EXHIBIT 99e(2)
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AMENDED AND RESTATED PUT AGREEMENT
among
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,
STATE AUTO FINANCIAL CORPORATION,
and
BANK ONE, NA,
as Agent
Dated as of November 16, 2001
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AMENDED AND RESTATED PUT AGREEMENT
This Amended and Restated Put Agreement, dated as of November
16, 2001, 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:
A. SAF Funding Corporation (the "BORROWER"), the lenders party
thereto from time to time (the "LENDERS") and the Agent have entered into that
certain Credit Agreement, dated as of November 19, 1999 (as heretofore amended,
the "EXISTING CREDIT AGREEMENT").
B. To induce the Lenders to enter into the Credit Agreement,
the State Auto Obligors and the Agent entered into that certain Put Agreement
dated as of November 19, 1999 (the "EXISTING PUT AGREEMENT").
C. Substantially concurrently herewith, the Borrower, the
Lenders and the Agent are entering into that certain Amended and Restated Credit
Agreement (the Existing Credit Agreement, as so amended and restated and as
further modified and supplemented from time to time, is hereinafter referred to
as the "CREDIT AGREEMENT"), which agreement amends and restates the Existing
Credit Agreement.
D. In connection with the aforementioned amendment, the State
Auto Obligors and the Agent desire to amend and restate the Existing Put
Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend and restate the Existing Put Agreement 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 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
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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, 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
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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 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,
Farmers Casualty and State Auto Insurance 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, (e) State Auto Insurance cedes to State Auto Mutual
its property and casualty insurance business and (f) 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, Farmers Casualty and State Auto
Insurance 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
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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.
"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.
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"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.
"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
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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;
(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;
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(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);
(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;
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(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;
(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
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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 SECTION 1.2(a) hereof, are to be used in
making the calculations for purposes of determining compliance with this
Agreement.
"STATE AUTO INSURANCE" means State Auto Insurance Company, an
Ohio corporation.
"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.
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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 statements under SECTION
4.1 hereof, shall mean the audited, or annual statutory, financial statements as
at December 31, 2000 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, 2000 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.
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
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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.
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
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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
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
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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").
(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.
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(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, 2000 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 Financial
and its Subsidiaries as at June 30, 2001 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, 2001, 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
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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, 2001, 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,
2001.
(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, 2000, and the quarterly Statutory Statement of each
Insurance Entity for the fiscal quarter ended June 30, 2001, 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, 2000, and fiscal quarter ended June 30, 2001, in accordance
with statutory accounting practices prescribed or permitted by the Applicable
Insurance Regulatory Authority. Since June 30, 2001, 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, 2001.
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.
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
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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.
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
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(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 38,866,955 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, 68% 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 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.
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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 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
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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.
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);
(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
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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;
(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
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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;
(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;
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(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:
(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
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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 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
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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
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
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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;
(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
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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 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
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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) $621,000,000, 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) $585,000,000, 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
(a) $202,000,000, 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) $191,000,000, 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.
(b) RISK-BASED CAPITAL RATIO. State Auto Mutual will not
permit its Risk-Based Capital Ratio at any time to be less than (a) 5.00 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 Risk-Based Capital Ratio of
State Auto P&C 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 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.
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(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) 2.50 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
(a) 2.50 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.
(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 five 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 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 $30,000,000 from third parties.
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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.
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
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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. Except with
respect to the item set forth in CLAUSE (f) (which shall be delivered on or
before the date of the initial Advance under the Credit Agreement), 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);
(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
-31-
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; 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 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:
-32-
(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) $100,000,000 for earthquake peril, (y)
$75,000,000 for hurricane peril and (z) $160,000,000 for thunderstorm
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") and "THUNDERSTORM
PERIL" shall mean peril caused by lightning, straight line wind, rain,
hail and/or tornado.
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
administrative action which seeks, or may reasonably be expected, to so rescind,
cancel, terminate or suspend or amend or modify the Standby Purchase Agreement.
-33-
(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 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
-34-
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 THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
-35-
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) 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
-36-
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-
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/ ββββ β. βββββββ
---------------------------------------------
Title: Senior Vice President, General Counsel
------------------------------------------
& Secretary
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/ ββββ β. βββββββ
---------------------------------------------
Title: Senior Vice President, General Counsel
------------------------------------------
& Secretary
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 AMENDED AND RESTATED PUT AGREEMENT]
BANK ONE, NA
By: /s/ ββββββ β. βββββββ
---------------------------------------------
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 AMENDED AND RESTATED PUT AGREEMENT]
Put Agreement
Schedule I
Part A
Indebtedness in Excess of $5,000,000
State Auto Financial owes State Auto Mutual approximately $45 million under a
Credit Agreement dated May 1999 as amended by the First Amendment. A copy of
this document has been provided to Bank One.
