Document:

ex10_1.htm

    CONVERTIBLE DEMAND
PROMISSORY NOTE

     

    

     

    $25,000.00

     

    

     

    July 24,
2007

     

    

     

    FOR VALUE
RECEIVED, the undersigned Arthur Kaplan Cosmetics, Inc. (“Payor”), promises to
pay to the order of Arthur Kaplan (“Holder”), on demand, at such address as may
be designated in writing by Holder of this Note, the principal amount of Twenty
Five Thousand ($25,000.00) together with interest on the unpaid principal amount
from July 24, 2007, at the rate of ten percent (10%) per annum.

     

    All
payments of principal, interest or other amounts payable on or in respect of the
Note shall be made in lawful currency of the United States of America in
immediately available funds, to the Holder, unless otherwise directed in writing
by Holder.

     

    Any
waiver of any payment due hereunder or the acceptance by the Holder of partial
payments hereunder shall not, at any other time, be taken to be a waiver of the
terms of this Note or any other agreement between the Payor and the
Holder.

     

    Holder of
this note may, at his option and at any time prior to payment in full of any
outstanding principal and interest payments on this Note, convert all or any
portion of the Note to equity of Payor at $0.01 per share of Payor’s Common
Stock.

     

    

     

    Presentment
for payment, notice of dishonor, protest and notice of protest are hereby
waived.

     

    This Note
shall be governed by and interpreted in accordance with the law of the State of
Nevada.

     

    IN
WITNESS WHEREOF, the undersigned has executed this Note as of the date first
written above.

     

    

     

    Arthur
Kaplan Cosmetics, Inc.

     

    

     

    By: /s/ Arthur
Kaplan

     

    Its:
/s/
PresidentEX-10.1

Exhibit 10.1

SEPARATION AGREEMENT

This SEPARATION AGREEMENT (the “Agreement”) is made and entered into on the 25th day of June
2008, by and between ERIE INDEMNITY COMPANY, a Pennsylvania corporation with its principal place of
business in Erie, Pennsylvania (the “Company”), and MICHAEL J. KRAHE, residing at 6324 Stonebrook
Drive, Fairview, Pennsylvania, 16415 (the “Executive”).

RECITALS:

WHEREAS, the Company and the Executive are parties to an Amended and Restated Employment
Agreement made effective as of December 12, 2005 (the “Employment Agreement”) and an Amendment and
Payment Designation Agreement made effective as of December 31, 2007 (the “Payment Designation
Agreement”); and

WHEREAS, the Executive hereby tenders his resignation as an officer and employee of the
Company and as an officer and director of each of its subsidiaries and related companies, and the
Company and each of its subsidiaries and related companies hereby accept such resignations
effective as of the dates set forth in Section 2 of this Agreement; and

WHEREAS, the Company and the Executive desire to memorialize the terms of the Executive’s
termination of employment in this Agreement and completely resolve all matters arising out of the
Executive’s employment with the Company or the termination of that employment, as well as all
matters arising out of or related to the Employment Agreement and the Payment Designation
Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the
receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby,
the parties hereto agree as follows:

1. Effective Date. This Agreement shall not become effective or enforceable until the
seven (7) day revocation period described in Section 5(f) of this Agreement has expired (the
“Effective Date”) and, except for the payment listed in Section 3(d) (A) below, none of the
payments or benefits described in this Agreement shall be provided to the Executive until after the
revocation period has expired without the Executive having revoked this Agreement.

2. Termination of the Employment Agreement and the Payment Designation Agreement;
Resignation as an Officer and Termination of Employment. The Executive and the Company hereby
mutually terminate, revoke and rescind the Employment Agreement and the Payment Designation
Agreement and all rights and obligations either party has or may be entitled to under the
Employment Agreement and the Payment Designation Agreement, in accordance with Section 5(h) of the
Employment Agreement. The Executive and the Company agree further that the Executive’s status as
an officer of the Company and as an officer and director of each of the Company’s subsidiaries and
related companies terminates as of the date of this Agreement and that the Executive’s status as an
employee of the Company will terminate effective as of the close of business on July 17, 2008.

