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Exhibit 10(U)
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PUT AGREEMENT
among
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,
STATE AUTO FINANCIAL CORPORATION,
and
BANK ONE, NA,
as Agent
Dated as of November 19, 1999
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PUT AGREEMENT
This Put Agreement, dated as of November 19, 1999, is among State
Automobile Mutual Insurance Company, a mutual insurance company duly organized
and validly existing under the laws of the State of Ohio ("State Auto Mutual"),
State Auto Financial Corporation, a corporation duly organized and validly
existing under the laws of the State of Ohio ("State Auto Financial" and,
together with State Auto Mutual, the "State Auto Obligors"), and Bank One, NA,
as agent (in such capacity, together with its successors in such capacity, the
"Agent") for the Lenders party to the Credit Agreement referred to below.
RECITALS:
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A. SAF Funding Corporation (the "Borrower"), the lenders party thereto
from time to time (the "Lenders") and the Agent are parties to a Credit
Agreement, dated as of November 19, 1999 (as modified and supplemented and in
effect from time to time, the "Credit Agreement"), providing, subject to the
terms and conditions thereof, for term loans to be made by the Lenders to the
Borrower in an aggregate principal amount not exceeding $135,000,000.
B. The proceeds of the term loans made to the Borrower under the Credit
Agreement are to be used by the Borrower to purchase certain preferred stock of
State Auto Financial pursuant to a Standby Purchase Agreement, dated as of the
date hereof, among the Borrower and State Auto Financial (as modified and
supplemented and in effect from time to time as permitted hereby, the "Standby
Purchase Agreement").
NOW, THEREFORE, to induce the Lenders to enter into the Credit
Agreement and to make loans thereunder and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
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1.1 Definitions and Accounting Terms. Capitalized terms used but not
defined herein shall have the respective meanings, assigned to such terms in the
Credit Agreement. In addition, as used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.1 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"Affiliate" shall mean any Person that directly or indirectly controls,
or is under common control with, or is controlled by, State Auto Mutual. As used
in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
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ownership interests, by contract or otherwise), provided that, in any event, any
Person that owns directly or indirectly securities having 5% or more of the
voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, (a) no individual shall be an Affiliate solely by reason of his or
her being a director, officer or employee of State Auto Mutual or any of its
Subsidiaries and (b) State Auto Mutual and its Subsidiaries shall not be deemed
to be Affiliates of one another.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time.
"Applicable Insurance Regulatory Authority" shall mean, when used with
respect to any Insurance Entity, the insurance department or similar
administrative authority or agency located in the State in which such Insurance
Entity is domiciled.
"Assumed Reinsurance" shall mean reinsurance assumed by any Insurance
Entity from another Person (other than from another Insurance Entity).
"Capital Expenditures" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by State Auto Mutual or any of its
Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with Agreement Accounting Principles.
"Ceded Reinsurance" shall mean reinsurance ceded by any Insurance
Entity to any other Person (other than to another Insurance Entity), other than
Surplus Relief Reinsurance.
"Environmental Claim" shall mean, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"claim") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (a) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (b) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law. The term "Environmental Claim" shall
include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"Environmental Laws" shall mean any and all present and future Federal,
state, local and foreign laws, rules or regulations, and any orders or decrees,
in each case as now or hereafter in effect, relating to the regulation or
protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing,
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distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.
"Equity Public Offering" shall mean a public issuance or sale by State
Auto Mutual or any of its Material Subsidiaries after the Closing Date pursuant
to a registration statement filed under the Securities Act of 1933, as amended,
of any common stock.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that
is a member of any group of organizations (a) described in Section 414(b) or (c)
of the Code of which State Auto Mutual is a member and (b) solely for purposes
of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which
State Auto Mutual is a member.
"Excluded Taxes" means, in the case of each Lender or applicable
Lending Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (a) the jurisdiction under the laws of which
such Lender or the Agent is incorporated or organized or (b) the jurisdiction in
which the Agent's or such Lender's principal executive office or such Lender's
applicable Lending Installation is located.
"Farmers Casualty" means Farmers Casualty Insurance Company, an Iowa
domiciled property and casualty insurance company.
"Fixed Charge Coverage Ratio" means the ratio of (a) the sum of (i) the
greater of (A) 10% of the aggregate amount of statutory capital and surplus of
each Subsidiary of State Auto Financial which is engaged in the insurance
business as of the most recently ended calendar year (determined without
duplication in accordance with SAP) or (B) the aggregate net income earned by
each Subsidiary of State Auto Financial which is engaged in the insurance
business for the most recently ended four fiscal quarters (determined without
duplication in accordance with SAP), plus (ii) cash on hand at State Auto
Financial at the end of the most recently ended fiscal quarter, plus (iii) the
aggregate net income of each Subsidiary of State Auto Financial which is not
engaged in the insurance business for the most recently ended four fiscal
quarters (determined without duplication in accordance with Agreement Accounting
Principles) to (b) the sum of (i) interest payments on the Loans for the most
recent four quarters, plus (ii) scheduled principal amortization payments on the
Loans for the four fiscal quarters following the date of determination.
"Hazardous Material" shall mean, collectively, (a) any petroleum or
petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and transformers or other equipment
that contain polychlorinated biphenyls ("PCB's"), (b) any chemicals or other
materials or substances that are now or hereafter become defined as or included
in the definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under
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any Environmental Law and (c) any other chemical or other material or substance,
exposure to which is now or hereafter prohibited, limited or regulated under any
Environmental Law.
"Indebtedness" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person; provided that Indebtedness shall not include (i)
obligations with respect to insurance policies, annuities, guaranteed investment
contracts and similar products underwritten by, or Reinsurance Agreements or
Retrocession Agreements entered into by, an Insurance Entity in the ordinary
course of its business and (ii) obligations with respect to Surplus Relief
Reinsurance ceded by an Insurance Entity.
"Insurance Entity" shall mean, collectively, State Auto Mutual and the
Subsidiaries of State Auto Mutual licensed to underwrite property and casualty
insurance.
"Intercompany Pooling Arrangement" shall mean the pooling arrangement
among State Auto Mutual, State Auto P&C, Milbank, Midwest Security and Farmers
Casualty pursuant to which (a) State Auto P&C cedes to State Auto Mutual all of
its insurance business, (b) Milbank cedes to State Auto Mutual its property and
casualty insurance business, (c) Midwest Security cedes to State Auto Mutual its
property and casualty insurance business, (d) Farmers Casualty cedes to State
Auto Mutual its property and casualty insurance business and (e) State Auto
Mutual retains its property and casualty insurance business, whereupon all such
businesses are pooled and a portion thereof is then ceded from State Auto Mutual
to each of State Auto P&C, Milbank, Midwest Security and Farmers Casualty and
the balance thereof is retained by State Auto Mutual, as such arrangement may be
modified and supplemented and in effect from time to time.
"Interest Rate Protection Agreement" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
For purposes hereof, the "credit exposure" at any time of any Person under an
Interest Rate Protection Agreement to which such Person is a party shall be
determined at such time in accordance with the standard methods of calculating
credit exposure under similar arrangements as prescribed from time to time by
the Agent, taking into account potential interest rate movements and the
respective termination provisions and notional principal amount and term of such
Interest Rate Protection Agreement.
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"Investment" shall mean, for any Person: (a) the acquisition (whether
for cash, Property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person or any agreement to make any such acquisition
(including, without limitation, any "short sale" or any sale of any securities
at a time when such securities are not owned by the Person entering into such
sale); (b) the making of any deposit with, or advance, loan or other extension
of credit or capital contribution to, any other Person (including the purchase
of Property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such Property to such Person), but excluding
any such advance, loan or extension of credit having a term not exceeding 90
days arising in connection with the sale of inventory or supplies by such Person
in the ordinary course of business; (c) the entering into of any Guarantee of,
or other contingent obligation with respect to, Indebtedness or other liability
of any other Person and (without duplication) any amount committed to be
advanced, lent or extended to such Person; or (d) the entering into of any
Interest Rate Protection Agreement.
"License" shall have the meaning assigned to such term in Section 3.17
hereof.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the Property, business, operations, financial condition, prospects, liabilities
or capitalization of State Auto Mutual and its Subsidiaries taken as a whole,
(b) the ability of State Auto Mutual to perform its obligations under this
Agreement, (c) the validity or enforceability of any of the Basic Documents or
(d) the rights and remedies of the Lenders and the Agent under any of the Basic
Documents.
"Material Subsidiary" shall mean, as at any time, any of State Auto
Financial, State Auto P&C, Milbank, State Auto National Insurance Company, and
any other Subsidiary of State Auto Mutual that holds, directly or indirectly,
more than 5% of the consolidated assets of State Auto Mutual and its
Subsidiaries at such time or that accounts for more than 5% of the consolidated
revenues of State Auto Mutual and its Subsidiaries at such time.
"Midwest Security" means Midwest Security Insurance Company, a
Wisconsin domiciled property and casualty insurance company.
"Milbank" shall mean Milbank Insurance Company, a South Dakota
domiciled property and casualty insurance company.
"Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by State Auto
Mutual or any ERISA Affiliate and that is covered by Title IV of ERISA.
"NAIC" shall mean the National Association of Insurance Commissioners
and any successor thereto.
"Net Available Proceeds" shall mean, with respect to any Equity Public
Offering, the aggregate amount of all cash received by State Auto Mutual and its
Material Subsidiaries in respect of such Equity Public Offering net of
reasonable expenses incurred by State Auto Mutual and its Material Subsidiaries
in connection therewith.
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"Obligations" shall have the meaning assigned to such term in Section
2.4 hereof.
"Other Taxes" is defined in Section 2.7(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Plan" shall mean an employee benefit or other plan established or
maintained by State Auto Mutual or any ERISA Affiliate and that is covered by
Title IV of ERISA, other than a Multiemployer Plan.
"Pledged Stock" shall mean the Preferred Stock pledged pursuant to the
Company Pledge Agreement to the Agent for the benefit of the Lenders and all
related rights in connection therewith.
"Premium to Surplus Ratio" shall mean, with respect to any Person as at
any date of determination thereof, the ratio (determined with respect to such
Person and its Subsidiaries in accordance with SAP) of (a) net premiums written
during the four consecutive calendar quarters ending on or most recently ended
prior to such date of determination to (b) Statutory Surplus as at the last day
of the calendar quarter ending on or most recently ended prior to such date of
determination.