Agreemen/Put Agreement-Schedule I, Part A
Put Agreement
Schedule I
Part B
Liens
None
Put Agreement
Schedule II
Part A
Subsidiaries of State Auto Mutual
See attached Organizational Chart.
ORGANIZATIONAL STRUCTURE
OF
STATE AUTO HOLDING COMPANY SYSTEM
(MATERIAL SUBSIDIARIES)
Public
32%
-------
| Meridian Citizens Mutual Insurance
-- State Auto Financial Corporation --68%------ State Automobile Mutual Insurance Company Company
| Ohio Corporation | Ohio Corporation* Indiana Corporation*
| | | 100% |
| | 100% ----------------------------------------- | |
100% State Auto Property & Casualty |--- Midwest Security Ins. Co. Meridian Insurance Group, Inc.
| South Carolina Corporation* |- 15% | Wisconsin Corporation* Indiana Corporation
| | | |
100% State Auto National Ins. Co. | 518 Property | 100% | 100%
| Ohio Corporation* | Management and ------ Columbus Marketing, Inc. Meridian Security Insurance Company
| | Leasing, LLC Ohio Corporation | Indiana Corporation*
| | | |
100% Stateco Financial Services, Inc. | |
| Ohio Corporation ----- 85% 100% | |
| Meridian Citizens 100%
100% Strategic Ins. Software, Inc. Security Insurance Co. Insurance Company of Ohio
| Ohio Corporation Indiana Corporation* Ohio Corporation*
|
100% Milbank Insurance Company
| South Dakota Corporation*
|
100% Farmers Casualty Insurance 100%
| Company -------------------- Mid-Plains Insurance Company
| Iowa Corporation Iowa Corporation*
|
100% State Auto Insurance Company
Ohio Corporation*
*Insurance Companies
misc/orgchartMM Reg approval
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.
Meridian Security Insurance Company
Meridian Citizens Security Insurance Company
Meridian Citizens Mutual Insurance Company
State Auto Insurance Company
Reflecting information as of September 30, 2001.
2. As of September 30, 2001, State Auto Mutual had in please 39 loans to its
independent agencies with a total amount outstanding of $3,238,343.45.
Agreemen/Put Agreement-Schedule II, Part B
PUT AGREEMENT
SCHEDULE III
PART A
State Auto Financial has in place several stock option plans, all of which are
registered with the SEC. These plans are disclosed in the footnotes to the
financial statements of State Auto Financial filed with the SEC form 10K for
the year 2000. A copy of these Stock Option Plan footnotes is attached hereto as
Exhibit A.
Agreemen/put agreement schedule III part B 11-6-01
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of State Automobile Mutual Insurance Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) PREFERRED STOCK
State Auto Financial has authorized two classes of preferred stock. For
both classes, upon issuance, the Board of Directors has authority to fix and
determine the significant features of the shares issued, including, among other
things, the dividend rate, redemption price, redemption rights, conversion
features and liquidation price payable in the event of any liquidation,
dissolution, or winding up of the affairs of State Auto Financial. See note 6(a)
regarding State Auto Financial's obligation to issue redeemable preferred
shares to SPC in connection with its catastrophic reinsurance arrangements with
a financial institution.
The Class A preferred stock is not entitled to voting rights until, for
any period, dividends are in arrears in the amount of six or more quarterly
dividends.
(11) STOCK INCENTIVE PLANS
The Company follows Accounting Principals Board Opinion No. 25,
"Accounting for Stock issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock incentive plans. For stock options granted
to employees of Mutual in 1999, the Company also followed APB 25 and related
Interpretations, as the Company deemed such employees to be common law
employees of the Company, Compensation cost charged against operations in 2000
and 1999 were $31,000 and $137,000, respectively, for those employee stock
options granted where the exercise price was less than the market price of the
underlying stock on the date of grant. Had compensation cost for the Company's
plans been determined based on the fair values at the grant dates consistent
with the method of SFAS No. 123, "Accounting for Stock-Based Compensation,"
(SFAS No. 123), the Company's pro forma net earnings and net earnings per share
information would have been as follows:
2000 1999 1998
---- ---- ----
(in thousands, except
per share figures)
Pro forma net earnings....................... $45,784 41,414 35,700
Pro forma net earnings per common share
Basic................................... $ 1.19 1.02 0.85
Diluted................................. $ 1.17 1.00 0.83
The fair value of options granted in 2000, 1999 and 1998 were estimated at
the date of grant using the Black-Scholes option-pricing model. The weighted
average fair values and related assumptions for options granted were as follows:
2000 1999 1998
---- ---- ----
Fair value......................... $4.66 $4.49 $6.10
Dividend yield..................... 90% .90% .75%
Risk free interest rate ........... 6.51% 5.77% 5.31%
Expected volatility factor......... .34 .32 .31
Expected life (years).............. 7.2 5.7 6.6
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
The Company has stock option plans for certain directors and key employees.