3. Consideration.

a. In consideration of the execution and performance of this Agreement by the Executive, and
subject to the remaining provisions of this Section 3, the Executive will receive from the Company
the following severance payments and benefits, which include sums of money and benefits to which
the Executive would not otherwise be entitled if the Company and the Executive did not mutually
agree to the termination of his Employment Agreement and Payment Designation Agreement:

i. The Company shall pay to the Executive, in a lump sum cash payment on July 31, 2008, the
sum of One Million Two Hundred and Ninety-Six Thousand Dollars ($1,296,000), and an additional
amount, in a lump sum cash payment on February 16, 2009, of Ninety-Seven Thousand and Five Hundred
Dollars ($97,500).

ii. The Company shall pay to the Executive, in a lump sum cash payment on February 2, 2009,
his Accrued SERP Benefit and Additional SERP Benefits (as such terms are defined in Section 8(a)(5)
of the Employment Agreement and used in subparagraph 2(a) of the Payment Designation Agreement) as
required under subparagraph 2(a) of the Payment Designation Agreement in settlement of the
Executive’s Accrued SERP Benefit and Additional SERP Benefits and any other benefit under or
related to the Supplemental Executive Retirement Plan for Certain Members of the Erie Insurance
Group Retirement Plan for Employees (“SERP”) in which Executive may have had an expectancy. For
the purpose of computing this payment, the Executive’s last date of service shall be July 17, 2008.
This lump sum payment shall include credit for three (3) additional years of service as provided
in Section 6(a)(4) of the Employment Agreement. The Company will pay the SERP benefits required
under this Section 3(a)(ii) by (A) delivering a check to the Executive for the gross amount of his
Accrued SERP Benefit and Additional SERP Benefit, (B) remitting to the appropriate taxing
authorities the tax payments required on those payments pursuant to Section 3(a)(iii) below, and
(C) delivering to the Executive a check for the three (3) additional years of service referred to
in the preceding sentence, less all required tax withholdings.

iii. The Company shall pay to the appropriate taxing authorities on the Executive’s behalf a
Tax Gross-up with respect to payment of Executive’s SERP Benefits described in paragraph (ii);
provided, however, the portion of the payment of that SERP Benefit that is attributable to the
three (3) additional years of credited service referred to in the last sentence of paragraph (ii)
shall not be eligible for a Tax Gross-up. As used throughout this Agreement, the “Tax Gross-up”
with respect to a particular payment or benefit means (A) the taxes identified below that are
payable by the Executive by reason of such payment or benefit, computed by applying the highest
applicable marginal rate with respect to each such tax and (B) any such taxes incurred and due and
owing with respect to the amounts paid in (A) above:

	 	1.	 	Federal income tax applicable to the
Executive for the year of payment under section 1 of the Internal
Revenue Code of 1986, as amended (the “Code”);

	 	2.	 	Pennsylvania state income tax;

	 	3.	 	Local earned income tax;

	 	4.	 	The employee portion of the Pennsylvania
unemployment tax; and

	 	5.	 	The employee portion of FICA-HI taxes.

As used in this Agreement, the “appropriate taxing authorities” means the United States
Treasury, the Commonwealth of Pennsylvania Department of Revenue and the City of Erie,
Pennsylvania, as applicable. Any Tax Gross-up payable under this Agreement shall be paid during
the year in which the related payment or benefit is paid.

iv. The Company shall pay to the Executive, in a lump sum cash payment on February 16, 2009,
an amount equal to the Executive’s account balance under the Deferred Compensation Plan of Erie
Indemnity Company (the “Deferred Compensation Plan”) as of December 31, 2004, plus earnings on that
portion of the Executive’s account through the date of payment, computed in accordance with the
terms of the Deferred Compensation Plan.

The Company shall pay to the Executive, in a lump sum cash payment on February 16, 2009, an
amount equal to the Executive’s account under the Deferred Compensation Plan attributable to
accruals on and after January 1, 2005, and earnings on that portion of the Executive’s account
through the date of payment, computed in accordance with the terms of the Deferred Compensation
Plan.

v. The Company shall issue 625 shares of the Company’s Class A Common Stock (less applicable
deductions) to the Executive in January 2009, which shares represent restricted shares awarded to
Executive under the Company’s 1997 Long Term Incentive Plan.