"Put Event" shall mean one or more of the following events shall have
occurred and be continuing:
(a) a Default;
(b) either State Auto Obligor shall default in the payment
when due of any amount payable by it hereunder or State Auto Financial
shall default in the payment when due of any amount payable by it under
the Standby Purchase Agreement;
(c) State Auto Mutual or any of its Material Subsidiaries
shall default in the payment when due of any principal of or interest
on any of its other Indebtedness aggregating $5,000,000 or more; or any
event specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness shall occur if the
effect of such event is to cause, or (with the giving of any notice or
the lapse of time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity or to have the interest rate thereon reset
to a level so that securities evidencing such Indebtedness trade at a
level specified in relation to the par value thereof; or State Auto
Mutual or any of its Material Subsidiaries shall default in the payment
when due of any amount aggregating $10,000,000 or more under any
Interest Rate Protection Agreement; or State Auto Mutual or any of its
Material Subsidiaries shall default under any Interest Rate Protection
Agreement if the effect of such default is to cause, or (with the
giving of any notice or the lapse of time or both) to permit,
termination or liquidation payment or payments by State Auto Mutual or
any of its Material Subsidiaries aggregating $5,000,000 or more to
become due;
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(d) any representation, warranty or certification made or
deemed made herein or in any other Basic Document (or in any
modification or supplement hereto or thereto) by either State Auto
Obligor party thereto, or any certificate furnished to any Lender or
the Agent pursuant to the provisions hereof or thereof, shall prove to
have been false or misleading as of the time made or furnished in any
material respect;
(e) State Auto Mutual shall default in the performance of any
of its obligations under any of Sections 4.5 through 4.9 or 4.12
through 4.17 hereof, State Auto Financial shall default in the
performance of any of its obligations under the Standby Purchase
Agreement; or either State Auto Obligor shall default in the
performance of any of its other obligations under this Agreement and
such default shall continue unremedied for a period of 30 or more days
after the occurrence of such default;
(f) State Auto Mutual or any of its Material Subsidiaries
shall admit in writing its inability to, or be generally unable to, pay
its debts as such debts become due;
(g) State Auto Mutual or any of its Material Subsidiaries
shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee, examiner or liquidator
of itself or of all or a substantial part of its Property, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Bankruptcy Code, (iv) file a petition seeking
to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding-up, or
composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Bankruptcy Code or
(vi) take any corporate action for the purpose of effecting any of the
foregoing;
(h) a proceeding or case shall be commenced, without the
application or consent of State Auto Mutual or any of its Material
Subsidiaries, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator or the like of State
Auto Mutual or such Material Subsidiary or of all or any substantial
part of its Property or (iii) similar relief in respect of State Auto
Mutual or such Material Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 or more days; or an order for relief against State
Auto Mutual or such Material Subsidiary shall be entered in an
involuntary case under the Bankruptcy Code;
(i) any Applicable Insurance Regulatory Authority shall
appoint a rehabilitator, receiver, custodian, trustee, conservator or
liquidator or the like (collectively, a "conservator") for any
Insurance Entity, or cause possession of all or any substantial portion
of the property of any Insurance Entity to be taken by any conservator
(or any Insurance Regulatory Authority shall commence any action to
effect any of the foregoing);
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(j) a final judgment or judgments for the payment of money of
$10,000,000 or more in the aggregate (exclusive of judgment amounts
fully covered by insurance where the insurer has admitted liability in
respect of such judgment) or of $25,000,000 or more in the aggregate
(regardless of insurance coverage) shall be rendered by one or more
courts, administrative tribunals or other bodies having jurisdiction
against State Auto Mutual or any of its Subsidiaries and the same shall
not be discharged (or provision shall not be made for such discharge),
or a stay of execution thereof shall not be procured, within 30 days
from the date of entry thereof and State Auto Mutual or the relevant
Material Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal;
(k) an event or condition specified in Section 4.1(j) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan
and, as a result of such event or condition, together with all other
such events or conditions, State Auto Mutual or any ERISA Affiliate
shall incur or in the opinion of the Required Lenders shall be
reasonably likely to incur a liability to a Plan, a Multiemployer Plan
or the PBGC (or any combination of the foregoing) that, in the
determination of the Required Lenders, would (either individually or in
the aggregate) have a Material Adverse Effect;
(l) a reasonable basis shall exist for the assertion against
State Auto Mutual or any of its Subsidiaries, or any predecessor in
interest of State Auto Mutual or any of its Subsidiaries or Affiliates,
of (or there shall have been asserted against State Auto Mutual or any
of its Subsidiaries) an Environmental Claim that, in the judgment of
the Required Lenders is reasonably likely to be determined adversely to
State Auto Mutual or any of its Subsidiaries, and the amount thereof
(either individually or in the aggregate) is reasonably likely to have
a Material Adverse Effect (insofar as such amount is payable by State
Auto Mutual or any of its Subsidiaries but after deducting any portion
thereof that is reasonably expected to be paid by other creditworthy
Persons jointly and severally liable therefor);
(m) during any period of (i) 12 consecutive months if no Loans
are outstanding or (ii) 25 consecutive months if any Loans are
outstanding, a majority of the Board of Directors of State Auto Mutual,
State Auto Financial or State Auto P&C, as the case may be, shall no
longer be composed of individuals (x) who were members of said Board on
the first day of such period, (y) whose election or nomination to said
Board was approved by individuals referred to in clause (x) above
constituting at the time of such election or nomination at least a
majority of said Board or (z) whose election or nomination to said
Board was approved by individuals referred to in clauses (x) and (y)
above constituting at the time of such election or nomination at least
a majority of said Board;
(n) except for expiration in accordance with its terms, any
material provision of this Agreement or the Standby Purchase Agreement
shall for whatever reason be terminated or cease to be in full force
and effect without the consent of the Lenders as specified in Section
10.17 of the Credit Agreement, or the validity or enforceability
thereof shall be contested by either State Auto Obligor;
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(o) any "person" or "group" of "persons" (within the meaning
of Section 13(d) of the Securities and Exchange Act of 1934, as
amended) shall have the power, directly or indirectly, to vote or
direct the voting of a greater number of the voting capital stock
issued by State Auto Financial than State Auto Mutual; or State Auto
Financial shall fail to own and control, beneficially (free and clear
of all Liens), all of the capital stock issued by State Auto P&C (in
each case irrespective of whether or not at the time securities or
other ownership interests issued by State Auto Financial or State Auto
P&C, as the case may be, or any other class or classes might have
voting power by reason of the happening of any contingency); or
(p) the rating published by A.M. Best & Co. for (i) State Auto
Mutual shall be less than (x) "A", at any time prior to the date of the
occurrence of the catastrophe relating to the initial Loans under the
Credit Agreement, (y) "B+", at any time during the period commencing on
the first anniversary of the date of the occurrence of such catastrophe
to but excluding the fourth anniversary thereof, and (z) "A-", at any
time thereafter, or (ii) State Auto P&C shall be less than "A" at any
time prior to the date of the occurrence of such catastrophe.
"Put Notice" shall mean an instrument executed by the Agent
substantially in the form of Exhibit A hereto.
"Put Purchase Date" shall mean the date specified in a Put Notice as
the date on which State Auto Mutual shall purchase all of the Loans or the
Pledged Stock, as specified therein.
"Reinsurance Agreement" shall mean any agreement, contract, treaty or
other arrangement providing for Ceded Reinsurance by any Insurance Entity or any
Subsidiary of such Insurance Entity.
"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.
"Retrocession Agreement" shall mean any agreement, contract, treaty or
other arrangement (other than Surplus Relief Reinsurance) whereby any Insurance
Entity or any Subsidiary of such Insurance Entity cedes reinsurance to other
insurers (other than to another Insurance Entity or any of its Subsidiaries).
"Risk-Based Capital Ratio" shall mean, with respect to any Person as at
any date of determination thereof, the ratio of (a) Total Adjusted Capital (as
defined by the NAIC) for such Person as at such date of determination to (b)
Authorized Control Level Risk-Based Capital (as defined by the NAIC) for such
Person as at such date of determination.
"SAP" shall mean, with respect to any Insurance Entity, the accounting
procedures and practices prescribed or permitted by the Applicable Insurance
Regulatory Authority, applied on a basis consistent with those that, in
accordance with the last sentence of
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Section 1.2(a) hereof, are to be used in making the calculations for purposes of
determining compliance with this Agreement.
"State Auto P&C" shall mean State Auto Property and Casualty Insurance
Company, a South Carolina corporation.
"Statutory Statement" shall mean, as to any Insurance Entity, a
statement of the condition and affairs of such Insurance Entity, prepared in
accordance with statutory accounting practices required or permitted by the
Applicable Insurance Regulatory Authority, and filed with the Applicable
Insurance Regulatory Authority.
"Statutory Surplus" shall mean, as at any date for any Insurance
Entity, the aggregate amount of surplus as regards policyholders (determined
without duplication in accordance with SAP) of such Insurance Entity.
"Surplus Relief Reinsurance" shall mean any transaction in which any
Insurance Entity or any Subsidiary of such Insurance Entity cedes business under
a reinsurance agreement that would be considered a "financing-type" reinsurance
agreement as determined by the independent certified public accountants of State
Auto Mutual in accordance with principles published by the Financial Accounting
Standards Board or the Second Edition of the AICPA Audit Guide for Stock Life
Insurance Companies (pp. 91-92), as the same may be revised from time to time.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes and Other Taxes.
"Tax Sharing Agreement" shall mean any tax sharing or allocation
agreement to which State Auto Mutual or any of its Subsidiaries is a party and
all tax indemnity agreements as to which State Auto Mutual or any of its
Subsidiaries is the beneficiary or obligor.
"Wholly Owned Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which all of the equity securities
or other ownership interests (other than, in the case of a corporation,
directors' qualifying shares) are directly or indirectly owned or controlled by
such Person or one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
"Year 2000 Program" is defined in Section 3.19.
1.2 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Agent
hereunder shall (unless otherwise disclosed to the Agent in writing at the time
of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with Agreement Accounting Principals or with statutory
accounting practices applied on a basis consistent with those used in the
preparation of the latest financial statements furnished to the Agent hereunder
(which, prior to the delivery of the first financial
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statements under Section 4.1 hereof, shall mean the audited, or annual
statutory, financial statements as at December 31, 1998 referred to in Section
3.2 hereof). All calculations made for the purposes of determining compliance
with this Agreement shall (except as otherwise expressly provided herein) be
made by application of Agreement Accounting Principles or with statutory
accounting practices applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial statements furnished to
the Agent pursuant to Section 4.1 hereof (or, prior to the delivery of the first
financial statements under Section 4.1 hereof, used in the preparation of the
audited, or annual statutory, financial statements as at December 31, 1998
referred to in Section 3.2 hereof) unless (i) State Auto Mutual shall have
objected to determining such compliance on such basis at the time of delivery of
such financial statements or (ii) the Required Lenders (through the Agent) shall
so object in writing within 30 days after delivery of such financial statements,
in either of which events such calculations shall be made on a basis consistent
with those used in the preparation of the latest financial statements as to
which such objection shall not have been made (which, if objection is made in
respect of the first financial statements delivered under Section 4.1 hereof,
shall mean the audited, or annual statutory, financial statements referred to in
Section 3.2 hereof).
(b) State Auto Mutual shall deliver to the Agent at the same time as
the delivery of any annual or quarterly financial statement under Section 4.1
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles, or statutory accounting practices,
employed in the preparation of such statement and the application of accounting
principles, or statutory accounting practices, employed in the preparation of
the next preceding annual or quarterly financial statements as to which no
objection has been made in accordance with the last sentence of subsection (a)
above and (ii) reasonable estimates of the difference between such statements
arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance with
the covenants set forth in Article IV hereof, State Auto Mutual will not change
the last day of its fiscal year from December 31, or the last days of the first
three fiscal quarters in each of its fiscal years from March 31, June 30 and
September 30 of each year, respectively.
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ARTICLE II
PUT
---
2.1 Put. At any time after the occurrence and during the continuance of
a Put Event, the Agent may (with the approval of the Required Lenders but not
otherwise), by delivering to State Auto Mutual a Put Notice, require State Auto
Mutual to purchase (a) from each Lender, all (but not less than all) of such
Lender's Loans, Notes and Commitment or (b) from the Agent, all (but not less
than all) of the Pledged Stock. In the event that a Put Event has occurred and
the Agent (with the consent of the Required Lenders) has elected to deliver a
Put Notice, it shall first attempt to require State Auto Mutual to purchase the
Pledged Stock; provided that if the Agent shall not be able, promptly (and in
any event within 5 Business Days of any such election) after the occurrence of
such Put Event, to sell the Pledged Stock to State Auto Mutual as contemplated
hereby, it may deliver a Put Notice requiring the purchase of each Lender's
Loans, Notes and Commitments.
2.2 Purchase of Loans.
(a) If such Put Notice requires that State Auto Mutual purchase each
Lender's Loans, Notes and Commitment, then, on the Put Purchase Date specified
in such Put Notice (which Put Purchase Date shall be at least three Business
Days after the date of delivery of such Put Notice), (i) State Auto Mutual shall
purchase from each Lender, and each Lender shall sell, assign and transfer to
State Auto Mutual, all of such Lender's Loans, Notes and Commitment, as
specified in such Put Notice and (ii) State Auto Mutual shall pay to the Agent
for account of each Lender an aggregate amount equal to the sum of (x) the
aggregate outstanding principal amount of Loans of such Lender plus (y) all
accrued and unpaid interest thereon to the Put Purchase Date plus (z) all other
amounts then payable to such Lender under the Basic Documents in respect thereof
(including all amounts that would be payable under Section 3.4 of the Credit
Agreement as if such portion of such Lender's Loans were being prepaid on the
Put Purchase Date) (such amounts to be determined by the Agent and notified in
writing by the Agent to State Auto Mutual prior to such Put Purchase Date). Upon
the occurrence of any Put Event referred to in clause (g), (h) or (i) of the
definition of such term in Section 1.1 hereof, State Auto Mutual shall
automatically and without any action (including, without limitation the giving
of notice) on the part of any other Person be required to purchase the entire
principal amount of the Loans then outstanding.
