagship and EI P&C from 1992 and 1993,
respectively, to September 1993; President,
Treasurer and Chief Financial Officer of EFL and
Executive Vice President, Treasurer and Chief
Financial Officer of the Company and Erie Insurance
Co. for more than five years prior thereto; Director,
the Company, EFL, Erie Insurance Co., Flagship,
EI P&C, Erie NY and Spectrum Control.
Jan R. Van Gorder, Esq. (1) 51 Senior Executive Vice President, Secretary and 1990
General Counsel of the Company, EFL and Erie
Insurance Co. since 1990, and of Flagship and
EI P&C since 1992 and 1993, respectively and of
Erie NY since April 1994; Senior Vice President,
Secretary and General Counsel of the Company, EFL
and Erie Insurance Co. for more than five years
prior thereto; Director, the Company, EFL, Erie
Insurance Co., Flagship, EI P&C and Erie NY.
Harry H. Weil, Esq. (2)(3)(6C) 65 Counsel, Reed Smith Shaw & McClay, Attorneys, 1994
since 1998, Partner 1969 to 1997; Director, the
Company, Erie Insurance Co., EFL and
Calgon Carbon Corporation.
-------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Compensation Committee.
(4) Member of the Nominating Committee.
(5) Member of the Charitable Giving Committee.
(6) Member of Investment Committee.
C Designates Committee chairperson.
The Board of Directors met 7 times in 1998. The standing committees of
the Company's Board of Directors are the Executive Committee, the Audit
Committee, the Executive Compensation Committee, the Nominating Committee,
the Charitable Giving Committee and the Investment Committee. The Executive
Committee, which met 5 times during 1998, has the authority, subject to
certain limitations, to exercise the power of the Board of Directors
between regular meetings. The Audit Committee, which met 4 times during
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1998, 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 3 times during 1998, 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 once during 1998, has responsibility in
accordance with the requirements of the Pennsylvania Insurance Company Law
and the Company's Bylaws for conducting searches for and the nomination of
a slate of candidates to stand for election to the Board of Directors at
the Company's Annual Meeting of Shareholders and to nominate candidates to
fill vacancies on the Board of Directors between annual meetings of
shareholders. See also "Legal Proceedings." The Charitable Giving
Committee, which met 3 times during 1998, 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, which met 2 times in 1998, has responsibility to
assist the Company's Board of Directors in its general oversight of the
investments of the Company.
All directors hold office until their respective successors are elected
or until their earlier death, resignation or removal. Officers serve at the
discretion of the Board of Directors. There are no family relationships
between any directors or executive officers of the Company, except that F.
William Hirt, Chairman of the Board, Chairman of the Executive Committee
and a director, is the brother of Susan Hirt Hagen, a director.
The Board of Directors recommends a vote FOR all nominees.
12
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company
during each of the three fiscal years ended December 31, 1996, 1997 and
1998 to the Chief Executive Officer of the Company and the four other most
highly compensated executive officers of the Company during 1998 for
services rendered in all capacities to the Company, EFL, the Exchange and
their subsidiaries and affiliates.
SUMMARY COMPENSATION TABLE
Annual Compensation
---------------------------------------------------------------------------------------------
Name and Other Annual All Other
Principal Year Salary($) Bonus($)(1) Compensa- Compensa-
Position tion($)(2) tion($)(3)
---------------------------------------------------------------------------------------------
Milne, Stephen A. 1998 587,892 437,391 2,216 66,051
President and Chief 1997 539,462 174,697 1,014 66,219
Executive Officer 1996 467,305 39,351 1,014 26,020
Van Gorder, Jan R. 1998 321,032 143,511 2,268 27,887
Senior Executive 1997 321,032 103,469 2,268 26,263
Vice President, 1996 312,555 25,433 1,014 26,431
Secretary and
General Counsel
Brinling, Jr., John J. 1998 224,686 103,143 2,268 25,731
Executive Vice 1997 214,395 68,733 2,268 27,209
President 1996 202,126 34,652 946 24,098
Garcia, Philip A. 1998 224,040 97,910 510 20,677
Executive Vice 1997 160,703 58,744 383 4,470
President and Chief 1996 142,255 9,039 332 3,966
Financial Officer
Ziegler, Douglas F. 1998 186,880 77,753 923 5,153
Senior Vice 1997 160,847 53,941 784 4,643
President, Treasurer 1996 143,184 4,953 732 4,393
and Chief Investment
Officer
---------------------------------------------------------------------------------------------
(1) The amounts indicated in the bonus column above represent amounts
earned by the named executives during 1998 under the Annual Incentive Plan.
