Erie Indemnity Company DEF 14A
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY
STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the Registrant x
Filed by a Party other than the
Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Section
240.14a-11(c) or Section 240.14a-12
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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):
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No fee required. |
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11
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Title of each class of securities to which
transaction applies:
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(2) |
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Aggregate number of securities to which
transaction applies:
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(3) |
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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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Proposed maximum aggregate value of
transaction:
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(5) |
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Total fee paid:
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Fee paid previously by written preliminary
materials. |
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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.
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(1) |
Amount Previously
Paid: |
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(2) |
Form Schedule or
Registration Statement No.: |
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(3) |
Filing Party: |
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(4) |
Date Filed: |
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NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD APRIL 22,
2008
To the Holders of Class A Common Stock and
Class B Common Stock of ERIE INDEMNITY COMPANY:
We will hold our annual meeting of shareholders at
9:30 a.m., local time, on Tuesday, April 22, 2008,
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 persons to serve as directors until our
2009 annual meeting of shareholders and until their successors
are elected; and
2. To transact any other business that may properly come
before our annual meeting and any adjournment, postponement or
continuation thereof.
In the event that our annual meeting is adjourned:
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pursuant to Section 1756(b)(1) of the Pennsylvania Business
Corporation Law of 1988, or the BCL, those holders
of Class B common stock 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 holders of
Class B common stock present at such adjourned meeting
constitutes less than a quorum as fixed in our bylaws; and
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pursuant to Section 1756(b)(2) of the BCL, those holders of
Class B common stock entitled to vote who attend a meeting
of shareholders that was previously adjourned for one or more
periods aggregating at least 15 days because of an absence
of a quorum shall constitute a quorum for acting upon any matter
set forth in this notice other than the election of directors
even though the number of holders of Class B common stock
present at such adjourned meeting constitutes less than a quorum
as fixed in our bylaws.
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This notice and proxy statement, together with a copy of our
annual report to shareholders for the year ended
December 31, 2007, are being sent to all holders of
Class A common stock and Class B common stock as of
the close of business on Friday, February 15, 2008, the
record date established by our board of directors. Holders of
Class B common stock will also receive a form of proxy in
accordance with Securities and Exchange Commission rules.
Holders of Class A common stock will not receive proxies
because they do not have the right to vote on any of the matters
to be acted upon at our annual meeting.
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 our annual
meeting in person.
By order of our board of directors,
James J. Tanous
Executive Vice President,
Secretary and General Counsel
March 24, 2008
Erie, Pennsylvania
ERIE
INDEMNITY COMPANY
PROXY
STATEMENT
Unless the context indicates otherwise, all references in this
proxy statement to we, us,
our or the Company mean Erie Indemnity
Company and our three property and casualty insurance
subsidiaries. Our property and casualty insurance subsidiaries
are Erie Insurance Company, or Erie Insurance Co.,
Erie Insurance Company of New York, or Erie NY, and
Erie Insurance Property & Casualty Company, or
EI P&C. We sometimes refer to Erie Insurance
Exchange as the Exchange and to the Exchange, its
subsidiary and our three property and casualty insurance
subsidiaries as the Property and Casualty Group. In
addition, we hold investments in both affiliated and
unaffiliated entities, including a 21.63% interest in the common
stock (EFL Common Stock) of Erie Family Life
Insurance Company, or EFL, a life insurance company.
The Exchange owns 78.37% of EFLs Common Stock.
TABLE OF
CONTENTS
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Page
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3
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6
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11
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11
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22
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37
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ERIE
INDEMNITY COMPANY
100
Erie Insurance Place
Erie,
Pennsylvania 16530
PROXY
STATEMENT
INTRODUCTION
This proxy statement, which is first being mailed to the holders
of our Class A common stock and our Class B common
stock on or about March 24, 2008, is furnished to such
holders to provide information regarding us and our 2008 annual
meeting of shareholders. This proxy statement is also being
furnished in connection with the solicitation of proxies by our
board of directors from holders of Class B common stock to
be voted at our 2008 annual meeting of shareholders and at any
adjournment, postponement or continuation thereof. Our annual
meeting will be held at 9:30 a.m., local time, on Tuesday,
April 22, 2008 at the Auditorium of the F.W. Hirt-Perry
Square Building, 100 Erie Insurance Place (Sixth and French
Streets), Erie, Pennsylvania 16530. Holders of Class B
common stock will also receive a form of proxy in accordance
with Securities and Exchange Commission, or SEC,
rules.
Shares of Class B common stock represented by proxies in
the accompanying form, if properly signed and returned, will be
voted in accordance with the specifications made thereon by the
holders of Class B common stock. Any proxy representing
shares of Class B common stock not specifying to the
contrary will be voted for the election of the candidates for
director named below, who were nominated by the nominating and
governance committee of our board of directors, or our
nominating committee.
See Other Matters for a discussion of certain
discretionary voting authority. A holder of Class B common
stock who signs and returns a proxy in the accompanying form may
revoke it at any time before it is voted by giving written
notice of revocation to our secretary, by furnishing a duly
executed proxy bearing a later date to our secretary or by
attending our annual meeting and advising our secretary that
such holder intends to vote in person.
We will bear the cost of solicitation of proxies in the
accompanying form, including expenses in connection with
preparing and mailing this proxy statement. Such solicitation
will be made by mail and may also be made on our behalf by our
officers and regular employees in person, by
e-mail or by
telephone. None of these persons will receive special
compensation for such services. We, upon request therefor, will
also reimburse brokers, nominees, fiduciaries and custodians or
persons holding shares of Class A common stock and
Class B common stock in their names or in the names of
nominees for their reasonable expenses in forwarding our proxy
material to beneficial owners.
Only holders of Class B common stock of record at the close
of business on February 15, 2008 are entitled to vote at
our annual meeting. Each share of Class B common stock is
entitled to one vote on each matter to be considered at our
annual meeting. Except as is otherwise provided in
Sections 1756(b)(1) and (2) of the Pennsylvania
Business Corporation Law of 1988, or the BCL, in the
case of adjourned meetings, a majority of the outstanding shares
of Class B common stock will constitute a quorum at our
annual meeting for the election of directors. Cumulative voting
rights do not exist with respect to the election of directors.
Of the 11 candidates for election as a director, only those who
receive the affirmative vote of holders of a majority of the
shares of Class B common stock will be elected or
re-elected to our board of directors. Abstentions and shares of
Class B common stock held by brokers and nominees as to
which we have not received voting instructions from the
beneficial owner of, or other person entitled to vote such
shares, and as to which the broker or nominee does not have
discretionary voting power, i.e., broker non-votes, are
considered outstanding shares of Class B common stock
entitled to vote and such shares are counted in determining
whether a quorum or a majority is present. Abstentions will be
treated as the withholding of authority to vote for nominees for
election as directors.
As of the close of business on February 15, 2008, we had
52,782,002 shares of Class A common stock outstanding,
which are not entitled to vote on any matters to be acted upon
at our 2008 annual meeting, and
2,551 shares of Class B common stock outstanding,
which have the exclusive right to vote on all matters to be
acted upon at our 2008 annual meeting.
There are two H.O. Hirt Trusts, one for the benefit of F.
William Hirt, the chairman of our board of directors until his
death on July 13, 2007, and one for the benefit of Susan
Hirt Hagen. The trust established for Mr. Hirt continues
for the benefit of certain contingent beneficiaries as provided
for in the trust agreement. The H.O. Hirt Trusts collectively
own 2,340 shares of Class B common stock, which,
because such shares represent 91.73% of the outstanding shares
of Class B common stock entitled to vote at our 2008 annual
meeting, is sufficient to determine the outcome of any matter
submitted to a vote of the holders of our Class B common
stock, assuming all of the shares held by the H.O. Hirt Trusts
are voted in the same manner. As of the record date for our 2008
annual meeting, the individual trustees of the H.O. Hirt Trusts
are Susan Hirt Hagen, or Mrs. Hagen, and
Elizabeth A. Vorsheck, or Mrs. Vorsheck and the
corporate trustee is Sentinel Trust Company, L.B.A., or
Sentinel.
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 candidates
for director named below, such candidates will be elected as
directors even if all shares of Class B common stock other
than those held by the H.O. Hirt Trusts do not vote for such
candidates. We have not been advised as of the date of this
proxy statement how the trustees of the H.O. Hirt Trusts intend
to vote at our annual meeting.
We operate predominantly as a provider of management services to
the Exchange. We also operate as a property and casualty insurer
through our subsidiaries. Since 1925, we have served as the
attorney-in-fact for the policyholders of the Exchange. The
Exchange is a reciprocal insurance exchange, which is an
unincorporated association of individuals, partnerships and
corporations that agree to insure one another. Each applicant
for insurance from the Exchange signs a subscribers
agreement, which appoints us as the attorney-in-fact for the
subscriber. As attorney-in-fact, we are required to perform
certain services relating to the sales, underwriting and
issuance of policies on behalf of the Exchange.
The Property and Casualty Group writes personal and commercial
lines of property and casualty insurance coverages exclusively
through approximately 1,965 independent agencies comprised of
more than 8,400 licensed representatives and pool their
underwriting results. Our financial results are not consolidated
with those of the Exchange. As a result of the Exchanges
94.5% participation in the underwriting results of the Property
and Casualty Group, the underwriting risk of the Property and
Casualty Groups business is largely borne by the Exchange.
We charge the Exchange a management fee calculated as a
percentage, limited to 25%, of the direct written premiums of
the Property and Casualty Group. Management fees accounted for
71.6%, 72.3% and 72.2%, respectively, of our revenues for the
three years ended December 31, 2005, 2006 and 2007. The
management fee rate was 23.75% during 2005, 24.75% during 2006
and 25% during 2007. Beginning January 1, 2008, the rate
has been set at 25%.
2
BENEFICIAL
OWNERSHIP OF COMMON STOCK
The following table sets forth as of February 15, 2008 the
amount of our outstanding Class B common stock owned by
shareholders known by us to own beneficially more than 5% of our
Class B common stock.
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Shares of Class B
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Percent of
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Common Stock
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Outstanding
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Name of Individual
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Beneficially
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Class B
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or Identity of Group
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Owned(1)(2)
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Common Stock
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5% or Greater Holders:
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H.O. Hirt Trusts(3)
Erie, Pennsylvania
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2,340
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91.73
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%
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David C. Abrams(4)
Boston, Massachusetts
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150
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5.88
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%
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Abrams Capital, LLC(4)
Boston, Massachusetts
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141
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5.53
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%
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Unless otherwise noted, information furnished by the named
persons. |
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Under the rules of the SEC, a person is deemed to be the
beneficial owner of securities if the person has, or shares,
voting power, which includes the power to vote, or
to direct the voting of, such securities, or investment
power, which includes the power to dispose, or to direct
the disposition, of such securities. Under these rules, more
than one person may be deemed to be the beneficial owner of the
same securities. The information set forth in the above table
includes all shares of Class B common stock over which the
named individuals, individually or together, share voting power
or investment power. |
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There are two H.O. Hirt Trusts, one for the benefit of F.
William Hirt, the chairman of our board of directors until his
death on July 13, 2007, and one for the benefit of
Mrs. Hagen. The trust established for Mr. Hirt
continues for the benefit of certain contingent beneficiaries as
provided for in the trust agreement. Jonathan Hirt Hagen, the
son of Mrs. Hagen, and Elizabeth A. Vorsheck, the daughter
of F. William Hirt, are contingent beneficiaries of the H.O.
Hirt Trusts. Each of the H.O. Hirt Trusts is the record owner of
1,170 shares of Class B common stock, or 45.86% of the
outstanding shares of Class B common stock. The co-Trustees
of the H.O. Hirt Trusts as of the date of this proxy statement
are Mrs. Hagen, Mrs. Vorsheck and Sentinel.
Mrs. Hagen and Mrs. Vorsheck are deemed to be
beneficial owners of the Class B shares held by each of
their respective trusts. The Co-Trustees collectively control
voting and disposition of the shares of Class B common
stock. A majority of the co-Trustees then in office acting
together is required to take any action with respect to the
voting or disposition of shares of Class B common stock. If
the 2,340 shares of Class B common stock beneficially
owned by the H.O. Hirt Trusts were converted into Class A
common stock, the maximum number of shares of Class A common
stock that could be deemed beneficially owned by the H.O. Hirt
Trusts would be 5,616,000 shares of Class A common
stock, or 9.62% of the then outstanding shares of Class A
common stock. |
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The information regarding Mr. Abrams and Abrams Capital,
LLC is derived from a joint Schedule 13G filed with the SEC
on February 13, 2007. Shares reported herein for Abrams
Capital, LLC include shares that may be deemed beneficially
owned by certain private investment funds of which Abrams
Capital, LLC is the general partner. Shares reported herein for
Mr. Abrams include shares that may be deemed beneficially
owned by Abrams Capital, LLC, for which Mr. Abrams is the
managing member, and certain other entities that may be deemed
controlled by Mr. Abrams. |
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The following table sets forth as of February 15, 2008 the
amount of the outstanding shares of Class A common stock
and Class B common stock beneficially owned by
(i) each director and candidate for director nominated by
our nominating committee, (ii) each executive officer named
in the Summary Compensation Table and (iii) all of our
executive officers and directors as a group.
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Shares of
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Class A
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Percent of
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Shares of Class B
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Percent of
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Common Stock
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Outstanding
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Common Stock
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Outstanding
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Name of Individual
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Beneficially
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Class A
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Beneficially
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Class B
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or Identity of Group
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Owned(1)(2)
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Common Stock(3)
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Owned(1)(2)
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Common Stock(3)
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Directors and Nominees for Director:
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Kaj Ahlmann
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3,979
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John T. Baily
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5,630
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J. Ralph Borneman, Jr.
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54,050
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Patricia A. Garrison-Corbin
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4,850
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Jonathan Hirt Hagen
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225,187
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1
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Susan Hirt Hagen(4)
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6,662,850
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12.62
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%
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12
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Thomas B. Hagen(5)
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10,091,743
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19.12
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%
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6
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C. Scott Hartz
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5,501
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Claude C. Lilly, III
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4,950
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Lucian L. Morrison
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1,314
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Thomas W. Palmer
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2,084
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Elizabeth A. Vorsheck
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3,015,024
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5.71
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%
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Robert C. Wilburn
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6,050
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Executive Officers:
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John J. Brinling, Jr.(6)
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22,057
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Philip A. Garcia(7)
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18,734
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Michael J. Krahe
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3,789
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Jeffrey A. Ludrof(8)
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28,513
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Thomas B. Morgan
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10,077
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Douglas F. Ziegler(9)
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22,644
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All Directors and Executive Officers as a Group
(21 persons)(10)
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20,189,745
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38.25
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%
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19
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.74
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%
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Information furnished by the named persons. |
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(2) |
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Under the rules of the SEC, a person is deemed to be the
beneficial owner of securities if the person has, or shares,
voting power, which includes the power to vote, or
to direct the voting of, such securities, or investment
power, which includes the power to dispose, or to direct
the disposition, of such securities. Under these rules, more
than one person may be deemed to be the beneficial owner of the
same securities. Securities beneficially owned also include
securities owned jointly, in whole or in part, or individually
by the persons 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. The table does not reflect shares of Class A common
stock and Class B common stock as to which beneficial
ownership is disclaimed. |
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(3) |
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Less than 1% unless otherwise indicated. |
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(4) |
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Mrs. Hagen owns 4,350 shares of Class A common
stock directly and 6,658,500 shares of Class A common
stock indirectly through a revocable trust of which
Mrs. Hagen was the grantor and is the sole trustee and
beneficiary. Mrs. Hagen owns 12 shares of Class B
common stock directly. Mrs. Hagen |
4
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disclaims beneficial ownership of the 5,684 shares of
Class A common stock and three shares of Class B
common stock owned by Thomas B. Hagen, her husband, and the
10,086,059 shares of Class A common stock and three
shares of Class B common stock owned by the Hagen Family
Limited Partnership, for which Thomas B. Hagen, as general
partner, has sole voting power and investment power. |
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(5) |
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Mr. Hagen owns 5,684 shares of Class A common
stock directly and 10,086,059 shares of Class A common
stock indirectly through the Hagen Family Limited Partnership.
Mr. Hagen owns three shares of Class B common stock
directly and three shares of Class B common stock
indirectly through the Hagen Family Limited Partnership.
Mr. Hagen disclaims beneficial ownership of the
4,350 shares of Class A common stock and
12 shares of Class B common stock owned by Susan Hirt
Hagen, his wife, and the 6,658,500 shares of Class A
common stock owned indirectly by Mrs. Hagen. Mr. Hagen
also disclaims any shares of Class B common stock held by
the H.O. Hirt Trusts of which his wife is a beneficiary,
contingent beneficiary and one of three trustees. |
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(6) |
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Includes 22,000 shares of Class A common stock held
directly by Mr. Brinling and 57 shares of Class A
common stock held by his wife. |
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(7) |
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Includes 3,734 shares of Class A common stock held
directly by Mr. Garcia and 15,000 shares of
Class A common stock held by his wife. |
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(8) |
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Includes 27,703 shares of Class A common stock held
directly by Mr. Ludrof and 270 shares of Class A
common stock held by each of Mr. Ludrofs three sons. |
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(9) |
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Includes 16,494 shares of Class A common stock held
directly by Mr. Ziegler and 6,150 shares of
Class A common stock held by his wife. |
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(10) |
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Includes Kevin A. Marti, Executive Vice President of EFL and
James J. Tanous, Executive Vice President, Secretary and General
Counsel. |
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, requires that the
officers and directors of a corporation, such as us, that 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 statements of
changes in such ownership, with the corporation and the SEC.
Based upon written representations we received from our officers
and directors and 10% or greater shareholders, and our review of
the statements of changes of ownership filed with us by our
officers and directors and 10% or greater shareholders during
2007, we believe that all such filings required during 2007 were
made on a timely basis, except that Timothy G. NeCastro, a
senior vice president, untimely filed a Form 4 Statement of
Changes in Beneficial Ownership on March 14, 2007 to report
the sale of 2,307 shares of Class A common stock on
March 8, 2007, and Patricia A. Garrison-Corbin, a director,
untimely reported the purchase of 100 shares of
Class A common stock acquired on May 23, 2007, which
shares were subsequently reported on a Form 5 Annual
Statement of Changes in Beneficial Ownership filed on
February 6, 2008.
5
PROPOSAL 1
ELECTION OF DIRECTORS
Introduction
The election of directors by the holders of our Class B
common stock is governed by provisions of the Pennsylvania
Insurance Holding Companies Act, or the Holding Companies
Act, in addition to provisions of the BCL, the
Pennsylvania Associations Code and our bylaws. The following
discussion summarizes these statutory provisions and describes
the process undertaken in connection with the nomination of
candidates for election as directors by the holders of
Class B common stock at our annual meeting.
Background
of our Nominating Committee
Section 1405(c)(4) of the Holding Companies Act, which
applies to us, provides that the board of directors of a
domestic insurer must establish one or more committees comprised
solely of directors who are not officers or employees of the
insurer or of any entity controlling, controlled by or under
common control with the insurer and who are not beneficial
owners of a controlling interest in the voting stock of the
insurer or any such entity. Such committee or committees must
have responsibility for, among other things, nominating
candidates for election as directors by the shareholders.
Section 3.09 of our bylaws is consistent with this
statutory provision and provides that (i) our board of
directors must appoint annually a nominating committee that
consists of not less than three directors who are not officers
or employees of us or of any entity controlling, controlled by
or under common control with us and who are not beneficial
owners of a controlling interest in our voting securities and
(ii) our nominating committee must, prior to each annual
meeting of shareholders, determine and nominate candidates for
the office of director to be elected by the holders of
Class B common stock to serve terms as established by our
bylaws and until their successors are elected.