(b) Such sale, assignment and transfer shall be without recourse to
each Lender and without representation and warranty by such Lender, except that
such Lender will represent and warrant to State Auto Mutual that, on the Put
Purchase Date, such Lender is the legal and beneficial owner of such portion of
such Lender's Loans, Notes and Commitment so sold, assigned and transferred,
free and clear of any adverse claim. Upon such sale, assignment and transfer and
to the extent thereof, State Auto Mutual shall have the obligations, rights and
benefits of a "Lender" under the Credit Agreement holding the Commitment and
Loans so sold, assigned and transferred and each Lender shall be released from
the Commitment so sold, assigned and transferred.
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2.3 Purchase of Pledged Stock. If such Put Notice requires that State
Auto Mutual purchase the Pledged Stock, then, on the Put Purchase Date specified
in such Put Notice (which Put Purchase Date shall be at least three Business
Days after the date of delivery of such Put Notice), (a) State Auto Mutual shall
purchase from the Agent, and the Agent shall sell, assign and transfer to State
Auto Mutual, the Pledged Stock, (b) State Auto Mutual shall pay to the Agent,
for account of the Lenders, an amount equal to the aggregate liquidation
preference of such Pledged Stock and all accrued but unpaid dividends thereon
(such amount to be determined by the Agent and notified in writing by the Agent
to State Auto Mutual prior to such Put Purchase Date) and (c) the Agent shall
apply such amount to the payment of the Obligations owing to the Lenders under
the Credit Documents.
2.4 Obligations Unconditional. The obligations of State Auto Mutual
under Sections 2.1, 2.2, 2.3 and 5.3 hereof are absolute, unconditional and
irrevocable, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Borrower or any other Person under the
Credit Agreement, the Notes, the Pledge Agreements or any other agreement or
instrument referred to therein (collectively, the "Obligations"), or any
substitution, release or exchange of any other guarantee of or security for any
of the Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense available to State Auto
Mutual, it being the intent of this Section 2.4 that the obligations of State
Auto Mutual hereunder shall be absolute, unconditional and irrevocable under any
and all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence of any one or more of the following shall not alter
or impair the liability of State Auto Mutual hereunder which shall remain
absolute, unconditional and irrevocable as described above:
(a) at any time or from time to time, without notice to State Auto
Mutual, the time for any performance of or compliance with any of the
Obligations shall be extended, or such performance or compliance shall be
waived;
(b) any of the acts mentioned in any of the provisions of the Credit
Agreement, the Notes, the Pledge Agreements or any other agreement or instrument
referred to therein shall be done or omitted;
(c) the maturity of any of the Obligations shall be accelerated, or any
of the Obligations shall be modified, supplemented or amended in any respect, or
any right under this Agreement, the Notes, the Pledge Agreements or any other
agreement or instrument referred to therein shall be waived or any guarantee of
any of the Obligations or any security therefor shall be released or exchanged
in whole or in part or otherwise dealt with; or
(d) any change in the financial condition (including, without
limitation, insolvency or bankruptcy) of the Borrower.
State Auto Mutual hereby expressly waives all of the defenses referred to above
and diligence, presentment, demand of payment, protest and all notices
whatsoever (other than the Put Notice), and any requirement that the Agent or
any Lender exhaust any right, power or remedy or proceed against the Borrower
under the Credit Agreement, the Notes, the Pledge Agreements or any other
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agreement or instrument referred therein, or against any other Person under any
other guarantee of, or security for, any of the Obligations.
2.5 Reinstatement. If for any reason any payment received by the Agent
in respect of any of the Obligations prior to the consummation by State Auto
Mutual of a purchase contemplated by Section 2.2 or 2.3 hereof is rescinded or
must be otherwise restored by any Lender for any reason, whether as a result of
any proceedings in bankruptcy, insolvency or reorganization or otherwise,
following the consummation of such purchase, State Auto shall purchase from such
Lender, and such Lender shall sell, assign and transfer to State Auto Mutual,
all of the right, title and interest of such Lender in and to the payment so
rescinded or otherwise restored, and upon such sale, assignment and transfer,
State Auto Mutual shall pay to such Lender an amount equal to the payment so
rescinded or otherwise restored. State Auto Mutual hereby agrees that it will
indemnify the Agent and such Lender on demand for all reasonable costs and
expenses (including, without limitation, fees of counsel) incurred by the Agent
or such Lender in connection with such rescission or restoration.
2.6 Payments.
(a) Except to the extent otherwise provided herein, all payments to be
made by State Auto Mutual under this Agreement shall be made in Dollars, in
immediately available funds, without deduction, set-off or counterclaim, to the
Agent at an account designated by the Agent to State Auto Mutual in writing, not
later than 12:00 noon (Chicago time) time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day).
(b) The Agent may (but shall not be obligated to) debit the amount of
any such payment that is not made by such time to any ordinary deposit account
of State Auto Mutual with the Agent (with notice to State Auto Mutual), provided
that the Agent's failure to give such notice shall not affect the validity
thereof.
2.7 Taxes. (a) All payments by State Auto Mutual to or for the account
of any Lender or the Agent hereunder shall be made free and clear of and without
deduction for any and all Taxes. If State Auto Mutual shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder to any
Lender or the Agent, (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.7) such Lender or the Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) State Auto Mutual shall make such deductions,
(iii) State Auto Mutual shall pay the full amount deducted to the relevant
authority in accordance with applicable law and (iv) State Auto Mutual shall
furnish to the Agent the original copy of a receipt evidencing payment thereof
within 30 days after such payment is made.
(b) In addition, State Auto Mutual hereby agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or from
the execution or delivery of, or otherwise with respect to, this Agreement
("Other Taxes").
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(c) State Auto Mutual hereby agrees to indemnify the Agent and each
Lender for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed on amounts payable under this
Section 2.7) paid by the Agent or such Lender and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
Payments due under this indemnification shall be made within 30 days of the date
the Agent or such Lender makes demand therefor.
(d) For any period during which a Lender that is not incorporated under
the laws of the United States of America or a state thereof (each a "Non-U.S.
Lender") has failed to provide the Borrower with an appropriate form pursuant to
Section 3.5(d) of the Credit Agreement (unless such failure is due to a change
in treaty, law or regulation, or any change in the interpretation or
administration thereof by any governmental authority, occurring subsequent to
the date on which a form originally was required to be provided), such Non-U.S.
Lender shall not be entitled to indemnification under this Section 2.7 with
respect to Taxes imposed by the United States; provided that, should a Non-U.S.
Lender which is otherwise exempt from or subject to a reduced rate of
withholding tax become subject to Taxes because of its failure to deliver a form
required under Section 3.5(d) of the Credit Agreement, State Auto Mutual shall
take such steps as such Non-U.S. Lender shall reasonably request to assist such
Non-U.S. Lender to recover such Taxes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each State Auto Obligor represents and warrants (with respect to itself
and its Subsidiaries only) to the Agent and the Lenders that:
3.1 Corporate Existence. Each of such State Auto Obligor and its
Material Subsidiaries: (a) is a corporation, partnership or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or other
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business and is in good
standing in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure so to qualify could
(either individually or in the aggregate) have a Material Adverse Effect.
3.2 Financial Condition.
(a) State Auto Mutual has heretofore furnished to each of the Lenders
consolidated balance sheets of State Auto Financial and its Subsidiaries as at
December 31, 1998 and the related consolidated statements of income, retained
earnings and cash flows of State Auto Financial and its Subsidiaries for the
fiscal year ended on said date, with the opinion thereon of Ernst & Young LLP,
and the unaudited consolidated balance sheets of State Auto
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Financial and its Subsidiaries as at June 30, 1999 and the related consolidated
statements of income, retained earnings and cash flows of State Auto Financial
and its Subsidiaries for the three-month period ended on such date. All such
financial statements present fairly in all material respects the consolidated
financial condition of State Auto Financial and its Subsidiaries as at said
dates and the consolidated results of their operations for the fiscal year and
three-month period ended on said dates (subject, in the case of such financial
statements as at June 30, 1999, to normal year-end audit adjustments), all in
accordance with generally accepted accounting principles and practices applied
on a consistent basis. None of State Auto Financial nor any of its Material
Subsidiaries has on the date hereof any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in said balance sheets as at said dates. Since June
30, 1999, there has been no material adverse change in the consolidated
financial condition, operations, business or prospects taken as a whole of State
Auto Financial and its Subsidiaries from that set forth in said financial
statements as at June 30, 1999.
(b) State Auto Mutual has heretofore furnished to each of the Lenders
the annual Statutory Statement of each Insurance Entity for the fiscal year
ended December 31, 1998, and the quarterly Statutory Statement of each Insurance
Entity for the fiscal quarter ended June 30, 1999, in each case as filed with
the Applicable Insurance Regulatory Authority. All such Statutory Statements
present fairly in all material respects the financial condition of each
Insurance Entity as at, and the results of operations for, the fiscal year ended
December 31, 1998, and fiscal quarter ended June 30, 1999, in accordance with
statutory accounting practices prescribed or permitted by the Applicable
Insurance Regulatory Authority. Since June 30, 1999, there has been no material
adverse change in the consolidated financial condition, operations, business or
prospects taken as a whole of State Auto Mutual from that set forth in said
Statutory Statement as at June 30, 1999.
3.3 Litigation. There are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge such State Auto Obligor) threatened against State
Auto Mutual or any of its Subsidiaries that, if adversely determined could
(either individually or in the aggregate) have a Material Adverse Effect.
3.4 No Breach. None of the execution and delivery of this Agreement and
the other Basic Documents to which such State Auto Obligor is a party, the
consummation of the transactions herein and therein contemplated or compliance
with the terms and provisions hereof and thereof (including, without limitation,
issuance of the Preferred Stock) will conflict with or result in a breach of, or
require any consent under, the charter or by-laws (or equivalent documents) of
such State Auto Obligor, or any applicable law or regulation, or any order,
writ, injunction or decree of any court or governmental authority or agency, or
any agreement or instrument to which State Auto Mutual or any of its
Subsidiaries is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any Property of State Auto Mutual or any of its Subsidiaries pursuant to
the terms of any such agreement or instrument.
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3.5 Action. Such State Auto Obligor has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents to which it is a party and, in the case of State
Auto Financial, to issue the Preferred Stock; the execution, delivery and
performance by such State Auto Obligor of each of the Basic Documents to which
it is a party (and, in the case of State Auto Financial, the issuance of the
Preferred Stock) have been duly authorized by all necessary corporate action on
its part (including, without limitation, any required shareholder approvals);
and this Agreement has been duly and validly executed and delivered by such
State Auto Obligor and constitutes, and each of the other Basic Documents to
which such State Auto Obligor is a party when executed and delivered will
constitute, its legal, valid and binding obligation, enforceable against such
State Auto Obligor in accordance with its terms, except as such enforceability
may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or
similar laws of general applicability affecting the enforcement of creditors'
rights and (b) the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
3.6 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange (other than any authorizations, approvals,
consents, filings and registrations heretofore duly made or obtained and in full
force and effect), are necessary for the execution, delivery or performance by
either State Auto Obligor of this Agreement or any of the other Basic Documents
to which it is a party (or, in the case of State Auto Financial, for the
issuance of the Preferred Stock) or for the legality, validity or enforceability
hereof or thereof.
3.7 ERISA. Each Plan, and, to the knowledge of the such State Auto
Obligor, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or state law, and
no event or condition has occurred and is continuing as to which State Auto
Mutual would be under an obligation to furnish a report to the Agent under
Section 4.1(j) hereof.
3.8 Taxes. State Auto Mutual and its Subsidiaries are members of an
affiliated group of corporations filing consolidated returns for Federal income
tax purposes, of which State Auto Mutual is the "common parent" (within the
meaning of Section 1504 of the Code) of such group. State Auto Mutual and its
Material Subsidiaries have filed all Federal income tax returns and all other
material tax returns that are required to be filed by them and have paid all
taxes due pursuant to such returns or pursuant to any assessment received by
State Auto Mutual or any of its Material Subsidiaries. The charges, accruals and
reserves on the books of State Auto Mutual and its Material Subsidiaries in
respect of taxes and other governmental charges are, in the opinion of State
Auto Mutual, adequate. State Auto Mutual has not given or been requested to give
a waiver of the statute of limitations relating to the payment of any Federal,
state, local and foreign taxes or other impositions.