The purpose of the Annual Incentive Plan is to promote the best interests
of the Exchange while enhancing shareholder value of the Company by basing
a portion of selected employees' compensation on the performance of such
employee and the Company. Performance measures are established by the
Executive Compensation Committee based on the attainment of individual
performance goals and the Company's financial goals compared to a selected
peer group. The amounts indicated also include minor perquisites to the
named executive officers. In 1998, these amounts were $11,323, $11,095,
$11,288, $5,550 and $450 for Messrs. Milne, Van Gorder, Brinling, Garcia,
and Ziegler, respectively.
(2) Amounts indicated in the Annual Compensation column include the
premiums for group life insurance policies and supplemental group life
insurance policies for the named executive officers.
(3) Amounts shown include matching contributions made by the Company
pursuant to the Employee Savings Plan, premiums paid by the Company on
behalf of the named individuals on the split dollar life insurance policies
and miscellaneous expense reimbursements. For the year 1998, contributions
made to the Employee Savings Plan amounted to $15,507, $10,391, $7,911,
$6,559 and $5,153, on behalf of Messrs. Milne, Van Gorder, Brinling, Garcia
and Ziegler, respectively. Premiums paid during 1998 for split dollar life
insurance policies for Messrs. Milne, Van Gorder, Brinling, Garcia and
Ziegler, respectively, were: $50,544, $17,496, $17,820, $14,118 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. For the year 1998, no miscellaneous expense reimbursements were
incurred for Messrs. Milne, Van Gorder, Brinling, Garcia and Ziegler,
respectively.
13
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 December 1997 with the following four senior executive
officers of the Company: Stephen A. Milne, President and Chief Executive
Officer of the Company; Jan R. Van Gorder, Senior Executive Vice President,
Secretary and General Counsel of the Company; Philip A. Garcia, Executive
Vice President and Chief Financial Officer of the Company, and John J.
Brinling, Jr., Executive Vice President of EFL. At a meeting of the Board
of Directors held on March 9, 1999, the Board of Directors extended the
term of each executive officer's employment agreement for one year. The
employment agreements have the following principal terms:
(a) A four-year term for Mr. Milne, expiring in December 2002, and for
the other executives a two-year term expiring in December 2000,
unless the agreement is theretofore terminated in accordance with
its terms, with or without cause, or due to the disability or
death of the officer or notice of nonrenewal is given by the
Company or the executive 30 days before any anniversary date;
(b) A minimum annual base salary at least equal to the executive's
annual base salary at the time the agreement was executed, subject
to periodic review to reflect the executive's performance and
responsibilities, competitive compensation levels and the impact
of inflation;
(c) The eligibility of the executive under the Company's incentive
compensation programs and employee benefit plans;
(d) The establishment of the terms and conditions upon which the
executive's employment may be terminated by the Company and the
compensation of the executive in such circumstances. The
agreements provide generally, among other things, that if the
employment of an executive is terminated without Cause (as defined
in the agreement) by the Company or by the executive for Good
14
Reason (as defined in the agreement) then the executive shall be
entitled to receive: (i) an amount equal to the sum of three times
the executive's highest annual base salary during the preceding
three years plus an amount equal to three times the total of the
executive's highest award during the preceding three years under
the Company's Annual Incentive Plan; (ii) any award or other
compensation to which the executive is entitled under the
Company's Long-Term Incentive Plan; (iii) continuing participation
in any employee benefit plans for a period of three years
following termination to the extent the executive and his
dependents were eligible to participate in such programs
immediately prior to the executive's termination and
(iv) immediate vesting and nonforfeitability of accrued benefits
under the Company's Supplemental Retirement Plan for Certain
Members of the Erie Insurance Group Retirement Plan for Employees
("Supplemental Employee Retirement Plan");
(e) Provisions relating to confidentiality and nondisclosure
following an executive's termination; and
(f) An agreement by the executive not to compete with the Company for
a period of one year following his termination, unless his
termination was without Cause.
Stock Options and Stock Appreciation Rights
The Company does not have a stock option plan, nor has it ever granted
any stock option or stock appreciation right to any of the persons named in
the Summary Compensation Table.
Long-Term Incentive Plan
The Company has established a Long-Term Incentive Plan that is designed
to enhance the growth and profitability of the Company by providing the
incentive of long-term rewards to key employees who are capable of having a
significant impact on the performance of the Company; to attract and retain
employees of outstanding competence and ability and to further align the
interests of such employees with those of the shareholders of the Company.
The Plan was approved by shareholders in 1997 as a performance-based plan
under the Code. Each of the named executives has been granted awards of
phantom share units under the Company's Long-Term Incentive Plan based upon
a target award calculated as a percentage of the executive's base salary.