vi. With respect to the Company’s 2004 Long Term Incentive Plan (“2004 LTIP”), (A) the
performance period with respect to awards made to the Executive for the 2006-2008, 2007-2009 and
2008-2010 performance periods shall all be treated as ending on December 31, 2008; (B) the Company
shall measure Company performance for each such performance period against the applicable
performance standards and goals and shall determine the number of the restricted performance shares
earned by the Executive for the performance period, based on such Company performance (the “earned
award”); and (C) the Company shall issue to the Executive shares of the Company’s Class A Common
Stock representing: (1) for the 2006-2008 performance period, 100 percent of the earned award, (2)
for the 2007-2009 performance period, 2/3 of the earned award, and (3) for the 2008-2010
performance period 1/3 of the earned award (less, in each case, applicable deductions). The
Company shall issue such shares in 2009 at the time awards for the 2006-2008 performance period are
paid to other 2004 LTIP participants. The Company’s determination of the number of shares to be
issued shall be in accordance with the terms of the 2004 LTIP and consistent with the Company’s
past practices, and shall be final and binding on all interested parties.

vii. For each of the calendar years 2009, 2010 and 2011, the Company shall reimburse the
Executive for the annual premiums due and paid during such years (i.e., in 2009 for the
2009-2010 policy year, in 2010 for the 2010-2011 policy year, and in 2011 for the 2011-2012 policy
year) on a Northwestern Mutual Life Insurance Company policy on the Executive’s life (No.
16-352-040) within thirty (30) days after receipt of reasonable substantiating documentation from
the Executive, but in any event not later than the end of the calendar year following the year in
which such expense was incurred. In addition, in each such year the Company shall pay to the
appropriate taxing authorities on the Executive’s behalf an amount equal to the Tax Gross-up (as
defined in clause (iii)) with respect to such premium payments. If the Executive should die or
cancel or surrender such policy during the three (3) year period, no further payments by the
Company shall be required. The Company agrees to use its best efforts to have any restrictive
endorsements on these policies removed not later than December 31, 2008.

viii. The Company shall continue or cause to be continued the coverage of the Executive (and
the Executive’s previously covered dependents, if any) under the following employee benefit plans
of the Company, upon substantially the same terms and conditions (including the required employee
contribution, if any) as apply to comparably situated executives, for a period of three (3) years
beginning on July 18, 2008:

	 	(I)	 	Health Protection Plan,

	 	 	 
	(II)

(III)

(IV)

	 	Prescription Plan,

Dental Assistance Plan,

Vision Care Plan, and

	 	(V)	 	Basic and Supplemental Life Insurance
Plans.

With respect to all 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.

If the continuation of any coverage identified in clauses (I) through (V) 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:

(A) The parties will cooperate and use their best efforts to obtain an individual policy or
policies that provides the Executive (and his previously covered dependents, if any) substantially
equivalent coverage, and the Company will pay, for a period of three (3) years beginning July 18,
2008, the premiums on any such individual policy, to the extent in excess of the required employee
contribution paid by the Executive prior to July 18, 2008.

(B) 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:

(I) With respect to group health plan coverage, the Company will reimburse the Executive for
any medical expense he (and his previously covered dependents, if any) incur during the period
after COBRA coverage has terminated and before July 18, 2011, 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.

(II) With respect to any other such coverage, the Company shall, during the three (3) year
period beginning on July 18, 2008, pay or reimburse the Executive (and his previously covered
dependents, if any) the same amount that would have been paid by the applicable plan or policy. The
Company shall make such payment upon receipt of reasonable substantiating documentation from the
Executive, but in any event not later than the end of the calendar year following the year in which
any reimbursable expense was incurred.

b. In the event of the Executive’s death before payment of the benefits described in Section
3(a)(i), the Company shall pay the benefit at the scheduled time to the Executive’s surviving
spouse.

In the event of the Executive’s death before payment of a benefit described in any of the
paragraphs (ii) through (vi) of Section 3(a), the Company shall pay the benefit at the scheduled
time to the beneficiary or beneficiaries designated by the Executive from time-to-time in
accordance with the terms of the plan or arrangement to which the benefit relates; provided,
however, that if the Executive has not designated a beneficiary in accordance with the terms of the
applicable plan or arrangement, or if no designated beneficiary with respect to the plan or
arrangement survives the Executive, the Company shall pay the benefit to the executor or
administrator of the Executive’s estate.