In accordance with this bylaw provision, on April 17, 2007
our board of directors designated a nominating committee
consisting of Patricia A. Garrison-Corbin, chair, Kaj Ahlmann,
Jonathan Hirt Hagen and Thomas W. Palmer. Consistent with the
Holding Companies Act, none of these persons is an officer or
employee of us or of any entity controlling, controlled by or
under common control with us or a beneficial owner of a
controlling interest in our voting stock or any such entity.
Each member of our nominating committee is an independent
director as defined in the rules applicable to companies listed
on the NASDAQ Global Select
Market®,
or NASDAQ.
Nominating
Procedures
Under Section 2.07(a) of our bylaws, nominations of persons
for election to our board of directors may be made at any
meeting at which directors are to be elected (i) by or at
the direction of our nominating committee or (ii) by any
holder of our Class B common stock.
With respect to nominations by or at the direction of our
nominating committee, except as is required by rules promulgated
by NASDAQ, the SEC or the Holding Companies Act, there are no
specific, minimum qualifications that must be met by a candidate
for our board of directors, and our nominating committee may
take into account such factors as it deems appropriate. Our
nominating committee generally bases its nominations on our
general needs as well as the specific attributes of candidates
that would add to the overall effectiveness of our board of
directors. Specifically, among the significant factors that our
nominating committee may take into consideration are judgment,
skill, diversity, experience with businesses and other
organizations of comparable size, the interplay of the
candidates experience with the experience of other
directors and the extent to which the candidate would be a
desirable addition to our board of directors and any committee
of our board of directors.
In identifying and evaluating the individuals that it selects,
or recommends that our board of directors select, as director
nominees, our nominating committee utilizes the following
process:
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Our nominating committee reviews the qualifications of any
candidates who have been recommended by a holder of Class A
common stock or Class B common stock in compliance with our
bylaws; the procedures that a holder of Class A common
stock or Class B common stock must follow to
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6
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recommend a candidate to our nominating committee are described
in greater detail in under Shareholder Proposals
beginning on page 41.
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Our nominating committee also considers recommendations made by
individual members of our board of directors or, if our
nominating committee so determines, a search firm. Our
nominating committee may consider candidates who have been
identified by management, but is not required to do so.
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Our nominating committee evaluates the performance and
qualifications of individual members of our board of directors
eligible for re-election by the holders of Class B common
stock at our annual meeting of shareholders.
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Our nominating committee considers the suitability of each
candidate, including the current members of our board of
directors, in light of the current size and composition of our
board of directors and the above discussed significant factors.
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After such review and consideration, our nominating committee
determines a slate of director nominees.
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Actions
Taken for Nominations
Our nominating committee met on March 4, 2008 for the
purpose of evaluating the performance and qualifications of the
current or proposed members of our board of directors and
nominating candidates for election as directors by the holders
of Class B common stock at our annual meeting.
Our bylaws provide that our 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 our board
of directors. Our nominating committee recommended at its
March 4, 2008 meeting that the size of our board of
directors be set at 11 persons and that all directors as of
such date, with the exception of Kaj Ahlmann and John T. Baily,
be nominated for re-election. Mr. Ahlmann and
Mr. Baily previously notified our nominating committee that
they do not intend to stand for re-election to our board of
directors.
On March 7, 2008, our board of directors accepted the
report of our nominating committee, set the number of directors
to be elected at our annual meeting at 11 and approved the
nomination of J. Ralph Borneman, Jr., Patricia A.
Garrison-Corbin, Jonathan Hirt Hagen, Susan Hirt Hagen, Thomas
B. Hagen, C. Scott Hartz, Claude C. Lilly, III, Lucian L.
Morrison, Thomas W. Palmer, Elizabeth A. Vorsheck and Robert C.
Wilburn for election as directors by the holders of Class B
common stock at our annual meeting. On March 7, 2008, we
issued a press release and filed a current Report on
Form 8-K
with the SEC for the purpose of announcing publicly our
nominating committees slate of director nominees in
accordance with Section 2.07(a)(3) of our bylaws.
Candidates
for Election
Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the election of the nominees named
below. All of the nominees are currently directors. If a nominee
becomes unavailable for any reason, it is intended that the
proxies will be voted for a substitute nominee selected by our
nominating committee. Our board of directors has no reason to
believe the nominees named will be unable to serve if elected.
7
The names of the candidates for director nominated pursuant to
the procedures discussed above, together with certain
information regarding them, are as follows:
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Principal Occupation
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Director
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Age
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for Past Five Years and
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of the
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Name
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as of
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Positions with our Company; Current
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Company
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(Committee Assignments)
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4/1/08
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Directorships with other Public Companies
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Since
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J. Ralph Borneman, Jr. CIC, CPIA
(5)(7)(8)
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69
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President, Chief Executive Officer and Chairman of the Board,
Body-Borneman Insurance & Financial Services LLC, insurance
agency, Boyertown, PA, 2005 to present; President, Chief
Executive Officer and Chairman of the Board, Body-Borneman
Associates, Inc., insurance agency; President, Body-Borneman,
Ltd. and Body-Borneman, Inc., insurance agencies, 1967-2005;
Director, National Penn Bancshares.
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1992
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Patricia A. Garrison-Corbin
(1)(4C)(6)
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60
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President, P.G. Corbin & Company, Inc., financial advisory
services and municipal finance, Philadelphia, PA, since 1986;
President and Chief Executive Officer, P.G. Corbin Asset
Management, Inc., fixed income investment management, since
1987; Chairman, Delancey Capital Group, LP, equity investment
management, since 1996; Chairman, P.G. Corbin Group, Inc.,
investment and financial advisory services, since 1996;
Director, FairPoint Communications, Inc.
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2000
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Jonathan Hirt Hagen, JD
(3)(4)(8)
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45
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Vice Chairman, Custom Group Industries, Erie, PA, machining and
fabrication manufacturing companies, since 1999; private
investor, since 1990.
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2005
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Susan Hirt Hagen
(1)(5C)
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72
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Co-Trustee of the H.O. Hirt Trusts, Erie, PA, since 1967;
private investor, since 1989.
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1980
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Thomas B. Hagen
(1C)(9)
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72
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Chairman/Owner, Custom Group Industries, Erie, PA, machining and
fabrication manufacturing companies, since 1997; General
Partner, Hagen Family Limited Partnership, since 1989;
Non-executive Chairman of the Board of our Company and of our
insurance subsidiaries and affiliates, since 2007, and a retired
employee (1953-1995) and former agent of our Company, including
service as President (1982-1990) and Chairman & CEO
(1990-1993).
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2007
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*
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C. Scott Hartz, CPA
(1)(2)(6)(7C)
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62
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Chief Executive Officer, Hartz Group, IT and technology
consulting, Bala Cynwyd, PA, since 2002; Senior Managing
Director, SCIUS Capital Group, LLC, 2002 to 2007; Chief
Executive Officer, PwC Consulting, 1995 to 2002.
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2003
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Claude C. Lilly, III, Ph.D., CPCU, CLU
(1)(2)(6C)(8)
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61
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Dean, College Business and Behavioral Science, Clemson
University, Clemson, SC, since 2007; Dean, Belk College of
Business Administration, University of North Carolina Charlotte,
1998 to 2007; James H. Harris Chair of Risk Management and
Insurance, Belk College of Business Administration, University
of North Carolina Charlotte, 1997 to 2007; Director, FairPoint
Communications, Inc.
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2000
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Lucian L. Morrison, Esq.
(2)(3)
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71
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Independent trustee and consultant in trust, estate, probate and
qualified plan matters, Houston, TX, since 1992.
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2006
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8
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Principal Occupation
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Director
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Age
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for Past Five Years and
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of the
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Name
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as of
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Positions with our Company; Current
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Company
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(Committee Assignments)
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4/1/08
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Directorships with other Public Companies
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Since
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Thomas W. Palmer, Esq.
(4)(8)
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60
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A member and a managing partner of the law firm of Marshall
& Melhorn, LLC, Toledo, OH, since 1972.
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2006
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Elizabeth A. Vorsheck
(1)(5)(8)
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52
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Co-Trustee of the H.O. Hirt Trusts, Erie, PA, since 2007;
Administrator of family limited partnerships and a principal of
a family charitable foundation for more than five years.
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2007
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Robert C. Wilburn, Ph.D.
(1)(2)(3C)
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64
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President and Chief Executive Officer, Gettysburg National
Battlefield Museum Foundation, Gettysburg, PA, since 2000; Lead
Director, Harsco, Inc.
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1999
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*Previous Board service,
1979-1998
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(1) |
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Member of our Executive Committee. |
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(2) |
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Member of our Audit Committee. |
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(3) |
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Member of our Executive Compensation and Development Committee,
or our Compensation Committee. |
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(4) |
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Member of our Nominating Committee. |
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(5) |
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Member of our Charitable Giving Committee. |
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(6) |
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Member of our Investment Committee. |
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(7) |
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Member of our Technology Committee. |
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(8) |
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Member of our Strategy Committee. |
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(9) |
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Ex-officio member of all committees. |
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C |
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Designates committee chairperson. |
Our board of directors has determined that each of the following
directors is an independent director as defined
under the rules promulgated by NASDAQ:
Kaj Ahlmann*
John T. Baily*
Patricia A. Garrison-Corbin
Jonathan Hirt Hagen
Susan Hirt Hagen
Thomas B. Hagen
C. Scott Hartz
Claude C. Lilly, III
Lucian L. Morrison
Thomas W. Palmer
Elizabeth A. Vorsheck
Robert C. Wilburn
*Not standing for re-election as a director.
Our Board
of Directors and its Committees
Our board of directors met seven times in 2007. The standing
committees of our board of directors are our executive
committee, our audit committee, our compensation committee, our
nominating committee, our charitable giving committee, our
investment committee, our technology committee and our strategy
committee.
Our executive committee, which met once during 2007, has the
authority, subject to certain limitations, to exercise the power
of our board of directors between regular meetings.
Our audit committee met seven times in 2007. Consistent with
Section 1405(c)(4) of the Holding Companies Act and the
Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, our
audit committee has
9
responsibility for the selection of independent registered
public accountants, reviewing the scope and results of their
audit and reviewing the adequacy of our accounting, financial,
internal and operating controls. Our audit committee operates
pursuant to a written charter, a copy of which may be viewed on
our website at:
http://www.erieinsurance.com.
Our compensation committee met nine times in 2007. Consistent
with Section 1405(c)(4) of the Holding Companies Act and
our bylaws, our compensation committee has responsibility for
recommending to our board of directors, at least annually, the
competitiveness and appropriateness of the salaries, variable
compensation, short- and long-term incentive plan awards, terms
of employment, non-qualified retirement plans, severance
benefits and perquisites of our chief executive officer and our
executive vice presidents and such other named executives as
required by rules of the SEC or NASDAQ listing standards and
such other responsibilities as our board of directors may
designate. See Executive Compensation
Compensation Committee Interlocks and Insider
Participation.
Our compensation committee operates pursuant to a written
charter, a copy of which may be viewed on our website at:
http://www.erieinsurance.com.
Our nominating committee met four times in 2007. Consistent with
Section 1405(c)(4) of the Holding Companies Act and our
bylaws, our nominating committee has responsibility for:
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identification of individuals believed to be qualified to become
members of our board of directors and to recommend to our board
of directors nominees to stand for election as directors;
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identification of board of directors members qualified to fill
vacancies on any committee of our board of directors; and
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evaluation of the procedures and process by which each committee
of our board of directors undertakes to self-evaluate such
committees performance.
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Our nominating committee operates pursuant to a written charter,
a copy of which may be viewed on our website at:
http://www.erieinsurance.com.
Our charitable giving committee, which met five times in 2007,
has responsibility for recommending to our board of directors
and our chief executive officer charitable gifts by us within a
budgetary limit established by our board of directors. The
members of our charitable giving committee voluntarily do not
accept meeting fees for their services on this committee.
Our investment committee, which met six times in 2007, has
responsibility for assisting our board of directors in its
general oversight of our investments.
Our technology committee, which met five times in 2007, provides
strategic oversight of our development and use of technology and
the related electronic information security issues.
Our strategy committee, which met seven times in 2007, has
responsibility for oversight of our strategic plan including the
establishment of goals and periodic evaluation of the plan
within the financial and operating objectives approved by our
board of directors.
All directors hold office until their respective successors are
elected or until their earlier death, resignation or removal.
Officers serve at the discretion of our board of directors,
subject to the provisions of certain employment agreements
discussed under Executive Compensation
Agreements with Executive Officers. There are no family
relationships between any of our directors or executive
officers, except that:
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Thomas B. Hagen, chairman of our board of directors, chairman of
our executive committee and a director, and Susan Hirt Hagen, a
director, are husband and wife;
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Jonathan Hirt Hagen, a director, is the son of Thomas B. Hagen
and Susan Hirt Hagen, and a first cousin of Elizabeth A.
Vorsheck; and
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Elizabeth A. Vorsheck, a director, is the daughter of F. William
Hirt, the former chairman of our board of directors until his
death on July 13, 2007, the niece of Mrs. Hagen and a
first cousin of Jonathan Hirt Hagen.
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During 2007, each director attended more than 75% of the number
of meetings of our board of directors and the standing
committees of our board of directors of which such director was
a member.
10
In 2007, our board of directors adopted corporate governance
guidelines recommended by our nominating committee, a copy of
which may be viewed on our website at:
http://www.erieinsurance.com.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE 11
CANDIDATES FOR DIRECTOR NOMINATED BY OUR NOMINATING COMMITTEE,
AND THE ENCLOSED PROXY CARD WILL BE SO VOTED UNLESS A HOLDER OF
CLASS B COMMON STOCK SPECIFIES OTHERWISE.
DIRECTOR
SHAREHOLDER COMMUNICATIONS
Our shareholders may communicate with our board of directors
through our secretary. Shareholders who wish to express any
concerns to any of our directors may do so by sending a
description of those concerns in writing addressed to a
particular director, or in the alternative, to
Non-management Directors as a group, care of our
secretary at our headquarters, 100 Erie Insurance Place, Erie,
Pennsylvania 16530. All such communications that are received by
our secretary will be promptly forwarded to the addressee or
addressees set forth in the communication.
Recognizing that director attendance at our annual meeting can
provide our shareholders with an opportunity to communicate with
directors about issues affecting us, we actively encourage our
directors to attend our annual meeting. In 2007, 14 of our
directors attended our annual meeting.
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
Our executive compensation program is developed and monitored by
our compensation committee. A complete description of the
committees function and responsibilities is set forth in
its charter, a copy of which may be viewed on our website at:
http://www.erieinsurance.com.
Our compensation committee determines the compensation
philosophy and policies for our executive officers. In
fulfilling this role, the committee is responsible for
establishing principles that guide the design of compensation
programs for all executives. In so doing, the committee reviews
the performance results of each executive and establishes
individual compensation levels. Although Douglas F. Ziegler is
included hereafter as a Named Executive Officer or
NEO, as a senior vice president, his compensation is
reviewed and set by our chief executive officer.
Our compensation committee regularly meets without officers or
employees present to discuss executive compensation matters. Our
compensation committee meets annually without the chief
executive officer present and evaluates his performance compared
to previously established company financial and personal,
non-financial goals. Our compensation committee discusses its
performance evaluation with the independent members of our board
of directors in executive session before making appropriate
compensation adjustments. Our chief executive officer annually
evaluates the performance of our executive officers named in the
Summary Compensation Table other than himself, and recommends to
our compensation committee any merit increases to base salaries.
In 2007, our compensation department prepared an analysis using
the same methodology used by the outside consultant we retained
to prepare the analysis in 2004. The compensation committee also
retained the consulting firm Watson Wyatt to prepare a
compensation benchmark analysis based on the data and background
information provided by our compensation department.
In preparing the 2007 benchmark and survey data for our
compensation committees consideration, we followed the
methodology below:
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Competitive compensation levels for our executives were
developed by matching each position to survey benchmark
positions found in the market.
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Survey benchmarks were based on a thorough review of each
executives job description.
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Compensation data was obtained from various published insurance
industry and general industry sources, including William M.
Mercer, Towers Perrin and Watson Wyatt surveys.
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A proxy analysis was performed for a peer group of ten
property/casualty insurance companies we consider to be our
competitors for customers and, in some cases, employees, and
similar to us in terms of lines of business, net premiums
written and asset size. The peer group used in 2006 to set 2007
base
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pay remained the same as that used by our outside consultant in
its 2004 analysis: The Chubb Corporation, Cincinnati Financial
Corporation, CNA Financial Corporation, Mercury General
Corporation, Ohio Casualty Corporation, The Progressive
Corporation, SAFECO Corporation, Unitrin Group, Ltd., White
Mountains Insurance Group, Ltd. and W.R. Berkley Corporation.
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Our incumbent compensation levels were analyzed and compared
with market median compensation levels, which represent a
competitive level of pay that would be paid to a hypothetical,
seasoned performer in a job with similar responsibilities and
scope without regard to internal equity considerations (which
are weighed later in the process). Our compensation committee
and its independent advisor review the nature and extent of each
executives skills, scope of responsibilities, performance
and effectiveness in supporting our long-term goals.
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The compensation surveys utilized vary depending on the scope of
each executives position, but generally focus on the
insurance industry, covering companies of approximately our size
and scale. We used the median of the compensation levels for
survey data, in order to limit the effect of outlying data
points.
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Our compensation committee also considers a proxy-based analysis
of direct competitors in our peer group. For the proxy analysis
of each of the companies within our peer group, we also used the
median values in evaluating each NEOs compensation level.
Companies within the peer group may change over time if
circumstances warrant. Our compensation committee regularly
works with its independent advisor to evaluate and interpret
peer group compensation practices.
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Overall
Program Objectives
The goals of our executive compensation program are to attract,
motivate, retain and reward executives in a fiscally responsible
manner. To achieve these objectives, we design executive
compensation programs that support our business strategy by
clearly communicating our expectations of our executives through
goals that reward achievement. We also believe that our program
is aligned with the interests of our primary stakeholders: our
shareholders and the policyholders of the Exchange. We structure
our compensation program to align actual compensation with
performance, delivering more compensation to executives when we
achieve higher performance and thereby delivering increased
value to our shareholders and policyholders of the Exchange,
with an inverse relationship occurring when we achieve lower
financial performance results. The members of our compensation
committee deliberate and consult with their independent
compensation advisor to ensure that thresholds, targets,
weightings and maximum performance goals are sufficiently robust
to warrant an incentive payout or a superior award.
We seek to achieve these objectives by providing several
different elements of executive compensation:
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A base salary that represents cash compensation based on
internal equity and external industry-based competitiveness;
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A performance-based annual incentive that provides each
executive an opportunity to earn a cash award based on the
achievement of pre-determined goals or other performance
objectives during the course of our fiscal year; and
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A long-term incentive that provides an opportunity for each
executive to earn a stock award based on the achievement of
performance objectives over time that creates long-term value
for our shareholders.
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Executive
Compensation Elements
Total
Compensation
Each element of compensation is set independently for each NEO
against our peer group described above. As a result, the
allocation of each compensation component varies by NEO.
Base
Salary
Purpose: The purpose of base salary is to
provide compensation based on an executives job
responsibilities, individual performance and
externally-competitive compensation levels.
12
Considerations: Our compensation committee
annually reviews and determines the base salaries of each of our
executive officers. Our compensation program seeks to establish
each NEOs base salary range at the 50th percentile,
or median, of the competitive market comprised of the companies
in our peer group. In each case, the committee takes into
account the base salary range for each executive based on job
duties and authority. Individual base salary levels are based
upon an executives years of experience and individual
performance. This amount is not at risk and may be adjusted
annually based on merit and external market conditions.