The total value of any phantom share units will be determined at the end of
the performance period based upon the growth in the Company's retained
earnings. Each executive will then be entitled to receive restricted shares
of Class A Common Stock equal to the dollar value of the phantom share
units at the end of the performance period. The vesting period for the
restricted shares of Class A Common Stock issued to each executive is three
years after the end of the performance period. If an executive ceases to be
an employee prior to the end of the performance period, the executive
forfeits all phantom share units awarded. If an executive ceases to be an
employee prior to the end of the vesting period, the executive forfeits all
unvested restricted shares previously granted. The following table sets
forth target awards granted to the Company's five highest paid executive
officers in 1998 for the three-year performance period of 1998 through 2000
and for target awards granted to the Company's five highest paid executive
officers in 1997 for the three-year performance period of 1997 through
1999.
15
LONG TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
Performance
Number of Shares, or Other Period
Units or Other Until Maturation Estimated Future Payouts Under
Name Rights (#) or Payout Non-Stock Price Based Plans
-------------------------------------------------------------------------------------------------
Phantom Share Units Threshold Target Maximum
-------------------------------------------------------------------------------------------------
Milne, Stephen A. 45,839 1997-1999 0 $188,812 (1)
76,757 1998-2000 0 $377,623 (1)
Van Gorder, Jan R. 27,279 1997-1999 0 $112,361 (1)
22,839 1998-2000 0 $112,361 (1)
Brinling, John J., Jr. 18,218 1997-1999 0 $ 75,038 (1)
15,253 1998-2000 0 $ 75,038 (1)
Garcia, Philip A. 12,719 1997-1999 0 $ 52,390 (1)
14,243 1998-2000 0 $ 70,070 (1)
Ziegler, Douglas F. 13,438 1997-1999 0 $ 55,350 (1)
12,948 1998-2000 0 $ 63,701 (1)
-------------------------------------------------------------------------------------------------
(1) There is no maximum payout limitation for a specific performance
period. However, the maximum value of phantom share units that may be
earned by any named executive in any year shall not exceed $500,000.
16
Pension Plan
The following table sets forth the estimated total annual benefits
payable upon retirement at age 65 under the Erie Insurance Group Retirement
Plan for Employees and the Supplemental Employee Retirement Plan (the
"Retirement Plans").
PENSION PLAN TABLE
Years of Service
--------------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
--------------------------------------------------------------------------------------------------
$150,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $ 90,000
200,000 60,000 80,000 100,000 120,000 120,000
250,000 75,000 100,000 125,000 150,000 150,000
300,000 90,000 120,000 150,000 180,000 180,000
350,000 105,000 140,000 175,000 210,000 210,000
400,000 120,000 160,000 200,000 240,000 240,000
450,000 135,000 180,000 225,000 270,000 270,000
500,000 150,000 200,000 250,000 300,000 300,000
550,000 165,000 220,000 275,000 330,000 330,000
600,000 180,000 240,000 300,000 360,000 360,000
650,000 195,000 260,000 325,000 390,000 390,000
700,000 210,000 280,000 350,000 420,000 420,000
750,000 225,000 300,000 375,000 450,000 450,000
--------------------------------------------------------------------------------------------------
The compensation covered by the Retirement Plans is the base salary
reported in the Summary Compensation Table.
Under the Retirement Plans, credited years of service is capped at 30
years. Credited years of service for each of the individuals named in the
Summary Compensation Table is as follows: Stephen A. Milne--22 years, Jan
R. Van Gorder--18 years, John J. Brinling, Jr.--30 years, Philip A.
Garcia--18 years and Douglas F. Ziegler--10 years.
The benefits under the Retirement Plans are computed on the basis of
straight-life annuity amounts and a life annuity with a ten-year certain
benefit. The benefits listed in the Pension Plan Table are not subject to
deduction for Social Security or other offset amounts. The information in
the foregoing table does not reflect certain limitations imposed by the
Code. Beginning in 1994, the Code prohibits the inclusion of earnings in
excess of $150,000 per year (adjusted periodically for cost of living
increases) in the average earnings used to calculate benefits. The Code
also limits the maximum annual pension (currently $130,000, but adjusted
periodically for cost of living increases) that can be paid to each
eligible employee. A Supplemental Employee Retirement Plan for senior
management is in effect which provides benefits in excess of the earnings
limitations imposed by the Code similar to those provided to all other full
time employees as if the Code limitations were not in effect. Those
benefits are incorporated into the Pension Plan Table.