The nonemployee directors' plan provides each nonemployee director an option to
purchase 1,500 shares of common stock following each annual meeting of the
shareholders at an option price equal to the fair market value at the last
business day prior to the annual meeting. The Company has reserved 300,000
shares of common stock under this plan. These options are exercisable at
issuance to 10 years from date of grant. The key employee's plan provides that
qualified stock options
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of State Automobile Mutual Insurance Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
may be granted at an option price not less than fair market value at date of
grant and that nonqualified stock options may be granted at any price
determined by the options committee of the Board of Directors. The Company has
reserved 5,000,000 shares of common stock under this plan. These options are
exercisable at such time or times as may be determined by a committee of the
Company's Board of Directors. Normally, for certain employees these options are
exercisable from 1 to 10 years from date of grant and 3 to 10 years for
remaining employees.
The Company has an employee stock purchase plan with a dividend
reinvestment feature, under which employees of the Company may choose at two
different specified time intervals each year to have up to 6% of their annual
base earnings withheld to purchase the Company's common stock. The purchase
price of the stock is 85% of the lower of its beginning-of-interval or end-of-
interval market price. The Company has reserved 2,400,000 shares of common
stock under this plan. At December 31, 2000, 1,699,000 shares have been
purchased under this plan.
The Company has a stock option incentive plan for certain designated
independent insurance agencies that represent the Company and its affiliates.
The Company has reserved 400,000 shares of common stock under this plan. The
plan provides that the options become exercisable on the first day of the
calendar year following the agency's achievement of specific production and
profitability requirements over a period not greater than two calendar years
from date of grant or a portion thereof in the first calendar year in which an
agency commences participation under the plan. Options granted and vested under
this plan have a 10-year term. The Company has accounted for the plan in its
accompanying financial statements at fair value. The fair value of options
granted was estimated at the reporting date or vesting date using the
Black-Scholes option-pricing model. The weighted average fair value and related
assumptions for 2000 and 1999, respectively, were as follows: fair value of
$10.91 and $4.02; dividend yield of .90% for both years; expected volatility
factor of .32 and .30; risk-free interest rate of 5.19% and 6.80%; and expected
life of the option of 9.0 and 9.7 years. Expense of $493,000 and $105,000
associated with this plan was recognized in 2000 and 1999, respectively.
A summary of the Company's stock option activity and related information
for these plans for the years ended December 31, 2000, 1999 and 1998, follows:
2000 1999 1998
------------------------ ------------------------ ------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
(numbers in thousands, except per share figures)
Outstanding, beginning
of year 2,546 $ 7.76 2,272 $ 6.76 2,019 $ 5.04
Granted 492 10.29 453 11.24 339 16.31
Exercised (129) 4.32 (165) 3.34 (86) 4.02
Canceled (57) 11.15 (14) 10.52 -- --
----- ----- -----
Outstanding, end of year 2,852 8.28 2,546 7.76 2,272 6.76
===== ===== =====
A summary of information pertaining to options outstanding and exercisable as
of December 31, 2000 follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
------------------------ ------ ---------------- ---------------- ------ ----------------
(numbers in thousands, except per share figures)
Less than $5.00 734 2.0 $ 3.98 734 $ 3.98
$5.01 - $10.00 1,004 4.9 6.66 961 6.56
Greater than $10.01 1,114 8.5 12.58 537 13.89
----- -----
2,852 5.5 8.28 2,232 7.47
===== =====
Put Agreement
Schedule III
Part B
During 2001, the common shares of STFC became a permitted investment in the
State Auto 401(k) Capital Accumulation Plan (the "CAP") plan and in
non-qualified deferred compensation plans for key employees and directors. The
CAP and the Employee Non-Qualified Deferred Compensation Plan were registered
with the SEC. The Directors' Non-Qualified Deferred Compensation Plan was not
registered with the SEC, since it is within the scope of an exception to
registration. The participants in the non-qualified deferred compensation plans
are unsecured creditors of State Auto and part of the obligations under those
plans will reflect the value of STFC common shares to the extent any
participants investments are so directed. Fidelity Investments is the Trustee
of the CAP.
Agreemen/put agreement schedule III 11-6-01
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 16, 2001, 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 Amended and Restated Put Agreement
dated as of November 16, 2001 (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
EXHIBIT B
OPINION OF GENERAL COUNSEL OF THE
STATE AUTO OBLIGORS
[STATE AUTO INSURANCE COMPANIES LETTERHEAD]
November 16, 2001
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
Amended and Restated Put Agreement dated as of November 16, 2001 (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 an Amended and Restated
Credit Agreement dated as of November 16, 2001, 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.
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 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.
(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,
/s/ ββββ β. βββββββ