EX-10.3






Exhibit 10.3




AMENDMENT AND PAYMENT DESIGNATION AGREEMENT




This AMENDMENT AND PAYMENT DESIGNATION AGREEMENT (the “Agreement”), made effective as of
the 31st day of December 2007, is by and between ERIE INDEMNITY COMPANY, a Pennsylvania corporation
with its principal place of business in Erie, Pennsylvania (the “Company”) and THOMAS B. MORGAN
(the “Executive”).



W I T N E S S E T H :




WHEREAS, the Executive and the Company are parties to an Amended and Restated Employment
Agreement made effective as of the 12th day of December 2005 (the “Employment Agreement”); and



WHEREAS, the Employment Agreement will expire in accordance with its terms on December 11,
2008, unless earlier terminated pursuant to Section 5 thereof; and



WHEREAS, the Company has advised the Executive that the Employment Agreement should be amended
in certain respects in order to comply with recent changes in applicable Federal tax law; and



WHEREAS, the Executive is willing to amend his Employment Agreement based on the mutual
understanding of the Executive and the Company that, subject to the amendments to the Employment
Agreement set forth in this Agreement, the Executive will continue to be entitled to, and will
retain, all rights, payments, emoluments, perquisites, benefits, salary, eligibility for incentives
and/or other compensation due to and/or provided for the Executive under and by virtue of the
Employment Agreement to the fullest extent allowed by law, including but not limited to the benefit
of the Tax Gross-up provided in the Employment Agreement; and



WHEREAS, based on the understanding set forth in the preceding WHEREAS clause, the Executive
and the Company each desires to amend the Employment Agreement in certain respects, in order to
comply with recent changes in applicable Federal tax law; and each further desires that the
Executive designate the time and form of payment of certain compensation payable to the Executive
under the Employment Agreement and certain Company benefit plans.



NOW, THEREFORE, in view of the premises and in consideration of the agreements and mutual
covenants set forth herein, the adequacy and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereby agree as follows:



1. Expiration of the Employment Agreement.




(a) The term of the Employment Agreement will expire on December 11, 2008, in accordance
with Section 1 of the Employment Agreement, unless it is terminated earlier pursuant to
Section 5 thereof.




(b) The terms and conditions currently set forth in the Employment Agreement that apply
after the expiration of the Employment Agreement, including but not limited to Section 12
thereof, shall continue beyond the expiration of the term of the Employment Agreement, except
and to the extent as they may be specifically amended in this Agreement.



2. Provisions with Respect to SERP Benefits.




(a) With respect to benefits to which the Executive may be entitled under the Company’s
Supplemental Retirement Plan (the “SERP”) pursuant to Section 8(a)(5) of the Employment
Agreement, the Company and the Executive hereby agree that, notwithstanding any conflicting
provisions of the Employment Agreement or the SERP, his Accrued SERP Benefit and Additional
SERP Benefits shall be paid to him in a lump sum payment on December 12, 2008, or if the
Executive terminates employment (other than for Cause) before December 11, 2008, on the first
day of the seventh (7th) month after the date of termination. Such lump sum shall
be computed in the manner provided under the SERP and Section 8(a)(5) of the Employment
Agreement, consistent with how the Company has computed any such payments in the past. The
interest rate to be used in calculating the lump sum shall be the interest rate equal to the
average of the Moody’s Aa corporate bond rates for the second calendar month immediately
preceding the calendar month as of which the lump sum distribution is made (i.e. October
2008). The mortality table to be used in calculating the lump sum shall be the 1994 Group
Annuity Reserving table, as defined in IRS Revenue Ruling 2001-62. Attached hereto as Exhibit
A, by way of illustration only, is an example of how this payment will be computed.




(b) In addition, if the Executive becomes entitled to SERP Benefits pursuant to Section
8(a)(5) of the Employment Agreement, the Company shall pay to the appropriate taxing
authorities on the Executive’s behalf a Tax Gross-up with respect to that portion of the lump
sum payment described in subparagraph (a) above which fulfills the Company’s obligations under
Section 8(a)(5) of the Employment Agreement. Such Tax Gross-up shall be equal to the sum of
(i) all taxes (federal, state, local and payroll taxes) incurred and due and owing by the
Executive, arising from the lump sum payment and (ii) any such taxes incurred and due and
owing with respect to the amount paid under clause (i), computed by applying the highest
applicable marginal rate with respect to each such tax. The Tax Gross-up shall be paid
immediately or as soon thereafter as is consistent with applicable law.