2007 Discussion and Analysis: All of our NEO
base salaries were within the salary range set against our peer
group in 2007, including for Mr. Brinling, whose salary for
serving as president and CEO was set at the same level as for
our former president and CEO.
Annual
Incentive Plan
Purpose: The purpose of our Annual Incentive
Plan, or AIP, is to align executive performance with
our annual strategic goals while enhancing our shareholder value
and promoting the health of the Exchange. We accomplish this
objective by providing incentives in the form of an annual cash
bonus to executives upon the attainment of certain performance
goals.
Considerations: At the beginning of each year,
our compensation committee establishes for each executive a
target AIP award expressed as a percentage of annual base
salary. These target AIP awards are established after the
identification and discussion by our compensation committee and
our board of directors of key measures that drive strong
organizational performance. The performance criteria used in
2007 were submitted property/casualty application growth and
adjusted operating ratio. Adjusted operating ratio is considered
to be an industry-standard benchmark used to measure an
insurers performance. We define adjusted operating ratio
as the total profitability of the Property and Casualty Group,
us and EFL. This ratio measures profitability by calculating
operating and investment results in relation to premiums earned.
We established one additional performance measure (asset class
returns) for Mr. Ziegler based upon his functional
responsibilities as our chief investment officer. We established
one additional performance measure (property/casualty adjusted
combined ratio) for Mr. Morgan based upon his functional
responsibilities as our executive vice president of insurance
operations.
Our board of directors and management consider our current
performance, including our strengths and performance gaps, to
determine which areas need to be incented to help us achieve our
strategic objectives for the year. The combination of benchmark
insurance measures and our performance are the basis from which
measures and targets are determined. With the appropriate
measures selected, we apply an internal modeling analysis to
each measure resulting in a statistical probability confidence
range of attaining a target point for each measure.
From this analysis, our compensation committee benchmarks target
goals for each measure. The committee then sets a maximum and
minimum (or threshold) for each measure. The maximum
is intended to incent a participants performance to
achieve a maximum performance payout; the threshold provides a
partial payout when a portion of the goal is achieved.
The bonus determinations for our president and CEO, and
Messrs. Garcia and Krahe, were based upon actual
performance against our performance measures. In addition to the
targets established by our compensation committee, we may
introduce additional, functional performance measures for each
NEO. These functional performance measures allow our
compensation committee to reward specific responsibilities of
the NEO. We develop these individual, functional performance
measures for each NEO using a multi-year trend incorporating
peer group survey data. For Mr. Morgan, we based 75% of his
bonus determination on performance against our measures and the
remaining 25% on functional measures. For Mr. Ziegler, we
based 20% of his bonus determination on performance against our
measures and the remaining 80% on functional measures.
Upon completion of the fiscal year, our compensation committee
determines and certifies in writing the extent to which company
and individual incentive targets were satisfied. The AIP payouts
have a cap of 200% of incentive target. In addition, the maximum
annual AIP award payable in cash to any one executive under the
AIP is $3.0 million. Our compensation committee has no
discretion to increase any company or individual
13
incentive target, nor any company or individual incentive award
that would otherwise be due upon attainment of company or
individual incentive targets, or otherwise modify any company or
individual incentive targets associated with a performance
period. We typically pay AIP awards after the prior years
audited financial results are available and our compensation
committee certifies earned amounts. See Incentive Plans
and Deferred Compensation in our notes to consolidated
financial statements contained in our 2007 annual report.
2007 Discussion and Analysis: The two company
performance measures established for 2007 were based upon our
submitted property/casualty application growth and adjusted
operating ratio targets. We selected submitted property/casualty
application growth as one of the measures for 2007 to incent
management to grow applications received during a period of
softening market conditions in the insurance industry. We
selected the adjusted operating ratio for 2007 to help balance
the underwriting profitability of our property/casualty
insurance operations.
We weighted the adjusted operating ratio for Mr. Garcia and
Mr. Krahe at 50% of target AIP award while submitted
property/casualty application growth received 50% of the
weighting. We set Mr. Morgans weighting as follows:
adjusted operating ratio 25%; submitted
property/casualty application growth 50%; and
property/casualty adjusted combined ratio 25%.
Mr. Zieglers weighting was set as follows: adjusted
operating ratio 10%; submitted property/casualty
application growth 10%; and asset class
return 80%. The excellent underwriting profitability
of the Property and Casualty Group led to a strong adjusted
operating ratio, driving the AIP award disclosed in the Summary
Compensation Table. However, due to increased competition,
submitted property/casualty application growth did not meet the
threshold, thus performance for this measure did not warrant a
payout.
Mr. Ludrof resigned as our president and CEO effective
August 8, 2007, and will not receive any portion of the
2007 AIP award. Mr. Brinling did not officially participate
in the AIP for 2007 because his service began too late in the
year to qualify. However, in accordance with his compensation
arrangement, he will receive a payment outside the plan using
the same measurements and criteria that would have been used for
Mr. Ludrof had he not resigned, which criteria conform with
the targets for Messrs. Garcia and Krahe as described above.
Long-term
Incentive Plan
Purpose: The purpose of our Long-term
Incentive Plan, or LTIP, is to enhance our growth
and profitability and that of the Exchange and its affiliates by
providing longer term rewards to executives who are capable of
having a significant impact on our performance. We accomplish
this objective by providing incentives over a multi-year period
in the form of restricted stock unit grants of our Class A
common stock to executives upon the attainment of certain
performance goals. We use stock in this plan to further align
the interests of our executives with those of our shareholders.
Considerations: We had two LTIP plans in
effect at December 31, 2007: a LTIP we adopted in 1997 (the
Pre-2004 LTIP) and a LTIP we adopted in 2004 (the
Post-2004 LTIP). The Pre-2004 LTIP awards were
determined based upon the achievement of predetermined financial
performance goals compared to the actual growth in our retained
earnings; this initial plan did not benchmark us against a peer
group. In 2004, after review by our compensation committee, we
adopted the Post-2004 LTIP. The Post-2004 LTIP allowed us to
better align our long-term goals with the executive reward by
utilizing comparisons to a board-selected peer group, for a
reward tied more closely to performance outcomes for stronger
reinforcement of desired behaviors. The Post-2004 LTIP award is
based on the achievement of objective performance
measures adjusted combined ratio, growth in direct
written premiums, and total return on invested
assets over a three-year period compared to a peer
group of property and casualty insurance companies that write
predominantly personal lines insurance. The peer group we use
for the Post-2004 LTIP has remained the same since the
plans inception and consists of: Allstate Insurance Group,
Farmers Insurance Group, Government Employees Group (GEICO),
Nationwide Insurance Group, Progressive Group of Insurance
Companies, State Farm Insurance Group and USAA Group. This peer
group was selected because, as a group, it represents the
majority of personal lines business written in the United States
and is considered to be our competition in all the markets in
which we do business. We calculate and pay actual awards earned
after performance level certification by our compensation
committee following the performance period. See Incentive
Plans and Deferred Compensation in our notes to
consolidated financial statements contained in our 2007 annual
report.
14
2007 Discussion and Analysis: Target LTIP awards were
established for each NEO at the beginning of 2007 utilizing a
methodology similar to that used to set AIP awards for each NEO
as described above. The performance measures selected reflect
the strategic business objectives of the Property and Casualty
Group. As in 2006, the 2007 awards were based on the adjusted
combined ratio, growth in direct written premiums and total
return on invested assets of the Property and Casualty Group
compared to the same performance measures of our peer group.
Given the nature of our business, underwriting profitability is
important to long-term financial strength. The Property and
Casualty Groups direct written premium growth is also
important to our financial results as it is the primary driver
of the management fee revenue we earn from the Exchange. In
2007, our compensation committee awarded long-term incentive
compensation to each NEO in the form of restricted stock units.
See the Summary Compensation Table, Supplemental Stock Awards
Table, Grants of Plan Based Awards Table, Outstanding Equity
Awards Table and Option Exercises and Stock Vested Table herein.
Because Mr. Ludrof resigned as president and CEO effective
August 8, 2007, he will receive a pro rata portion of his
LTIP awards based on having served 7 months of the
36-month
performance period see the Grants of Plan Based
Awards table for further discussion. Mr. Brinling is
precluded from officially participating in the LTIP for the
2007-2009
performance period because he was not enrolled during the first
90 days of the performance period. However, pursuant to his
employment arrangement described below, Mr. Brinling is
entitled to receive cash payments upon the attainment of certain
LTIP performance goals that were in effect for our former
president and CEO.
Additional
Benefits
We believe retirement benefits are an important part of a
competitive reward opportunity, which enables us to attract and
retain top-tier managerial talent. Accordingly, we maintain a
tax-qualified defined benefit pension. The tax-qualified defined
benefit pension plan is available to all of our salaried
employees. The Internal Revenue Code of 1986, as amended, or
the Code limits the maximum annual pension award
that we can pay to any eligible employee. Therefore, effective
December 31, 1986, we implemented a supplemental retirement
plan or SERP to provide benefits to certain
employees of the Company in excess of earnings limitations
imposed by the Code. As illustrated in the Pension Benefits
Table, an older NEO can produce a significantly higher present
value compared to a younger, more highly paid NEO. This result
occurs primarily because the nearer a NEO is to normal
retirement age, the shorter the discount period used in
calculating the present value of the benefits.
In December 2007, in connection with its review of our
employment agreements with executive officers and with
Mr. Ziegler, or our Officer Employment
Agreements for purposes of determining what modifications
were needed to comply with recently adopted changes to the
federal tax laws regarding deferred compensation, our board of
directors decided that it would not renew or extend the term of
the Officer Employment Agreements with Messrs. Garcia,
Krahe, Morgan and Ziegler, nor replace them with new agreements.
Accordingly, the Company and each of these NEOs entered into an
Amendment and Payment Designation Agreement dated
December 31, 2007. This new agreement sets a specific date
and method of payment of SERP benefits (as required by the new
tax rules on deferred compensation) by providing that each of
these NEOs shall be paid his accrued and additional SERP
benefits in a lump sum on December 12, 2008, at which time
the Company will also pay a tax
gross-up on
those amounts on behalf of each officer. If the executives
employment terminates, other than as a result of a termination
by the Company for cause, before the expiration of the Amendment
and Payment Designation Agreement on December 11, 2008, his
SERP benefit (including any additional present value referred to
in Note (6) to the table below disclosing the salary and
benefits expected under various termination scenarios) will be
paid in a lump sum on the first day of the seventh month after
the date of termination. See Agreements with Executives
Including Termination and Change in Control for discussion
on the payout of SERP benefits for certain NEOs.
Our defined benefit pension plan and SERP amounts reflected in
the Change in Pension Value column within the
Summary Compensation Table result from the use of various
actuarial assumptions. One of the assumptions that can have a
significant impact on the pension values is the discount rate
selected. Upon completing our annual bond matching study with
our independent consulting actuarial firm, Watson Wyatt, we
supported the selection of a 6.62% discount rate for the 2008
pension and SERP expense for financial
15
statement purposes and we used this same discount rate in
determining the present value of benefits under these plans for
each NEO. See Agreements with Executives Including
Termination and Change in Control for a discussion
regarding the expected payout of Mr. Ludrofs SERP.
Our executives also participate in the broad-based benefit plans
offered generally to all of our full-time employees (e.g., the
pension plan, 401(k) plan, health insurance and other employee
benefits). Their participation in these benefit plans is on the
same terms as all of our other employees.
Director
Compensation
2007
Discussion and Analysis
The goals of our director compensation program are to attract,
motivate and retain directors of outstanding competence and
ability and reward them in a fiscally responsible manner.
Director performance is a key influencing factor in
organizational performance. Accordingly, director compensation
is reviewed periodically and adjusted, as appropriate, to align
the interests of directors with our strategic objectives.
The periodic review of director compensation is the
responsibility of our compensation committee and our board of
directors. In undertaking this responsibility, the compensation
committee reviews compensation surveys of the financial services
industry. The committee also engages, from time to time,
independent advisors who provide supplemental data that is
considered in setting director compensation levels. After
reviewing the data, the compensation committee formulates a
recommendation for review by our board of directors.
In 2006, our compensation committee engaged Watson Wyatt to
evaluate the components of our director compensation, including
retainer fees, committee fees, stock grants, committee chair
fees and presiding director fees. Our compensation committee
determined that, except for the retainer fee and stock-based
pay, the remaining elements of our directors compensation
were appropriately positioned and would not be changed.
Effective March 1, 2007, the annual cash retainer was
increased from $25,000 to $30,000, and the annual stock-based
pay was increased from $35,000 to $40,000.
We make adjustments to maintain each directors
compensation at market median or about the
50th percentile
of our peer group. Added responsibilities or additional duties,
such as committee chairperson or chairman of the board, may
cause variations in each directors total compensation
earned.
Director
Education Program
In 2005, we implemented a director education program in which
all of our directors are entitled to participate. The program
provides each director with access to various resources to
assist him or her with enhancing the skills and strategies that
drive effective directorship. We pay for the cost of each
directors membership in the National Association of
Corporate Directors, underwrite the cost of attendance at
certain educational seminars and conferences and provide
subscriptions to relevant business news journals, magazines and
on-line resources.
Agreements
with Executives Including Termination and Change in
Control
Our compensation committee periodically reviews the use and
material terms of employment agreements with our key executives.
In 2005, in conjunction with our compensation committees
independent advisor, we revised the employment agreements of all
of our NEOs. The term of our employment agreements with
Messrs. Garcia, Ziegler and Krahe will expire on
December 11, 2008 and, as described above, our board of
directors has determined that it will not renew or extend the
term of these employment agreements, nor replace them with new
agreements.
Effective August 8, 2007, Mr. Ludrof voluntarily
resigned as president and CEO of the Company. On
December 27, 2007, Mr. Ludrof entered into a
Post-Employment Agreement with the Company which provides for
the resolution of all matters relating to Mr. Ludrofs
employment, including all obligations of the Company under his
employment agreement. The Post-Employment Agreement contained
the following material terms:
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The payment to Mr. Ludrof of $4,543,900 in separation pay,
as a single lump sum payment, less required tax withholdings, on
December 31, 2007.
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16
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In connection with his voluntary resignation from the Company,
Mr. Ludrof agreed to a reduction in his SERP benefits of
approximately $457,000. The Company will pay to him on
April 1, 2008, the amount of $3,040,900, plus a tax
gross-up of
approximately $2,018,000 on a portion of that amount, in full
satisfaction of all of his benefits under the SERP.
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A lump sum cash payment to Mr. Ludrof in an amount equal to
his account under the deferred compensation plan. See the
Nonqualified Deferred Compensation Table for further discussion.
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Upon his termination of employment, Mr. Ludrof vested in
previously unvested restricted stock units under the Pre-2004
LTIP, with respect to which the Company will issue
11,149 shares of the Companys Class A common
stock (less required tax withholdings) to Mr. Ludrof over
2008 and 2009. With respect to performance based awards under
the Post-2004 LTIP, the performance period with respect to
awards made to Mr. Ludrof for the
2005-2007,
2006-2008
and
2007-2009
performance periods will be treated as ending on
December 31, 2007, and the Company will issue to
Mr. Ludrof shares of the Companys Class A common
stock representing a pro rata portion of the earned award for
each of those performance periods (less required tax
withholdings).
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Mr. Ludrof is entitled to receive, for a period of three
years, health and life insurance benefits under substantially
the same terms and conditions as existed immediately prior to
the date he terminated his employment.
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The Post-Employment Agreement also provides for a general
release by Mr. Ludrof of any claims he might have against
the Company and its officers, directors and related persons;
customary confidentiality provisions; an
18-month
non-compete agreement; and an agreement by Mr. Ludrof to
cooperate with the Company if his assistance is needed in
connection with matters that arose while he was employed by the
Company.
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On October 11, 2007, the Company entered into an
arrangement with Mr. Brinling regarding his compensation
and benefits. Mr. Brinling assumed the position of
president and CEO of the Company on August 8, 2007, upon
Mr. Ludrofs resignation. The material terms of
Mr. Brinlings arrangement are as follows:
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An annual salary of $815,626;
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Bonus payments calculated using criteria of the Companys
Annual and Long-term Incentive Plans on a pro-rated basis for
the portion of the year that Mr. Brinling serves as
president and CEO (Mr. Brinling is not an official
participant in the plans since he was not enrolled within the
first 90 days of the performance period);
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In lieu of Mr. Brinlings participation in the
Companys pension plan, the Company will credit an amount
equal to a certain percentage of his salary to a hypothetical
account to be paid to him after completion of his service as
president and CEO (see the Pension Benefits Table for additional
information);
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Enrollment in the various health and welfare plans offered by
the Company;
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Mr. Brinling may elect to participate in the Companys
deferred compensation plan and 401(k) Savings and Investment
plan;
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During the term of his service as president and CEO, the Company
agrees to pay to Mr. Brinling an amount equal to the
current annual premium on his life insurance policy,
grossed-up
for income taxes; and
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The Company will pay certain club membership dues and
assessments for Mr. Brinling during his service as
president and CEO.
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Mr. Morgan resigned as our executive vice president of
insurance operations, effective February 29, 2008. On
February 28, 2008, the Company entered into a severance
agreement with Mr. Morgan (the Severance
Agreement) which provides for the resolution of all
matters relating to Mr. Morgans employment, including
all obligations of the Company to Mr. Morgan under his
employment agreement, as amended by the
17
Amendment and Payment Designation Agreement discussed below. The
Severance Agreement contained the following material terms:
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The payment to Mr. Morgan of $1,875,000 in separation pay,
as a single lump sum payment, less required tax withholdings, on
June 9, 2008.
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The Company will pay Mr. Morgan on October 1, 2008,
the full amount of his SERP benefits, plus a tax
gross-up on
a portion of that amount, in full satisfaction of all of his
benefits under the SERP.
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Lump sum cash payments to Mr. Morgan on October 1,
2008 and January 15, 2009, of his accounts under the
deferred compensation plan.
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Upon his termination of employment, Mr. Morgan vested in
previously unvested restricted stock units under the Pre-2004
LTIP, with respect to which the Company will issue
823 shares of the Companys Class A common stock
(less required tax withholdings) to Mr. Morgan in January
2009. With respect to performance based awards under the
Post-2004 LTIP, the performance period with respect to awards
made to Mr. Morgan for the
2006-2008
and
2007-2009
performance periods will be treated as ending on
December 31, 2008, and the Company will issue to
Mr. Morgan shares of the Companys Class A common
stock representing 100% and
662/3%
of the earned award for each of those performance periods (less
required tax withholdings), respectively.
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Mr. Morgan is also entitled to receive, for a period of
three years, health and life insurance and other benefits upon
substantially the same terms and conditions as existed
immediately prior to the date he terminated his employment. The
Company will also reimburse him for the annual premiums he pays
on a life insurance policy (on a tax
gross-up
basis) for calendar years 2009, 2010 and 2011.
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The Severance Agreement also provides for a general release by
Mr. Morgan of any claims he might have against the Company
and its officers, directors and related persons; customary
confidentiality provisions; a 30 day non-compete agreement;
as well as an agreement by Mr. Morgan to cooperate with the
Company if his assistance is needed in connection with matters
that arose while he was employed by the Company.
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For the NEOs other than the chief executive officers and
Mr. Morgan, salary and benefits expected under various
termination scenarios are disclosed below. If any of the NEOs
terminated his employment due to disability, no compensation or
benefits would be awarded in addition to amounts already
disclosed in the Summary Compensation Table. We developed the
compensation and benefit amounts disclosed in the table below
considering a termination date of December 31, 2007 and
they represent only payments estimated in addition to the other
compensation disclosed in this proxy statement.