c. All payments under this Section 3, whether or not in cash, shall be subject to applicable
deductions. For the purposes of this Agreement, “applicable deductions” shall include, but shall
not be limited to, any federal, state, or local taxes determined by the Company to be required to
be withheld from amounts paid to the Executive pursuant to this Agreement or otherwise due from the
Company, and any other amounts that the Company may be legally required to deduct from his
earnings.

d. Except as provided in this Agreement, the Executive agrees that he is not entitled to any
other compensation (including, but not limited to, salary or bonuses), perquisites, or benefits of
any kind or description from the Company, or from or under any employee benefit plan or fringe
benefit plan sponsored by the Company or under the Employment Agreement or Payment Designation
Agreement, other than as described above and other than (A) his regular salary through July 17,
2008, (B) payment for his accrued unpaid vacation time (which shall not be less than 58 hours),
which will be computed in accordance with the Company’s past practices for departing employees and
paid as soon as administratively practical but not later than July 31, 2008, (C) his accrued
benefits under the Erie Insurance Group Retirement Plan for Employees, and (D) his accrued benefits
under the Erie Insurance Group Employee Savings Plan. The consideration paid by the Company to the
Executive pursuant to this Agreement shall be in compromise, settlement and full satisfaction of
any and all Claims, as defined in Section 4 of this Agreement, that the Executive has, or may have,
against the Company or other Releasees, as defined in Section 4 of this Agreement, arising out of
the Executive’s employment with the Company or its affiliates, the termination of such employment
and any and all matters related to the Executive’s employment and termination, or to his Employment
Agreement or Payment Designation Agreement.

4. Executive’s Waiver and Release. The Executive, for himself, his heirs, successors
and assigns and in consideration of the payments to be made by or on behalf of the Company pursuant
to Section 3 of this Agreement, does hereby forever discharge and release the Company, and its
corporate parents, subsidiaries, affiliated companies, companies with common management, ownership
or control, successors, assigns, insurers and reinsurers, attorneys, and franchisees, and all of
their officers, directors, shareholders, employees, agents and representatives, in their official
and individual capacities (collectively referred to as “Releasees”), from any and all claims,
demands, causes of action, damages, charges, complaints, grievances, expenses, compensation and
remedies which the Executive now has or may in the future have on account of or arising out of any
matter or thing which has happened, developed or occurred before the date of this Agreement
(collectively “Claims”), including, but not limited to, all Claims arising from the Executive’s
employment with the Company or any of its affiliated companies, the termination of such employment,
any and all relationships or dealings between the Executive and the Company or any of the other
Releasees, the termination of any such relationships and dealings, and any and all other Claims the
Executive may have against the Company or any of the other Releasees, and the Executive hereby
waives any and all such Claims including, all charges or complaints that were or could have been
filed with any other court, tribunal or governmental agency, and any and all Claims not previously
alleged, including, but not limited to, any Claims under the following: (a) Title VII of the Civil
Rights Act of 1964, as amended; (b) the Age Discrimination in Employment Act (ADEA), as amended;
(c) the Federal Employee Retirement Income Security Act of 1974 (ERISA), as amended; (d) the
Americans With Disabilities Act (ADA), as amended; (e) the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA), as amended; (f) Section 806 of the Sarbanes-Oxley Act of 2002,
as amended; (g) any and all statutes of similar nature or purpose under Pennsylvania law, or the
law of any other state, including, but not limited to, the Pennsylvania Human Relations Act, as
amended; and (h) any federal, state or local law, rule, regulation, constitution, executive order
or guideline of any description, including, but not limited to, those laws described above, or any
rule or principle of equity or common law, or any Claim of defamation, conversion, interference
with a contract or business relationship, or any other intentional or unintentional tort, or any
Claim of loss of consortium, or any Claim of harassment or retaliation, or breach of contract or
implied contract, or breach of covenant of good faith and fair dealing, or any whistle-blower
Claim. This release, discharge and waiver shall be hereinafter referred to as the “Release.”

The Executive specifically understands and agrees that the termination of his employment does
not violate or disregard any oral or written promise or agreement, of any nature whatsoever,
express or implied. If any contract or agreement of employment exists concerning the employment of
the Executive by the Company or the terms and conditions of such employment or the termination of
such employment, whether oral or written, express or implied, that contract or agreement (including
the Employment Agreement and Payment Designation Agreement) is hereby terminated and is null and
void.

