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Exhibit 10(V)
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STANDBY PURCHASE AGREEMENT
between
STATE AUTO FINANCIAL CORPORATION
and
SAF FUNDING CORPORATION
Dated as of November 19, 1999
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TABLE OF CONTENTS
Section Page
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ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS.....................................1
1.1 Definitions and Accounting Terms.........................................1
ARTICLE II - PURCHASE OF PREFERRED STOCK.........................................6
2.1 Purchases................................................................6
2.2 Notices of Purchases.....................................................6
2.3 Commitment Fee...........................................................6
ARTICLE III - CONDITIONS TO PURCHASE.............................................6
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF STATE AUTO FINANCIAL..............7
4.1 Corporate Existence......................................................7
4.2 Litigation...............................................................7
4.3 No Breach................................................................8
4.4 Action...................................................................8
4.5 Approvals................................................................8
4.6 Capitalization...........................................................8
4.7 True and Complete Disclosure.............................................9
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................9
5.1 Investment...............................................................9
5.2 No Agreement to Transfer.................................................9
5.3 Knowledge and Experience.................................................9
5.4 Access to Information....................................................9
5.5 Risk....................................................................10
5.6 Restrictions on Transfer................................................10
ARTICLE VI - COVENANTS..........................................................10
6.1 Transfer................................................................10
6.2 Redemption..............................................................10
6.3 Use of Proceeds.........................................................10
ARTICLE VII - REGISTRATION RIGHTS...............................................11
7.1 Demand Registration.....................................................11
7.2 Piggyback Registrations.................................................12
7.3 Registration Procedures.................................................14
7.4 Underwritten Offerings..................................................17
7.5 Holdback Agreements By State Auto Financial and Other Securityholders...18
7.6 Indemnification.........................................................19
7.7 Covenants Relating to Rule 144..........................................22
7.8 References to holders of Registrable Securities.........................22
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ARTICLE VIII - MISCELLANEOUS....................................................22
8.1 Waiver..................................................................22
8.2 Notices.................................................................23
8.3 Amendments, Etc.........................................................23
8.4 Successors and Assigns..................................................23
8.5 Captions................................................................23
8.6 Counterparts............................................................23
8.7 Governing Law; Submission to Jurisdiction...............................23
8.8 Waiver of Jury Trial....................................................23
8.9 Further Assurances......................................................24
8.10 Payments by State Auto Financial........................................24
8.11 Payments Received by the Company under Basic Documents..................24
8.12 Third-Party Beneficiaries...............................................24
8.13 Severability............................................................24
SCHEDULES
Schedule I Equity Rights and Repurchase Obligations
EXHIBITS
Exhibit A Class A Preferred Stock Certificate
Exhibit B Purchase Notice
Exhibit C Opinion of General Counsel of State Auto Financial
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STANDBY PURCHASE AGREEMENT
This Standby Purchase Agreement, dated as of November 19, 1999, is by
and between State Auto Financial Corporation, a corporation duly organized and
validly existing under the laws of the State of Ohio ("State Auto Financial"),
and SAF Funding Corporation, a Delaware corporation (the "Company").
RECITALS:
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A. State Auto Financial seeks to raise funds for catastrophic loss
claims and/or loss adjustment expenses that may be made from time to time for
residential and commercial property under insurance coverage underwritten by
State Automobile Mutual Insurance Company, an Ohio mutual insurance company
("State Auto Mutual"), and certain of its affiliates, which have been reinsured
by State Auto Property and Casualty Insurance Company, a South Carolina
corporation ("State Auto P&C").
B. State Auto Financial intends to raise such funds through the
issuance and sale by State Auto Financial and the purchase by the Company, from
time to time, of State Auto Financial's Class A Preferred Stock, no par value
per share (the "Class A Preferred Stock").
C. State Auto Financial desires to issue and sell its Class A Preferred
Stock from time to time to the Company in accordance with the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions and Accounting Terms. 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):
"Agent" shall mean Bank One, NA, as agent under the Credit Agreement.