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Involuntary
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Voluntary
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Involuntary
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Voluntary
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Without
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Without
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With
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With
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Cause (1) ($)
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Good Reason (2) ($)
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Cause (3) ($)
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Good Reason (4) ($)
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Death ($)
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Philip A. Garcia
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Cash
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1,852,912
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(5)
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0
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0
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1,852,912
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(5)
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402,395
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(8)
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SERP/Pension
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1,582,682
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(6)
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1,299,832
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(6)
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487,757
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(7)
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1,582,682
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(6)
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562,970
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(9)
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SERP Tax
Gross-Up
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1,330,414
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(10)
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1,330,414
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(10)
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0
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1,330,414
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(10)
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840,831
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(10)
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LTIP
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640,105
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(11)
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0
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0
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640,105
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(11)
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0
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Douglas F. Ziegler
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Cash
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1,352,893
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(5)
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0
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0
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1,352,893
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(5)
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326,725
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(8)
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SERP/Pension
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916,060
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(6)
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650,486
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(6)
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360,439
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(7)
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916,060
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(6)
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17,639
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(9)
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SERP Tax
Gross-Up
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709,557
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(10)
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709,557
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(10)
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0
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709,557
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(10)
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335,471
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(10)
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LTIP
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0
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0
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0
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0
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0
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Michael J. Krahe
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Cash
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1,340,284
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(5)
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0
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0
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1,340,284
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(5)
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300,000
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(8)
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SERP/Pension
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1,087,251
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(6)
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848,693
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(6)
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326,116
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(7)
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1,087,251
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(6)
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210,231
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(9)
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SERP Tax
Gross-Up
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824,412
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(10)
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824,412
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(10)
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0
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824,412
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(10)
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400,208
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(10)
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LTIP
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397,909
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(11)
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0
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0
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397,909
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(11)
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0
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18
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(1) |
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Definition of Involuntary Without Cause: The Company
may at any time terminate an executives employment without
cause only by the affirmative vote of a majority of the board of
directors and upon no less than thirty days prior written
notice to the executive. |
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(2) |
|
Definition of Voluntary Without Good Reason: The
executive may at any time terminate employment for any reason
upon no less than thirty days written notice to the
Company. |
|
(3) |
|
Definition of Involuntary With Cause: The Company
may at any time terminate an executives employment for
Cause, which shall mean any of the following conduct
by the executive: |
|
|
|
(a) |
|
The deliberate and intentional breach of any material provision
of the employment agreement, which breach the executive shall
have failed to cure within thirty days after the
executives receipt of written notice from the Company
specifying the specific nature of the breach; |
|
(b) |
|
The deliberate and intentional engaging by the executive in
gross misconduct that is materially and demonstrably inimical to
the best interests, monetary or otherwise, of the Company; or |
|
(c) |
|
Conviction of a felony or conviction of any crime involving
moral turpitude, fraud, or deceit. |
|
|
|
|
|
For purposes of this definition, no act or failure to act on the
executives part shall be considered deliberate and
intentional unless done or omitted to be done by the
executive not in good faith and without reasonable belief that
such action or omission was in the best interest of the Company. |
|
|
|
(4) |
|
Definition of Voluntary With Good Reason: The
executive may terminate employment for Good Reason
upon providing thirty days written notice to the Company after
the executive reasonably becomes aware of the circumstances
giving rise to such Good Reason. For purposes of the
employment agreement, Good Reason means the
following conduct of the Company, unless the executive shall
have consented thereto in writing: |
|
|
|
(a) |
|
Material breach of any material provision of the employment
agreement by the Company, which breach shall not have been cured
by the Company within thirty days after Companys receipt
from the executive or the executives agent of written
notice specifying in reasonable detail the nature of the
Companys breach; |
|
(b) |
|
The assignment to the executive of any duties inconsistent in
any material respect with the executives position
(including any reduction of the executives status and
reporting requirements), authority, duties, powers or
responsibilities with the Company...or any other action by the
Company, including the removal of the executive from or any
failure to reelect or reappoint the executive to office(s)...or
commensurate office(s) (other than for Cause), which
results in a diminution of the executives authority,
duties, position, responsibilities or status, excluding for this
purpose any isolated, insubstantial and inadvertent action
respecting the executive not taken in bath faith and which is
remedied by the Company within thirty days after receipt of
written notice from the executive to the Company; |
|
(c) |
|
The Companys relocation of the executive out of the
Companys principal executive offices or the relocation of
the Companys principal executive offices to a location
outside the Erie, Pennsylvania metropolitan area, except for
required short-term travel on the Companys behalf to the
extent necessary for the executive to carry out his normal
duties in the ordinary course of business; |
|
(d) |
|
The failure of the Company to obtain the assumption in writing
of its obligations...of the agreement by any successor...not
less than five days prior to a merger, consolidation or sale
...; or |
|
(e) |
|
A reduction in the overall level of compensation of the
executive...not including (i) changes in the cash/stock mix
of compensation payable to the executive; (ii) a reduction
in the overall level of compensation of the executive resulting
from the failure to achieve corporate, business unit and/or
individual performance goals established for purposes of
incentive compensation for any year or period; provided that the
aggregate short-term incentive opportunity, when combined with
the executives base salary, provides, in the aggregate, an
opportunity for the executive to realize at least the same
overall level compensation as was paid in the immediately prior
year or period at target performance levels; and provided
further, that such target performance levels are reasonable at
all times during the measurement period, taking into account the
fact that one of the purposes of such compensation is to incent
the executive; (iii) reductions in compensation resulting
from changes to any Erie Benefit |
19
|
|
|
|
|
Plan, as that term is defined the Officer Employment Agreements
(provided that such changes are generally applicable to all
participants in such Erie Benefit Plan); and (iv) any
combination of the foregoing. |
|
|
|
(5) |
|
Cash payment is based on the sum of: |
|
|
|
the highest annual base salary paid or payable to
the NEO in 2007 or any one of the three calendar years preceding
the NEOs termination of employment; and
|
|
|
|
an amount equal to the sum of the higher of the
NEOs target award amount, or actual bonus amount paid
under our AIP for the three calendar years preceding the date of
the NEOs termination, divided by three.
|
|
|
|
Each NEOs base annual salary as of December 31, 2007,
and his 2004, 2005 and 2006 AIP bonus amounts were used for this
table. For Messrs. Garcia and Krahe, the sum is multiplied
by 2.75 to determine the amount of the cash payment. For
Mr. Ziegler, the sum is multiplied by 2.5 to determine the
amount of the cash payment. |
|
(6) |
|
Amounts disclosed above for the SERP represent the additional
present value attributable to receiving unreduced benefits
beginning at age 55 (or current age if the NEO is older
than age 55) instead of at the plans normal
retirement age of 65. For Involuntary Without Cause
and Voluntary With Good Reason scenarios, amounts
disclosed also include the additional present value attributable
to the credit of an additional
3-years of
service in the SERP benefit formula (up to a maximum of
30 years). |
|
(7) |
|
The early retirement benefit defined in the tax-qualified
retirement plan and the SERP are considered to be
subsidized benefits because the early retirement
reduction factors are more generous than an actuarially
equivalent reduction for the early commencement of benefits. The
amount shown is the additional present value attributable to
receiving a reduced early retirement benefit from the SERP at
current age, versus an unreduced benefit at age 65 or, in
the case of qualified pension benefits, a reduced early
retirement benefit at age 55, or current age if the NEO is
older than age 55, versus an unreduced benefit at
age 65. |
|
(8) |
|
The cash payment in the event of death is equal to the
NEOs current annual base salary paid to the NEOs
beneficiary in 12 monthly installments. |
|
(9) |
|
Upon the death of an NEO, an unreduced survivor benefit under
the SERP begins immediately. The amount shown is the additional
present value attributable to the commencement of the 50%
survivor benefit based upon the spouses age at
December 31, 2007. |
|
(10) |
|
The amount
grossed-up
is the sum of the SERP present value shown in the Pension
Benefits Table and the additional SERP present value shown in
the table above. An additional three years of service in the
SERP benefit formula under Involuntary Without Cause
and Voluntary with Good Reason is not eligible for
the tax
gross-up. |
|
(11) |
|
The employment agreements provide that for purposes of the
Pre-2004 LTIP and the Post-2004 LTIP, the NEO should be treated
as if he ceased to be our employee by reason of death,
disability, normal or early retirement as may be applicable.
Without this provision, an NEO who terminates employment without
actually being eligible under one of these provisions would
forfeit his restricted shares and target shares. The amounts
shown are the sum of the amounts shown in the Outstanding Equity
Awards at December 31, 2007 table for the
2003-2005
performance period under the Pre-2004 LTIP and the amounts shown
in the Supplemental Stock Awards Table for the
2005-2007,
2006-2008
and
2007-2009
performance periods under the Post-2004 LTIP. We do not show an
amount for Mr. Ziegler because he is already eligible for
early retirement under the terms of both LTIPs. |
In addition to the items disclosed in the table above, in the
case of Involuntary Without Cause and
Voluntary With Good Reason terminations, the
employment agreements provide continuing coverage for all
purposes for a period of three years after the date of
termination of employment for the executive and his eligible
dependents under all of our benefit plans in effect as of the
date of termination of employment. The employment agreements
also stipulate that for a period of three years after the date
of the executives termination, we will provide such
perquisites as were made available to the executive as of the
date of termination.
20
The employment agreements also provide for certain additional
payments by us. In the event that any payment or distribution by
us to or for the benefit of the executive, whether paid or
payable pursuant to the terms of the employment agreement or
otherwise, is determined to be subject to the excise tax imposed
by Section 4999 of the Code as an excess parachute payment,
as that term is used and defined in Sections 4999 and 280G
of the Code, the executive is entitled to receive an additional
payment (a
gross-up
payment) in an amount equal to the then current rate of
tax under Section 4999 multiplied by the total of the
amounts so paid or payable, including the
gross-up
payment, which are deemed to be a part of an excess parachute
payment.
Stock
Ownership Guidelines
In 2005, our board of directors approved an executive stock
ownership program that provides guidelines for ownership of our
Class A common stock for each executive. The program is
designed to further align the interests of executive management
with those of our shareholders and drive long-term performance
and profitability. Executive officers are required to reach
prescribed stock ownership levels within three years from the
programs commencement date of January 1, 2006.
This program utilizes a fixed base-salary component, considering
the executives salary as of January 1, 2006. The
ownership guidelines require the chief executive officer to
maintain ownership of Class A common stock in an amount
equivalent in value to 3.0 times his base salary. All other
executive officers are required to maintain ownership of
Class A common stock in an amount equal to 1.5 times their
respective base salaries. Shares owned outright and deferred and
performance-based deferred shares (earned but not yet paid)
count toward the ownership guideline. Restricted stock and
shares held in tax-qualified retirement plans count toward
satisfying the guidelines, as do shares beneficially owned
through a spouse or dependent children.
The table below sets forth the ownership guidelines for each NEO
and the value of shares owned as of February 15, 2008.
|
|
|
|
|
|
|
|
|
|
|
Target Financial Value of
|
|
|
Financial Value of Actual
|
|
Named Executive Officer
|
|
Shares
|
|
|
Shares Owned(1)
|
|
|
John J. Brinling, Jr.(2)
|
|
|
n/a
|
|
|
|
n/a
|
|
Philip A. Garcia
|
|
$
|
537,196
|
|
|
$
|
947,191
|
|
Thomas B. Morgan(3)
|
|
$
|
490,365
|
|
|
$
|
509,493
|
|
Douglas F. Ziegler(4)
|
|
|
n/a
|
|
|
|
n/a
|
|
Michael J. Krahe
|
|
$
|
390,695
|
|
|
$
|
191,572
|
|
|
|
|
(1) |
|
This amount assumes the stock price as of closing on
February 15, 2008 at $50.56. |
|
(2) |
|
Because Mr. Brinling is serving as president and CEO while
our board of directors conducts a search for his replacement, he
is not required to participate in our executive stock ownership
program. |
|
(3) |
|
Mr. Morgan resigned as our executive vice president of
insurance operations effective February 29, 2008. |
|
(4) |
|
Because Mr. Ziegler is not an executive officer, he is not
required to participate in our executive stock ownership program. |
Our compensation committee annually reviews each covered
executives progress toward, and continued compliance with,
the approved guidelines. Our compensation committee will review
market best practices regarding executive stock ownership
guidelines at least every three years.
Tax
Implications of Executive Compensation
Section 162(m) of the Code places a limit of
$1.0 million on the amount of compensation that we may
deduct in any one year with respect to each of our five most
highly paid executive officers, subject to an exception to the
$1.0 million limitation for performance-based compensation
meeting certain requirements. Our AIP and LTIP awards are
performance-based and have been approved by our shareholders. As
such, payments made under these plans are not included in the
$1.0 million limit on deductible compensation. All of our
incentive awards and individual incentive awards are subject to
federal income, FICA and other tax withholdings as required by
applicable law.
We believe all compensation paid in 2007 and 2006 to our
NEOs is tax-deductible under Section 162(m) of the
Code, except for certain amounts related to settlement of
Mr. Brinlings SERP benefit following his
21
retirement and prior to his re-employment. While our
compensation committee intends to continue to provide
compensation opportunities to our executives in as tax-efficient
a manner as possible, it recognizes that from time to time it
may be in the best interests of our shareholders to provide
non-tax deductible compensation.
EXECUTIVE
COMPENSATION
The following table sets forth the compensation during 2007 and
2006 for our NEOs. Compensation disclosed herein is for services
rendered in all capacities to us, EFL, the Exchange and their
subsidiaries and affiliates. Compensation is allocated among us,
the Exchange, EFL and their subsidiaries and affiliates
according to an estimated proportion of the executives
time dedicated to the affairs of various entities. Our share of
total compensation expense in 2007 and 2006 was 52.8% and 52.7%,
respectively. Amounts indicated are pre-individual income taxes.
Summary
Compensation Table
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Deferred
|
|
All
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Compen-
|
|
Compensation
|
|
Other
|
|
|
Name and
|
|
|
|
|
|
|
|
Awards
|
|
Awards
|
|
sation
|
|
Earnings
|
|
Compensation
|
|
Total
|
Principal Position
|
|
Year
|
|
Salary($)
|
|
Bonus($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Jeffrey A. Ludrof,
|
|
2007
|
|
805,365
|
|
0
|
|
|
1,395,605
|
|
|
0
|
|
0
|
|
|
1,770,027
|
|
|
|
4,632,971
|
|
|
|
8,603,968
|
|
Former President and CEO*
|
|
2006
|
|
754,136
|
|
0
|
|
|
1,776,621
|
|
|
0
|
|
571,701
|
|
|
95,698
|
|
|
|
112,253
|
|
|
|
3,310,409
|
|
John J. Brinling, Jr.,
|
|
2007
|
|
336,660
|
|
73,763
|
|
|
1,048,948
|
|
|
0
|
|
244,688
|
|
|
0
|
|
|
|
1,036,820
|
|
|
|
2,740,879
|
|
President and CEO**
|
|
2006
|
|
306,023
|
|
0
|
|
|
479,762
|
|
|
0
|
|
106,022
|
|
|
35,559
|
|
|
|
80,580
|
|
|
|
1,007,946
|
|
Philip A. Garcia,
|
|
2007
|
|
398,015
|
|
0
|
|
|
540,030
|
|
|
|
|
221,317
|
|
|
118,651
|
|
|
|
44,640
|
|
|
|
1,322,653
|
|
Executive Vice President and Chief Financial Officer
|
|
2006
|
|
375,569
|
|
0
|
|
|
608,142
|
|
|
0
|
|
189,809
|
|
|
46,180
|
|
|
|
60,280
|
|
|
|
1,279,980
|
|
Thomas B. Morgan,
|
|
2007
|
|
377,028
|
|
0
|
|
|
551,189
|
|
|
0
|
|
247,765
|
|
|
41,998
|
|
|
|
42,450
|
|
|
|
1,260,430
|
|
Executive Vice President, Insurance Operations***
|
|
2006
|
|
353,440
|
|
0
|
|
|
514,817
|
|
|
0
|
|
233,741
|
|
|
28,306
|
|
|
|
35,648
|
|
|
|
1,165,952
|
|
Douglas F. Ziegler,
|
|
2007
|
|
327,380
|
|
44,484
|
|
|
417,805
|
|
|
0
|
|
32,673
|
|
|
132,439
|
|
|
|
20,962
|
|
|
|
975,743
|
|
Senior Vice President and Chief Investment Officer
|
|
2006
|
|
309,692
|
|
0
|
|
|
481,004
|
|
|
0
|
|
170,518
|
|
|
64,913
|
|
|
|
26,868
|
|
|
|
1,052,995
|
|
Michael J. Krahe,
|
|
2007
|
|
296,385
|
|
0
|
|
|
344,709
|
|
|
0
|
|
165,000
|
|
|
101,904
|
|
|
|
43,031
|
|
|
|
951,029
|
|
Executive Vice President, Human Development and Leadership
|
|
2006
|
|
277,374
|
|
36,122
|
|
|
363,280
|
|
|
0
|
|
140,650
|
|
|
48,817
|
|
|
|
30,243
|
|
|
|
896,486
|
|
|
|
|
* |
|
Mr. Ludrof resigned as our president and CEO effective
August 8, 2007. His termination as an employee occurred on
December 19, 2007. |
|
** |
|
Mr. Brinling became our president and CEO effective
August 8, 2007. He had previously retired on
January 31, 2007, as executive vice president of EFL. In
his prior position, he was not a director of the Company, nor is
he a director at this time. |
|
*** |
|
Mr. Morgan resigned as our executive vice president of
insurance operations effective February 29, 2008. |
Salary
Salary includes all paid time off such as vacation and company
holidays.
The salary disclosed for Mr. Ludrof includes payments made
to him through December 19, 2007. His Post-Employment
Agreement became effective December 27, 2007. See
Compensation Discussion and Analysis
Agreements with Executives Including Termination and Change in
Control.
The salary figure for Mr. Brinling includes his salary as
executive vice president of EFL through his retirement date of
January 31, 2007, and his salary for serving as our
president and CEO.
Bonus
The bonus column includes retirement and special merit bonuses,
as well as terminated vacation payouts.
22
Stock
Awards: Long-Term Incentive Plans (LTIP)
In 1997, we adopted the Pre-2004 LTIP, which was designed to
enhance our growth and profitability by providing the incentive
of long-term rewards to key employees who are capable of having
a significant impact on our performance, to attract and retain
employees of outstanding competence and ability and to further
align the interests of such employees with those of our
shareholders. The holders of our voting common stock approved
the Pre-2004 LTIP in 1997 as a performance-based plan under the
Code, and our shareholders approved its continuation at our 2002
annual meeting in satisfaction of the requirements of the Code.
We amended the Pre-2004 LTIP at our 2003 annual meeting to
increase the maximum value of the phantom share units that could
be earned by a participant in any performance award from
$500,000 to $1,000,000. At the same time, our shareholders
re-approved the Pre-2004 LTIP. Each participant is granted
awards of phantom share units under the Pre-2004 LTIP based upon
a target award calculated as a percentage of the
participants base salary. The total value of any phantom
share units is determined at the end of the performance period
based upon the growth in our retained earnings. Each participant
is then 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 a participant ceases to be an employee prior to the
end of the performance period for reasons other than retirement,
death or disability, the participant forfeits all phantom share
units awarded. If a participant ceases to be an employee after
the end of the performance period but prior to the end of the
vesting period for reasons other than retirement, death or
disability, the participant forfeits all unvested restricted
shares previously granted. Because our board of directors and
the holders of our Class B common stock approved a new
long-term incentive plan described below, no further awards will
be made under the Pre-2004 LTIP and the last performance period
under the Pre-2004 LTIP was
2003-2005.