3.9 Investment Company Act. Neither State Auto Mutual nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
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3.10 Public Utility Holding Company Act. Neither State Auto Mutual nor
any of its Subsidiaries is a "holding company" or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
3.11 Material Agreements and Liens.
(a) Part A of Schedule I hereto is a complete and correct list of each
credit agreement, loan agreement, indenture, purchase agreement, guarantee,
letter of credit or other arrangement providing for or otherwise relating to any
Indebtedness or any extension of credit (or commitment for any extension of
credit) to, or guarantee by, State Auto Mutual or any of its Subsidiaries,
outstanding on the date hereof the aggregate principal or face amount of which
equals or exceeds (or may equal or exceed) $5,000,000, and the aggregate
principal or face amount outstanding or that may become outstanding under each
such arrangement is correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list of each
Lien securing Indebtedness of any Person outstanding on the date hereof the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $5,000,000 and covering any Property of State Auto Mutual or any of its
Subsidiaries, and the aggregate Indebtedness secured (or that may be secured) by
each such Lien and the Property covered by each such Lien is correctly described
in Part B of said Schedule I.
3.12 Environmental Matters. Each of State Auto Mutual and its
Subsidiaries has obtained all environmental, health and safety permits, licenses
and other authorizations required under all Environmental Laws to carry on its
business as now being or as proposed to be conducted, except to the extent
failure to have any such permit, license or authorization would not (either
individually or in the aggregate) have a Material Adverse Effect. Each of such
permits, licenses and authorizations is in full force and effect and each of
State Auto Mutual and its Subsidiaries is in compliance with the terms and
conditions thereof, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply therewith would not (either individually or in the aggregate)
have a Material Adverse Effect.
3.13 Capitalization. The authorized capital stock of State Auto
Financial consists, on the date hereof, of an aggregate of 105,000,000 shares
consisting of (a) 100,000,000 shares of common stock, no par value, of which
40,565,812 shares are duly and validly issued and outstanding, each of which
shares is fully paid and nonassessable, (b) 2,500,000 shares of Class A
Preferred Stock, no par value, none of which shares are issued and outstanding
and (c) 2,500,000 shares of Class B Preferred Stock, no par value, none of which
shares are issued and outstanding. Upon issuance, each share of Class A
Preferred Stock will benefit from the Terms and Conditions of Class A Preferred
Stock attached to form of Class A Preferred Stock Certificate attached to the
Standby Purchase Agreement as Exhibit A. As of the date hereof, 70% of such
issued and outstanding shares of common stock are owned beneficially and of
record by State Auto Mutual. As of the date hereof, (i) except for this
Agreement and the
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Standby Purchase Agreement and as set forth in Part A of Schedule III hereto,
there are no outstanding Equity Rights with respect to State Auto Financial and
(ii) except as set forth in Part B of Schedule III hereto, there are no
outstanding obligations of State Auto Financial or any of its Subsidiaries to
repurchase, redeem, or otherwise acquire any shares of capital stock of State
Auto Financial nor are there any outstanding obligations of State Auto Financial
or any of its Subsidiaries to make payments to any Person, such as "phantom
stock" payments, where the amount thereof is calculated with reference to the
fair market value or equity value of State Auto Financial or any of its
Subsidiaries.
3.14 Subsidiaries, Etc.
(a) Set forth in Part A of Schedule II hereto is a complete and correct
list of all Subsidiaries of State Auto Mutual on the date hereof and a
specification of which of such Subsidiaries are Insurance Entities and which are
Material Subsidiaries.
(b) Set forth in Part B of Schedule II hereto is a complete and correct
list of all Investments (other than (x) Investments disclosed in Part A of said
Schedule II hereto and any other Investments existing as of the date hereof
permitted under Section 4.9 hereof and (y) Guarantees of Indebtedness the
aggregate principal or face amount of which Indebtedness is less than
$5,000,000) held by State Auto Mutual or any of its Subsidiaries in any Person
on the date hereof and, for each such Investment, (i) the identity of the Person
or Persons holding such Investment and (ii) the nature of such Investment.
Except as disclosed in Part B of Schedule II hereto, each of State Auto Mutual
and its Subsidiaries owns, free and clear of all Liens, all such Investments.
3.15 True and Complete Disclosure. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of the
State Auto Obligors to the Agent or any Lender in connection with the
negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the date hereof by State
Auto Mutual and its Subsidiaries to the Agent and the Lenders in connection with
this Agreement and the other Basic Documents and the transactions contemplated
hereby and thereby will be true, complete and accurate in every material
respect, or (in the case of projections) based on reasonable estimates, on the
date as of which such information is stated or certified. There is no fact known
to either State Auto Obligor that could have a Material Adverse Effect that has
not been disclosed herein, in the other Basic Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Agent for use in connection with the transactions contemplated
hereby or thereby.
3.16 No Reliance. State Auto Mutual has made, independently and without
reliance upon the Agent or any Lender, and based on such documents and
information as it has deemed appropriate, its own decision to enter into this
Agreement and has made (and will continue to make), independently and without
reliance upon the Agent or any Lender, and based
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on such documents and information as it has deemed appropriate (or shall deem
appropriate at the time), its own legal, credit and tax analysis of the
transactions contemplated hereby.
3.17 Insurance Licenses. Schedule T to the most recent Statutory
Statement of each Insurance Entity described in Section 3.2(b) hereof lists, as
of the date hereof, all of the jurisdictions in which each of the Insurance
Entities holds active licenses (including, without limitation, licenses or
certificates of authority from Applicable Insurance Regulatory Authorities),
permits or authorizations to transact insurance and reinsurance business or to
act as an insurance agent or broker (collectively, the "Licenses"). Each
Insurance Entity is in compliance in all material respects with each license
held by it. No License (to the extent material) is the subject of a proceeding
for suspension or revocation or any similar proceedings, there is no sustainable
basis for such a suspension or revocation, and to the knowledge of each State
Auto Obligor no such suspension or revocation has been threatened by any
licensing authority except in any such case where such proceedings would not
have a Material Adverse Effect.
3.18 Year 2000. Each State Auto Obligor has made a full and complete
assessment of the Year 2000 Issues and has a realistic and achievable program
for remediating the Year 2000 Issues on a timely basis (the "Year 2000
Program"). Based on such assessment and on the Year 2000 Program no State Auto
Obligor reasonably anticipates that Year 2000 Issues will have a Material
Adverse Effect.
ARTICLE IV
COVENANTS OF STATE AUTO MUTUAL
------------------------------
State Auto Mutual covenants and agrees with the Agent that, so long as
any Obligations are outstanding or any Commitments are in effect:
4.1 Financial Statements Etc. State Auto Mutual shall deliver to the
Agent (with sufficient copies for each of the Lenders):
(a) as soon as available and in any event within 60 days after
the end of each quarterly fiscal period of each fiscal year of State
Auto Financial, consolidated statements of income, retained earnings
and cash flows of State Auto Financial and its Subsidiaries for such
period and for the period from the beginning of the respective fiscal
year to the end of such period, and the related consolidated balance
sheets of State Auto Financial and its Subsidiaries as at the end of
such period, setting forth in each case in comparative form the
corresponding consolidated figures for the corresponding periods in the
preceding fiscal year (except that, in the case of balance sheets, such
comparison shall be to the last day of the prior fiscal year),
accompanied by a certificate of a senior financial officer of State
Auto Financial, which certificate shall state that said consolidated
financial statements present fairly in all material respects the
consolidated financial condition and results of operations of State
Auto Financial and its Subsidiaries in accordance with generally
accepted accounting principles, consistently applied, as at the end of,
and for, such period (subject to normal year-end audit adjustments);
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(b) as soon as available and in any event within 90 days after
the end of each fiscal year of State Auto Financial, consolidated
statements of income, retained earnings and cash flows of State Auto
Financial and its Subsidiaries for such fiscal year and the related
consolidated balance sheets of State Auto Financial and its
Subsidiaries as at the end of such fiscal year, setting forth in each
case in comparative form the corresponding consolidated figures for the
preceding fiscal year, and accompanied by an opinion thereon of
independent certified public accountants of recognized national
standing, which opinion shall state that said consolidated financial
statements present fairly in all material respects the consolidated
financial condition and results of operations of State Auto Financial
and its Subsidiaries as at the end of, and for, such fiscal year in
accordance with generally accepted accounting principles;
(c) promptly after filing with the Applicable Insurance
Regulatory Authority and in any event within 45 days after the end of
each for the first three quarterly fiscal periods of each fiscal year
of each Insurance Entity, its quarterly Statutory Statement for such
quarterly fiscal period, together with the opinion thereon of a senior
financial officer of such Insurance Entity stating that such Statutory
Statement presents the financial condition of such Insurance Entity for
such quarterly fiscal period in accordance with statutory accounting
practices required or permitted by the Applicable Insurance Regulatory
Authority;
(d) promptly after filing with the Applicable Insurance
Regulatory Authority and in any event within 90 days after the end of
each fiscal year of each Insurance Entity, the annual Statutory
Statement of such Insurance Entity for such year, together with (i) the
opinion thereon of a senior financial officer of such Insurance Entity
stating that said annual Statutory Statement presents the financial
condition of such Insurance Entity for such fiscal year in accordance
with statutory accounting practices required or permitted by the
Applicable Insurance Regulatory Authority and (ii) a certificate of a
valuation actuary affirming the adequacy of reserves taken by such
Insurance Entity in respect of future policyholder benefits as at the
end of such fiscal year (as shown on such Statutory Statement);
(e) within 180 days after the end of each fiscal year of each
Insurance Entity, the report of Ernst & Young LLP (or other independent
certified public accountants of recognized national standing) on the
annual Statutory Statements delivered pursuant to Section 4.1(d)
hereof;
(f) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that
State Auto Mutual or any of its Material Subsidiaries shall have filed
with the Securities and Exchange Commission (or any governmental agency
substituted therefor) or any national securities exchange;
(g) promptly upon the mailing thereof to the policyholders of
State Auto Mutual generally and to the shareholders of State Auto
Financial, copies of all financial statements, reports and proxy
statements so mailed;
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(h) promptly after State Auto Mutual receives the results of a
triennial examination by the NAIC of the financial condition and
operations of State Auto Mutual and/or any of its Material
Subsidiaries, a copy thereof;
(i) promptly following the delivery or receipt by State Auto
Mutual or any of its Material Subsidiaries of any correspondence,
notice or report to or from any Applicable Insurance Regulatory
Authority that relates, to any material extent, to the financial
viability of State Auto Mutual or any of its Material Subsidiaries, a
copy thereof;
(j) as soon as possible, and in any event within ten days
after either State Auto Obligor knows or has reason to believe that any
of the events or conditions specified below with respect to any Plan or
Multiemployer Plan has occurred or exists, a statement signed by a
senior financial officer of State Auto Mutual setting forth details
respecting such event or condition and the action, if any, that State
Auto Mutual or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with
or given to the PBGC by State Auto Mutual or an ERISA Affiliate with
respect to such event or condition):
(i) any reportable event, as defined in Section
4043(c) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which the PBGC has not by regulation
waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event
(provided that a failure to meet the minimum funding standard
of Section 412 of the Code or Section 302 of ERISA, including,
without limitation, the failure to make on or before its due
date a required installment under Section 412(m) of the Code
or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with
Section 412(d) of the Code); and any request for a waiver
under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of
a notice of intent to terminate any Plan or any action taken
by State Auto Mutual or an ERISA Affiliate to terminate any
Plan;
(iii) the institution by the PBGC of proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by State Auto Mutual or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been
taken by the PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by State Auto Mutual or any ERISA Affiliate
that results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by State Auto
Mutual or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate
or has terminated under Section 4041A of ERISA;
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(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against State Auto Mutual or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is
not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA, would result in the loss of tax-exempt status of the
trust of which such Plan is a part if State Auto Mutual or an
ERISA Affiliate fails to timely provide security to the Plan
in accordance with the provisions of said Sections;
(k) within five Business Days after receipt, notice from any
Applicable Insurance Regulatory Authority of any threatened or actual
proceeding for suspension or revocation of any License or any similar
proceeding with respect to any such License;
(l) promptly, notice of any denial of coverage, litigation, or
arbitration arising out of any Reinsurance Agreements to which any
Insurance Entity is a party which denial, litigation or arbitration
involves $5,000,000 or more;
(m) promptly after either State Auto Obligor knows or has
reason to believe that any Put Event (or any event that with notice or
lapse of time or both would become a Put Event) has occurred, a notice
of such Put Event (or such event) describing the same in reasonable
detail and, together with such notice or as soon thereafter as
possible, a description of the action that State Auto Mutual has taken
or proposes to take with respect thereto;
(n) at the time it furnishes each set of financial statements
pursuant to paragraph (a) or (b) above, a certificate of a senior
financial officer of State Auto Mutual (i) to the effect that no Put
Event (or any event that with notice or lapse of time or both would
become a Put Event) has occurred and is continuing (or, if any Put
Event (or any such event) has occurred and is continuing, describing
the same in reasonable detail and describing the action that State Auto
Mutual has taken or proposes to take with respect thereto) and (ii)
setting forth in reasonable detail the computations necessary to
determine whether the State Auto Obligors are in compliance with
Section 4.10 hereof as of the end of the respective quarterly fiscal
period or fiscal year; and
(o) from time to time such other information regarding the
financial condition, operations, business or prospects of State Auto
Mutual or any of its Subsidiaries (including, without limitation, any
Plan or Multiemployer Plan and any reports or other information
required to be filed under ERISA) as the Agent may reasonably request.