"Basic Documents" shall have the meaning assigned thereto in the Credit
Agreement.
"Commission" shall mean the United States Securities and Exchange
Commission, or any successor governmental agency or authority.
"Commitment" shall have the meaning assigned thereto in the Credit
Agreement.
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"Company Pledge Agreement" shall mean the Pledge and Security
Agreement, dated as of the date hereof, among the Company and the Agent, as
modified and supplemented and in effect from time to time.
"Credit Agreement" shall mean the Credit Agreement, dated as of the
date hereof, among the Company, the Agent and the Lenders, as modified and
supplemented and in effect from time to time.
"Cutback Registration" shall mean any Demand Registration or Piggyback
Registration to be effected as an underwritten Public Offering in which the
Managing Underwriter with respect thereto advises State Auto Financial and the
Requesting Holders in writing that, in its opinion, the number of securities
requested to be included in such registration (including securities of State
Auto Financial which are not Registrable Securities) exceed the number which can
be sold in such offering without a material reduction in the selling price
anticipated to be received for the securities to be sold in such Public
Offering.
"Demand Registration" shall mean any registration of Registrable
Securities under the Securities Act effected in accordance with Section 7.1
hereof.
"Effective Long-Form Registration" shall mean a Long-Form Registration
that results in an Effective Registration.
"Effective Registration" shall mean a Demand Registration which (a) has
been declared or ordered effective in accordance with the rules of the
Commission, (b) has been kept effective for the period of time contemplated by
Section 7.3(b) hereof and (c) has resulted in the Registrable Securities
requested to be included in such registration actually being sold (except by
reason of some act or omission on the part of the Requesting Holders); provided
that for purposes of this Agreement (i) a Cutback Registration shall not be an
Effective Registration and (ii) a Demand Registration in which State Auto
Financial includes securities for sale for the account of State Auto Financial
shall not be an Effective Registration.
"Effective Short-Form Registration" shall mean a Short-Form
Registration that results in an Effective Registration.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Form S-1" shall mean Form S-1 promulgated by the Commission under the
Securities Act, or any successor or similar long-form registration statement.
"Form S-2" shall mean Form S-2 promulgated by the Commission under the
Securities Act, or any successor or similar short-form registration statement.
"Form S-3" shall mean Form S-3 promulgated by the Commission under the
Securities Act, or any successor or similar short-form registration statement.
"Indemnified Party" shall mean a party entitled to indemnity in
accordance with Section 7.6 hereof.
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"Indemnifying Party" shall mean a party obligated to provide indemnity
in accordance with Section 7.6 hereof.
"Inspectors" shall have the meaning assigned thereto in Section 7.3(j)
hereof.
"Lenders" shall have the meaning assigned thereto in the Credit
Agreement.
"Lien" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement (other than an operating lease)
relating to such Property.
"Loans" shall have the meaning assigned thereto in the Credit
Agreement.
"Long-Form Registration" shall mean a Demand Registration effected by
the filing of a registration statement on Form S-1 with the Commission.
"Losses" shall have the meaning assigned thereto in Section 7.6(a)
hereof.
"Majority Lenders" shall have the meaning assigned thereto in the
Credit Agreement.
"Managing Underwriter" shall mean, with respect to any Public Offering,
the underwriter or underwriters managing such Public Offering.
"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 Financial to issue the Class A Preferred Stock to
or perform its obligations under this Agreement, (c) the ability of State Auto
Mutual or State Auto Financial to perform its respective obligations under the
Put Agreement, (d) the validity or enforceability of any of the Basic Documents
or (e) the rights and remedies of the Lenders and the Agent under any of the
Basic Documents.
"NASD" shall mean the National Association of Securities Dealers.
"Notice of Demand Registration" shall have the meaning assigned thereto
in Section 7.1(a) hereof.