In 2004, our compensation committee recommended the adoption of
the Post-2004 LTIP and, in accordance with the Code and NASDAQ
rules, the holders of our Class B common stock approved the
Post-2004 LTIP at our 2004 annual meeting. The Post-2004 LTIP
became effective March 2, 2004. Our compensation committee
administers the Post-2004 LTIP. Our compensation committee is
authorized to grant restricted performance shares to
participants. Restricted performance shares represent a right to
receive shares of Class A common stock based on the
achievement, or the level of achievement, during a specified
performance period of one or more performance goals established
by our compensation committee at the time of the award. At the
time restricted performance shares are granted, our compensation
committee specifies in writing:
|
|
|
|
|
the performance goals applicable to the award, the weighting of
such goals and the performance period during which the
achievement, or the level of achievement, of the performance
goals are to be measured;
|
|
|
|
the number of shares of Class A common stock that may be
earned by the participant based on the achievement, or the level
of achievement, of the performance goals or the formula by which
such amount will be determined; and
|
|
|
|
any other terms and conditions our compensation committee
determines to be appropriate.
|
Following completion of the applicable performance period, our
compensation committee will determine whether the applicable
performance goals were achieved, or the level of such
achievement, and the number of shares, if any, earned by the
participant based upon such performance. We will then issue to
the participant the number of restricted shares of Class A
common stock earned pursuant to the award for the relevant
performance period. If a participant ceases to be an employee
prior to the end of a performance period by reason of death,
disability or normal or early retirement (as defined in our
qualified pension plan for employees), the participant may
receive all or such portion of his or her award as may be
determined by our compensation committee in its discretion;
however, a participant will not receive less than the total
number of restricted shares of Class A common stock earned
pursuant to such participants award based upon performance
during a performance period that is deemed to end on the last
day of the year in which employment terminates. If a participant
ceases to be an employee of us or our subsidiaries and
affiliates prior to the end of a performance period for any
reason other than death, disability or normal or early
retirement, the participant may receive all or such portion of
his or her award as may be determined by our compensation
23
committee in its discretion. A participant who is terminated for
cause is not entitled to receive payment of any award for any
performance period. The maximum number of shares of Class A
common stock that may be earned under the Post-2004 LTIP by any
single participant during any one calendar year is
250,000 shares.
The table below sets forth, with respect to the amounts shown in
the Stock Awards column of the Summary Compensation
Table above, the dollar amount of the change in our recorded
estimates for open performance periods under the Post-2004 LTIP,
as well as the change in market value for unvested shares under
the Pre-2004 LTIP.
Supplemental
Stock Awards Table
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-2004 LTIP
|
|
|
Pre-2004 LTIP
|
|
|
|
|
|
|
|
|
|
2007-2009
|
|
|
2006-2008
|
|
|
2005-2007
|
|
|
2004-2006
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
Performance
|
|
|
Performance
|
|
|
Performance
|
|
|
Market
|
|
|
|
|
Name
|
|
Year
|
|
|
Period(1)($)
|
|
|
Period(1)($)
|
|
|
Period(1)($)
|
|
|
Period(2)($)
|
|
|
Value(3)($)
|
|
|
Total ($)
|
|
|
Jeffrey A. Ludrof*
|
|
|
2007
|
|
|
|
180,577
|
|
|
|
518,301
|
|
|
|
812,921
|
|
|
|
(48,297
|
)
|
|
|
(67,897
|
)
|
|
|
1,395,605
|
|
|
|
|
2006
|
|
|
|
n/a
|
|
|
|
36,144
|
|
|
|
588,773
|
|
|
|
1,055,822
|
|
|
|
95,882
|
|
|
|
1,776,621
|
|
John J. Brinling, Jr.**
|
|
|
2007
|
|
|
|
249,314
|
|
|
|
387,407
|
|
|
|
451,883
|
|
|
|
(12,702
|
)
|
|
|
(26,954
|
)
|
|
|
1,048,948
|
|
|
|
|
2006
|
|
|
|
n/a
|
|
|
|
8,756
|
|
|
|
146,806
|
|
|
|
278,374
|
|
|
|
45,826
|
|
|
|
479,762
|
|
Philip A. Garcia
|
|
|
2007
|
|
|
|
114,521
|
|
|
|
180,707
|
|
|
|
283,387
|
|
|
|
(16,192
|
)
|
|
|
(22,393
|
)
|
|
|
540,030
|
|
|
|
|
2006
|
|
|
|
n/a
|
|
|
|
12,600
|
|
|
|
205,255
|
|
|
|
354,681
|
|
|
|
35,606
|
|
|
|
608,142
|
|
Thomas B. Morgan
|
|
|
2007
|
|
|
|
122,962
|
|
|
|
195,616
|
|
|
|
258,705
|
|
|
|
(13,511
|
)
|
|
|
(12,583
|
)
|
|
|
551,189
|
|
|
|
|
2006
|
|
|
|
n/a
|
|
|
|
13,640
|
|
|
|
187,370
|
|
|
|
295,877
|
|
|
|
17,930
|
|
|
|
514,817
|
|
Douglas F. Ziegler
|
|
|
2007
|
|
|
|
83,923
|
|
|
|
147,430
|
|
|
|
214,740
|
|
|
|
(13,325
|
)
|
|
|
(14,963
|
)
|
|
|
417,805
|
|
|
|
|
2006
|
|
|
|
n/a
|
|
|
|
10,281
|
|
|
|
155,523
|
|
|
|
292,098
|
|
|
|
23,102
|
|
|
|
481,004
|
|
Michael J. Krahe
|
|
|
2007
|
|
|
|
74,012
|
|
|
|
114,802
|
|
|
|
176,664
|
|
|
|
(9,576
|
)
|
|
|
(11,193
|
)
|
|
|
344,709
|
|
|
|
|
2006
|
|
|
|
n/a
|
|
|
|
8,005
|
|
|
|
127,999
|
|
|
|
210,355
|
|
|
|
16,921
|
|
|
|
363,280
|
|
|
|
|
* |
|
The amounts shown for Mr. Ludrof are pro-rated for the time
he served as our president and CEO. The vesting schedule remains
the same. |
|
** |
|
The amounts shown reflect the awards earned as executive vice
president of EFL, and as president and CEO of the Company. While
serving as president and CEO during 2007, Mr. Brinling was
precluded from officially participating in the LTIP for the
2007-2009
performance period because he was not enrolled during the first
90 days of the performance period. However, in accordance
with his compensation arrangement, he will receive a payment
outside of the plan using the same measurements and criteria
that would have been used for Mr. Ludrof had he not
resigned. Accordingly, we have included these payments in the
above table. Amounts shown in the table above related to
Mr. Brinlings prior position as executive vice
president of EFL were $125,570, $202,655 and $(12,702) for the
2006-2008,
2005-2007,
and
2004-2006
performance periods, respectively. The values shown in the
change in market value column also relate to his prior position
and include the change in market value for 3,065 unvested shares
and 3,666 shares deferred under the Pre-2004 LTIP. The
changes in market value related to the deferred shares include a
decrease of $8,288 in 2007 and an increase of $15,415 in 2006.
For 2007, the change was computed using the average of the high
and low share price on the May 24, 2007 distribution date. |
(1) Under the Post-2004 LTIP, the accrual for an open
performance period is calculated by first multiplying the number
of target shares awarded to the executive by an LTIP performance
factor to determine the estimated number of shares that will be
earned for the three-year performance period. The LTIP
performance factor is determined by the difference between our
results under our estimated performance measures and the results
of our peer group over the three-year performance period. The
estimated performance measures are based on company projections
of its own future results for 2008 and 2009, as well as
projections of financial performance for seven of our
property/casualty insurance peers. The minimum and maximum LTIP
performance factors are 0 and 2.5 respectively. The estimated
number of shares that will be earned for the performance period
is then multiplied by the share price at the end of the current
year. This total award is then pro-rated for the completed
portion of the performance period.
24
(2) The
2004-2006
performance period ended December 31, 2006, and amounts
were paid in May 2007. The 2007 reported amounts represent the
true-up of
amounts previously reported.
(3) A change in market value is recorded for the unvested
shares under closed performance periods of the Pre-2004 LTIP;
the Pre-2004 LTIP has a three-year performance period followed
by a three-year vesting period. The closing share prices at
December 31, 2007, 2006 and 2005 were $51.89, $57.98 and
$53.20, respectively.
Non-Equity
Incentive Plan Compensation: Annual Incentive Plan
(AIP)
The AIP is a performance-based incentive plan that pays annual
cash bonuses to our executive officers, senior vice presidents
and regional vice presidents. The cost of the plan is charged to
operations as the compensation is earned over the performance
period of one year. Amounts reported in the Summary Compensation
Table for the AIP represent the estimated amounts payable for
the 2007 performance period. On February 22, 2007, our
board of directors accepted and ratified the certification of
the performance goals for the 2006 AIP awards and established
the performance goals for the AIP for 2007 and for the Post-2004
LTIP for the
2007-2009
performance period.
Under our deferred compensation plan, executives can elect to
defer 100% of their AIP amounts earned. Deferral elections must
be made before the beginning of the calendar year for which each
bonus is earned. Deferred amounts, if any, are also reported in
the Non-Equity Incentive Plan Compensation column of
the Summary Compensation Table.
Mr. Brinling did not officially participate in the 2007 AIP
because his service began too late in the year to qualify.
However, he will receive a payment outside the plan using the
same measurements and criteria that would have been used for our
former president and CEO. The amount disclosed for
Mr. Brinling in the Summary Compensation Table is pro-rated
from August 8, 2007 to December 31, 2007.
Pension
Plan
Change in
Pension Value and Non-Qualified Deferred Compensation
Earnings
The Summary Compensation Table above includes the net change in
the present value of accrued benefits from December 31,
2006 to December 31, 2007 under our retirement plan, a
tax-qualified defined benefit pension plan, and our SERP, a
non-qualified defined benefit arrangement.
We calculated the present values using assumptions consistent
with those disclosures under FAS 87, Employers
Accounting for Pensions, including for December 31,
2005, 2006 and 2007 discount rates of 5.75%, 6.25% and 6.62%,
respectively, (5% post-retirement discount rate for our SERP).
There are no above-market or preferential non-qualified deferred
compensation earnings to disclose in this column. See the
discussion related to the Nonqualified Deferred Compensation
Table for a description of the investment funds and earnings.
25
The Pension Benefits Table below includes the present value of
accrued benefits under our defined benefit pension plan and our
SERP as of December 31, 2007. Each NEO is 100% vested in
our retirement plan.
Pension
Benefits Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
of Years
|
|
|
Present Value of
|
|
|
|
|
|
|
|
|
Credited
|
|
|
Accumulated
|
|
|
Payments During
|
|
Name
|
|
Plan Name
|
|
Service
|
|
|
Benefit ($)
|
|
|
Last Fiscal Year ($)
|
|
|
Jeffrey A. Ludrof(1)
|
|
Retirement
|
|
|
27
|
|
|
|
238,257
|
|
|
|
0
|
|
|
|
SERP
|
|
|
27
|
|
|
|
2,992,557
|
|
|
|
0
|
|
John J. Brinling, Jr.(2)
|
|
Retirement
|
|
|
30
|
|
|
|
791,286
|
|
|
|
56,670
|
|
|
|
SERP
|
|
|
30
|
|
|
|
0
|
|
|
|
2,495,158
|
|
Philip A. Garcia
|
|
Retirement
|
|
|
27
|
|
|
|
321,679
|
|
|
|
0
|
|
|
|
SERP
|
|
|
27
|
|
|
|
702,552
|
|
|
|
0
|
|
Thomas B. Morgan
|
|
Retirement
|
|
|
11
|
|
|
|
82,501
|
|
|
|
0
|
|
|
|
SERP
|
|
|
11
|
|
|
|
168,700
|
|
|
|
0
|
|
Douglas F. Ziegler
|
|
Retirement
|
|
|
20
|
|
|
|
356,968
|
|
|
|
0
|
|
|
|
SERP
|
|
|
20
|
|
|
|
549,882
|
|
|
|
0
|
|
Michael J. Krahe
|
|
Retirement
|
|
|
21
|
|
|
|
301,147
|
|
|
|
0
|
|
|
|
SERP
|
|
|
21
|
|
|
|
392,116
|
|
|
|
0
|
|
|
|
|
(1) |
|
The Present Value of Accumulated Benefit for
Mr. Ludrofs SERP shown in the table above is the
value to be paid to him on April 1, 2008, in accordance
with his Post-Employment Agreement, discounted to
December 31, 2007. |
|
(2) |
|
Mr. Brinling has been employed by the Company for more than
38 years; however, under the retirement plan he is limited
to a maximum of 30 years of credited service. The value
shown for Mr. Brinlings retirement plan is the
present value as of December 31, 2007 of the pension
benefits he is currently receiving. In accordance with the terms
of his employment as president and CEO, no additional retirement
benefits will be accrued. An annuity was purchased for
Mr. Brinlings SERP benefit following his retirement
on January 31, 2007. In accordance with the terms of his
compensation arrangement for serving as president and CEO, no
additional SERP benefits will be accrued. In lieu of future
participation in the pension plans, Mr. Brinling will
receive a lump sum payment equal to 16% of the base salary paid
to him from August 8, 2007 to December 31, 2007, plus
hypothetical interest based on the same rate offered by the
Fidelity Investments money market fund in our 401(k) plan. This
amount is disclosed in the All Other Compensation
column of the Summary Compensation Table. |
|
|
|
Mr. Brinlings monthly payments from the retirement
plan totaled $56,670. His SERP payments totaling $2,495,158 were
comprised of $1,550,952 for the purchase of the annuity,
$916,793 for the related tax
gross-up,
which is also included in the All Other Compensation
column of the Summary Compensation Table, and $27,413 in monthly
SERP payments prior to purchase of the annuity. |
Because the value of Mr. Brinlings pension decreased
by $676,242 in 2007, no change in pension value is shown for
that year in the Summary Compensation Table. The negative value
resulted from an increase in value in his retirement plan of
$206,182 offset by a decrease in SERP value of $882,427 which
represents the total of the payments made to him in 2007. The
increase in value for Mr. Brinlings retirement plan
is primarily attributable to the 2007 present value calculation
using his current age because he is in a pay status, whereas the
2006 present value was calculated assuming payment at the normal
retirement age of 65.
The present value information presented in the Pension Benefits
Table utilizes assumptions consistent with those used for fiscal
year 2007 disclosure under FAS 87, including a 6.62%
discount rate as of December 31, 2007 (5% post-retirement
discount rate for our SERP) and assumes retirement at
age 65 for our retirement plan and our SERP and no
pre-retirement decrements.
26
Normal retirement age under both our retirement plan and our
SERP is age 65 because that is the earliest time that an
executive could retire and commence benefit payments under the
plans without any benefit reduction due to age, unless the
executive is covered by an employment agreement that provides
for unreduced benefits.
Under our retirement plan, the executives final average
earnings are the average of the executives highest 36
consecutive months of compensation during his final
120 months of employment. Under our SERP, the
executives final average earnings are the average of the
executives highest 24 consecutive months of compensation
during the executives final 120 months of employment.
For this purpose, compensation includes base salary and a lump
sum paid in lieu of a merit increase but excludes bonuses,
deferred compensation plan payments and severance pay under any
severance benefit plan. An executives compensation that
exceeds annual limits imposed by the Code is excluded in
computing benefits derived under our retirement plan but
included in computing benefits due under our SERP.
Each executives credited service is generally
defined as the executives years of continuous employment
with us as a covered employee, up to a maximum of 30 years.
For purposes of determining the number of years of credited
service that will be used to calculate the amount of the
executives benefit, the executive, as well as all other
employees, earns a full year of credited service for a partial
year of employment as a covered employee. The Pension Benefits
Table reflects the recognition of a full year of credited
service for a partial year of employment as of December 31,
2007.
Executive service in our SERP means employment with the Company
as both a covered employee and a senior vice president or
higher-ranking executive.
Our retirement plans benefit formula at normal retirement
age is 1.0% of the executives final average earnings up to
the social security-covered compensation level (an amount
published each year by the Social Security Administration) plus
1.5% of the final average earnings in excess of the social
security covered compensation level with the resulting sum
multiplied by the executives years of credited service, up
to a maximum of 30 years. Our retirement plans
benefit is accrued in the form of a single life annuity with
optional actuarially-equivalent forms of payment available.
The SERPs benefit formula at normal retirement age is
equal to 60% of SERP final average earnings, reduced
proportionately for less than 30 years of credited service.
This benefit is accrued in the form of a
10-year
certain and life annuity. The executives benefit that is
payable under our retirement plan is subtracted from our SERP
benefit. For purposes of this offset, such monthly benefits
which are payable in a form other than a
10-year
certain and life thereafter annuity are converted to a monthly
benefit which is the actuarial equivalent of a
10-year
certain and life thereafter annuity. Optional
actuarially-equivalent forms of payment are available under our
SERP. The SERP has been amended to provide that, effective
January 1, 2009, a lump sum is the only available form of
payment.
Each executive may become eligible for a SERP benefit only in
the event that:
|
|
|
|
|
the executive is vested under our retirement plan;
|
|
|
|
the executive is entitled to receive a benefit under our
retirement plan;
|
|
|
|
prior to the executives termination of employment, the
executive has become vested in our SERP benefit according to the
following schedule:
|
|
|
|
|
|
Years of Executive Service
|
|
Vested Percentage
|
|
|
Less than 1
|
|
|
0
|
%
|
1 but less than 2
|
|
|
20
|
|
2 but less than 3
|
|
|
40
|
|
3 but less than 4
|
|
|
60
|
|
4 but less than 5
|
|
|
80
|
|
5 or more
|
|
|
100
|
|
27
|
|
|
|
|
the executives termination of employment with us is either:
|
|
|
|
|
|
also a termination from executive service; or
|
|
|
|
occurs within 12 months after the executive transfers from,
or otherwise leaves, executive service.
|
Executives in our retirement plan and our SERP are eligible for
early retirement after attaining age 55 and completing at
least 15 full years of service as a covered employee. The
executives early retirement benefit under these plans is
reduced by 0.25% for each complete calendar month up to
60 months and 0.375% for each complete calendar month in
excess of 60 months by which the executives early
retirement benefit commencement date precedes such
executives normal retirement date. Mr. Ziegler has
satisfied the plans eligibility requirements for early
retirement.
The NEOs listed in the Pension Benefits Table have entered
into employment agreements with us. See Agreements with
Executive Officers below. In certain termination
situations, the terms of those employment agreements, as amended
in 2007, provide for the payment of SERP benefits that are not
reduced for early retirement. The effect of those provisions for
each NEO is disclosed in the Agreements with Executives
Including Termination and Change in Control section of
Compensation Discussion and Analysis.
See also Postretirement Benefit Plans, in the notes
to consolidated financial statements included in our 2007 annual
report that describes plan assumptions in more detail.