(c) If the Executive is terminated for Cause before December 11, 2008, his SERP benefits,
computed in the manner prescribed by the SERP without regard to Section 8(a)(5) of the
Employment Agreement, shall be paid in the form and at the time designated in subparagraph (a)
above.




(d) The parties acknowledge and agree that, conditioned only on the Company’s payment of
the lump sum as described in subparagraph (a) above, and payment of the Tax Gross-up as
described in subparagraph (b) above as and when due, and notwithstanding any provision of the
Employment Agreement or the SERP to the contrary:




(i) The Executive shall not accrue any additional benefits under the SERP after
December 11, 2008, and shall release the Company from any further obligation under the SERP
and Section 8(a)(5) of the Employment Agreement; and




(ii) The Company shall not have any further or additional obligation to the Executive
or his heirs, successors and assigns arising out of or relating to the SERP.




(e) No additional approval of the Company’s Board of Directors or any committee of the
Board shall be required with respect to any payments by the Company required to be made
under subparagraphs 2(a), 2(b) or 2(c) of this Agreement.



3. Compensation in the Event of Termination.




(a) If the Executive becomes entitled to severance pay pursuant to Section 6(a)(1) of the
Employment Agreement, such severance shall be paid in a lump sum on the seventieth (70th) day
after the Executive’s termination of employment, provided that the Executive has theretofore
executed and delivered to the Company a release if so requested by the Company in accordance
with Section 13 of the Employment Agreement.




(b) Any award under the Company’s Long-Term Incentive Plan to which the Executive is
entitled pursuant to Section 6(a)(3) of the Employment Agreement shall be paid to him in the
year following the year of his termination of employment, no later than September 30th of that
year, but not earlier than six (6) months after the date of termination.



4. Provisions With Respect to Section 12 Benefits.




(a) The Company and the Executive hereby acknowledge that the severance pay provided for
in Section 12 of the Employment Agreement shall be in an amount equal to two (2) times the
Executive’s Covered Compensation (as that term is defined in Section 6(a)(1) of the Employment
Agreement) as determined on the date of such termination. In the event that the Executive
becomes entitled to severance pay pursuant to Section 12 of the Employment Agreement, such
severance shall be paid in a lump sum on the seventieth (70th) day after the Executive’s
termination of employment, provided that the Executive has theretofore executed and delivered
to the Company a release if so requested by the Company in accordance with Section 13 of the
Employment Agreement.




(b) In addition, if the Executive becomes entitled to severance pay pursuant to Section
12 of the Employment Agreement, the Executive and the Executive’s eligible dependents shall be
entitled to continuing coverage under the Company’s then-existing group health plans
(including medical, dental, prescription drug and vision plans, if any) for a period of two
(2) years after the date of the termination of the Executive’s employment, to the extent not
prohibited by law and subject to the terms of such plans including provisions as to
deductibles and copayments and changes in levels of coverage that are generally applicable to
employees.




(c) With respect to all such health plan coverages that are not provided under an insured
plan, the Executive shall duly elect and pay for COBRA continuation coverage. The Company’s
obligation with respect to all health plan coverages that are not provided under an insured
plan is conditioned on the Executive’s duly electing, and then paying for, COBRA coverage
throughout the available COBRA continuation coverage period. The Company shall reimburse the
Executive for the actual costs paid by the Executive for any such COBRA continuation coverage
elected and paid for by the Executive, but only to the extent that any such payments by the
Executive are in excess of the required employee contributions paid by the Executive prior to
termination. The Company shall pay such reimbursement promptly upon receipt of reasonable
documentation thereof from the Executive, but in any event not later than the end of the
calendar year following the year in which the expense was incurred.




(d) If the continuation of any coverage identified in subparagraph 4(b) above is not
reasonably available pursuant to the applicable insurance policy or plan and, in the case of
any health plan coverage not provided under an insured plan, after the end of the available
COBRA continuation period:




(i) The parties will cooperate and use their best efforts to obtain an individual
policy that provides the Executive (and his previously covered dependents, if any)
substantially equivalent coverage, and the Company will pay, for the balance of the two (2)
year period beginning on the date of termination, the premiums on any such individual
policy, to the extent in excess of the required employee contribution paid by the Executive
prior to termination.




(ii) If the continuation of any such coverage is not available pursuant to the
applicable insurance policy or plan, and an individual policy cannot be obtained despite the
parties’ cooperative best efforts, the Company will reimburse the Executive for any medical
expense he (and his previously covered dependents, if any) incur during the balance of the
two (2) year period beginning on the date of termination, provided that such expense would
have been reimbursed by the applicable Company plan. The Company shall pay such
reimbursement promptly upon receipt of reasonable documentation thereof from the Executive,
but in any event not later than the end of the calendar year following the year in which the
expense was incurred.