"Notice of Piggyback Registration" shall have the meaning assigned
thereto in Section 7.2(a) hereof.
"Piggyback Registration" shall mean any registration of equity
securities of State Auto Financial under the Securities Act (other than a
registration in respect of a dividend reinvestment or similar plan for
stockholders of State Auto Financial or on Form S-4 or Form S-8 promulgated by
the Commission, or any successor or similar forms thereto), whether
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for sale for the account of State Auto Financial or for the account of any
holder of securities of State Auto Financial (other than Registrable
Securities).
"Property" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Public Offering" shall mean any offering of any equity securities of
State Auto Financial to the public, either on behalf of State Auto Financial or
any of its securityholders, pursuant to an effective registration statement
under the Securities Act.
"Purchase Commitment" shall mean the obligation of the Company to
purchase Class A Preferred Stock with an aggregate original Redemption Value of
not more than $135,000,000.
"Purchase Commitment Termination Date" shall mean November 17, 2000;
provided that if the "Commitment Termination Date" under the Credit Agreement is
extended as provided therein, the Purchase Commitment Termination Date shall,
automatically and without any action on the part of State Auto Financial or the
Company, be extended to the date to which said "Commitment Termination Date" has
been so extended.
"Purchase Date" shall have the meaning assigned thereto in Section 2.2
hereof.
"Purchase Notice" shall mean a Purchase Notice substantially in the
form of Exhibit B hereto.
"Put Agreement" shall mean the Put Agreement, dated as of the date
hereof, among State Auto Mutual, State Auto Financial and the Agent, as modified
and supplemented and in effect from time to time.
"Put Dishonor" shall mean the failure of State Auto Mutual for any
reason after its receipt of a Put Notice (as defined in the Put Agreement) to
comply with its obligations under the Put Agreement to purchase each Lender's
Loans, Notes and Commitment (each, as defined in the Put Agreement) or the Class
A Preferred Stock, as specified in such Put Notice.
"Put Event" shall have the meaning assigned thereto in the Put
Agreement.
"Quarterly Dates" shall mean the last Business Day of March, June,
September and December in each year, the first of which shall be the first such
day after the day hereof.
"Records" shall have the meaning assigned thereto in Section 7.3(j)
hereof.
"Redemption Value" shall mean, with respect to any Class A Preferred
Stock, the "Redemption Value" for such Class A Preferred Stock set forth in the
certificate evidencing such Class A Preferred Stock.
"Registrable Securities" shall mean (a) any shares of Class A Preferred
Stock purchased pursuant to Section 2.1 hereof and (b) any additional shares of
Class A Preferred Stock issued or distributed by way of a dividend, stock split
or other distribution in respect of
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such Class A Preferred Stock purchased pursuant to Section 2.1 hereof, or
acquired by way of any rights offering or similar offering made in respect of
such Class A Preferred Stock. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall have
been distributed to the public pursuant to Rule 144 or (iii) they shall have
ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to State Auto
Financial's performance of or compliance with its obligations under this
Agreement to effect the registration of Registrable Securities in a Demand
Registration or a Piggyback Registration, including, without limitation, all
registration, filing, securities exchange listing and NASD fees, all
registration, filing, qualification and other fees and expenses of complying
with securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for State Auto Financial and of its independent public accountants, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, the reasonable fees and
disbursements of a single counsel and single firm of accountants retained by the
holders of a majority of the Registrable Securities being registered, premiums
and other costs of policies of insurance against liabilities arising out of the
Public Offering of the Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any, in respect of Registrable Securities, which shall be payable by
each holder thereof.
"Registration Request" shall have the meaning assigned thereto in
Section 7.1 hereof.
"Requesting Holders" shall mean, with respect to any Demand
Registration or Piggyback Registration, the holders of Registrable Securities
requesting to have Registrable Securities included in such registration in
accordance with this Agreement.