All Other
Compensation
Supplemental
Table for All Other Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
Supple-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
Life
|
|
|
|
mental
|
|
Tax
|
|
Member-
|
|
|
|
|
|
|
|
|
Special
|
|
& Related
|
|
Insurance
|
|
401(k)
|
|
401(k)
|
|
Gross-
|
|
ship
|
|
|
|
|
|
|
|
|
Payments
|
|
Earnings
|
|
Premiums
|
|
Match
|
|
Match
|
|
Ups
|
|
Dues
|
|
Other
|
|
|
Name
|
|
Year
|
|
(1)($)
|
|
(2)($)
|
|
(3)($)
|
|
(4)($)
|
|
(5)($)
|
|
(6)($)
|
|
(7)($)
|
|
(8)($)
|
|
Total ($)
|
|
Jeffrey A. Ludrof
|
|
2007
|
|
4,543,900
|
|
18,284
|
|
16,251
|
|
9,000
|
|
23,215
|
|
14,713
|
|
1,337
|
|
6,271
|
|
4,632,971
|
|
|
2006
|
|
0
|
|
26,930
|
|
24,238
|
|
8,800
|
|
21,365
|
|
21,999
|
|
6,396
|
|
2,525
|
|
112,253
|
John J. Brinling, Jr.
|
|
2007
|
|
0
|
|
9,214
|
|
28,098
|
|
9,000
|
|
0
|
|
938,477
|
|
2,407
|
|
49,624
|
|
1,036,820
|
|
|
2006
|
|
0
|
|
17,513
|
|
27,788
|
|
8,800
|
|
3,441
|
|
19,281
|
|
980
|
|
2,777
|
|
80,580
|
Philip A. Garcia
|
|
2007
|
|
0
|
|
7,392
|
|
9,737
|
|
9,000
|
|
0
|
|
10,671
|
|
7,150
|
|
690
|
|
44,640
|
|
|
2006
|
|
0
|
|
12,193
|
|
9,737
|
|
8,800
|
|
6,223
|
|
11,497
|
|
10,780
|
|
1,050
|
|
60,280
|
Thomas B. Morgan
|
|
2007
|
|
0
|
|
3,980
|
|
5,500
|
|
9,000
|
|
6,081
|
|
10,370
|
|
7,219
|
|
300
|
|
42,450
|
|
|
2006
|
|
0
|
|
5,711
|
|
5,500
|
|
8,800
|
|
5,338
|
|
6,464
|
|
1,705
|
|
2,130
|
|
35,648
|
Douglas F. Ziegler
|
|
2007
|
|
0
|
|
4,882
|
|
0
|
|
9,000
|
|
4,095
|
|
0
|
|
1,047
|
|
1,938
|
|
20,962
|
|
|
2006
|
|
0
|
|
7,826
|
|
0
|
|
8,800
|
|
3,588
|
|
816
|
|
3,900
|
|
1,938
|
|
26,868
|
Michael J. Krahe
|
|
2007
|
|
0
|
|
3,622
|
|
6,870
|
|
9,000
|
|
2,855
|
|
11,665
|
|
8,300
|
|
719
|
|
43,031
|
|
|
2006
|
|
0
|
|
5,690
|
|
6,870
|
|
8,800
|
|
2,295
|
|
4,871
|
|
590
|
|
1,127
|
|
30,243
|
|
|
|
(1) |
|
The special payment for Mr. Ludrof was a single lump sum
payment made to him on December 31, 2007, under the terms
of his Post-Employment Agreement. See Compensation
Discussion and Analysis Agreements with Executives
Including Termination and Change in Control for a
description of this agreement. |
|
(2) |
|
The Dividends, Deferred Dividends & Related
Earnings column includes dividends paid on unvested
shares, as well as deferred dividends and related earnings under
the Pre-2004 LTIP. |
|
(3) |
|
We have insurance bonus agreements that provide life insurance
premiums for executive officers. |
|
(4) |
|
We have a tax-qualified 401(k) savings plan for our employees.
See also Postretirement Benefit Plans, in the notes
to consolidated financial statements in our 2007 annual report
for additional information. |
|
(5) |
|
Included in the Supplemental 401(k) Match column are
our contributions that cannot be credited to the tax-qualified
401(k) savings plan because of compensation and contribution
limits imposed by the Code. See Nonqualified Deferred
Compensation for additional discussion. |
|
(6) |
|
We pay taxes on behalf of our executives for certain life
insurance premiums, membership dues, the imputed value of
personal use of aircraft, spousal travel and other minor
perquisites. The amount for |
28
|
|
|
|
|
Mr. Brinling includes $916,793 for the tax
gross-up on
the purchase of his SERP annuity at the time of his retirement
in January 2007. |
|
(7) |
|
We provide certain dining and/or country club membership dues to
these executives. |
|
(8) |
|
The Other column includes executive physicals, the
taxable value of group term life insurance, certain spousal
travel costs and wellness incentive payments. For
Mr. Brinling, this column also includes a lump sum amount
of $48,185 that will be paid in lieu of additional benefit
accruals in the SERP and Pension Plan. See pension
plan for additional discussion. |
Agreements
with Executive Officers
On October 11, 2007, we entered into an arrangement with
our president and CEO, John J. Brinling, Jr., regarding his
compensation and benefits. Mr. Brinling assumed this
position on August 8, 2007, upon the resignation of our
former president and CEO, Jeffrey A. Ludrof. The material terms
of Mr. Brinlings compensation arrangement were
substantially the same as the Company had with Mr. Ludrof,
including an annual salary of $815,626 and bonus payments
calculated using the criteria of the Companys Annual and
Long-term Incentive Plans on a pro-rated basis for the portion
of the year that Mr. Brinling serves as president and CEO.
In addition, and in lieu of Mr. Brinlings
participation in the Companys pension plans, we will
credit an amount equal to a certain percentage of his salary to
a hypothetical account to be paid to him after conclusion of his
service as president and CEO. For more information about the
material terms of Mr. Brinlings compensation
arrangement see Compensation Discussion and
Analysis Agreements with Executives Including
Termination and Change in Control.
On December 27, 2007, the Company entered into a
Post-Employment Agreement with Mr. Ludrof which provided
for the resolution of all matters relating to
Mr. Ludrofs employment including all obligations of
the Company to Mr. Ludrof under his employment agreement.
See Compensation Discussion and Analysis
Agreements with Executives Including Termination and Change in
Control for additional information about
Mr. Ludrofs Post-Employment Agreement.
The Company has substantially identical Officer Employment
Agreements with three of its senior officers (Philip A. Garcia,
Executive Vice President and Chief Financial Officer; Michael J.
Krahe, Executive Vice President of Human Development and
Leadership; and Douglas F. Ziegler, Senior Vice President,
Treasurer and Chief Investment Officer). Each of these
agreements was amended in December of 2005, as more fully
described in our proxy statement dated March 16, 2007, and
further amended in December of 2007, as more fully described in
a current Report on
Form 8-K
filed by us on January 3, 2008. Each of the Officer
Employment Agreements provides that its term will expire on
December 11, 2008, unless earlier terminated in accordance
with its terms.
In connection with its review of the Officer Employment
Agreements for purposes of determining what changes were needed
to comply with recently adopted changes to the federal tax laws
regarding deferred compensation, and in the context of
structuring the former president and CEOs post-employment
arrangement, our board of directors decided that it will not
renew or extend the term of the Officer Employment Agreements
for these three senior officers nor replace them with new
agreements. Accordingly, the Company and each of the three
senior officers named above have entered into an Amendment and
Payment Designation Agreement dated December 31, 2007,
which (a) confirms that each of the Officer Employment
Agreements will expire on December 11, 2008, unless sooner
terminated, (b) confirms the continuation of certain
provisions that provide post-expiration protection to each
senior officer, and (c) sets a specific date and method of
payment of SERP benefits, as required by the new tax rules on
deferred compensation. Each of these provisions is discussed
below.
In 2008 the Officer Employment Agreements, as amended by the
Amendment and Payment Designation Agreements, have the following
principal terms:
|
|
|
|
|
The term of each agreement expires on December 11, 2008,
unless the agreement is previously terminated in accordance with
its terms, with or without cause (as defined in the agreement),
or due to the disability or death of the officer.
|
29
|
|
|
|
|
A minimum annual base salary at least equal to the
executives annual base salary at the time the employment
agreement was executed, subject to periodic review to reflect
the executives performance and responsibilities,
competitive compensation levels and the impact of inflation.
|
|
|
|
The eligibility of the executive under our incentive
compensation programs and employee benefit plans.
|
|
|
|
The establishment of the terms and conditions upon which we may
terminate the executives employment and the compensation
of the executive in such circumstances. The employment
agreements provide generally, among other things, that if we
terminate the employment of an executive without cause or the
executive terminates his or her employment for good reason, the
executive shall be entitled to receive:
|
|
|
|
|
|
an amount equal to 2.75 times (for executive vice presidents) or
2.5 times (for senior vice presidents) the sum of the
executives highest annual base salary during the preceding
three years, plus an amount equal to the sum of the higher of
the executives target amount or actual bonus paid under
our AIP for the three calendar years preceding the date of the
termination of employment, divided by three;
|
|
|
|
any award or other compensation to which the executive is
entitled under the Pre-2004 LTIP or the Post-2004 LTIP, as if
the executive had terminated or ceased to be an employee by
reason of retirement, death or disability;
|
|
|
|
continuing participation in any employee benefit plans for a
period of three years following a termination to the extent the
executive and his dependents were eligible to participate in
such programs immediately prior to the executives
termination; and
|
|
|
|
certain enhancements to the executives SERP benefits,
described below.
|
|
|
|
|
|
A gross-up
payment equal to the then current rate of tax under
Section 4999 of the Code multiplied by the total of the
amounts paid or payable, including the
gross-up
payment, which are deemed to be a part of an excess
parachute payment as that term is defined in
Sections 4999 and 280G of the Code;
|
|
|
|
Provisions relating to confidentiality and nondisclosure
following an executives termination; and
|
|
|
|
An agreement by the executive not to compete with us for a
period of one year following his or her termination, unless we
effected such termination without cause.
|
|
|
|
If an executive is terminated without cause by the Company or
for good reason by the executive within thirty-six months
following the expiration of the employment agreement, the
Company will pay a lump sum severance payment of two times the
executives covered compensation at the time of such
termination and the executives eligible dependents will be
entitled to continued coverage under the Companys group
health plans for a period of two years after the executive
terminates employment with the Company.
|
In addition, each agreement provides that if the
executives employment terminates, other than as a result
of a termination by the Company for cause, or if the agreement
expires, the executive is entitled to the following with respect
to our SERP:
|
|
|
|
|
immediate vesting of all accrued SERP benefits;
|
|
|
|
the right to an unreduced SERP benefit notwithstanding
termination of employment before age 65, which shall be
paid in a lump sum upon expiration of the employment agreement
or 6 months after the executives earlier termination
of employment; and
|
|
|
|
a gross-up
for income taxes on the lump sum SERP payment.
|
Additional
Executive Compensation Policies
Nonqualified
Deferred Compensation
We maintain a deferred compensation plan in which executives are
eligible to participate. This plan is an unfunded,
non-qualified, deferred compensation arrangement created for a
select group of our management and highly compensated employees.
Four of our NEOs participated in this plan during 2007.
The deferred compensation plan is an arrangement whereby the
participants can elect to defer receipt of a portion of their
compensation until a later date. Executives may elect to defer
up to 100% of their annual
30
salary and up to 100% of any cash award under our AIP. Those
participating in the plan select hypothetical investment funds
for their deferrals and are credited with the hypothetical
returns generated.
Executives identify:
|
|
|
|
|
the percentage of annual salary and bonus to be deferred;
|
|
|
|
the investment designation;
|
|
|
|
the method by which the amounts credited to the executives
deferred compensation account are to be paid;
|
|
|
|
the date on which payment of the amounts credited to the
executives deferred compensation account is to occur (in
the event of a lump sum distribution) or commence (in the event
of a form of distribution other than a lump sum); and
|
|
|
|
the beneficiary designated to receive payment of the amounts
credited to the deferred compensation account in the event the
executive dies before distribution of the amounts credited to
the deferred compensation accounts is completed.
|
The following table summarizes NEO contributions, our
contributions, credited earnings, withdrawals and the aggregate
balance as of December 31, 2007.
Nonqualified
Deferred Compensation Table for 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Executive
|
|
|
Company
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Balance at
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Earnings
|
|
|
Withdrawals/
|
|
|
December 31,
|
|
Name
|
|
in 2007(1)($)
|
|
|
in 2007(2)($)
|
|
|
in 2007 ($)
|
|
|
Distributions ($)
|
|
|
2007 ($)
|
|
|
Jeffrey A. Ludrof(3)
|
|
|
105,305
|
|
|
|
23,215
|
|
|
|
78,549
|
|
|
|
0
|
|
|
|
1,015,967
|
|
John J. Brinling, Jr.
|
|
|
0
|
|
|
|
0
|
|
|
|
65,378
|
|
|
|
0
|
|
|
|
644,982
|
|
Philip A. Garcia
|
|
|
0
|
|
|
|
0
|
|
|
|
30,428
|
|
|
|
0
|
|
|
|
553,583
|
|
Thomas B. Morgan
|
|
|
38,036
|
|
|
|
6,081
|
|
|
|
21,552
|
|
|
|
0
|
|
|
|
193,714
|
|
Douglas F. Ziegler
|
|
|
7,417
|
|
|
|
4,095
|
|
|
|
52,294
|
|
|
|
0
|
|
|
|
402,895
|
|
Michael J. Krahe
|
|
|
14,139
|
|
|
|
2,855
|
|
|
|
10,540
|
|
|
|
0
|
|
|
|
134,028
|
|
|
|
|
(1) |
|
Executive contributions include amounts deferred as supplemental
employee contributions that could not be deferred under our
tax-qualified 401(k) plan, as well as bonus amounts from the AIP
that were deferred. These amounts are disclosed in the Summary
Compensation Table in the Salary and
Non-Equity Incentive Plan Compensation columns,
respectively. |
|
(2) |
|
Our contributions are comprised of the Company match on
supplemental 401(k) employee contributions. These amounts are
(2) disclosed in the Summary Compensation Table in the
All Other Compensation column. |
|
(3) |
|
Mr. Ludrof received a deferred compensation payment of
$578,558 on January 15, 2008 for amounts deferred as of
December 31, 2004 and the related earnings thereon. The
amounts deferred on or after January 1, 2005, plus related
(3) earnings, will be paid to him in April 2008. |
With the exception of the T. Rowe Price Science and Technology
Fund, the plans hypothetical investment funds mirror
investment options that are offered to the executives in our
tax-qualified 401(k) plan. As in our 401(k) plan, executives
participating in our deferred compensation plan may exchange
investment funds daily. The return credited to their deferred
compensation plan accounts is determined by the investment
results of the hypothetical investment funds selected.
31
Grants of
Plan-Based Awards Table for 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
|
Estimated Future Payouts
|
|
|
Date Fair
|
|
|
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
|
Under Equity Incentive
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
Plan Awards(1)
|
|
|
Plan Awards(2)
|
|
|
of Stock
|
|
|
|
|
|
|
|
|
|
Thresh-
|
|
|
|
|
|
Maxi-
|
|
|
Thresh-
|
|
|
|
|
|
Maxi-
|
|
|
and
|
|
|
|
Performance
|
|
|
Grant
|
|
|
hold
|
|
|
Target
|
|
|
mum
|
|
|
hold
|
|
|
Target
|
|
|
mum
|
|
|
Option
|
|
Name
|
|
Period
|
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
Awards(3)($)
|
|
|
Jeffrey A. Ludrof
|
|
|
2007
|
|
|
|
2/22/07
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2007-2009
|
|
|
|
2/22/07
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
2,774
|
|
|
|
6,934
|
|
|
|
155,996
|
|
John J. Brinling, Jr.
|
|
|
2007
|
|
|
|
2/22/07
|
|
|
|
0
|
|
|
|
244,688
|
|
|
|
489,376
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2007-2009
|
|
|
|
2/22/07
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
14,265
|
|
|
|
35,663
|
|
|
|
802,264
|
|
Philip A. Garcia
|
|
|
2007
|
|
|
|
2/22/07
|
|
|
|
0
|
|
|
|
221,317
|
|
|
|
442,634
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2007-2009
|
|
|
|
2/22/07
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
5,278
|
|
|
|
13,195
|
|
|
|
296,835
|
|
Thomas B. Morgan
|
|
|
2007
|
|
|
|
2/22/07
|
|
|
|
0
|
|
|
|
247,765
|
|
|
|
495,530
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2007-2009
|
|
|
|
2/22/07
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
5,667
|
|
|
|
14,168
|
|
|
|
318,712
|
|
Douglas F. Ziegler
|
|
|
2007
|
|
|
|
2/22/07
|
|
|
|
0
|
|
|
|
163,363
|
|
|
|
326,726
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2007-2009
|
|
|
|
2/22/07
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
4,000
|
|
|
|
10,000
|
|
|
|
224,960
|
|
Michael J. Krahe
|
|
|
2007
|
|
|
|
2/22/07
|
|
|
|
0
|
|
|
|
165,000
|
|
|
|
330,000
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
2007-2009
|
|
|
|
2/22/07
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
3,411
|
|
|
|
8,528
|
|
|
|
191,835
|
|
|
|
|
(1) |
|
Amounts awarded under the AIP are disclosed in the
Estimated Future Payouts Under Non-Equity Incentive Plan
Awards columns. The maximum payout is 200% of the target
award. See also the AIP discussion following the Summary
Compensation Table and Incentive Plans and Deferred
Compensation, in the notes to consolidated financial
statements included in our 2007 annual report. |
|
|
|
Mr. Ludrof has no value reported in these columns since his
potential award amount was forfeited upon his voluntary
resignation on August 8, 2007. |
|
|
|
Mr. Brinling is not an official participant in the plan;
however, he will receive a cash payment outside the plan equal
to the amount he would have earned if he were a participant,
pro-rated for his months of service. The amount disclosed above
was pro-rated. See Non-Equity Incentive Plan Compensation:
Annual Incentive Plan (AIP). For Mr. Ziegler, the
amount disclosed in the Summary Compensation Table is the
current expected payout, which is less than target shown above,
because of his Asset Class Return criteria. |
|
(2) |
|
Under the Post-2004 LTIP, our compensation committee grants
performance-restricted shares to participants. These shares are
disclosed in the Estimated Future Payouts Under Equity
Incentive Plan Awards columns. The maximum payout is 250%
of the target award. |
|
|
|
Mr. Brinling is not an official participant in the plan,
however, he will receive cash payments outside the plan equal to
the amount he would have earned in stock if he were a
participant. See Stock Awards: Long-Term Incentive Plans
(LTIP). |
|
|
|
For the president and CEO position, the LTIP target was set at
14,265 shares for the
2007-2009
performance period. In the table above, Mr. Ludrofs
shares were pro-rated based on 7 months of service in the
3 year performance period. Mr. Brinlings have
not yet been pro-rated since he is still serving as president
and CEO. |
|
(3) |
|
The grant date fair value of the award was calculated by
multiplying the target equity incentive plan award by the
closing share price of $56.24 on February 22, 2007, the
date our compensation committee formally approved the Post-2004
LTIP performance goals for the
2007-2009
performance period. |
An executives target award is established by our
compensation committee. The target number of performance shares
for each executive is based on a competitive total direct
compensation target opportunity and an
agreed-upon
target pay mix. The target number of LTIP shares for a
performance period is determined by dividing the dollar target
by the average share price for the month of December that
precedes the beginning of the performance period. When our
compensation committee approves target awards, it also approves
the performance measures, performance goals and the calibration
of shares earned at different performance levels above and below
the performance goals.
32
Under the Post-2004 LTIP, the actual number and value of the
restricted shares of Class A common stock paid to an
executive at the end of a performance period may be more or less
than the executives target. However, the number of
restricted shares of Class A common stock issued to an
executive may not exceed 250,000 shares at the end of a
performance period. See also Incentive Plans and Deferred
Compensation, in the notes to consolidated financial
statements contained in our 2007 annual report.