The Executive agrees that this Release may be enforced in federal, state or local court, and
before any federal, state or local administrative agency or body.

This Release does not prohibit the Executive from filing an administrative charge of alleged
employment discrimination, harassment or retaliation under Title VII of the Civil Rights Act of
1964, the Age Discrimination in Employment Act of 1967, the Americans With Disabilities Act or the
Equal Pay Act of 1963; however, the Executive represents that he has not to date filed or cause to
be filed any such administrative charge, and further agrees that he hereby waives any right to
monetary or other recovery should any federal, state or local administrative agency pursue any
Claim on his behalf and will immediately request in writing that the Claim or matter on his behalf
be withdrawn. Thus by signing this Agreement, the Executive waives any right he had to obtain a
recovery if an administrative agency pursues a Claim against the Company or any of the other
Releasees based on any action taken by the Company or any of the other Releasees up to the date of
this Agreement, and that he will have released the Company and the other Releasees of any and all
Claims, and the continuing effect of any and all Claims of any nature up to the date of this
Agreement. This Release does not affect any of the Executive’s vested rights under the Erie
Insurance Group Retirement Plan for Employees and the Erie Insurance Group Employee Savings Plan,
nor, with respect to any of the capacities in which the Executive served the Company or each of its
subsidiaries and related companies, or as a trustee of any employee benefit trusts or other trusts
maintained or sponsored by the Company or each of its subsidiaries and related companies, does it
bar any claim the Executive may have for indemnity in relation to any acts or omissions of the
Executive or a claim for coverage under any applicable insurances, or any claim relating to
enforcement of this Agreement

5. Additional Terms.

a. Except as otherwise provided in Section 4 or this Section 5, the Executive agrees not to
commence or continue any action or proceeding in any federal, state or local court, concerning any
Claim waived or released in this Agreement.

b. The Executive represents that he has not filed or caused to be filed, and agrees that he
will not file or cause to be filed, any lawsuit of any kind arising out of or relating to his
employment with the Company, the terms and conditions of that employment, or the termination of his
employment.

c. Nothing contained in this Agreement prohibits the Executive from seeking a determination by
a court of competent jurisdiction that the Release is, in whole or in part, invalid under
applicable law. To the extent of such determination, the Executive may assert Claims or other
matters included in the Release, subject to final determination on appeal.

d. The Executive agrees that he has not sustained any disabling personal injury and/or
occupational disease which has resulted in a loss of wage earning capacity during his employment
with the Company, and that he has no personal injury and/or occupational disease which has been
contributed to, or aggravated or accelerated in a significant manner by his employment with the
Company.

e. The Executive represents and warrants that the Company has encouraged and advised the
Executive in writing, prior to signing this Agreement, to consult with an attorney of the
Executive’s choosing concerning all of the terms of this Agreement, and the Executive represents
and warrants that he has retained independent legal counsel to advise him concerning entering into
this Agreement and the terms hereof.

f. This Agreement may be revoked by the Executive within seven (7) days after the date this
Agreement is signed by the Executive, by giving notice of revocation to James J. Tanous, the
Executive Vice President, Secretary and General Counsel of the Company. This Agreement shall not
become effective or enforceable until the revocation period has expired and the consideration
provided in Section 3 of this Agreement shall not be made until after the revocation period has
expired with no revocation.

g. The Executive represents and warrants that the Company has given the Executive a reasonable
period of time, of at least twenty-one (21) days, for the Executive to consider all the terms of
this Agreement and for the purpose of consulting with an attorney if the Executive so chooses. A
copy of a draft of this Agreement was first given to the Executive on May 31, 2008. If this
Agreement has been executed by the Executive prior to the end of the twenty-one (21) day period,
the Executive represents that he has freely and willingly elected to do so.

h. This Agreement provides the Executive sums and benefits to which he is not otherwise
entitled as an employee of the Company.

i. Nothing contained in this Agreement is intended to be an admission of any fault,
wrongdoing, or liability on the part of any of the parties hereto, and nothing contained in this
Agreement may be deemed, construed, or treated in any respect as such an admission. The Company
specifically denies any fault, wrongdoing or liability toward the Executive. This Agreement was
reached by the parties as a mutual compromise of their respective positions, in order to avoid the
costs and inconvenience of litigation and for other reasons deemed good and sufficient by the
respective parties.