"Rule 144" shall mean Rule 144 promulgated by the Commission under the
Securities Act, and any successor provision thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Short-Form Registration" shall mean a Demand Registration effected by
the filing of a registration statement on Form S-2 or Form S-3 with the
Commission.
"State Auto Mutual" shall mean the meaning assigned thereto in the
first Whereas clause of this Agreement.
"State Auto P&C" shall mean the meaning assigned thereto in the first
Whereas clause of this Agreement.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having
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by the terms thereof ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions of such corporation,
partnership or other entity (irrespective of whether or not at the time
securities or other ownership interests of any other class or classes of such
corporation, partnership or other entity shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.
ARTICLE II
PURCHASE OF PREFERRED STOCK
2.1 Purchases. The Company agrees, on the terms and conditions of this
Agreement, to purchase from State Auto Financial in one or more transactions,
Class A Preferred Stock with an aggregate Redemption Value of not more than
$135,000,000. The purchase price payable by the Company for each share of Class
A Preferred Stock shall be equal to the Redemption Value thereof.
2.2 Notices of Purchases. State Auto Financial shall give the Company
notice of each purchase hereunder by delivering to the Company a Purchase Notice
not less than four Business Days prior to the date of such purchase (the
"Purchase Date"). Not later than 2:00 p.m. New York time on the Purchase Date
specified for each such purchase, the Company shall make available the amount of
the purchase price of the Class A Preferred Stock to be purchased by it by
depositing in immediately available funds such purchase price in an account
designated by State Auto Financial.
2.3 Commitment Fee. State Auto Financial shall pay to the Company a
commitment fee on the daily average unused amount (based on the aggregate
Redemption Value of not more than $135,000,000 of Class A Preferred Stock) of
the Company's Purchase Commitment, for the period from and including the date
hereof to but not including the earlier of the date such Purchase Commitment is
terminated and the Purchase Commitment Termination Date, at a rate per annum
equal to 0.20%. Accrued commitment fees shall be payable on each Quarterly Date
and on the earlier of the date the Purchase Commitments are terminated and the
Purchase Commitment Termination Date.
ARTICLE III
CONDITIONS TO PURCHASE
The obligations of the Company to purchase any Class A Preferred Stock
hereunder is subject to the following conditions:
(a) Purchase Notice. The Company shall have received a Purchase Notice
with respect to such purchase, duly completed and executed.
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(b) Opinion of Counsel to the Company. The Company shall have received
an opinion, dated the Purchase Date, of ▇▇▇▇ ▇▇▇▇▇▇▇, general counsel of State
Auto Financial, substantially in the form of Exhibit C hereto and covering such
other matters as the Company may reasonably request.
(c) Certificates. The Company shall have received duly executed stock
certificates, substantially in the form of Exhibit A hereto, evidencing the
aggregate number of shares of Class A Preferred Stock to be purchased by the
Company on such Purchase Date.
(d) Catastrophic Loss. Any one or more of State Auto Mutual, State Auto
P&C, Milbank Insurance Company, Farmers Casualty Insurance Company, Midwest
Security Insurance Company and State Auto National Insurance Company shall have
incurred liability in excess of $120,000,000 in the aggregate in respect of
catastrophic loss claims and/or loss adjustment expenses resulting from the
occurrence of a single catastrophic event and the Company shall have received a
certificate of a senior financial officer of State Auto Financial to such
effect.
(e) Officer's Certificate. The Company shall have received a
certificate of a senior financial officer of State Auto Financial to the effect
that, both immediately prior to such purchase and also after giving effect
thereto and to the intended use thereof (i) no Put Event (or an event 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 State
Auto Financial in Article IV hereof shall be true and complete on and as of the
date of such purchase with the same force and effect as if made on and as of
such 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).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STATE AUTO FINANCIAL
State Auto Financial represents and warrants to the Company that:
4.1 Corporate Existence. Each of State Auto Financial and its
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.