Outstanding
Equity Awards at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
Market or
|
|
|
|
Number of
|
|
|
Market Value
|
|
|
Number of
|
|
|
Payout Value of
|
|
|
|
Shares or
|
|
|
of Shares or
|
|
|
Unearned Shares,
|
|
|
Unearned Shares,
|
|
|
|
Units of Stock
|
|
|
Units of Stock
|
|
|
Units or Other
|
|
|
Units or Other
|
|
|
|
That Have
|
|
|
That Have
|
|
|
Rights That Have
|
|
|
Rights That Have
|
|
|
|
Not Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
|
Jeffrey A. Ludrof
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-2009
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
2,774
|
|
|
|
143,943
|
|
2006-2008
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
9,591
|
|
|
|
497,677
|
|
2005-2007
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
34,575
|
|
|
|
1,794,097
|
|
2003-2005
|
|
|
3,593
|
|
|
|
186,441
|
|
|
|
n/a
|
|
|
|
n/a
|
|
John J. Brinling, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-2009
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
11,491
|
|
|
|
596,268
|
|
2006-2008
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
10,278
|
|
|
|
533,325
|
|
2005-2007
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
13,423
|
|
|
|
696,519
|
|
2003-2005
|
|
|
975
|
|
|
|
50,593
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Philip A. Garcia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-2009
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
5,278
|
|
|
|
273,875
|
|
2006-2008
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
5,015
|
|
|
|
260,228
|
|
2005-2007
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
12,053
|
|
|
|
625,430
|
|
2003-2005
|
|
|
1,185
|
|
|
|
61,490
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Thomas B. Morgan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-2009
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
5,667
|
|
|
|
294,061
|
|
2006-2008
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
5,429
|
|
|
|
281,711
|
|
2005-2007
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
11,003
|
|
|
|
570,946
|
|
2003-2005
|
|
|
823
|
|
|
|
42,705
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Douglas F. Ziegler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-2009
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
4,000
|
|
|
|
207,560
|
|
2006-2008
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
4,092
|
|
|
|
212,334
|
|
2005-2007
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
9,133
|
|
|
|
473,911
|
|
2003-2005
|
|
|
786
|
|
|
|
40,786
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Michael J. Krahe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-2009
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
3,411
|
|
|
|
176,997
|
|
2006-2008
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
3,186
|
|
|
|
165,322
|
|
2005-2007
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
7,515
|
|
|
|
389,953
|
|
2003-2005
|
|
|
625
|
|
|
|
32,431
|
|
|
|
n/a
|
|
|
|
n/a
|
|
All shares in the above table were valued using the closing
share price of $51.89 at December 31, 2007.
The amounts disclosed in the above table for Mr. Ludrof for
the
2006-2008
and
2007-2009
performance periods have been pro-rated based on his service.
The amounts for Mr. Brinling include both his service as
33
president and CEO and as executive vice president of EFL.
Mr. Brinling currently is not an official participant in
the LTIP; however, he will receive cash payments outside the
plan equal to the value of stock he would have received had he
been a participant. See Stock Awards: Long-Term Incentive
Plans (LTIP).
Under the Pre-2004 LTIP, the three-year performance period is
followed by a three-year vesting period. The shares related to
the
2003-2005
performance period will vest on December 31, 2008.
Mr. Ludrofs shares include 428 excess shares granted
outside the Pre-2004 LTIP.
Under the Post-2004 LTIP, any shares earned vest as of December
31 in the last year of the performance period. The awards
disclosed for the performance period
2005-2007
presented in the table above reflect the maximum number of
shares available under the plan, which is 250% of the target
award. The favorable result of this performance period was due
in part to significant weather events that did not impact us due
to the regional nature of our business, but did adversely affect
our peer groups combined ratio. Therefore, the actual
number of shares expected to be awarded for this performance
period is estimated to be close to the maximum amount. However,
we valued the
2006-2008
and
2007-2009
performance periods at the target level in the table above
because our performance for these periods is likely to
approximate the property and casualty industry as a whole. Thus,
as of December 31, 2007, target amounts would best reflect
the possible awards earned for each NEO for the three-year
period included in those performance periods.
The
2005-2007
performance period is closed and participants have vested in
those shares. However, distribution of the shares will not occur
until the spring of 2008 since computations require peer group
data for the year ended December 31, 2007, which is not yet
available. Accordingly, the amounts are reported in this table
rather than the Option Exercises and Stock Vested in Fiscal Year
2007 table below.
Option
Exercises and Stock Vested in Fiscal Year 2007
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares Acquired
|
|
|
Value Realized
|
|
|
|
Upon Vesting
|
|
|
Upon Vesting
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
Jeffrey A. Ludrof
|
|
|
47,018
|
|
|
|
2,564,768
|
|
John J. Brinling, Jr.
|
|
|
16,161
|
|
|
|
884,847
|
|
Philip A. Garcia
|
|
|
15,749
|
|
|
|
859,339
|
|
Thomas B. Morgan
|
|
|
12,302
|
|
|
|
675,814
|
|
Douglas F. Ziegler
|
|
|
12,589
|
|
|
|
688,994
|
|
Michael J. Krahe
|
|
|
9,076
|
|
|
|
496,675
|
|
The number of shares acquired upon vesting relates to the
Pre-2004 LTIP performance periods of
2002-2004
and
2003-2005,
as well as the Post-2004 LTIP performance period of
2004-2006.
The Pre-2004 LTIP shares were valued using a $49.11 share
price, which was the average of the high and low stock price on
January 23, 2008, the date of delivery of the shares. The
Post-2004 LTIP shares were valued using a $55.59 share
price, which was the average of the high and low stock price on
May 24, 2007, the date of delivery of the shares.
Mr. Ludrofs vested shares include 1,217 excess
shares, valued at $59,767 on January 23, 2008, in addition
to the shares that vested under the Pre-2004 LTIP. In addition
to the shares that vested under the Post-2004 LTIP,
Mr. Brinlings vested shares include 3,666 shares
paid to him on May 24, 2007 which were valued at $203,169;
these shares were previously deferred under the Pre-2004 LTIP
performance periods of
1997-1999
and
1998-2000.
We do not offer option awards to our executives.
34
Director
Compensation
The following table sets forth the compensation earned by our
directors for services rendered in that capacity during 2007.
Prior to his resignation, Mr. Ludrof did not receive
compensation for serving on our board of directors as that is
considered as part of the duties of the chief executive officer.
Director
Compensation Table for 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
|
|
Earned
|
|
|
|
|
|
Deferred
|
|
|
All Other
|
|
|
|
|
|
|
or Paid
|
|
|
Stock
|
|
|
Compensation
|
|
|
Compen-
|
|
|
|
|
|
|
in Cash
|
|
|
Awards
|
|
|
Earnings
|
|
|
sation
|
|
|
Total
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)
|
|
|
Kaj Ahlmann
|
|
|
112,583
|
|
|
|
31,468
|
|
|
|
0
|
|
|
|
0
|
|
|
|
144,051
|
|
John T. Baily
|
|
|
102,083
|
|
|
|
31,468
|
|
|
|
0
|
|
|
|
0
|
|
|
|
133,551
|
|
J. Ralph Borneman, Jr.
|
|
|
77,883
|
|
|
|
29,604
|
|
|
|
1,485
|
|
|
|
0
|
|
|
|
108,972
|
|
Patricia A. Garrison-Corbin
|
|
|
63,083
|
|
|
|
29,604
|
|
|
|
0
|
|
|
|
0
|
|
|
|
92,687
|
|
John R. Graham(5)
|
|
|
35,833
|
|
|
|
18,708
|
|
|
|
0
|
|
|
|
0
|
|
|
|
54,541
|
|
Jonathan Hirt Hagen
|
|
|
82,083
|
|
|
|
35,351
|
|
|
|
0
|
|
|
|
0
|
|
|
|
117,434
|
|
Susan Hirt Hagen
|
|
|
60,083
|
|
|
|
29,604
|
|
|
|
0
|
|
|
|
22,697
|
|
|
|
112,384
|
|
Thomas B. Hagen(5)
|
|
|
41,750
|
|
|
|
20,095
|
|
|
|
0
|
|
|
|
22,717
|
|
|
|
84,562
|
|
C. Scott Hartz
|
|
|
79,583
|
|
|
|
31,468
|
|
|
|
0
|
|
|
|
0
|
|
|
|
111,051
|
|
F. William Hirt(5)
|
|
|
26,083
|
|
|
|
47,247
|
|
|
|
0
|
|
|
|
115,054
|
|
|
|
188,384
|
|
Claude C. Lilly, III
|
|
|
90,333
|
|
|
|
29,604
|
|
|
|
0
|
|
|
|
0
|
|
|
|
119,937
|
|
Jeffrey A. Ludrof
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Lucian L. Morrison
|
|
|
83,083
|
|
|
|
37,492
|
|
|
|
0
|
|
|
|
0
|
|
|
|
120,575
|
|
Thomas W. Palmer
|
|
|
77,583
|
|
|
|
37,492
|
|
|
|
0
|
|
|
|
0
|
|
|
|
115,075
|
|
Elizabeth A. Vorsheck(5)
|
|
|
43,500
|
|
|
|
20,095
|
|
|
|
0
|
|
|
|
0
|
|
|
|
63,595
|
|
Robert C. Wilburn
|
|
|
79,583
|
|
|
|
29,604
|
|
|
|
0
|
|
|
|
0
|
|
|
|
109,187
|
|
|
|
|
(1) |
|
For further information on directors compensation, see
2007 Director Compensation below. |
|
(2) |
|
Amounts reported in this column represent the change in accrual
during 2007 in the directors vested deferred stock account
under the outside directors deferred compensation plan. This
amount reflects changes in share price from 2006 to 2007 for
vested share credits, the vesting of share credits during the
year and dividend equivalent credits added to the account when
dividends are paid on shares of our Class A common stock.
See 2007 Director Compensation below for a more
detailed explanation of the deferred stock account. |
|
(3) |
|
This amount represents the increase in present value from
December 31, 2006 to December 31, 2007 for
Mr. Borneman, the only director who is a participant in a
frozen pension plan for outside directors. The present values
were calculated using an annual benefit of $15,000 and discount
rates of 6.25% and 6.62% at December 31, 2006 and 2007,
respectively. No pre-retirement decrements are assumed prior to
the beginning of the receipt of benefits at age 75 (payable
for 21 quarters). All other assumptions are the same as used for
the FAS 87 valuations. |
|
(4) |
|
Mrs. Hagen, Mr. Hagen and Mr. Hirt received
$22,697, $22,717 and $115,054, respectively, as indemnification
for early repayments on split-dollar life insurance policies.
See Related Person Transactions for further details. |
|
(5) |
|
Mrs. Vorsheck and Mr. Hagen joined our board of
directors in April 2007. Mr. Graham did not stand for
re-election as a director. Mr. Hirt was a director and
chairman of our board until his death on July 13, 2007. As
a result, fees earned by these directors represent only partial
year values. Mr. Hagen was named non-executive chairman of
our board on August 1, 2007, succeeding Mr. Hirt.
Also, in August 2007, Mr. Ludrof resigned from our board
upon termination of employment. |
35
2007 Director
Compensation
The annual retainer in 2007 for our directors for services to
us, EFL, the Exchange and their subsidiaries and affiliates is
$30,000, plus $1,500 for each board of directors or committee
meeting attended. Committee chairpersons each receive an
additional $5,000, except for our audit committee chairperson
who receives $8,500 and our presiding director who receives
$20,000. In lieu of committee meeting fees and committee chair
fees, the chairman of our board receives an additional annual
fee of $30,000. Directors are paid retainers quarterly, and all
directors are reimbursed for their expenses incurred for
attending meetings. Our board of directors has since eliminated
the presiding director designation.
The discussions herein reflect directors compensation
earned in 2007 for services rendered. Officers of the Company
who serve as directors are not compensated for attendance at
meetings of our board of directors and its committees. See also
Related Person Transactions. A director may elect
prior to the end of a calendar year to defer receipt of up to
100% of the directors compensation for the following year,
including retainers, meeting fees and chairperson and presiding
director fees. A deferred compensation account is maintained for
each outside director who elects to defer director compensation.
A director who defers compensation may select hypothetical
investment options for amounts in the directors deferred
compensation account and such account is credited with
hypothetical interest, based on the investment results of the
hypothetical investment options selected. The hypothetical
investment funds mirror investment options that are offered to
participants in our tax-qualified 401(k) plan. As in our 401(k)
plan, participants in the outside directors deferred
compensation plan may exchange investment funds daily. The
return credited to a participants deferred compensation
plan account is determined by the investment results of the
hypothetical investment funds selected by the participant.
We also maintain a deferred stock account in the deferred
compensation plan for each outside director. The purpose of this
plan is to further align the interests of outside directors with
shareholders by providing for payment of a portion of annual
compensation for directors services in shares of our
Class A common stock. The account is credited annually with
a grant of shares of Class A common stock determined by
dividing $40,000 by the closing price of the Class A common
stock on the first business day after our annual meeting of
shareholders. Each director vests in the grant 25% every three
full calendar months over the course of a year, with the final
25% vesting on the day before the date of the next annual
meeting if the next annual meeting is held before the final
three full calendar months have elapsed. Dividends paid by us
are reinvested into each directors account with additional
shares of our Class A common stock and such credited shares
vest immediately. We account for the fair value of our grants
under the plan in accordance with FAS 148, Accounting
for Stock Based Compensation. The annual
charge related to this plan to us and our affiliates totaled
approximately $511,010 for 2007; our share of this charge for
2007 was approximately $323,891. In future years, we will be
responsible for the entire charge since director compensation
expense is no longer being allocated to our subsidiaries and
affiliates.
The benefit provided under the pension plan for outside
directors equals the annual retainer fee at the date of
retirement. The outside directors plan has been frozen
since 1997.
Director
Stock Ownership Guidelines
We maintain certain minimum requirements for stock ownership by
each of our directors. On April 17, 2007, our board of
directors increased this minimum ownership requirement from
$35,000 to $40,000 of our stock on a cost basis. Newly elected
directors are required to purchase an equivalent of $40,000 of
our stock on a cost basis within 24 months of having been
elected as a director. Incumbent directors are required to
purchase any additional shares necessary to bring their current
holdings on a cost basis up to $40,000 within 12 months
from March 1, 2007. Any director who, as of March 1,
2007, already possesses $40,000 or more of our stock is deemed
to have met the stock ownership requirements.
36
Compensation
Committee Interlocks and Insider Participation
Our compensation committee presently consists of Chair Robert C.
Wilburn, Kaj Ahlmann, Jonathan Hirt Hagen and Lucian L.
Morrison. During 2007, no member of our compensation committee
was an officer or employee of us, the Exchange, EFL or any of
their respective subsidiaries or affiliates, nor was any
committee member formerly an officer of the Company. All of the
directors that serve on our compensation committee are
independent directors as defined in the NASDAQ rules and
qualified directors as required under the Holding Companies Act.
Furthermore, none of our executive officers serves as a member
of a compensation committee of another entity, one of whose
executive officers serves on our compensation committee, nor do
any of our executive officers serve as a director of another
entity, one of whose executive officers serves on our
compensation committee.
REPORT OF
OUR EXECUTIVE COMPENSATION AND DEVELOPMENT COMMITTEE
The following report of our compensation committee does not
constitute soliciting material and shall not be deemed filed or
incorporated by reference into any filing by us under the
Securities Act of 1933, or the 1933 Act, or the
Exchange Act, except to the extent that we specifically
incorporate this report of our compensation committee by
reference therein.
As part of its oversight of the compensation of our named
executive officers, our executive compensation and development
committee:
|
|
|
|
|
reviewed the comparative compensation analysis prepared by our
independent compensation consultants and the peer group
compensation information we prepared;
|
|
|
|
met with representatives of our independent compensation
consultants; and
|
|
|
|
discussed with our chief executive officer the performance and
compensation of our named executive officers other than our
chief executive officer.
|
In addition to the above-described reviews and discussions, the
members of our executive compensation and development committee
reviewed and discussed the Compensation Discussion and Analysis
and, based on such review and discussions, recommended to our
board of directors that the Compensation Discussion and Analysis
be included in this proxy statement for filing with the SEC and
the incorporation by reference of such Compensation Discussion
and Analysis in our annual report on
Form 10-K
for the year ended December 31, 2007 for filing with the
SEC.
Erie Indemnity Company Executive Compensation and Development
Committee:
Robert C. Wilburn, Chair
Kaj Ahlmann
Jonathan Hirt Hagen
Lucian L. Morrison
March 3, 2008
37
RELATED
PERSON TRANSACTIONS
Recognizing that related person transactions present a
heightened risk of conflicts of interest, or create the
appearance of conflicts of interest, on February 22, 2007
our board of directors adopted a policy recommended by our
nominating committee in connection with all transactions
involving us and a related person. This policy requires that,
within the first 60 days of each fiscal year, all related
person transactions from the prior fiscal year be reviewed by
our nominating committee and either be approved or disapproved
for the current fiscal year. The policy also requires that any
other proposed related person transaction or any change to a
previously approved related person transaction, be presented to
our nominating committee for approval or disapproval. A copy of
the policy as adopted by our board of directors may be viewed on
our website at
http://www.erieinsurance.com.
J. Ralph Borneman, Jr., one of our directors, is an
officer and principal shareholder of an insurance agency that
receives insurance commissions in the ordinary course of
business from the insurance companies we manage in accordance
with their standard commission schedules and agents
contracts. Payments made to the Borneman insurance agency for
commissions written on insurance policies from the Property and
Casualty Group and EFL totaled $3,908,731 in 2007.
Pursuant to previously approved compensation arrangements for
executive officers, we maintained split-dollar life insurance
arrangements for the following of our former chief executive
officers: F. William Hirt, the chairman of our board of
directors until his death on July 13, 2007, and the father
of Elizabeth A. Vorsheck, one of our directors, and Thomas B.
Hagen, the current chairman of our board of directors, the
husband of Mrs. Hagen, one of our directors, and the father
of Jonathan Hirt Hagen, one of our directors. In 2003, we
negotiated the termination of these split-dollar arrangements.
For all split-dollar insurance policies for which Thomas B.
Hagen and Susan Hirt Hagen are the insureds, the policy owner in
each case is an irrevocable trust created by the insured. With
respect to the single life split-dollar insurance policies
purchased in 1988 with Thomas B. Hagen or Susan Hirt Hagen as
the insured, the policy owner entered into an agreement to
reimburse us on December 31, 2003 for insurance premiums we
previously advanced totaling $258,008. Under the split-dollar
agreement, this reimbursement was not due until the death of the
insured for each policy. The owner of the policies borrowed
against the policies to make this repayment. Beginning in 2004,
we agreed to provide annually to the policy owners, as
indemnification for the early repayment, an amount equal to the
interest on the policy loans,
grossed-up
for income taxes. The amount of this payment for 2007 was
$45,414.
With respect to the single life split-dollar insurance policy
purchased in 1988 with Mr. Hirt as the insured, the policy
owner entered into an agreement to reimburse us on
December 31, 2003 for insurance premiums we previously
advanced totaling $256,662. Under the split-dollar agreement,
this reimbursement was not due until the death of the insured.
The owner of the policy borrowed against the policy to make this
repayment. Beginning in 2004, we agreed to provide annually to
the insured, as indemnification for the early repayment, an
amount equal to the interest on the policy loan,
grossed-up
for income taxes. This payment totaled $43,371 in 2007. With
respect to the second to die split-dollar life insurance policy
purchased in 1990 with Mr. Hirt and his wife as the
insureds, the policy owner entered into an agreement to
reimburse us on December 31, 2003 for insurance premiums we
previously advanced totaling $914,304. Under the split-dollar
agreement, this reimbursement was not due until the deaths of
the respective insureds. The owner of the policy borrowed
against the policy to make this repayment. Beginning in 2004, we
agreed to provide annually to the insureds, as indemnification
for the early repayment, an amount equal to the average value of
the economic benefit to the insureds for the next five years.
This value was derived from the P.S. 58 rates provided by the
Internal Revenue Service to measure the taxable economic benefit
received by employees from the pure insurance protection
provided by split-dollar plans and qualified retirement plans.
This payment totaled $71,683 in 2007.
38
INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS
Pursuant to our bylaws, our audit committee has sole authority
to engage our independent registered public accountants. Our
audit committee annually considers the selection of our
independent registered public accountants. Our audit committee
selected Ernst & Young LLP to be our independent
registered public accountants for the fiscal years ended
December 31, 2007 and 2006 and Ernst & Young LLP
served in that capacity for the fiscal years ended
December 31, 2007 and 2006.