17
Director Compensation
The annual retainer for the Company's directors is $25,000, plus $1,500
for each meeting attended and $1,500 for each committee meeting attended
plus an additional $2,000 per year for each committee chairperson. In
addition, all directors are reimbursed for their expenses incurred in
attending meetings. Officers of the Company who serve as directors are not
compensated for attendance at meetings of the Board of Directors and its
committees.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee (the "Compensation Committee") of
the Company presently consists of Peter B. Bartlett, Chairman, J. Ralph
Borneman, Jr. and Harry H. Weil. No member of the Compensation Committee is
a former or current officer or employee of the Company, the Exchange, EFL
or any of their respective subsidiaries or affiliates.1 Furthermore, no
executive officer of the Company serves as a member of a compensation
committee of another entity, one of whose executive officers serves on the
Compensation Committee, or as a director of the Company, nor does any
executive officer of the Company serve as a director of another entity, one
of whose executive officers serves on the Compensation Committee. 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 insurance subsidiaries of the Company, EFL and the Exchange
and its insurance subsidiary.
------------
1. J. Ralph Borneman, Jr. is an officer and a principal shareholder of
the insurance agencies named herein which receive commissions in the
ordinary course of business from the insurance companies managed by the
Company. Mr. Borneman does not qualify as an outside director for purposes
of approving performance-based incentive plans as qualified under Section
162(m) of the Code. Mr. Borneman has recused himself from voting on such
plans as a member of the Compensation Committee.
------------
Report of the Executive Compensation Committee of the Company
The Compensation Committee is charged with the duty of recommending to
the Board of Directors the compensation of the three highest paid officers
of the Company and such other officers as are determined by the Board of
Directors; recommending to the Board of Directors all forms of bonus
compensation, including incentive programs, that would be appropriate for
the Company and to undertake such other responsibilities as may be
delegated to the Compensation Committee by the Board of Directors. The
Board of Directors has authorized the Compensation Committee to consider
the compensation of the four highest paid officers, including the Chief
Executive Officer. The Compensation Committee is currently composed of
three directors who are not officers or employees of the Company, the
Exchange or EFL or any of their affiliates or subsidiaries. The purpose of
the Compensation Committee is to determine the level and composition of
compensation that is sufficient to attract and retain top quality
executives for the Company.
18
The objectives of the Company's 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 shareholder value and policyholder security. To
that end, compensation comparisons are made to benchmark positions at other
insurers in terms of compensation levels and composition of the total
compensation mix.
Under Section 162(m) of the Code, the Company is not allowed a federal
income tax deduction for compensation, under certain circumstances, paid to
certain executive officers to the extent that such compensation exceeds $1
million per officer in any fiscal year. No officer of the Company has
received compensation in excess of $1 million in any fiscal year to date
with the exception of Stephen A. Milne, President and Chief Executive
Officer of the Company, in 1998. The Compensation Committee may consider
adopting policies with respect to this limitation on deductibility when
appropriate.
The Compensation Committee reviewed the salary ranges and base salaries
of the four highest paid executives, including the Chief Executive Officer,
in 1998. The Compensation Committee has position descriptions for the four
highest paid executives of the Company, including the Chief Executive
Officer, which define the responsibilities and duties of each position. The
position descriptions also delineate the functional areas of accountability
and the qualifications and skills required to perform such responsibilities
and duties. The Compensation Committee then reviews the salary ranges for
the Chief Executive Officer and the other three highest paid executives,
comparing the ranges to third party data compiled for similar positions
with other property and casualty insurers. In reviewing the salary ranges
for the four highest paid executives, including the Chief Executive
Officer, the Compensation Committee 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, company asset size and premium volume. The
unique aspects of each position, its duties and responsibilities, the
effect on the performance of the Company, the number of employees
supervised directly and other criteria are also considered in setting the
base salaries. The Compensation Committee also consulted data obtained from
Towers Perrin, a nationally recognized consulting firm with specific
expertise in the insurance industry, to make recommendations regarding
executive compensation.
The level of compensation for each executive reflects his or her
skills, experience and job performance. Normally, base salary will not be
less than the minimum for the salary range established for each position.
Executives with a broader range of skills, experience and consistently high
performance with the Company may receive compensation above the midpoint
for the established salary range.
Compensation for the Chief Executive Officer consists primarily of
salary, annual incentive and long-term incentive payments and minor
perquisites which amount to less than 10% of the Chief Executive Officer's
salary and bonus. The Board of Directors approved adoption of an annual
incentive plan and long-term incentive plan for senior executives of the
Company as recommended by the Executive Committee at its meeting of March
11, 1997 (the "Annual Incentive Plan" and the "Long-Term Incentive Plan,"
respectively). The purpose of the Annual Incentive Plan is to promote the
best interests of the Exchange while enhancing shareholder value of the
19
Company and to promote the attainment of significant business objectives
for the Company, its subsidiaries and affiliates by basing a portion of the
executives' compensation on the attainment of both premium growth and
underwriting profitability goals. The annual incentive awards will be paid
in cash only.