4.2 Litigation. State Auto Mutual will promptly give to the Agent (with
sufficient copies for each Lender) notice of all legal or arbitral proceedings,
and of all proceedings by or before any governmental or regulatory authority or
agency, and any material development in respect of such legal or other
proceedings, affecting State Auto Mutual or any of its Subsidiaries, except
proceedings that, if adversely determined, would not (either individually or in
the aggregate) have a Material Adverse Effect.
4.3 Existence. Etc. State Auto Mutual will:
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(a) and will cause each of its Material Subsidiaries to,
preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (provided that nothing in
this Section 4.3 shall prohibit any transaction expressly permitted
under Section 4.5 hereof);
(b) and will cause each of its Subsidiaries to, comply with
the requirements of all applicable laws, rules, regulations and orders
of governmental or regulatory authorities if failure to comply with
such requirements could (either individually or in the aggregate) have
a Material Adverse Effect;
(c) and will cause each of its Material Subsidiaries to, pay
and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its Property
prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
(d) and will cause each of its Material Subsidiaries to, keep
adequate records and books of account, in which complete entries will
be made in accordance with generally accepted accounting principles
(or, in the case of an Insurance Entity, statutory accounting
principles) consistently applied; and
(e) and will cause each of its Material Subsidiaries to,
permit representatives of any Lender or the Agent, during normal
business hours, to examine, copy and make extracts from its books and
records, to inspect any of its Properties, and to discuss its business
and affairs with its officers, all to the extent reasonably requested
by such Lender or the Agent (as the case may be).
4.4 Insurance. State Auto Mutual will, and will cause each of its
Material Subsidiaries to, maintain insurance with financially sound and
reputable insurance companies, and with respect to Property and risks of a
character usually maintained by corporations engaged in the same or similar
business similarly situated, against loss, damage and liability of the kinds and
in the amounts customarily maintained by such corporations (including general
liability insurance, director's and officer's liability insurance, property
insurance and worker's compensation insurance), provided that, nothing in this
Section 4.4 shall be deemed to require State Auto Mutual or any of its Material
Subsidiaries to enter into any Reinsurance Agreement and provided, further, that
State Auto Mutual and its Material Subsidiaries may self-insure against such
hazards and risks, and in such amounts as is customary for corporations of a
similar size and in similar lines of business.
4.5 Prohibition of Fundamental Changes.
(a) State Auto Mutual will not, nor will it permit any of its Material
Subsidiaries to, enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution).
(b) State Auto Mutual will not, nor will it permit any of its Material
Subsidiaries to, acquire any business or Property from, or capital stock of, or
be a party to any
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acquisition of, any Person except for purchases of inventory and other Property
to be sold or used in the ordinary course of business, Assumed Reinsurance in
the ordinary course of business, Investments permitted under Section 4.9 hereof,
and Capital Expenditures.
(c) State Auto Mutual will not, nor will it permit any of its Material
Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or a substantial part of its
business or Property, whether now owned or hereafter acquired.
(d) Notwithstanding the foregoing provisions of this Section 4.5:
(i) any Subsidiary of State Auto Mutual may be merged or consolidated
with or into: (x) State Auto Mutual if State Auto Mutual shall be the continuing
or surviving corporation or (y) any other such Subsidiary; provided that (A) if
any such transaction (other than a transaction described in clause (B) below)
shall be between a Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned
Subsidiary shall be the continuing or surviving corporation and (B) if any such
transaction shall be between State Auto Financial and any other such Subsidiary,
State Auto Financial shall be the surviving corporation;
(ii) any Material Subsidiary of State Auto Mutual may sell, lease,
transfer or otherwise dispose of any or all of its Property (upon voluntary
liquidation or otherwise) to State Auto Mutual or a Wholly Owned Subsidiary of
State Auto Mutual;
(iii) State Auto Mutual may merge or consolidate with or acquire any
other Person if (w) in the case of a merger or consolidation, State Auto Mutual
is the surviving corporation, (x) after giving effect thereto, no Put Event (and
no event that with notice or lapse of time or both would constitute a Put Event)
would exist hereunder, (y) the business activity engaged in by such other Person
would be permitted under Section 4.13 hereof if such other Person were a
Subsidiary of State Auto Mutual prior to such merger or consolidation and (z)
the aggregate amount of the Statutory Surplus (determined as at the date of the
relevant merger, consolidation or acquisition) of all such other Persons that
have been the subject of any merger, consolidation or acquisition pursuant to
this clause (iii) after the date hereof (other than any such merger,
consolidation or acquisition financed solely with Net Available Proceeds) shall
be less than $250,000,000; and
(iv) any Material Subsidiary of State Auto Mutual may merge or
consolidate with or acquire any other Person if (w) in the case of a merger or
consolidation, the surviving corporation is a Wholly Owned Subsidiary of State
Auto Mutual; provided, that in the case of any merger or consolidation involving
State Auto Financial, the surviving corporation is State Auto Financial, (x)
after giving effect thereto, no Put Event (and no event that with notice or
lapse of time or both would constitute a Put Event) would exist hereunder, (y)
the business activity engaged in by such other Person would be permitted under
Section 4.13 hereof if such other Person were a Subsidiary of State Auto Mutual
prior to such merger or consolidation and (z) the aggregate amount of the
Statutory Surplus (determined as at the date of the relevant merger,
consolidation or acquisition) of all such other Persons that have been the
subject of any merger, consolidation or
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acquisition pursuant to this clause (iv) during any calendar year (other than
any such merger, consolidation or acquisition financed solely with Net Available
Proceeds) shall be less than $100,000,000.
4.6 Limitation on Liens. State Auto Mutual will not, nor will it permit
any of its Material Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of its Property, whether now owned or hereafter acquired,
except:
(a) Liens in existence on the date hereof and listed in Part B
of Schedule I hereto;
(b) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of State Auto Mutual or the
affected Material Subsidiaries, as the case may be, in accordance with
Agreement Accounting Principles (or, in the case of any Insurance
Entity, SAP);
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that
are being contested in good faith and by appropriate proceedings and
Liens securing judgments but only to the extent for an amount and for a
period not resulting in a Put Event under clause (j) of the definition
of "Put Event" in Section 1.1 hereof;
(d) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto that do not in any case materially detract from the value of
the Property subject thereto or interfere with the ordinary conduct of
the business of State Auto Mutual or any of its Material Subsidiaries;
(g) Liens arising under escrows, trusts, custodianships,
separate accounts, funds withheld procedures, and similar deposits,
arrangements, or agreements established with respect to insurance
policies, annuities, guaranteed investment contracts and similar
products underwritten by, or Reinsurance Agreements entered into by,
any Insurance Entity in the ordinary course of business;
(h) deposits with insurance regulatory authorities;
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(i) Liens on Property of any corporation that becomes a
Subsidiary of State Auto Mutual after the date hereof, provided that
such Liens are in existence at the time such corporation becomes a
Subsidiary of State Auto Mutual and were not created in anticipation
thereof;
(j) Liens upon real and/or tangible personal Property acquired
after the date hereof (by purchase, construction or otherwise) by State
Auto Mutual or any of its Material Subsidiaries, each of which Liens
either (i) existed on such Property before the time of its acquisition
and was not created in anticipation thereof or (ii) was created solely
for the purpose of securing Indebtedness representing, or incurred to
finance, refinance or refund, the cost (including the cost of
construction) of such Property; provided that (x) no such Lien shall
extend to or cover any Property of State Auto Mutual or such Material
Subsidiary other than the Property so acquired and improvements thereon
and (y) the principal amount of Indebtedness secured by any such Lien
shall at no time exceed 80% of the fair market value (as determined in
good faith by a senior financial officer of State Auto Mutual) of such
Property at the time it was acquired (by purchase, construction or
otherwise); and
(k) additional Liens upon real and/or personal Property
created after the date hereof, provided that the aggregate Indebtedness
secured thereby and incurred on and after the date hereof shall not
exceed $15,000,000 in the aggregate at any one time outstanding.
4.7 Indebtedness. State Auto Mutual will not, nor will it permit any of
its Material Subsidiaries to, create, incur or suffer to exist any Indebtedness
except:
(a) Indebtedness created pursuant hereto;
(b) Indebtedness outstanding on the date hereof and listed in
Part A of Schedule I hereto;
(c) Indebtedness of Material Subsidiaries of State Auto Mutual
to State Auto Mutual or to other Material Subsidiaries of State Auto
Mutual; and
(d) additional Indebtedness of State Auto Mutual and its
Material Subsidiaries (including, without limitation, Capital Lease
Obligations and other Indebtedness secured by Liens permitted under
Sections 4.6(j) or 4.6(k) hereof) up to but not exceeding $15,000,000
at any one time outstanding.
4.8 Sale/Leaseback Transactions. State Auto Mutual will not, nor will
it permit any of its Material Subsidiaries to, enter into any an arrangement
with any Person (other than State Auto Mutual or any of its Material
Subsidiaries) providing for the leasing to State Auto Mutual or any of its
Material Subsidiaries for a period of more than five years of any Property which
has been or is to be sold or transferred by State Auto Mutual or such Material
Subsidiary to such Person or to any other Person (other than State Auto Mutual
or any of its Material Subsidiaries), to which funds have been or are to be
advanced by such Person on the security of the Property subject to such lease (a
"Sale/Leaseback Transaction") if, after giving effect thereto, the Value (as
defined below) of all Sale/Leaseback Transactions at such time
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would exceed 10% of the Statutory Surplus of State Auto Mutual at such time. For
purposes of this Section 4.8, "Value" shall mean, with respect to any
Sale/Leaseback Transaction as at any time, the amount equal to the greater of
(a) the net proceeds of the sale or transfer of the Property subject to such
Sale/Leaseback Transaction and (b) the fair value, in the opinion of the board
of directors of State Auto Mutual of such Property at the time of entering into
such Sale/Leaseback Transaction, in either case divided first by the number of
full years of the term of the lease and then multiplied by the number of full
years of such term remaining at the time of determination, without regard to any
renewal or extension options contained in such lease.
4.9 Investments.
(a) State Auto Mutual will not, nor will it permit any of its Material
Subsidiaries to, make or permit to remain outstanding any Investments except (i)
Investments outstanding on the date hereof and identified in Part B of Schedule
II hereto, (ii) operating deposit accounts with banks, (iii) Permitted
Investments, (iv) Investments by State Auto Mutual and its Material Subsidiaries
in State Auto Mutual and its Subsidiaries, (v) Interest Rate Protection
Agreements, provided that, without limiting the obligation of State Auto Mutual
under Section 4.12 hereof, when entering into any Interest Rate Protection
Agreement that at the time has, or at any time in the future may give rise to,
any credit exposure, the aggregate credit exposure under all Interest Rate
Protection Agreements (excluding the Interest Rate Protection Agreement being
entered into pursuant to Section 4.12 hereof) shall not exceed $10,000,000, and
(vi) Investments of Insurance Entities not prohibited by clause (b) of this
Section 4.9.
(b) State Auto Mutual will not permit any Insurance Entity to make any
Investment if, on the date of which such Investment is made and after giving
effect thereto, the aggregate value of Investments (other than equity
Investments) held by such Insurance Entity that are rated lower than "2" by the
NAIC or are not rated by the NAIC would exceed 5% of the value of total invested
assets. As used in this Section 4.9(b), the "value" of an Investment refers to
the value of such Investment that would be shown on the most recent Statutory
Statement of the relevant Insurance Entity prepared in accordance with SAP.