Representatives from Ernst & Young LLP are expected to
attend our annual meeting and will have the opportunity to make
a statement if they so desire. Such representatives are expected
to be available at our annual meeting to respond to appropriate
questions from shareholders.
REPORT OF
OUR AUDIT COMMITTEE
The following report of our audit committee does not
constitute soliciting material and shall not be deemed filed or
incorporated by reference into any other filing by us under the
1933 Act or the Exchange Act, except to the extent we
specifically incorporate this report by reference therein.
The audit committee of our board of directors oversees the
quality and integrity of our accounting, auditing and financial
reporting practices. Our audit committee has adopted a written
charter, a copy of which may be viewed on our website at:
http://www.erieinsurance.com.
Our audit committee is presently comprised of five directors,
all of whom are independent directors as defined in the NASDAQ
and SEC rules and all of whom satisfy the financial literacy
requirements thereof. In addition, our board of directors has
determined that one member of our audit committee,
Mr. Baily, satisfies the financial expertise requirements
and has the requisite experience as defined by rules of the SEC.
Our audit committees charter states that members may not
simultaneously serve on the audit committees of more than two
other public companies without approval of our board of
directors. Mr. Baily and Mr. Lilly serve on the audit
committees of more than two other public companies and they have
received the requisite approval to do so from our board of
directors.
Our audit committee, which met 7 times during 2007, has the
responsibility, consistent with the requirements of
Section 1405(c)(4) of the Holding Companies Act and our
bylaws, for the selection of our independent registered public
accountants, reviewing the scope and results of the audit and
reviewing the adequacy of our accounting, financial, internal
and operating controls.
Our audit committee oversees our internal audit department, and
accordingly reviews and approves its audit plans, reviews its
audit reports and evaluates its performance.
With respect to enterprise risk management, our audit committee
meets periodically with management to inquire about significant
risks and exposures, and to review and assess the steps taken to
monitor and manage such risks.
Our audit committee reviews our financial reporting process on
behalf of our board of directors. In fulfilling its
responsibilities, our audit committee reviewed and discussed our
audited consolidated financial statements for the year ended
December 31, 2007 with management.
Throughout 2007, management continued its documentation, testing
and evaluation of our system of internal control over financial
reporting as required by Section 404 of Sarbanes-Oxley and
related regulations. Our audit committee was kept apprised of
the progress of the evaluation through periodic updates from
management and Ernst & Young LLP and provided
oversight to management throughout the process. Our audit
committee reviewed managements report on the effectiveness
of our internal control over financial reporting. Our audit
committee also reviewed Ernst & Young LLPs
reported opinion on the effectiveness of internal control over
financial reporting based on its audit.
Our audit committee discussed with Ernst & Young LLP
the matters required to be discussed by Statement of Auditing
Standards No. 61, Communication with Audit
Committees, as amended. In addition, our audit committee
received and reviewed the written disclosures and the letter
from Ernst & Young LLP required by Independence
Standards Board Standard No. 1, Independence Discussions
with Audit Committees, and has discussed with
Ernst & Young LLP matters relating to its independence.
39
Our audit committee reviews its charter annually. Our audit
committee has also established a procedure whereby persons with
complaints or concerns about accounting, internal control or
auditing matters may contact our audit committee anonymously.
Based upon the discussions and reviews referred to above, our
audit committee recommended to our board of directors that
(1) our audited consolidated financial statements be
included in our annual report on
Form 10-K
for the year ended December 31, 2007 to be filed with the
SEC, and (2) our board of directors accept
managements report on its assessment of the effectiveness
of our internal control over financial reporting.
Erie Indemnity Company Audit Committee:
John T. Baily, Chair
C. Scott Hartz
Claude C. Lilly, III
Lucian L. Morrison
Robert C. Wilburn
February 20, 2008
40
AUDIT
FEES
Our audit committee approves the fees and other significant
compensation to be paid to our independent registered public
accountants for the purpose of preparing or issuing an audit
report or related work. We provide appropriate funding, as
determined by our audit committee, for payment of fees and other
significant compensation to our independent registered public
accountants. Our audit committee also preapproves all auditing
services and permitted non-audit services (including the fees
and terms thereof) to be performed for us by our independent
registered public accountants, subject to the de minimis
exceptions for non-audit services described in the Exchange Act.
Our audit committee delegated to our audit committee chair
preapproval authority for additional audit and non-audit
services subject to subsequent approval by the full audit
committee at its next scheduled meeting.
Our audit committee reviewed and discussed with
Ernst & Young LLP the following fees for services,
none of which were deemed to be for consulting services,
rendered for our 2007 and 2006 fiscal years and considered the
compatibility of non-audit services with Ernst & Young
LLPs independence:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Erie Indemnity
|
|
|
Erie Insurance
|
|
|
Affiliated
|
|
|
|
|
|
|
Company and
|
|
|
Exchange and
|
|
|
Entities
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
(EFL)
|
|
|
Total
|
|
|
Audit fees
|
|
$
|
1,188,040
|
|
|
$
|
272,935
|
|
|
$
|
252,788
|
|
|
$
|
1,713,763
|
|
Audit-related fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other fees
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
1,194,040
|
|
|
$
|
272,935
|
|
|
$
|
252,788
|
|
|
$
|
1,719,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Erie Indemnity
|
|
|
Erie Insurance
|
|
|
Affiliated
|
|
|
|
|
|
|
Company and
|
|
|
Exchange and
|
|
|
Entities
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
(EFL)
|
|
|
Total
|
|
|
Audit fees
|
|
$
|
1,261,448
|
|
|
$
|
240,060
|
|
|
$
|
239,607
|
|
|
$
|
1,741,115
|
|
Audit-related fees
|
|
|
438,766
|
|
|
|
19,200
|
|
|
|
|
|
|
|
457,966
|
|
Tax fees
|
|
|
3,730
|
|
|
|
|
|
|
|
|
|
|
|
3,730
|
|
All other fees
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
1,709,944
|
|
|
$
|
259,260
|
|
|
$
|
239,607
|
|
|
$
|
2,208,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANNUAL
REPORT
A copy of our annual report for 2007 is being mailed to all
holders of Class A common stock and Class B common
stock together with this proxy statement.
SHAREHOLDER
PROPOSALS
Any shareholder who, in accordance with and subject to the
provisions of
Rule 14a-8
of the proxy rules of the SEC, wishes to submit a proposal for
inclusion in our proxy statement for our 2009 annual meeting of
shareholders must deliver such proposal in writing to our
secretary at our principal executive offices at 100 Erie
Insurance Place, Erie, Pennsylvania 16530, not later than
November 24, 2008.
Pursuant to Section 2.07(a) of our bylaws, the full text of
which follows, if a shareholder desires to present at our 2009
annual meeting of shareholders a proposal to our nominating
committee relating to candidates for consideration as to their
nomination for election as directors by shareholders, such
shareholder must comply with the provisions for shareholder
proposals set forth in Section 2.07(a) of our bylaws,
including delivery of such proposal in writing to our Secretary,
100 Erie Insurance Place, Erie, Pennsylvania 16530, no earlier
than November 6, 2008 and no later than December 9,
2008. In addition, holders of Class B common stock may
nominate candidates for election as director at any meeting at
which directors are to be elected.
41
If a holder of Class A common stock desires to present a
proposal at our 2009 annual meeting of shareholders relating to
other than nominations for and election of directors, otherwise
than pursuant to
Rule 14a-8
of the proxy rules of the SEC, such shareholder must comply with
the provisions for shareholder proposals set forth in
Section 2.07(b) of our bylaws, the full text of which
follows, including the delivery of such proposal in writing to
our Secretary, 100 Erie Insurance Place, Erie, Pennsylvania
16530, no earlier than November 24, 2008 and no later than
December 26, 2008. A holder of Class B common stock
may bring a matter before a meeting of shareholders without
advance notice as long as such matter is a proper matter for
shareholder action.
The full text of Section 2.07 of our bylaws is as follows:
Section 2.07 Shareholder Proposals.
(a) Shareholder Proposals Relating to Candidates for
Election as Directors.
(1) Nominations of persons for election to the Board of
Directors may be made at any meeting of Shareholders at which
Directors are to be elected (i) by or at the direction of
the Nominating and Governance Committee of the Board of
Directors (the Nominating Committee) or (ii) by
any Voting Shareholder.
(2) A Shareholder, whether or not entitled to vote in the
election of Directors, may propose to the Nominating Committee
of the Board of Directors for their consideration and review one
(1) or more persons whom the Shareholder believes would be
appropriate candidates for election by Shareholders as a
Director at any meeting of Shareholders at which Directors are
to be elected (a Written Proposal). Such Written
Proposal shall be made by notice in writing, delivered in person
or by first class United States mail postage prepaid or by
reputable overnight delivery service, to the Nominating
Committee of the Board of Directors to the attention of the
secretary of the corporation at the principal office of the
corporation, within the time limits specified in this clause
(2). The Nominating Committee shall consider any such Written
Proposal received not less than 105 calendar days nor more than
135 calendar days before the first anniversary of the date on
which the corporation first mailed its proxy statement to
Shareholders for the Annual Meeting of Shareholders in the
immediately preceding year. Notwithstanding the foregoing, in
the case of (i) an Annual Meeting of Shareholders that is
called for a date that is not within thirty (30) calendar
days before or after the first anniversary date of the Annual
Meeting of Shareholders in the immediately preceding year or
(ii) a special meeting at which Directors will be elected,
any such Written Proposal by a Shareholder must be received by
the Nominating Committee within ten (10) days after the
date the corporation first shall have mailed notice to its
Shareholders that a meeting of Shareholders will be held, issued
a press release, filed a periodic report with the Securities and
Exchange Commission (the SEC) or otherwise publicly
disseminated notice that such annual or special meeting of
Shareholders will be held. The Nominating Committee may consider
any other Written Proposal by a Shareholder of a candidate for
election as a Director in its discretion.
(3) The Nominating Committee shall be required to propose a
slate of nominees for election as Directors prior to each
election of Directors, whether such election occurs at an annual
or special meeting of shareholders. Promptly upon the Nominating
Committees determining such slate of nominees for election
as Directors, the corporation shall issue a press release, file
a report with the SEC or otherwise publicly disseminate notice
of the Nominating Committees nominees for election as
Directors (the Public Notice).
(4) A Written Proposal shall set forth (A) the name
and address of the Shareholder who has made the proposal,
(B) the name, age, business address and, if known,
residence address of each person so proposed, (C) the
principal occupation or employment of each person so proposed
for the past five (5) years, (D) the number of shares
of capital stock of the corporation beneficially owned within
the meaning of SEC
Rule 13d-3
by each person so proposed and the earliest date of acquisition
of any such capital stock, (E) a description of any verbal
or written arrangement or understanding between each person so
proposed and the proposing Shareholder with respect to such
persons proposed election as a Director and actions to be
proposed or taken by such person if elected as a Director,
(F) the written consent of each person so proposed to serve
as a Director if nominated and elected as a Director and
(G) such other information regarding each such person as
would be required under the proxy solicitation rules of the SEC
if proxies were to be solicited for the election as a Director
of each person so proposed.
42
(5) If a Written Proposal submitted to the Nominating
Committee fails, in the reasonable judgment of the Nominating
Committee, to contain the information specified in
clause (4) hereof or is otherwise deficient, the Chairman
of the Nominating Committee shall, as promptly as is practicable
under the circumstances, provide written notice to the
Shareholder of such failure or deficiency in the Written
Proposal by such Shareholder and such Shareholder shall have
five (5) business days from receipt of such notice to
submit a revised Written Proposal that corrects such failure or
deficiency in all material respects.
(b) Shareholder Proposals Relating to Matters Other
Than Candidates for Election as Directors.
(1) A Voting Shareholder of the corporation may bring a
matter (other than a nomination of a candidate for election as a
Director which is covered by subsection (a) of this
Section 2.07) before a meeting of Shareholders only if such
matter is a proper matter for Voting Shareholder action
regardless of whether such Voting Shareholder complies with the
provisions of
Rule 14a-8
under the Securities Exchange Act of 1934 (as amended) relating
to inclusion of Shareholder proposals in the corporations
proxy statement.
(2) A Shareholder of the corporation, other than a Voting
Shareholder (a Non-Voting Shareholder), may bring a
matter (other than a proposal to the Nominating Committee of a
candidate for election as a Director which is covered by
subsection (a) of this Section 2.07) to the Board of
Directors for possible inclusion by the Board of Directors (in
its sole discretion) in our proxy materials in connection with a
meeting of Shareholders only if such matter is a proper matter
for Shareholder action and such Non-Voting Shareholder shall
have provided notice in writing, delivered in person or by first
class United States mail postage prepaid or by reputable
overnight delivery service, to the secretary of the corporation
at the principal office of the corporation, within the time
limits specified herein, which proposal shall contain all
information required by the provisions of
Rule 14a-8
under the Securities Exchange Act of 1934 (as amended) relating
to inclusion of shareholder proposals in the corporations
proxy statement.
(3) In the case of an annual meeting of Shareholders, any
such written notice of presentation of a matter by a Non-Voting
Shareholder must be received by the secretary of the corporation
not less than 90 calendar days nor more than 120 days
before the first anniversary of the date on which the
corporation first mailed its proxy statement to Shareholders for
the annual meeting of Shareholders in the immediately preceding
year; provided, however, that in the case of an annual meeting
of Shareholders that is called for a date which is not within 30
calendar days before or after the first anniversary date of the
annual meeting of Shareholders in the immediately preceding
year, any such written notice of a proposal of a matter to the
Board of Directors by a Non-Voting Shareholder of a matter must
be received by the secretary of the corporation within five
business days after the earlier of the date the corporation
shall have mailed notice to its Shareholders that an annual
meeting of Shareholders will be held, issued a press release,
filed a periodic report with the SEC, or otherwise publicly
disseminated that an annual meeting of Shareholders will be held.
(4) In the case of a special meeting of Shareholders, any
such written notice of a proposal of a matter to the Board of
Directors by a Non-Voting Shareholder must be received by the
secretary of the corporation within five business days after the
earlier of the date the corporation shall have mailed notice to
its Shareholders that a special meeting of Shareholders will be
held, issued a press release, filed a periodic report with the
SEC, or otherwise publicly disseminated notice that a special
meeting of Shareholders will be held.
(5) Such written notice of a proposal of a matter to the
Board of Directors by a Non-Voting Shareholder shall set forth
information regarding such matter equivalent to the information
regarding such matter that would be required under the proxy
solicitation rules of the SEC if proxies were solicited for
Shareholder consideration of such matter at a meeting of
Shareholders.
(6) If a written notice of presentation of a matter
submitted by a Non-Voting Shareholder to the Board of Directors
fails, in the reasonable judgment of the Board of Directors, to
contain the information specified in clause (iv) hereof or
is otherwise deficient, the Chairperson of the Board of
Directors shall, as promptly as is practicable under the
circumstances, provide written notice to the Non-Voting
Shareholder who submitted the written notice of such failure or
deficiency in the written notice and such Non-Voting Shareholder
shall have five business days from receipt of such notice to
submit a revised written notice that corrects such failure or
deficiency in all material respects.
43
OTHER
MATTERS
Our board of directors does not know of any matter to be
presented for consideration at our annual meeting 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 other matter presented at our annual
meeting as directed by a majority of our board of directors
unless prohibited by applicable provisions of the Exchange Act.
NOTICE OF
INTERNET AVAILABILITY OF PROXY MATERIALS
Important Notice Regarding the Availability of Proxy
Materials for the Annual Meeting of Shareholders to be held on
April 22, 2008.
Our proxy statement and annual report are available at
http://www.erieindemnityproxy.com.
By order of our board of directors,
James J. Tanous,
Executive Vice President,
Secretary and General Counsel
March 24, 2008
Erie, Pennsylvania
44
ERIE INDEMNITY COMPANY
CLASS B COMMON STOCK
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 22, 2008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints John J. Brinling, Jr., Philip A. Garcia and
Thomas B. Hagen, and each or any of them, proxies of the undersigned, with full power of
substitution, to vote all of the shares of the Class B Common Stock of Erie Indemnity Company that
the undersigned may be entitled to vote at our Annual Meeting of Shareholders to be held in the
Auditorium of the F. W. Hirt-Perry Square Building, 100 Erie Insurance Place (Sixth and French
Streets), Erie, Pennsylvania 16530 on April 22, 2008 at 9:30 a.m. local time, and at any
adjournment, postponement or continuation thereof, as follows:
|
|
|
o FOR all candidates listed below
|
|
o WITHHOLD AUTHORITY
to vote for the candidates |
|
|
listed below |
INSTRUCTION: To withhold authority to vote for any individual candidate, strike a line through the
candidates name in the list below.
|
|
|
|
|
J. Ralph Borneman, Jr.
|
|
Thomas B. Hagen
|
|
Thomas W. Palmer |
Patricia Garrison-Corbin
|
|
C. Scott Hartz
|
|
Elizabeth A. Vorsheck |
Jonathan Hirt Hagen
|
|
Claude C. Lilly, III
|
|
Robert C. Wilburn |
Susan Hirt Hagen
|
|
Lucian L. Morrison |
|
|
In their discretion, the proxies, on behalf of and at the direction of our Board of Directors,
are authorized to vote with respect to matters incident to the conduct of our Annual Meeting and
any adjournment, postponement or continuation thereof, and upon such other business as may properly
come before our Annual Meeting, pursuant to Securities and Exchange Commission rules.
This proxy will be voted as specified. If a choice is not specified, the proxy will be voted
FOR the candidates for Director named above.
This proxy should be dated, signed by the shareholder(s) and returned promptly to us in the
enclosed envelope. Persons signing in a fiduciary capacity should so indicate.
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD APRIL 22,
2008
To the Holders of Class A Common Stock and
Class B Common Stock of ERIE INDEMNITY COMPANY:
We will hold our annual meeting of shareholders at
9:30 a.m., local time, on Tuesday, April 22, 2008,
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 persons to serve as directors until our
2009 annual meeting of shareholders and until their successors
are elected; and
2. To transact any other business that may properly come
before our annual meeting and any adjournment, postponement or
continuation thereof.
In the event that our annual meeting is adjourned:
|
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|
|
pursuant to Section 1756(b)(1) of the Pennsylvania Business
Corporation Law of 1988, or the BCL, those holders
of Class B common stock 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 holders of
Class B common stock present at such adjourned meeting
constitutes less than a quorum as fixed in our bylaws; and
|
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|
|
pursuant to Section 1756(b)(2) of the BCL, those holders of
Class B common stock entitled to vote who attend a meeting
of shareholders that was previously adjourned for one or more
periods aggregating at least 15 days because of an absence
of a quorum shall constitute a quorum for acting upon any matter
set forth in this notice other than the election of directors
even though the number of holders of Class B common stock
present at such adjourned meeting constitutes less than a quorum
as fixed in our bylaws.
|
This notice is being sent to all holders of Class A common
stock and Class B common stock as of the close of business
on Friday, February 15, 2008, the record date established
by our board of directors. Such persons will also receive a
proxy statement relating to our annual meeting, together with a
copy of our Annual Report to Shareholders for the year ended
December 31, 2007. Holders of Class B common stock
will also receive a form of proxy in accordance with Securities
and Exchange Commission rules. Holders of Class A common
stock will not receive proxies because they do not have the
right to vote on any of the matters to be acted upon at our
annual meeting.
Holders of Class B common stock are requested to complete,
sign and return a form of proxy that will be provided, whether
or not they expect to attend the Annual Meeting in person.
By order of our board of directors,
James J. Tanous
Executive Vice President,
Secretary and General Counsel
March 24, 2008
Erie, Pennsylvania