Annual Incentive Plan target award levels, expressed as a percentage of
base salary, are established annually by the Compensation Committee.
Payments under the Annual Incentive Plan are based on a combination of
individual executive performance and the Company's performance.
The Long-Term Incentive Plan, which was approved by shareholders on
April 29, 1997, for purposes of qualifying the plan as a performance-based
plan under Section 162(m) of the Code, is designed to maximize returns to
shareholders by linking executive compensation to the overall profitability
of the Company. Target award amounts, expressed as a percentage of base
salary, are determined by comparisons to peer companies and approved by the
Compensation Committee.
Performance factors applicable to the Company, such as property and
casualty insurance loss ratios, investment portfolio returns, overall
Company profitability, as well as other factors are considered in
evaluating the Chief Executive Officer's performance. Such performance
factors were considered in approving Mr. Milne's 1998 compensation.
Compensation of the next three most highly compensated individuals is
determined by the Compensation Committee and is based upon the factors and
processes enumerated, i.e., a determination of a salary range based upon
market data and evaluation of the executive with respect to the executive's
job description and his or her position within the salary range.
Compensation of the next highest paid executives (other than the four
highest paid executives) is based upon the Company's established standard
compensation policies and is not determined by the Compensation Committee.
Erie Indemnity Company Executive Compensation Committee:
Peter B. Bartlett, Chairman
J. Ralph Borneman, Jr.
Harry H. Weil
20
Comparison of Cumulative Total Shareholder Return on the Class A
Common Stock With Certain Averages
The following graph depicts the cumulative total shareholder return for
the periods indicated for the Class A Common Stock compared to the Standard
& Poor's 500 Stock Index and the Standard & Poor's Multi-Line Insurance
Index.
Assumes Dividends Reinvested
[GRAPHIC]
In the printed version there appears a line graph depicting the following
plot point:
1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------
Erie Indemnity Company $100 $130 $204 $314 $302 $325
Standard & Poor's 500 Index $100 $101 $139 $171 $228 $293
S & P Multi-Line Insurance Index $100 $105 $155 $187 $293 $329
- -----------------------------------------------------------------------------------------------------------------------
Indexed Cumulative Total Shareholder Return
- -----------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
$ $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Erie Indemnity Company 100 130 204 314 302 325
Standard & Poor's 500 Index 100 101 139 171 228 293
S & P Multi-Line Insurance Index 100 105 155 187 293 329
- -----------------------------------------------------------------------------------------------------------------------
Assumes $100.00 invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year in the Class A
Common Stock, Standard & Poor's Multi-line Insurance Index and Standard &
Poor's 500 Stock Index.
Cumulative Total Return assumes reinvestment of dividends.
21
CERTAIN TRANSACTIONS
Directors Borneman and Black are officers and principal shareholders of
insurance agencies which receive insurance commissions in the ordinary
course of business from the insurance companies managed by the Company in
accordance with the companies' standard commission schedules and agents'
contracts. Such payments made in 1998 to the agencies for commissions
written on insurance policies from the property and casualty insurers and
EFL amounted to $2,843,333 and $541,307 for the Borneman and the Black
insurance agencies, respectively.
Director Borneman, in his capacity as an insurance agent, placed a
worker's compensation insurance policy covering employees of the Company
with Fireman's Fund Insurance Company. Although director Borneman has
received no compensation to date in connection with the placement of that
policy, in the future he may be entitled to receive a commission from
Fireman's Fund in accordance with Fireman's Fund's standard commission
schedules and agents' contracts for placing that insurance policy.
Director Mehl is the retired Chairman and Chief Executive Officer of
Dispatch Printing, Inc., a company owned by his family members. Payments
for printing services provided to the Company by Dispatch Printing, Inc.
amounted to $99,293 in 1998.
John M. Petersen, a director and former President and Chief Executive
Officer, and previous Chief Investment Officer of the Erie Insurance Group
of Companies, who retired as an executive officer of the Company on
December 31, 1995, entered into a consulting arrangement with the Company
effective January 2, 1996. Under the terms of the arrangement, the Company
engaged Mr. Petersen as a consultant to furnish the Company and its pension
trust, the Exchange and EFL with investment services with respect to their
investments in common stocks. As compensation for services rendered by Mr.
Petersen, a fee of .15 of 1 percent, on an annualized basis, of the total
fair market value of the common stocks under management, is paid to Mr.
Petersen. The Company also pays for all necessary and reasonable expenses
related to Mr. Petersen's consulting services performed under this
arrangement. The compensation paid to Mr. Petersen under this arrangement
in 1998 by the Exchange, the Company, the pension trust and EFL was
$3,230,854, $120,797, $107,687, and $60,707 respectively.