5. Additional Amendments to the Employment Agreement.




(a) With respect to the reimbursement of legal fees pursuant to Section 11 of the
Employment Agreement, the parties agree that:




(i) the legal fees and expenses eligible for reimbursement during any calendar year
shall not affect the expenses eligible for reimbursement in any other calendar year;




(ii) reimbursement of eligible legal fees and expense shall be paid promptly after
reasonable documentation thereof is provided to the Company, and in any case no later than
the last day of the calendar year following the year in which the expense was incurred; and




(iii) the right to reimbursement shall not be subject to liquidation or exchange for
another benefit.



6. Miscellaneous Provisions.




(a) Except as specifically amended herein, the Employment Agreement shall continue in
effect for the balance of its term, and thereafter in accordance with its terms as hereby
amended. The terms contained in this Agreement constitute the only amendments, changes and/or
modifications to the Employment Agreement that the Company and the Executive have agreed to as
of the date hereof. Other than for the terms of the Employment Agreement that are amended or
changed by this Agreement, no other terms set forth in the Employment Agreement have been or
shall be amended, changed, modified, repealed, waived, extended or discharged unless agreed to
in writing by both the Company and the Executive. This Agreement, together with the Employment
Agreement as amended thereby, constitute the entire agreement of the parties hereto with
respect to the subject matters set forth in this Agreement and the Employment Agreement. All
terms, conditions and provisions in the Employment Agreement that are not amended by this
Agreement shall remain in full force and effect.




(b) Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Employment Agreement.




(c) When this Agreement uses the term “termination of employment” or otherwise uses the
term “terminate” with reference to employment, the terms “termination” or “terminate” shall be
construed to mean a separation from service or separate from service, as those terms are
defined in the regulations under Internal Revenue Code Section 409A.




(d) If the Executive is, on the date of termination of employment, a “specified
employee”, as that term is used in regulations under Section 409A, no amount that is deferred
compensation for purposes of Section 409A may be paid until the first (1st) day of
the seventh (7th) month beginning after termination of the Executive’s employment.
The Company and the Executive each independently and separately believes all amounts payable
under the terms of this Agreement before such seventh (7th) month are not deferred
compensation for purposes of Section 409A of the Code, and this paragraph 6(d) shall be
construed accordingly unless the Company’s and the Executive’s belief is demonstrated to be
incorrect.




(e) This Agreement may be executed in one or more counterparts, including by facsimile
(fax) signature, all of which shall be considered one and the same instrument, and shall
become a binding agreement when one or more counterparts have been signed by and delivered to
each party.



IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its President and
Chief Executive Officer thereunto duly authorized by the Company’s Board of Directors to execute
this Agreement on behalf of the Company, and the Executive has hereunto set his hand as of the day
and year first above written.



	 	 	 
	ATTEST:

	 	ERIE INDEMNITY COMPANY
	/s/ James J. Tanous

	 	/s/ John J. Brinling, Jr.
	 

	 	 
	James J. Tanous, Secretary

	 	John J. Brinling, Jr.

President and Chief Executive Officer
	WITNESS:

	 	EXECUTIVE
	/s/ Char Drobniewski

	 	/s/ Thomas B. Morgan
	 

	 	 
	
 
	 	Thomas B. Morgan






1




EXHIBIT A



This Exhibit A illustrates how a SERP lump sum benefit is calculated. The SERP benefit equals 2%
of SERP Final Average Earnings multiplied by years of credited service (up to a maximum of 30
years) minus the benefit payable from ERIE’s qualified pension plan. This two step process is
illustrated below by first calculating the benefit payable from the qualified pension plan then
calculating the lump sum benefit payable from the SERP.



Erie Insurance Group Retirement Plan for Employees


Qualified Benefit Computation at December 11, 2008



	 	 	 	 	 	 	 	 	 
	I.

	 	Employee Data

1.

2.

3.

4.

5.

6.

7.
	 	Name

Date of Birth

Date of Hire

Normal Retirement Date

Years of continuous service at December 11, 2008

Final 36-month average monthly base salary

Covered Compensation level (monthly)
	 	Sample Calculation

May 31, 1950

October 31, 1988

June 1, 2015

21

$17,638.89

$5,972.00
	 	Notes and Comments









Maximum of 30 years; a fractional year is

counted

as a whole year.

This item may be limited by the IRC 401(a)(17) /

404(l)

annual compensation limit

This amount is provided annually by the Internal

Revenue Service based on participant’s year of birth
	II.	 	Calculation of Qualified Normal Retirement Pension — (Single Life)	 	 	 	 
	
 
	 	1.