4.10 Certain Financial Covenants.
(a) Statutory Surplus. State Auto Mutual will not permit its Statutory
Surplus at any time to be less than (a) $495,671,189, at any time prior to the
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement (provided that no Loans are outstanding at such time) and (b)
$425,000,000, at any time during the period from and including the date of
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement to but excluding the date all Loans shall have been required to
be repaid in full pursuant to the terms of the Credit Agreement. State Auto
Mutual will not permit the Statutory Surplus of State Auto P&C to be less than
$135,467,450 at any time prior to the occurrence of a catastrophe giving rise to
Loans being outstanding under the Credit Agreement (provided that no Loans are
outstanding at such time).
(b) Risk-Based Capital Ratio. State Auto Mutual will not permit its
Risk-Based Capital Ratio at any time to be less than (a) 4.00 to 1, at any time
prior to the occurrence of a catastrophe giving rise to Loans being outstanding
under the Credit Agreement (provided
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that no Loans are outstanding at such time) and (b) 3.00 to 1, at any time
during the period from and including the date of occurrence of a catastrophe
giving rise to Loans being outstanding under the Credit Agreement to but
excluding the date all Loans shall have been required to be repaid in full
pursuant to the terms of the Credit Agreement. State Auto Mutual will not permit
the Risk-Based Capital Ratio of State Auto P&C to be less than 4.00 to 1 at any
time prior to the occurrence of a catastrophe giving rise to Loans being
outstanding under the Credit Agreement (provided that no Loans are outstanding
at such time).
(c) Premium to Surplus. State Auto Mutual will not permit its Premium
to Surplus Ratio at any time to exceed (a) 2.00 to 1, at any time prior to the
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement (provided that no Loans are outstanding at such time) and (b)
3.00 to 1, at any time during the period from and including the date of
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement to but excluding the date all Loans shall have been required to
be repaid in full pursuant to the terms of the Credit Agreement. State Auto
Mutual will not permit the Premium to Surplus Ratio of State Auto P&C to exceed
3.00 to 1 at any time prior to the occurrence of a catastrophe giving rise to
Loans being outstanding under the Credit Agreement (provided that no Loans are
outstanding at such time).
(d) Fixed Charge Coverage Ratio. State Auto Financial will not permit
its Fixed Charge Coverage Ratio, determined as of the end of each of its fiscal
quarters, to be less than 1.00 to 1.00 at any time during the period from and
including the date of occurrence of a catastrophe giving rise to Loans being
outstanding under the Credit Agreement to but excluding the date all Loans shall
have been required to be repaid in full pursuant to the terms of the Credit
Agreement.
4.11 NAIC Ratio. In the event that the NAIC or any Applicable Insurance
Regulatory Authority shall at any time promulgate any risk-based capital ratio
requirements or guidelines, State Auto Mutual will cause each Insurance Entity
to comply with the minimum requirements or guidelines applicable to it as
established by the NAIC or such Applicable Insurance Regulatory Authority.
4.12 Interest Rate Protection Agreements. State Auto Mutual will within
five days after the date of each purchase of Preferred Stock under the Standby
Purchase Agreement, cause State Auto Financial to enter into, and thereafter
maintain in full force and effect, one or more Interest Rate Protection
Agreements with one or more of the Lenders (and/or with a bank or other
financial institution having capital, surplus and undivided profits of at least
$500,000,000), that effectively would enable State Auto Financial (in a manner
satisfactory to the Agent) to protect itself against floating interest rates as
to a notional principal amount at least equal to 100% of the aggregate
Redemption Value of the Preferred Stock for a period of at least six years
measured from the date of the purchase of the Preferred Stock.
4.13 Lines of Business. State Auto Mutual will not, nor will it permit
any of its Subsidiaries to, engage to any substantial extent in any line or
lines of business activity other than the business of owning and operating
property and casualty insurance companies as conducted on the date hereof and
businesses related or incidental thereto (it being understood that the
businesses of Strategic Insurance Software, Inc., Stateco Financial Services,
Inc. and 518
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Property Management and Leasing, LLC, to the extent conducted as of the date
hereof, are related to the business of owning and operating property and
casualty insurance companies). It is also understood and agreed that the
foregoing includes State Auto Mutual assuming reinsurance with premiums in an
aggregate amount not to exceed $15,000,000 from third parties.
4.14 Ceded Reinsurance. State Auto Mutual will not, nor will it permit
any other Insurance Entity to:
(a) enter into any Reinsurance Agreement with any Person other
than (i) another Insurance Entity, (ii) any Person for which the most
recently published rating by A.M. Best & Co. is "B+" or higher or, if
such Person is not rated by A.M. Best & Co., which has a Statutory
Surplus (or the equivalent thereof) of not less than $100,000,000,
(iii) any Person that posts security under such Reinsurance Agreement
in an amount equal to the total liabilities assumed by such Person,
through a letter of credit issued by an "authorized bank" (as such term
is defined by the Applicable Insurance Regulatory Authority) or cash
collateral deposit or (iv) any other reinsurers acceptable to the
Agent, provided however, that for purposes of the foregoing clause
(ii), any "NA" designation shall not be considered a rating of A.M.
Best & Co.;
(b) enter into any Reinsurance Agreement or Reinsurance
Agreements with Lloyd's of London if the aggregate amount of
reinsurance ceded thereby would exceed 15% of the aggregate premium
volume of reinsurance ceded by the Insurance Entities.
(c) enter into any Surplus Relief Reinsurance except with
another Insurance Entity; or
(d) enter into any Reinsurance Agreement or Reinsurance
Agreements if such Reinsurance Agreements will result in a 20% or more
reduction of net premium volume for the Insurance Entities in any
12-month period.
4.15 Transactions with Affiliates. Except as expressly permitted by
this Agreement, State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, directly or indirectly: (a) make any Investment in an
Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire Property from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, Guarantees and assumptions of obligations of an Affiliate);
provided that (i) any Affiliate who is an individual may serve as a director,
officer or employee of State Auto Mutual or any of its Material Subsidiaries and
receive reasonable compensation for his or her services in such capacity and
(ii) State Auto Mutual and its Material Subsidiaries may enter into transactions
(other than extensions of credit by State Auto Mutual or any of its Material
Subsidiaries to an Affiliate) providing for the leasing of Property, the
rendering or receipt of services or the purchase or sale of inventory and other
Property in the ordinary course of business if the monetary or business
consideration arising therefrom would be substantially as advantageous to State
Auto Mutual and its Material Subsidiaries as the monetary or business
consideration that would obtain in a comparable transaction with a Person not an
Affiliate.
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4.16 Modifications of Certain Documents. State Auto Mutual will not,
and will not permit any of its Subsidiaries to, (a) consent to any modification,
supplement or waiver of (i) the charter or by-laws of State Auto Mutual, (ii)
the charter or by-laws of State Auto Financial, (iii) any material term of any
Retrocession Agreement or Reinsurance Agreement relating to property and
catastrophic risk insurance other than the Intercompany Pooling Arrangement or
(iv) without the prior consent of the Agent (with the approval of the Required
Lenders, such approval not to be unreasonably withheld), the Intercompany
Pooling Agreement if such modification, supplement or waiver would result in the
ceding to State Auto Mutual of [70]% or more of the catastrophic loss risk
subject to such arrangement or (b) in any manner alter or change the
preferences, rights or powers of the Preferred Stock or permit State Auto
Financial to issue any additional securities so as to affect adversely the
Preferred Stock.
4.17 Indemnity for Certain Costs. State Auto Financial agrees with the
Agent that it will indemnify the Borrower, promptly upon demand therefor, for
all or any portion of (a) the fees, costs and expenses payable by the Borrower
under Article III of the Credit Agreement including, without limitation, in the
event that interest for any Lender in respect of any period is computed at the
Base Rate, for the excess (if any) of the amount of such interest computed at
the Base Rate for such period over the amount of interest that would have been
payable in respect of such period had such interest been computed at the
relevant Eurodollar Rate for such period and (b) the excess of interest in
respect of any period payable by the Borrower under Section 2.11 of the Credit
Agreement at 2% over the interest in respect of such period that would have been
payable had the relevant Default not occurred. Each of State Auto Financial,
State Auto Mutual and the Agent agrees that the Borrower shall be a third-party
beneficiary of this Agreement.
4.18 Delivery of Documents on the Closing Date. On the Closing Date,
State Auto Mutual will deliver to the Agent (with sufficient copies for each
Lender) each of the following documents each of which shall be satisfactory to
the Agent in form and substance:
(a) certified copies of the charter and by-laws (or equivalent
documents) of each State Auto Obligor and of all corporate authority
for such State Auto Obligor (including, without limitation, board of
director resolutions and evidence of the incumbency, including specimen
signatures, of officers) with respect to the execution, delivery and
performance of such of the Basic Documents to which such State Auto
Obligor is intended to be a party and each other document to be
delivered by such State Auto Obligor from time to time in connection
herewith (and the Agent and each Lender may conclusively rely on such
certificate until it receives notice in writing from State Auto Mutual
to the contrary);
(b) a certificate of a senior officer of State Auto Mutual,
dated the Closing Date, to the effect that (i) no Put Event (and no
event that with notice or lapse of time or both would become a Put
Event) shall have occurred and be continuing and (ii) the
representations and warranties made by the State Auto Obligors in
Article III hereof shall be true and complete on and as of the Closing
Date with the same force and effect as if made on and as of the Closing
Date (or, if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date);
-31-
33
(c) an opinion, dated the Closing Date, of ββββ βββββββ,
general counsel of each State Auto Obligor, substantially in form of
Exhibit B hereto and covering such other matters as the Agent or any
Lender may reasonably request (and each State Auto Obligor hereby
instructs such counsel to deliver such opinion to the Lenders and the
Agent);
(d) certified true, correct and complete copies of all
Retrocession Agreements and Reinsurance Agreements in effect on the
Closing Date;
(e) certified true, correct and complete copies of all Tax
Sharing Agreements in effect on the Closing Date;
(f) evidence that the transactions contemplated by the Basic
Documents shall have been approved by each Applicable Insurance
Regulatory Authority with respect to State Auto Mutual, State Auto P&C
and Milbank; and
(g) such other documents as the Agent or any Lender or counsel
to Bank One may reasonably request.
4.19 Delivery of Documents on Each Borrowing Date. On the date of each
borrowing by the Borrower under the Credit Agreement (and as a condition
thereto), State Auto Mutual will deliver to the Agent (with sufficient copies
for each Lender) each of the following documents each of which shall be
satisfactory to the Agent in form and substance:
(a) a certificate of a senior officer of State Auto Mutual,
dated the date of such borrowing, (1) to the effect that, both
immediately prior to the making of such Loan and also after giving
effect thereto and to the intended use thereof, (i) no Put Event (and
no event that with notice or lapse of time or both would become a Put
Event) shall have occurred and be continuing and (ii) the
representations and warranties made by the State Auto Obligors in
Article III hereof (excluding, in the case of the
representation and warranty made by the State Auto Obligors in the last
sentence of clauses (a) and (b) of Section 3.2 hereof, any such change
to the extent such change results from the catastrophic
loss claims and/or loss adjustment expenses to which the borrowing by
the Borrower under the Credit Agreement and related issuance of
Preferred Stock relates) shall be true and complete on and as of such
date of borrowing with the same force and effect as if made on and as
of such date of borrowing (or, if any such representation or warranty
is expressly stated to have been made as of a specific date, as of such
specific date) and (2) describing in reasonable detail the catastrophic
loss claims and/or loss adjustment expenses to which such borrowing
relates;
(b) such other documents as the Agent or any Lender or counsel
to Bank One may reasonably request (including, without limitation,
opinions of counsel to the State Auto Obligors relating to the issuance
of the Preferred Stock in connection with such borrowing).
4.20 Delivery of Documents in Connection with the Extension of the
Commitment Termination Date. On each of the "Request Date" and the "Existing
Commitment Termination Date" (in each case as defined in Section 2.19 of the
Credit Agreement) State Auto
-32-
34
Mutual will deliver to the Agent (with sufficient copies for each Lender) each
of the following documents each of which shall be satisfactory to the Agent in
form and substance:
(a) a certificate of a senior officer of State Auto Mutual,
dated such date, to the effect that (i) no Put Event (and no event that
with notice or lapse of time or both would become a Put Event) shall
have occurred and be continuing and (ii) the representations and
warranties made by the State Auto Obligors in Article III hereof shall
be true and complete on and as of such date of borrowing with the same
force and effect as if made on and as of such date of borrowing (or, if
any such representation or warranty is expressly stated to have been
made as of a specific date, as of such specific date).