Director Bartlett is a partner of Brown Brothers Harriman & Co. ("Brown
Brothers"). During 1998, the Company and its affiliates invested
approximately $16,609,958 in various limited partnerships, of which Brown
Brothers through its Corporate Finance Division is the general partner,
and, as the general partner, was paid management fees by the Partnerships,
of which $429,113 was the combined amount allocable to the Company, the
Exchange and EFL, based upon their limited partnership interests. Director
Bartlett has not and will not receive any compensation from Brown Brothers
with respect to any income earned by Brown Brothers or its Corporate
Finance Division from the management of the investments by the Company and
its affiliates in such limited partnerships.
22
LEGAL PROCEEDINGS
Initiation of Lawsuit to Remove Mellon Bank, N.A. as a Trustee of the
H.O. Hirt Trusts
On April 2, 1998, Susan Hirt Hagen, a director, filed duplicate
petitions in the Orphans' Court Division of the Court of Common Pleas of
Erie County, Pennsylvania (the "Court") seeking the removal of Mellon Bank
N.A. ("Mellon") as a co-trustee of the H.O. Hirt Trusts. The principal
basis for the alleged relief was the allegation that Mellon, as the owner
of an insurance agency, was a competitor of the Company. Among the relief
requested by Susan Hirt Hagen in the petitions was the grant of a
preliminary injunction against Mellon from voting the Class B Common Stock
held by the H.O. Hirt Trusts for the purpose of the election of directors
at the Company's April 28, 1998 Annual Meeting of Shareholders. Because of
the potential substantial harm to the Company if the preliminary injunction
was granted, the Company filed a petition to intervene in the preliminary
injunction proceedings which the Court granted on April 21, 1998 and an
order denying Susan Hirt Hagen's request for a preliminary injunction. On
April 28, 1998, the Company's 1998 Annual Meeting of Shareholders was held
as scheduled and each of the candidates for election as a director of the
Company named in the Company's April 1, 1998 proxy statement was elected as
a director of the Company with the affirmative votes of Mellon and F.
William Hirt as a majority of the trustees of the H.O. Hirt Trusts.
On June 3, 1998, the Company, because of its substantial interest in
the outcome of any matter involving a change in Mellon's status as a
co-trustee of the H.O. Hirt Trusts, petitioned the Court to intervene in
the trial of the issues remaining under Susan Hirt Hagen's petitions to
remove Mellon as a co-trustee. On June 24, 1998, the Court denied the
Company's petition, and, on July 13, 1998, the Company appealed the Court's
denial to the Superior Court of Pennsylvania. On August 5, 1998, Susan Hirt
Hagen, a director of the Company, filed a motion with the Superior Court of
Pennsylvania to quash the Company's appeal. On August 17, 1998, the Company
filed its response to Susan Hirt Hagen's motion to quash the Company's
appeal. On October 19, 1998, the Superior Court of Pennsylvania denied
without prejudice Susan Hirt Hagen's motion to quash the Company's appeal,
and the Superior Court of Pennsylvania established a schedule for the
submission of briefs on the merits of the Company's appeal.
During June and July 1998, substantial discovery took place involving
Susan Hirt Hagen's petitions to remove Mellon as co-trustee. Preceding the
scheduled trial date of July 30, 1998, discussions took place between
counsel for Mellon and counsel for Susan Hirt Hagen concerning a possible
basis for settlement of the pending litigation. These discussions involved
the circumstances under which Mellon might resign as co-trustee of the H.O.
Hirt Trusts and the establishment of procedures pursuant to which a
successor trustee would be appointed by the Court or by agreement of Susan
Hirt Hagen and F. William Hirt. After a hearing conducted on July 30, 1998,
the Court by letter advised counsel for all parties that the Court would
not approve the settlement proposal that had been presented during the July
30, 1998 hearing, and that Mellon was to advise the Court on or before
August 21, 1998 whether a revised settlement proposal would be submitted or
whether the petitions to remove Mellon as co-trustee should be scheduled
for trial by the Court for some later unspecified date.
23
On August 4, 1998, the Company filed a further petition with the Court
seeking the right to intervene in the proceedings insofar as the
proceedings would entail the possible approval of any settlement of the
petitions to remove Mellon as co-trustee or the appointment of a successor
trustee to Mellon. On October 21, 1998, Mellon submitted to the Court a
Petition to Resign Pursuant to and upon the Fulfillment of Certain
Conditions Precedent (the "Mellon Petition"). On October 29, 1998, the
Court conducted a hearing at which time, among other things, the Court
heard testimony from two potential successor corporate trustees to Mellon,
each of which potential successors (either Bankers Trust or Bank Boston),
the Court was advised, had the approval of Mellon, Susan Hirt Hagen and F.