4.2 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 of State Auto Financial) threatened against State
Auto Financial or any of its Subsidiaries that, if adversely determined could
(either individually or in the aggregate) have a Material Adverse Effect.
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4.3 No Breach. None of the execution and delivery of this Agreement,
the consummation of the transactions herein and therein contemplated or
compliance with the terms and provisions hereof and thereof (including issuance
of the Class A 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
State Auto Financial, 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 Financial 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 Financial or any of its Subsidiaries pursuant to the
terms of any such agreement or instrument.
4.4 Action. State Auto Financial has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
this Agreement and to issue the Class A Preferred Stock; the execution, delivery
and performance by State Auto Financial of this Agreement (and the issuance of
the Class A 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 State Auto Financial and constitutes, its legal, valid and
binding obligation, enforceable against State Auto Financial 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).
4.5 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
State Auto Financial of this Agreement (or for the issuance of the Class A
Preferred Stock) or for the legality, validity or enforceability hereof.
4.6 Capitalization. The authorized capital stock of State Auto
Financial consists, on the date hereof, of an aggregate of 105,000,000 shares
consisting of (a) 100,000,000 shares of common stock, no par value, of which
40,565,812 shares are duly and validly issued and outstanding, each of which
shares is fully paid and nonassessable, (b) 2,500,000 shares of Class A
Preferred Stock, no par value, none of which shares 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. As of the date hereof, 70% of such issued and
outstanding shares of common stock are owned beneficially and of record by State
Auto Mutual. 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 hereto as Exhibit A. As of the date
hereof, (i) except for this Agreement, the Put Agreement and as set forth in
Part A of Schedule I hereto, there are no outstanding Equity Rights with respect
to State Auto Financial and (ii) except as set forth in Part B of Schedule I
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
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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.
All shares of Class A Preferred Stock purchased by the Company hereunder will,
when so purchased, be duly and validly issued and outstanding, fully paid and
nonassessable.
4.7 True and Complete Disclosure. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of State
Auto Financial and State Auto Mutual to the Company, 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 Company, 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 State Auto Financial 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.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to State Auto Financial that:
5.1 Investment. The Company will purchase the Class A Preferred Stock
only for its own account, for investment purposes and not with a view to resale
or distribution, and not on behalf of any other person or entity.
5.2 No Agreement to Transfer. Except as set forth in this Agreement,
the Credit Agreement, the Put Agreement and the Company Pledge Agreement, the
Company is not a party to any agreement, arrangement or understanding concerning
the transfer of the Class A Preferred Stock or any interest therein to any other
person or entity.
5.3 Knowledge and Experience. The Company has (a) adequate knowledge
and experience in financial and business matters to be able to evaluate the
merits and risks of its investment in State Auto Financial and the Class A
Preferred Stock under this Agreement, or (b) the advice or representation of a
person or entity having such knowledge and experience.
5.4 Access to Information. The Company has access to sufficient
information regarding State Auto Financial, including, without limitation, State
Auto Financial's filings under the Securities Exchange Act of 1934, as amended.
The Company has requested information concerning State Auto Financial and has
been given an opportunity to ask questions and receive
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answers concerning State Auto Financial and the terms and conditions of this
Agreement in order to evaluate the merits and risks of its investment in State
Auto Financial and the Class A Preferred Stock under this Agreement.
5.5 Risk. The Company is able to bear the economic risk of its
investment in State Auto Financial and the Class A Preferred Stock under this
Agreement and to hold the Class A Preferred Stock for purposes of investment.
5.6 Restrictions on Transfer.
(a) The Class A Preferred Stock which the Company will acquire
hereunder (i) will not be registered by reason of an exemption from registration
under Section 3(b) or 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), or Regulation D promulgated thereunder and (ii) is not
publicly traded, no market exists for the Class A Preferred Stock and the
Company must hold the Class A Preferred Stock indefinitely unless a subsequent
transfer or other disposition is registered under the Securities Act or is
exempt from registration at the time of such transfer or other disposition.