(b) a certificate of a senior officer of State Auto Mutual,
dated such date, to the effect that (i) the "Probable Maximum Loss" (as
defined below) of the State Auto Obligors for the 250-year return
period shall not exceed (x) $220,000,000 for earthquake peril and (y)
$150,000,000 for hurricane peril and (ii) attached thereto is a true,
correct and complete copy of the report prepared by the applicable
Modelling Firm (as defined below) in connection with the calculation
referred to in the definition of "Probable Maximum Loss" below. For
purposes of this clause (b), "Probable Maximum Loss" shall mean, for
any date, the "probable maximum loss" as most recently calculated prior
to such date by Risk Management Solutions, Inc., Applied Insurance
Research, EQECAT Inc., βββββββββββ (a Towers ββββββ Company) or another
independent modelling firm satisfactory to the Agent (each, a
"Modelling Firm").
4.21 Consent to Assignment, etc.
(a) To the extent contemplated by the Company Pledge Agreement, or
otherwise after and during the continuance of a Default, the Agent and any
designee or assignee thereof shall be entitled to exercise any and all rights of
the Borrower under the Standby Purchase Agreement and the Pledged Stock in
accordance with the terms of the Standby Purchase Agreement and such Pledged
Stock, and State Auto Financial shall comply in all respects with such exercise.
Without limiting the generality of the foregoing, to the extent contemplated by
the Company Pledge Agreement, or otherwise after and during the continuance of a
Default, the Agent and any designee or assignee thereof shall have the full
right and power to enforce directly against State Auto Financial all obligations
of State Auto Financial under the Standby Purchase Agreement and the Pledged
Stock and otherwise to exercise all remedies thereunder and to make all demands
and give all notices and make all requests required or permitted to be made by
the Borrower under the Standby Purchase Agreement or the Pledged Stock. Nothing
herein shall require the Agent or such designee or assignee to cure any default
of the Borrower under the Standby Purchase Agreement or to perform any act, duty
or obligation of the Borrower under the Standby Purchase Agreement, but shall
only give them the option so to do.
(b) State Auto Financial will not, without the prior written consent of
the Agent, (i) cancel, suspend or terminate the Standby Purchase Agreement or
consent to or accept any such cancellation, suspension or termination thereof,
(ii) amend, supplement or otherwise modify the Standby Purchase Agreement or
(iii) petition, request or take any other legal or
-33-
35
administrative action which seeks, or may reasonably be expected, to so rescind,
cancel, terminate or suspend or amend or modify the Standby Purchase Agreement.
(c) A foreclosure of, or other exercise of remedies under, the Company
Pledge Agreement or any sale thereunder by the Agent or its assignee or
designee, whether by judicial proceedings or under any power of sale contained
therein, or any conveyance from the Borrower to the Agent, the Lenders or any
such assignee or designee, in lieu thereof, shall not require the consent of
State Auto Financial.
(d) Upon the exercise by the Agent of any of the remedies set forth in
Section 5.05 of the Company Pledge Agreement, the Agent may assign its rights
and interests and the rights and interests of the Borrower under the Standby
Purchase Agreement and/or the Pledged Stock to any other Person.
(e) State Auto Financial will not be released from any of its
obligations under the Standby Purchase Agreement or the Pledged Stock pursuant
to any assignment or transfer (including by reason of a merger, consolidation,
sale of substantially all of its assets or otherwise), and shall not delegate
any of its obligations under the Standby Purchase Agreement or the Pledged
Stock, unless the Agent shall have previously consented in writing to such
release or delegation, as the case may be.
ARTICLE V
MISCELLANEOUS
-------------
5.1 Waiver. No failure on the part of the Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
5.2 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party at
its address or facsimile number set forth on the signature pages hereof or at
such other address or facsimile number as such party may hereafter specify for
the purpose by notice to the Agent and the Borrower in accordance with the
provisions of this Section 5.2. Each such notice, request or other communication
shall be effective (a) if given by facsimile transmission, when transmitted to
the facsimile number specified in this Section and confirmation of receipt is
received, (b) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid, or (c) if
given by any other means, when delivered (or, in the case of electronic
transmission, received) at the address specified in this Section.
5.3 Expenses; Indemnification. (a) State Auto Mutual and State Auto
Financial jointly and severally agree to reimburse the Agent for any costs,
internal charges and out-of-pocket expenses (including reasonable attorneys'
fees and time charges of attorneys for
-34-
36
the Agent, which attorneys may be employees of the Agent) paid or incurred by
the Agent in connection with the preparation, negotiation, execution, delivery,
syndication, review, amendment, modification, and administration of the Basic
Documents. State Auto Mutual and State Auto Financial also jointly and severally
agree to reimburse the Agent and the Lenders for any costs, internal charges and
out-of-pocket expenses (including attorneys' fees and time charges of attorneys
for the Agent and the Lenders, which attorneys may be employees of the Agent or
the Lenders) paid or incurred by the Agent or any Lender in connection with the
collection and enforcement of the Loan Documents.
(b) State Auto Mutual and State Auto Financial hereby jointly and
severally agree to indemnify the Agent, each Lender, their respective
affiliates, and each of their directors, officers and employees against all
losses, claims, damages, penalties, judgments, liabilities and expenses
(including, without limitation, all expenses of litigation or preparation
therefor whether or not the Agent any Lender or any affiliate is a party
thereto) which any of them may pay or incur arising out of or relating to this
Agreement, the other Basic Documents, the transactions contemplated hereby or
the direct or indirect application or proposed application of the proceeds of
any Loan except to the extent that they are determined in a final non-appealable
judgment by a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the party seeking indemnification. The
obligations of State Auto Mutual and State Auto Financial under this Section 5.3
shall survive the termination of this Agreement.
5.4 Amendments, Etc. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be modified or supplemented only
by an instrument in writing signed by each State Auto Obligor and the Agent
(with the consent of the Lenders as specified in Section 10.17 of the Credit
Agreement), and any provision of this Agreement may be waived by the Agent (with
the consent of the Lenders as specified in Section 10.17 of the Credit
Agreement).
5.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, provided, that neither State Auto Obligor may assign any of
its rights or obligations hereunder without the prior consent of the Agent (with
the consent of all of the Lenders).
5.6 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
5.7 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
5.8 CHOICE OF LAW. THE BASIC DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, 735 ILCS SECTION 105/5-1 ET
SEQ, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF
-35-
37
THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS.
5.9 CONSENT TO JURISDICTION. EACH STATE AUTO OBLIGOR HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH STATE AUTO OBLIGOR
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST ANY STATE AUTO OBLIGOR IN THE COURTS OF ANY
OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY STATE AUTO OBLIGOR AGAINST
THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
5.10 WAIVER OF JURY TRIAL. EACH STATE AUTO OBLIGOR, THE AGENT AND EACH
LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
5.11 Treatment of Certain Information; Confidentiality.
(a) Each State Auto Obligor acknowledges that from time to time
financial advisory, investment banking and other services may be offered or
provided to State Auto Mutual or one or more of its Subsidiaries (in connection
with this Agreement or otherwise) by any Lender or by one or more subsidiaries
or affiliates of such Lender and such State Auto Obligor hereby authorizes each
Lender to share any information delivered to such Lender by or on behalf of
State Auto Mutual and its Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Lender to enter into the Credit Agreement,
to any such subsidiary or affiliate, it being understood that any such
subsidiary or affiliate receiving such information shall be bound by the
provisions of paragraph (b) below as if it were a Lender hereunder. Such
authorization shall survive the termination of this Agreement.
(b) The Agent and each Lender agrees to hold any confidential
information which it may receive from either State Auto Obligor pursuant to this
Agreement in confidence, except for disclosure (i) to its Affiliates and to
other Lenders and their respective Affiliates, so long as such Affiliate or
other Lender agrees to be bound by the provisions of this Section, (ii) to legal
counsel, accountants, and other professional advisors to such Lender or to a
Transferee, (iii)
-36-
38
to regulatory officials, (iv) to any Person as requested pursuant to or as
required by law, regulation, or legal process, (v) to any Person in connection
with any legal proceeding to which such Lender is a party, (vi) to such Lender's
direct or indirect contractual counterparties in swap agreements or to legal
counsel, accountants and other professional advisors to such counterparties, and
(vii) permitted by Section 12.4 of the Credit Agreement.
5.12 No Liability. Except as expressly provided herein, neither the
Agent nor any Lender shall be responsible or have any liability for (a) any
statements, warranties or representations made in or in connection with the
Credit Agreement, any other Basic Document or any other instrument or document
furnished pursuant thereto, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement, any
other Basic Document or any other instrument or document furnished pursuant
thereto and (b) the financial condition of the Borrower or any other Person or
any other obligation of or the performance or observance by the Borrower, any
other Person or any other obligor of any of their respective obligations under
the Credit Agreement or any other Basic Document or any other instrument or
document furnished pursuant thereto.
5.13 Further Assurances. Each State Auto Obligor agrees that, from time
to time upon the written request of the Agent, such State Auto Obligor will
execute and deliver such further documents and do such other acts and things as
the Lender may reasonably request in order fully to effect the purposes of this
Agreement.
5.14 Severability of Provisions. Any provision in any Basic Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Basic Documents are declared
to be severable.
5.15 Third-Party Beneficiaries. Each State Auto Obligor agrees that
each Lender shall be a third-party beneficiary of this Agreement and shall be
entitled to enforce its rights hereunder as fully as if it were a party hereto.
[signature page follows]
-37-
39
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY
By: /s/ ββββββ β. ββββββββ
---------------------------------------
Title: Senior Vice President
------------------------------------
Address for Notices:
State Automobile Mutual Insurance Company
βββ ββββ βββββ ββββββ
ββββββββ, ββββ βββββ
Attention: ββββ βββββββ, Esq.
Telecopier No.: (βββ) βββ-ββββ
Telephone No.: (βββ) βββ-ββββ
STATE AUTO FINANCIAL CORPORATION
By: /s/ ββββββ β. ββββββββ
---------------------------------------
Title: Senior Vice President
------------------------------------
Addresses for Notices:
State Automobile Mutual Insurance Company
βββ ββββ βββββ ββββββ
ββββββββ, ββββ βββββ
Attention: ββββ βββββββ, Esq.
Telecopier No.: (βββ) βββ-ββββ
Telephone No.: (βββ) βββ-ββββ
S-1
[TO PUT AGREEMENT]
40
BANK ONE, NA
By: /s/ ββββββ β. βββββββ ββ
---------------------------------------
Title: Assistant Vice President
------------------------------------
Addresses for Notices:
β ββββ βββ βββββ
βββββββ, ββββββββ βββββ
Attention: βββββββ β. ββββββ
Telecopier No.: (βββ) βββ-ββββ
Telephone No.: (βββ) βββ-ββββ
S-2
[TO PUT AGREEMENT]
41
Put Agreement
Schedule I
Part A
Indebtedness in Excess of $5,000,000
State Auto Financial owes State Auto Mutual $30,000,000 under a Credit Agreement
dated May 1999. On November 11, 1999, the boards of directors of State Auto
Financial and State Auto Mutual are expected to approve an additional
$20,000,000 line of credit from State Auto Mutual to State Auto Financial. These
monies have been used to effect a stock repurchase program.
42
Put Agreement
Schedule I
Part B
Liens
None
43
Put Agreement
Schedule II
Part A
Subsidiaries of State Auto Mutual
See attached Organizational Chart.