William Hirt. During that same hearing, the Court indicated that it would
accept the Mellon Petition and would in the future enter an order providing
for the granting of the Mellon Petition, in conjunction with a further
hearing on the matter of the appointment of a successor corporate
co-trustee and the final Court approval thereof. On November 2, 1998, the
Court scheduled such a further hearing for January 6, 1999.
On January 6, 1999, with the concurrence of all parties, the Court
accepted the resignation of Mellon as co-trustee of the H.O. Trusts and
released Mellon from all further obligations with respect to the H.O. Hirt
Trusts. On the same date, the Court appointed Bankers Trust as the
successor co-trustee of the H.O. Hirt Trusts. On January 26, 1999, the
Court assessed $637,500 in costs incurred by Mellon in connection with the
removal litigation against Susan Hirt Hagen.
On March 3, 1999, Bankers Trust advised the Court of the intention of
Bankers Trust to resign as co-trustee of the H.O. Hirt Trusts.
Gifts of Stock
In response to an interrogatory addressed to F. William Hirt as part of
the Mellon removal litigation, F. William Hirt indicated that he and his
wife had made a series of gifts of Class A Common Stock between 1994 and
1997 aggregating $10.3 million (market value at time of gift) to certain
Company personnel, various other friends and a series of charitable
institutions, in addition to gifts to each of their two daughters. The
recipients of the gifts who were directors of the Company were:
Market Value
Name Positions with the Company at Date of Gifts
----------------------------------------------------------------------------------------------
Seth E. Schofield Director (until October 22, 1998) $209,483
Stephen A. Milne President, Chief Executive Officer $340,097
and a Director
John M. Petersen Retired Chief Executive Officer, $169,438
Consultant and a Director
Jan R. Van Gorder Senior Executive Vice President, Secretary $ 84,719
and General Counsel and a Director
24
On October 16, 1998, Susan Hirt Hagen wrote to each of these
individuals accusing them of violating the Company's conflict of interest
policies and demanding their resignation as a director of the Company not
later than October 23, 1998. The following events have thereafter
occurred:
(i) Seth Schofield resigned as a director of the Company on
October 22, 1998 and in his letter of resignation advised the remaining
members of the Board of Directors that his resignation was tendered not
because he believed Susan Hirt Hagen's allegations were meritorious, but
because he believed he had become a lightning rod for certain actions
undertaken by Susan Hirt Hagen and that his resignation might provide a
foundation for more harmonious Board interaction;
(ii) The other three directors have retained individual
counsel (David H. Pittinsky of Ballard, Spahr, Andrews & Ingersoll LLP) who
has advised Susan Hirt Hagen's counsel that her demands are unjustified,
baseless and rejected; and
(iii) The Company held a special meeting of its Board of
Directors on October 27, 1998.
At the October 27, 1998 special meeting, the Board of
Directors took the following actions:
(i) Appointed a special committee (the "Special Committee") of
the Board of Directors (consisting of Harry H. Weil, Peter B. Bartlett,
Samuel P. Black, III, J. Ralph Borneman, Jr., Patricia A. Goldman and
Edmund J. Mehl, who constituted all of the members of the Board of
Directors other than Susan Hirt Hagen, F. William Hirt and the three
remaining directors who received gifts) to investigate the circumstances of
the gifts, to determine whether the gifts violate any applicable law,
breach any applicable fiduciary duty, violate any applicable policy of the
Company, are consistent with generally accepted principles of corporate
governance, constitute significant improper payment to such recipients and
to determine, in the business judgment of the Special Committee, whether
any action should be taken by the Company;
(ii) Ratified the action of the Company under the BCL and the
Company's Bylaws and upon receipt of appropriate undertakings, which have
been received, in paying expenses incurred by the three individuals in
retaining counsel to advise them in connection with Susan Hirt Hagen's
October 16, 1998 letter and in defending any resulting legal proceedings;
and
(iii) Constituted the members of the Special Committee as the
Nominating Committee of the Board of Directors for the purpose of
nominating candidates for director for election by the shareholders at the
Annual Meeting.
At the October 27, 1998 Board of Directors meeting, Susan Hirt Hagen
voted against each of the actions taken and stated her opinion, for
unspecified reasons, that none of the members of the Special Committee was
independent.
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Special Committee Report
The Special Committee retained Covington & Burling, Washington, D.C.,
as independent counsel and undertook a comprehensive investigation of the
circumstances involving the gifts. At a March 9, 1999 meeting of the Board
of Directors, the Special Committee presented its unanimous report which
contained both conclusions and recommendations.