(b) In the absence of an effective registration with respect to any
proposed transfer of the Class A Preferred Stock (other than any transfer
thereof as contemplated by the Company Pledge Agreement or the Put Agreement),
State Auto Financial may require, as a condition to such transfer, a legal
opinion by counsel of its choice, in form and substance as it may determine, or
other documentation satisfactory to its Board of Directors, that an exemption
from registration is available for the proposed transfer, and a restrictive
legend to that effect will be set forth on the stock certificates representing
the Class A Preferred Stock.
ARTICLE VI
COVENANTS
6.1 Transfer. Except as contemplated by the Company Pledge Agreement
and the Put Agreement, the Company shall not sell, offer for sale or otherwise
transfer or dispose of the Class A Preferred Stock or any interest therein,
unless pursuant to a registration or exemption from registration under the
Securities Act and all applicable state securities laws then in effect.
6.2 Redemption. State Auto Financial shall redeem the Class A Preferred
Stock at the times, in the amounts, at the prices and on such other terms and
conditions as are described in the stock certificates evidencing such Class A
Preferred Stock.
6.3 Use of Proceeds. State Auto Financial shall use the proceeds of the
sale of Class A Preferred Stock hereunder solely for the purpose of contributing
such proceeds to State Auto P&C for it to use to pay direct and assumed
catastrophic loss claims and/or loss adjustment expenses resulting from the
catastrophic event to which such sale relates.
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ARTICLE VII
REGISTRATION RIGHTS
7.1 Demand Registration.
(a) Demand Registration. At any time after the occurrence of a Put
Dishonor, upon the written request of the holders of a majority of the
Registrable Securities requesting that State Auto Financial effect the
registration under the Securities Act of all or part of such holders'
Registrable Securities and specifying the number of Registrable Securities to be
registered and the intended method of disposition thereof (a "Registration
Request"), State Auto Financial will promptly, and in no event more than ten
(10) Business Days after receipt of such Registration Request, give written
notice (a "Notice of Demand Registration") of such request to all other holders
of Registrable Securities, and thereupon will use its best efforts to effect the
registration under the Securities Act of:
(i) the Registrable Securities which State Auto Financial has
been so requested to register by such holders of a majority of the
Registrable Securities; and
(ii) all other Registrable Securities the holders of which
have made written requests to State Auto Financial for registration
thereof within 20 days after the giving of the Notice of Demand
Registration (which requests shall specify the intended method of
disposition thereof),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof) of the Registrable Securities so to be registered. If
requested by the holders of a majority of the Registrable Securities requested
to be included in any Demand Registration, the method of disposition of all
Registrable Securities included in such registration shall be an underwritten
offering effected in accordance with Section 7.4(a) hereof. Subject to paragraph
(e) of this Section 7.1, State Auto Financial may include in such registration
other securities for sale for its own account or for the account of any other
Person. If any security holders of State Auto Financial (other than the holders
of Registrable Securities in such capacity) register securities of State Auto
Financial in a Demand Registration in accordance with this Section 7.1, such
holders shall pay the fees and expenses of their counsel and their pro rata
share, on the basis of the respective amounts of the securities included in such
registration on behalf of each such holder, of the Registration Expenses if the
Registration Expenses for such registration are not paid by State Auto Financial
for any reason.
(b) Limitations on Demand Registrations. Notwithstanding anything
herein to the contrary, State Auto Financial shall not be required to honor a
request for a Demand Registration if:
(i) a Put Dishonor shall not have occurred;
(ii) in the case of a Long-Form Registration, State Auto
Financial has previously effected one Effective Long-Form Registration;
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15
(iii) in the case of a Short-Form Registration, State Auto
Financial has previously effected one Effective Short-Form
Registration; or
(iv) such request is received by State Auto Financial less
than 90 days following the effective date of any previous registration
statement filed in connection with a Demand Registration, regardless of
whether any holder of Registrable Securities exercised its rights under
this Agreement with respect to such registration.