44
ORGANIZATIONAL STRUCTURE
OF
STATE AUTO HOLDING COMPANY SYSTEM
- - - - - - - - -
l Public l
l 31% l
- - - - - - - - -
l
l
l
====================================== 69% =======================================
l State Auto Financial Corporation l----------------------------------l State Automobile Mutual Insurance l
l Ohio Corporation l l Company Ohio Corporation* l
====================================== =======================================
l l
l l
l =========================== l ========================
l 100% l State Auto Property & l 15% l 100% l Midwest Security l
l--------l Casualty South l-------l l--------l Ins. Co. Wisconsin l
l l Carolina Corporation* l l l l Corporation* l
l =========================== l l ========================
l l l
l l ==================== l
l =========================== l l l l ========================
l 100% l State Auto National l l l 518 Property l l 100% l Associated Services l
l--------l Ins. Co. l l-----l Management and l l--------l Agency Ohio l
l l Ohio Corporation* l l l Leasing, LLC l l l Corporation l
l =========================== l l l l ========================
l l ==================== l
l l l
l =========================== l l ========================
l 100% l Stateco Financial l 85% l l 100% l Facilitators, Inc. l
l--------l Services, Inc. l-------l l--------l South Carolina l
l l Ohio Corporation l l l Corporation l
l =========================== l ========================
l l
l l
l =========================== l ======================== ====================
l 100% l Strategic Ins. l l 100% l Columbus Marketing, l 52% l Call Insurance l
l--------l Software, Inc. l l--------l Inc. Ohio l------l Agency Ohio l
l l Ohio Corporation l l Corporation l l Corporation l
l =========================== ======================== ====================
l
l
l =============================
l 100% l Milbank Insurance l
l--------l Company South l
l l Dakota Corporation* l
l =============================
l
l
l ============================= =========================
l 100% l Farmers Casualty l 100% l Mid-Plains l
l--------l Insurance Company l--------l Insurance Company l
l l Iowa Corporation* l l Iowa Corporation* l
l ============================= =========================
l
l
l =============================
l 100% l State Auto l
l--------l Insurance Company l
l Ohio Corporation* l
=============================
*Insurance Entities
45
Put Agreement
Schedule II
Part B
Investments
1. See Forms "Schedule D" attached for:
State Auto Mutual
State Auto P&C
State Auto National
Milbank Insurance Company
Midwest Security Insurance Company
Farmers Casualty Insurance Company
Mid-Plains Insurance Company
518 Property Management and Leasing, LLC
Stateco Financial Services, Inc.
Strategic Insurance Software, Inc.
Reflecting information as of September 30, 1999
2. As of September 30, 1999, State Auto Mutual had in place 34 loans to its
independent agencies with a total amount outstanding of $3,639,728.38.
46
Put Agreement
Schedule III
Part A
Equity Rights
As of November 1, 1999, State Auto Financial has granted 2,481,469 stock options
to members of management under State Auto Financial's 1991 Stock Option Plan of
which 2,355,811 are outstanding. As of November 1, 1999, State Auto Financial
has granted 174,000 stock options to "outside" directors on the boards of
directors of State Auto Financial and State Auto Mutual pursuant to the terms of
the 1991 Directors' Stock Option Plan. State Auto Financial also has registered
2,400,000 shares to be issued pursuant to an Employee Stock Purchase Plan (the
"ESPP") of which 1,473,805 shares have been purchased pursuant to the ESPP as of
November 1, 1999.
State Auto Financial intends to register 400,000 shares as part of an agents'
stock option plan. Options for 16,538 option shares have been issued under this
plan but are not exercisable at this time.
47
Put Agreement
Schedule III
Part B
In August 1999, Strategic Insurance Software, Inc. ("S.I.S.") completed the
repurchase of all shares of S.I.S. from holders other than State Auto Financial
except for 60,000 shares, which the holders thereof (2 individuals) are
contractually obligated to sell no later than January 4, 2000.
48
EXHIBIT A to the
Put Agreement
[Form of Put Notice]
[Date]
State Automobile Mutual Insurance Company
State Auto Financial Corporation
[Address]
Re: Put Agreement dated as of November 19, 1999, between State
Automobile Mutual Insurance Company, State Auto Financial
Corporation and Bank One, NA, as Agent.
Dear Ladies and Gentlemen:
Reference is made to the Put Agreement dated as of November 19, 1999
(as modified and supplemented and in effect from time to time, the "Put
Agreement"), among State Automobile Mutual Insurance Company ("State Auto
Mutual"), State Auto Financial Corporation and Bank One, NA, as Agent.
Capitalized terms used but not defined herein shall have the respective meanings
assigned to such terms in the Put Agreement.
[Pursuant to Section 2.2 of the Put Agreement, the undersigned hereby
requires that State Auto Mutual purchase all of each Lender's Loans, Note and
Commitment. The aggregate purchase price payable by State Auto Mutual for all
such Loans, Notes and Commitments shall be $_______________ representing the sum
of (a) principal of such Loans in the amount of $_______________, plus (b)
accrued and unpaid interest thereon in the amount of $______________, plus (c)
other amounts payable under the Basic Documents in respect thereof in the amount
of $_______________.]
[Pursuant to Section 2.3 of the Put Agreement, the undersigned hereby
requires that State Auto Mutual purchase all of the Pledged Stock for an
aggregate purchase price equal to $_______________ representing the sum of (a)
the aggregate Redemption Value of such Pledged Stock in the amount of
$_____________, plus (b) accrued and unpaid dividends thereon in the amount of
$_______________.]
The Put Purchase Date for such purchase shall be _______________,
_____.
BANK ONE, NA, as Agent
By
--------------------------------------------
Title:
---------------------------------------
A-1
49
EXHIBIT B to the
Put Agreement
[Form of Opinion of General Counsel of the State Auto Obligors]
November 19, 1999
To each of the Lenders party to the
Credit Agreement referred to
below and Bank One, NA,
as Agent
Ladies and Gentlemen:
I am the general counsel of State Automobile Mutual Insurance Company
("State Auto Mutual") and State Auto Financial Corporation ("State Auto
Financial" and, together with State Auto Mutual, the "State Auto Obligors") and
have acted as counsel to the State Auto Obligors in connection with (i) the Put
Agreement dated as of November 19, 1999 (the "Put Agreement") among the State
Auto Obligors and Bank One, NA, in its capacity as Agent (the "Agent") on behalf
of the lenders party to a Credit Agreement dated as of November 19, 1999, among
SAF Funding Corporation, the Agent and (ii) the agreements, instruments and
other documents referred to in the next paragraph. All capitalized terms used
but not defined herein have the respective meanings given to such terms in the
Put Agreement. This opinion letter is delivered to you pursuant to Section
4.18(c) of the Put Agreement.
In rendering the opinions expressed below, I have examined the
following agreements, instruments and other documents:
(a) the Credit Agreement;
(b) the Pledge Agreements;
(c) the Put Agreement;
(d) the Standby Purchase Agreement (collectively with the Put
Agreement, the "State Auto Agreements"); and
(e) such records of the State Auto Obligors and such other
documents as I have deemed necessary as a basis for the
opinions expressed below.
In my examination, I have assumed the genuineness of all signatures,
the authenticity of all documents submitted to me as originals and the
conformity with authentic original documents of all documents submitted to me as
copies. When relevant facts were not independently established, I have relied
upon certificates of governmental officials and appropriate representatives of
the State Auto Obligors and upon representations made in or pursuant to the
State Auto Agreements.
B-1
50
In rendering the opinions expressed below, I have assumed, with respect
to all of the documents referred to in this opinion letter, that (except, to the
extent set forth in the opinions expressed below, as to the State Auto
Obligors):
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid,
binding and enforceable obligations of, all of the parties to
such documents;
(ii) all signatories to such documents have been duly authorized;
and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate,
partnership or other) to execute, deliver and perform such
documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:
1. State Auto Mutual is a mutual insurance company duly
organized, validly existing and in good standing under the laws of the
State of Ohio. State Auto Financial is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Ohio.
2. Each State Auto Obligor has all requisite corporate power
and authority to execute and deliver, and to perform its obligations
and to incur liabilities under, the State Auto Agreements to which it
is a party.
3. The execution, delivery and performance by each State Auto
Obligor of, and the incurrence by such State Auto Obligor of
liabilities under, each State Auto Agreement to which such State Auto
Obligor is a party, have been duly authorized by all necessary
corporate action on the part of such State Auto Obligor.
4. Each State Auto Agreement has been duly executed and
delivered by each State Auto Obligor party thereto.
5. Under Ohio conflict of laws principles, the stated choice
of Illinois law to govern the State Auto Agreements will be honored by
the courts of the State of Ohio and the State Auto Agreements will be
construed in accordance with, and will be treated as being governed by,
the law of the State of Illinois. However, if the State Auto Agreements
were stated to be governed by and construed in accordance with the law
of the State of Ohio, or if an Ohio court were to apply the law of the
State of Ohio to the State Auto Agreements, each State Auto Agreement
would constitute the legal, valid and binding obligation of each State
Auto Obligor party thereto, enforceable against such State Auto Obligor
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
transfer or other similar laws relating to or affecting the rights of
creditors generally and except as the enforceability of the State Auto
Agreements is subject to the application of general principles of
equity (regardless of whether considered in a proceeding in equity or
at
51
law), including, without limitation, (a) the possible unavailability of
specific performance, injunctive relief or any other equitable remedy
and (b) concepts of materiality, reasonableness, good faith and fair
dealing.
6. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency
of the United States of America or the State of Ohio (other than any
authorizations, approvals, consents, filings and registrations
heretofore duly made or obtained and in full force and effect) is
required on the part of either State Auto Obligor for the execution,
delivery or performance by such State Auto Obligor of, or for the
incurrence by such State Auto Obligor of any liabilities under, the
State Auto Agreements to which such State Auto Obligor is a party.
7. The execution, delivery and performance by each State Auto
Obligor of, and the consummation by such State Auto Obligor of the
transactions contemplated by, the State Auto Agreements to which such
State Auto Obligor is a party do not and will not (a) violate any
provision of the Articles of Incorporation or Code of Regulations of
such State Auto Obligor, (b) violate any applicable law, rule or
regulation of the United States of America or the State of Ohio, (c)
violate any order, writ, injunction or decree of any court or
governmental authority or agency or any arbitral award applicable to
such State Auto Obligor of which I have knowledge (after due inquiry)
or (d) result in a breach of, constitute a default under, require any
consent under, or result in the acceleration or required prepayment of
any indebtedness pursuant to the terms of, any agreement or instrument
of which I have knowledge (after due inquiry) to which such State Auto
Obligor or any of its Subsidiaries is a party or by which any of them
is bound or to which any of them is subject, or result in the creation
or imposition of any Lien upon any Property of such State Auto Obligor
or any of its Subsidiaries pursuant to the terms of any such agreement
or instrument.
8. I have no knowledge (after due inquiry) of any legal or
arbitral proceedings, or any proceedings by or before any governmental
or regulatory authority or agency, now pending or threatened against or
affecting either State Auto Obligor or any of their respective
Properties that, if adversely determined, could have a Material Adverse
Effect.
9. State Auto Financial has duly authorized and reserved for
issuance 2,500,000 shares of Class A Preferred Stock.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 5.3 of the Put Agreement and
Section 7.6 of the Standby Purchase Agreement may be limited by (i)
laws rendering unenforceable indemnification contrary to Federal or
state securities laws and the public policy underlying such laws and
(ii) laws limiting the enforceability of provisions exculpating or
exempting a party from, or requiring indemnification of a party for,
its own action or inaction, to the extent such action or inaction
involves gross negligence, recklessness or willful or unlawful conduct.
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(B) The enforceability of provisions in the State Auto
Agreements to the effect that terms may not be waived or modified
except in writing may be limited under certain circumstances.
(C) I express no opinion as to the first sentence of Section
5.08 of the Put Agreement or the second sentence of Section 8.7 of the
Standby Purchase Agreement, insofar as either such sentence relates to
the subject matter jurisdiction of the United States District Court for
the Northern District of Illinois sitting in Chicago, Illinois to
adjudicate any controversy related to the applicable State Auto
Agreement.
The foregoing opinions are limited to matters involving the Federal
laws of the United States of America and the law of the State of Ohio, and I do
not express any opinion as to the laws of any other jurisdiction. The opinions
contained in this letter are rendered only as of the date hereof and I undertake
no obligation to update this letter or the opinions contained herein after the
date hereof. The opinions contained in this letter only constitute my
professional judgment as to the consequences of and the applicability of certain
laws to the documents and agreements referred to and the parties thereto and
should not be considered to be a guarantee of any particular result.
At the request of my clients, this opinion letter is provided to you by
me in my capacity as counsel to the State Auto Obligors, and this opinion letter
may not be relied upon by any Person for any purpose other than in connection
with the transactions contemplated by the Basic Documents without, in each
instance, my prior written consent.
Very truly yours,