Conclusions
The Special Committee reached the following conclusions with respect to
the gifts made by Mr. and Mrs. Hirt to Stephen A. Milne, John M. Petersen,
Jan R. Van Gorder and Seth E. Schofield:
1. With the advice of counsel, the Special Committee concluded that it
was disinterested and capable of objective judgment under Pennsylvania law
with respect to the conclusions reached in the report of the Special
Committee.
2. No violation of criminal law has occurred.
3. No director has breached his fiduciary duty.
4. No Company policy or principle of corporate governance has been
violated.
5. F. William Hirt's intent in giving the gifts was generosity toward
particular friends. The Special Committee found no evidence that
influencing directors on any Board issue or vote was any part of Mr. Hirt's
intent.
6. The intent of the directors who received gifts was entirely to
accept a gift they believed to be appropriate. The Special Committee found
no evidence that their (the directors who received gifts) votes on any
issue were affected by the gifts.
7. The Special Committee found no evidence to cast doubt on the
integrity or good faith of the directors who accepted gifts. The evidence
is that all times they believed their actions were in the best interests of
the Company and its shareholders.
Recommendations
The Special Committee stated its belief that the current discord on the
Board of Directors is destructive and that actions that are entirely
innocent may appear otherwise in such an atmosphere. The Special Committee
also stated its belief that the Board of Directors should maintain control
over compensation for directors and senior management, and that there is
potential for very large shareholders to affect that compensation in a
company such as the Company. The Special Committee, therefore, recommended
that a Bylaw be adopted by the Board of Directors that would prohibit a
director or officer from accepting gifts of other than nominal or
insignificant value from, among others, other directors or officers,
requiring certain notification to the Board of Directors relating to gifts
and excluding gifts among members of an individual's family from the
proscription of the proposed Bylaw. After extensive discussion, the Board
26
of Directors at its March 9, 1999 meeting adopted without dissent the new
Bylaw proposed by the Special Committee.
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 1999. The Company has been advised by Brown, Schwab,
Bergquist & Co. that none of its members has any financial interest in the
Company.
A representative of Brown, Schwab, Bergquist & Co. will attend the
Annual Meeting, will have the opportunity to make a statement, if he or she
desires to do so, and will be available to respond to any appropriate
questions presented by shareholders at the Annual Meeting.
The Board of Directors recommends a vote FOR the ratification of the
selection of Brown, Schwab, Bergquist & Co. as the Company's independent
public accountants for 1999.
ANNUAL REPORT
A copy of the Company's Annual Report for 1998 is being mailed to the
holders of Class A Common Stock and Class B Common Stock together with the
Notice of the Annual Meeting.
SHAREHOLDER PROPOSALS
Any holder of Class B Common Stock who, in accordance with and subject
to the provisions of the proxy rules of the SEC, wishes to submit a
proposal for inclusion in the Company's proxy statement for its 2000 Annual
Meeting of Shareholders must deliver such proposal in writing by not later
than December 1, 1999 to the Company's Secretary at the Company's principal
executive offices at 100 Erie Insurance Place, Erie, Pennsylvania 16530.
Shareholder proposals are required to be filed with the Company in the time
and manner prescribed by Rule 14a-8 under the 1934 Securities Exchange Act.
Pursuant to recent amendments to Rule 14a-4(c) of the 1934 Securities
Exchange Act, if a shareholder who intends to present a proposal at the
2000 Annual Meeting of Shareholders does not notify the Company of such
proposal on or before February 16, 2000, then management proxies will be
allowed to use their discretionary voting authority to vote on the proposal
when the proposal is raised at the 2000 Annual Meeting of Shareholders,
even though there is no discussion of the proposal in the related proxy
statement.
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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, execution of the proxy
enclosed herewith shall confer discretionary authority upon the persons
named to vote on any matter of which the Company did not have notice and
any proposals omitted from this proxy statement pursuant to Rules 14a-8 or
14a-9 under the 1934 Act.
By Order of the Board of Directors,
/s/ Jan R. Van Gorder
Jan R. Van Gorder,
Senior Executive Vice President,
Secretary and General Counsel
April 1, 1999
Erie, Pennsylvania
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ERIE INDEMNITY COMPANY
CLASS B COMMON STOCK
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 27, 1999
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 27, 1999 at 3:00 p.m., and at any adjournment,
postponement or continuation thereof, as follows:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
for the 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, F. William Hirt, Edmund J. Mehl,
Stephen A. Milne, John M. Petersen, 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 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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 and FOR the ratification
of Brown, Schwab, Bergquist & Co. as independent public accountants for the
Company for 1999.
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:__________________, 1999
29