6. Non-Disparagement. The Executive shall not disparage the Company or other
Releasees, or its officers, directors or employees in any way orally or in writing, and the
directors and executive and senior officers of the Company shall likewise not disparage the
Executive.

7. Covenants as to Confidential Information and Competitive Conduct. The Executive
hereby acknowledges and agrees as follows: (a) this Section 7 is necessary for the protection of
the legitimate business interests of the Company, (b) the restrictions contained in this Section 7
with regard to geographical scope, length of term and types of restricted activities are
reasonable; (c) the Executive has received adequate and valuable consideration for entering into
this Agreement, and (d) the Executive’s expertise and capabilities are such that his obligations
hereunder and the enforcement hereof by injunction or otherwise will not adversely affect the
Executive’s ability to earn a livelihood.

a. Confidentiality of Information and Nondisclosure. The Executive agrees that the
Executive will not, directly or indirectly, without the express written approval of the Company,
unless directed by applicable legal authority (including any court of competent jurisdiction,
governmental agency having supervisory authority over the business of the Company or its
subsidiaries, or any legislative or administrative body having supervisory authority over the
business of the Company or its subsidiaries) having jurisdiction over the Executive, disclose to or
use, or knowingly permit to be so disclosed or used, for the benefit of himself, any person,
corporation or other entity other than the Company, (i) any non-public information concerning any
financial matters, customer relationships, competitive status, supplier matters, internal
organizational matters, current or future plans, or other business affairs of or relating to the
Company, its subsidiaries or affiliated or related parties, (ii) any proprietary management,
operational, trade, technical or other secrets or any other proprietary information or other data
of the Company, its subsidiaries or affiliated or related parties, or (iii) any other information
related to the Company, its subsidiaries or affiliated or related parties, or which the Executive
should reasonably believe will be damaging to the Company, its subsidiaries or affiliated or
related parties, which has not been published and is not generally known outside of the Company.
The Executive acknowledges that all of the foregoing constitutes confidential and proprietary
information, which is the exclusive property of the Company.

b. Restrictive Covenant. For a period of six (6) months (the “Restrictive Period”)
beginning on July 18, 2008, the Executive shall not render, directly, or indirectly, services to
any person, firm, corporation, association, or other entity which conducts the same or similar
business as the Company or its subsidiaries at the date of the Executive’s termination of
employment hereunder within the states in which the Company or its subsidiaries is or are then
licensed and doing business at the date of the Executive’s termination of employment hereunder
without the prior written consent of the Company’s President and Chief Executive Officer, which may
be withheld in his or her discretion. In the event the Executive violates any of the provisions
contained in this Section 7 hereof, the Restrictive Period shall be increased by the period of time
from the commencement by the Executive of any violation until such violation has been cured to the
satisfaction of the Company. The Executive further agrees that at no time during the Restrictive
Period will the Executive attempt to directly or indirectly solicit or hire employees of the
Company or its subsidiaries or induce any of them to terminate their employment with the Company or
its subsidiaries.

c. Company Remedies. The Executive acknowledges and agrees that any breach of this
Section 7 will result in immediate and irreparable harm to the Company, and that the Company cannot
be reasonably or adequately compensated by damages in an action at law. In the event of a breach
by the Executive of the provisions of this Section 7, the Company shall be entitled, to the extent
permitted by law, immediately to cease to pay or provide the Executive or the Executive’s
dependents any compensation or benefit being, or to be, paid or provided to the Executive pursuant
to this Agreement, and also to obtain immediate injunctive relief restraining the Executive from
conduct in breach of the covenants contained in this Section 7. Nothing herein shall be construed
as prohibiting the Company from pursuing any other remedies available to it for such breach,
including the recovery of damages from the Executive.

8. Breach of Agreement. The Executive agrees that if he violates any of the terms of
this Agreement, the Company may pursue whatever rights it has under this Agreement, whether in law
or in equity, without affecting the validity and enforceability of the Release contained in this
Agreement. If the Executive is required to bring any action to enforce rights or to collect moneys
due under this Agreement, the Company shall pay to the Executive the fees and expenses incurred by
the Executive in bringing and pursuing such action provided that the Executive is successful, in
whole or in part, on the merits or otherwise (including by way of a settlement involving the
payment of money by the Company to the Executive), in such action. The Company shall pay such fees
and expenses in advance of the final disposition of such action. The Executive agrees to repay to
the Company such advances if the Executive is not ultimately successful, in whole or in part, on
the merits or otherwise, in such action. The Company shall make such payments within thirty (30)
days after receipt of reasonable substantiating documentation from the Executive but in no event
later than the end of the calendar year following the year in which such fees and expenses were
incurred.