2.

3.

4.
	 	1% of Item I.6

        .5% of (Item I.6 — Item I.7, minimum zero)

Item II.1 plus Item II.2

Qualified Normal Retirement Pension

(Item II.3 x Item I.5, maximum of 30 years)
	 	$176.39

$58.33

$234.72

$4,929.12



	 	





Monthly benefit









	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	III.Calculation of Qualified Early Retirement Pension
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	1.
	 	Number of complete calendar months representing the	 	 	77	 	 	For a participant	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	who is not yet age	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	55, this will be	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	120	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	months difference	 	and December 11,	 	months)
	 
	 	 	 	 	 	 	 	 	 	between the normal	 	2008 (up to a	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	retirement date	 	maximum of 120	 	 	 	 
	2.
	 	1/4 of 1% of Item III.1 (only up to 60 months)	 	 	15.0000	%	 	 	 	 	 	 	 	 	 	 	 	 
	3.
	 	3/8 of 1% x the excess of Item III.1 over 60 months	 	 	6.3750	%	 	 	 	 	 	 	 	 	 	 	 	 
	4.
	 	Sum of Item III.2 and III.3	 	 	21.3750	%	 	 	 	 	 	 	 	 	 	 	 	 
	5.
	 	Item II.4 x Item III.4	 	$	1,053.60	 	 	 	 	 	 	 	 	 	 	 	 	 
	6.
	 	Qualified Early Retirement Pension: single life	 	$	3,875.52	 	 	Monthly benefit	 	 	 	 	 	 	 	 
	 
	 	(Item II.4 - Item III.5)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 







	 	 	Erie Insurance Group Supplemental Executive Retirement Plan (“SERP”)






	 	 	SERP Benefit Computation at December 11, 2008






	I.	 	Employee Data





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	1.	 	 	Name	 	Sample Calculation	 	 	 	 	 	 	 	 
	 
	 	 	2.	 	 	Date of Birth	 	May 31, 1950	 	 	 	 	 	 	 	 
	 
	 	 	3.	 	 	Date of Hire	 	October 31, 1988	 	 	 	 	 	 	 	 
	 
	 	 	4.	 	 	Normal Retirement Date	 	June 1, 2015	 	 	 	 	 	 	 	 
	 
	 	 	5.	 	 	Years of continuous service at December 11, 2008	 	 	21	 	 	Maximum of 30 years.  A fractional year is counted as a	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	whole year	 	 	 	 
	 
	 	 	6.	 	 	Final 24-month average monthly base salary	 	$	28,000.00	 	 	 	 	 	 	 	 	 
	 
	 	 	7.	 	 	Years of Executive Service at December 11, 2008	 	 	15	 	 	These are full years of service as a Senior Vice	 	President or higher
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	ranking executive
	II.	 	Calculation of SERPBenefit at December 11, 2008	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	1.	 	 	December 11, 2008 SERPbase: 10-year certain & continuous	 	$	11,760.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	(2.0% x Item I.6 x Item I.5, maximum of 30)	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	2.	 	 	Qualified Early Retirement Pension: single life	 	$	3,875.52	 	 	 	 	 	 	 	 	 
	 
	 	 	3.	 	 	Early Retirement single life to 10-year certain & continuous conversion factor	 	 	98.06	%	 	For a participant who is not yet age 55, this will be the	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	conversion factor at age 55 (98.83%).	 	 	 	 
	 
	 	 	4.	 	 	Qualified Early Retirement Pension: 10-year certain & continuous	 	$	3,800.33	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	(Item II.2 x Item II.3)	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	5.	 	 	SERPBenefit at December 11, 2008: 10-year certain & continuous	 	$	7,959.67	 	 	Monthly benefit	 	 	 	 
	 
	 	 	 	 	 	(Item II.1 - Item II.4) x (Item I.7 x 20%, to a maximum of 100%)	 	 	 	 	 	 	 	 	 	 	 	 







	 	6.	 	December, 2008 10-year certain & continuous to lump sum conversion factor 152.5488 For a
participant who is at least age 55, this will be the factor to convert a 10-year certain &
continuous benefit that is payable immediately to a lump sum payable in December 2008





For a participant who is not yet age 55, this will be the



	 	 	 	 	 	 	 	 	 
	7.

	 	December 12, 2008 lump sum

(Item II.5 x Item II.6)
	 	$	1,214,238.11	 	 	factor to convert a deferred to age 55

10—year certain & continuous benefit to a lump sum

payable in December 2008

Calculated using Moody’s Aa Corporate Bond interest

rate and Revenue Ruling 2001-62 Mortality.







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