9. Company Property, Records, Files and Equipment. The Executive will return all
Company property, records, files, or any other Company owned equipment in his possession on or
prior to July 17, 2008.

10. Confidentiality of Agreement. The Executive agrees that (except pursuant to
judicial legal process or any legal action to enforce this Agreement), the Executive shall keep
confidential the terms of this Agreement, and all performance hereunder, and shall not disclose
this information henceforth to anyone other than the United States Internal Revenue Service; state
or local tax authorities; or the Executive’s family, attorneys and tax advisors, who also shall be
bound by this confidentiality obligation. The foregoing shall not prohibit or restrict such
disclosure as is required by law or may be necessary for the prosecution of claims relating to the
performance or enforcement of this Agreement or prohibit or restrict the Executive (or the
Executive’s counsel) from responding to any inquiry about the agreements represented in this
Agreement or the underlying facts and circumstances of those agreements by the Securities and
Exchange Commission, the NASDAQ Stock Market or any other self-regulatory organization. Prior to
responding to any such inquiry, the Executive agrees to provide the Company with as much notice as
possible that he has been requested or compelled to make disclosures and use the Executive’s (or
the Executive’s counsel) best efforts to ensure that if any disclosure occurs, it does so in a
manner designed to maintain the confidentiality of this Agreement to the fullest extent possible.

11. Ongoing Cooperation. During the period from the date hereof through December 31,
2009, the Executive agrees to use his best efforts to assist, advise and cooperate with the Company
if the Company so requests on issues that arose or were in any way developing during his employment
with the Company, subject to Executive’s availability given his employment obligations, if any, at
that time. The Executive shall furnish such assistance, advice or cooperation to the Company as
the Company shall reasonably request and as is within the Executive’s reasonable capability. Such
assistance, advice and cooperation may include, but shall not be limited to the preparation for, or
the conduct of, any litigation, investigation or proceeding involving matters or events which
occurred during the Executive’s employment by the Company as to which the Executive’s knowledge or
testimony may be important to the Company. In connection with the preparation for, or the conduct
of such litigation, investigation or proceeding as described in the preceding sentence, the
Executive shall promptly provide the Company with any records or other materials in his possession
that the Company shall request in connection with the defense or prosecution of such litigation,
investigation or proceeding. If and to the extent that the Company requests that the Executive
attend a meeting, deposition or trial at any time prior to January 1, 2010, the Company shall
compensate Executive for his time at the rate of $750 per day or portion thereof during which
Executive complies with such request. The Company shall also pay or reimburse the Executive for
his travel expenses reasonably incurred in the course of providing such cooperation. The Company
shall make such payment or reimbursement within thirty (30) days of receipt of reasonable
substantiating documentation from the Executive but in no event later than the end of the calendar
year following the year in which such expenses were incurred.

12. Certain Additional Payments by the Company. Notwithstanding anything in this
Agreement to the contrary, in the event it is determined that any payment or distribution by the
Company to or for the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, or otherwise, is subject to the excise tax
imposed by Section 4999 of the Code, or any successor provision, on excess parachute payments, as
that term is used and defined in Sections 4999 and 280G of the Code, then the Executive shall be
entitled to receive an additional payment (a “Gross-Up Payment”) in an amount equal to the then
current rate of tax under said 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. Any Gross-Up Payment shall be made no later than December 31 of the calendar year
following the year in which the Executive remits to the Internal Revenue Service the excise tax to
which the Gross-Up Payment relates.

13. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania applicable to contracts executed in and to be
performed in that commonwealth without regard to its conflicts of laws provisions. Each of the
parties hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of
the courts of the Commonwealth of Pennsylvania located in the County of Erie, Pennsylvania, and of
the United States for the Western District of Pennsylvania for any litigation arising out of or
relating to this Agreement or the transactions contemplated hereby. Each of the parties hereby
irrevocably and unconditionally acknowledges that service of any process, summons, notice or
document by United States registered mail to the respective addresses set forth herein shall be
effective service of process for any litigation brought against a party in any such court. Any
legal action relating to this Agreement shall be brought in the courts of the Commonwealth of
Pennsylvania located in the County of Erie, Pennsylvania, and of the United States for the Western
District of Pennsylvania and the parties irrevocably and unconditionally waive and will not plead
or claim in any such court that venue is improper or that such litigation has been brought in an
inconvenient forum.

14. Waiver. The waiver by a party hereto of any breach by the other party hereto of
any provision of this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach by a party hereto.

15. Assignment. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company, and the Company shall be obligated to require any successor
to expressly acknowledge and assume its obligations hereunder. This Agreement shall inure to the
extent provided hereunder to the benefit of and be enforceable by the Executive or the Executive’s
legal representatives, executors, administrators, successors, heirs, distributees, devisees and
legatees. The Executive may not delegate any of the Executive’s duties, responsibilities,
obligations or positions hereunder to any person and any such purported delegation shall be void
and of no force and effect.

16. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.

17. Notices. Any notices required or permitted to be given under this Agreement shall
be sufficient if in writing, and if personally delivered or when sent by first class certified or
registered mail, postage prepaid, return receipt requested — in the case of the Executive, to his
principal residence address, and in the case of the Company, to the address of its principal place
of business as set forth above, to the attention of the Executive Vice President, Secretary and
General Counsel of the Company.

18. Defined Terms. Any terms not specifically defined herein have the meanings set
forth in the Employment Agreement.

19. Entire Agreement. This Agreement constitutes the entire agreement of the parties
relating to the subject matter hereof, and supersedes any obligations of the Company and the other
Releasees under any previous agreements or arrangements (including the Employment Agreement and the
Payment Designation Agreement), except as otherwise provided in this Agreement. The provisions of
this Agreement may not be amended, modified, repealed, waived, extended or discharged except by an
agreement in writing signed by the party against whom enforcement of any amendment, modification,
repeal, waiver, extension or discharge is sought. No person acting other than pursuant to a
resolution of the Company’s Board of Directors shall have authority on behalf of the Company to
agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or
anything in reference thereto. This Agreement may be executed in one or more counterparts
(including by facsimile signature), all of which shall be considered one and the same instrument,
and shall be fully executed when one or more counterparts have been signed by and delivered to each
party.

20. Headings. The descriptive headings used herein are used for convenience of
reference only and shall not constitute a part of this Agreement.

 

THE EXECUTIVE HEREBY EXPRESSLY WARRANTS AND REPRESENTS THAT, BEFORE ENTERING INTO THIS
AGREEMENT, HE HAS RECEIVED A REASONABLE PERIOD OF TIME WITHIN WHICH TO CONSIDER ALL OF THE
PROVISIONS CONTAINED IN THIS AGREEMENT, THAT HE HAS FULLY READ, INFORMED HIMSELF OF AND UNDERSTANDS
ALL THE TERMS, CONTENTS, CONDITIONS AND EFFECTS OF ALL PROVISIONS OF THIS AGREEMENT, AND THAT HE
CONSIDERS ALL SUCH PROVISIONS TO BE SATISFACTORY.

THE EXECUTIVE FURTHER EXPRESSLY WARRANTS AND REPRESENTS THAT NO PROMISE OR REPRESENTATION OF
ANY KIND HAS BEEN MADE, EXCEPT THOSE EXPRESSLY STATED IN THIS AGREEMENT.

THE EXECUTIVE FURTHER EXPRESSLY WARRANTS AND REPRESENTS THAT HE ENTERS INTO THIS AGREEMENT
KNOWINGLY AND VOLUNTARILY.

IN WITNESS WHEREOF, the Executive and the Company, by its duly authorized representative, have
signed this Agreement as of the date set forth above.

	 	 	 
	WITNESS:

	 	THE EXECUTIVE:
	/s/ Sheila M. Hirsch

	 	/s/ Michael J. Krahe

MICHAEL J. KRAHE
	
 
	 	THE COMPANY:
	ATTEST:

	 	ERIE INDEMNITY COMPANY
	/s/ James J. Tanous

James J. Tanous, Secretary

	 	

By: /s/ John J. Brinling, Jr.

John J. Brinling, Jr., President and CEO

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