(c) Registration Statement Form. Demand Registrations shall be on such
appropriate registration form promulgated by the Commission as shall be selected
by State Auto Financial, and shall be reasonably acceptable to the holders of a
majority of the Registrable Securities to which such registration relates, and
shall permit the disposition of such Registrable Securities in accordance with
the intended method or methods specified in their request for such registration;
provided that such registration form is available under the terms of this
Agreement. Notwithstanding the foregoing, if State Auto Financial selects a Form
S-3 and the use of such form is available under the terms of this Agreement and
is permitted by law, the holders of a majority of the Registrable Securities to
which such registration relates may notify State Auto Financial in writing that,
in the judgment of such holders (or, if applicable, the Managing Underwriter),
the inclusion of some or all of the information required in a more detailed form
specified in such notice is of material importance to the success of the Public
Offering of such Registrable Securities, in which case State Auto Financial
shall supplement or amend the Form S-3 to include such information.
(d) Registration Expenses. State Auto Financial will pay all
Registration Expenses incurred in connection with any Demand Registration.
(e) Priority in Cutback Registrations. If a Demand Registration becomes
a Cutback Registration, State Auto Financial will include in any such
registration to the extent of the number which the Managing Underwriter advises
State Auto Financial can be sold in such offering (i) first, Registrable
Securities requested to be included in such registration by the Requesting
Holders, pro rata on the basis of the number of Registrable Securities requested
to be included by such holders and (ii) second, other securities of State Auto
Financial proposed to be included in such registration, allocated among the
holders thereof in accordance with the priorities then existing among State Auto
Financial and the holders of such other securities; and any securities so
excluded shall be withdrawn from and shall not be included in such Demand
Registration.
7.2 Piggyback Registrations.
(a) Right to Include Registrable Securities. If, at any time after the
occurrence of a Put Dishonor, State Auto Financial at any time proposes after
any shares of Class A Preferred Stock have been purchased hereunder to effect a
Piggyback Registration, it will each such time give prompt written notice (a
"Notice of Piggyback Registration"), at least 30 days prior to the anticipated
filing date, to all holders of Registrable Securities of its intention to do so
and of such holders' rights under this Section 7.2, which Notice of Piggyback
Registration shall include a description of the intended method of disposition
of such securities. Upon the written request of any such holder made within 15
days after receipt of a Notice of Piggyback
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16
Registration (which request shall specify the Registrable Securities intended to
be disposed of by such holder and the intended method of disposition thereof),
State Auto Financial will use its best efforts to include in the registration
statement relating to such Piggyback Registration all Registrable Securities
which State Auto Financial has been so requested to register. Notwithstanding
the foregoing, if, at any time after giving a Notice of Piggyback Registration
and prior to the effective date of the registration statement filed in
connection with such registration, State Auto Financial shall determine for any
reason not to register or to delay registration of such securities, State Auto
Financial may, at its election, give written notice of such determination to
each holder of Registrable Securities and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith),
without prejudice, however, to the rights of any Requesting Holder entitled to
do so to request that such registration be effected as a Demand Registration
under Section 7.1 hereof, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registering such other securities. No
registration effected under this Section 7.2 shall relieve State Auto Financial
of its obligations to effect a Demand Registration under Section 7.1 hereof.
(b) Registration Expenses. State Auto Financial will pay all
Registration Expenses incurred in connection with each Piggyback Registration.
(c) Priority in Cutback Registrations. If a Piggyback Registration
becomes a Cutback Registration, State Auto Financial will include in such
registration to the extent of the amount of the securities which the Managing
Underwriter advises State Auto Financial can be sold in such offering:
(i) if such registration as initially proposed by State Auto
Financial was solely a primary registration of its securities, (x)
first, the securities proposed by State Auto Financial to be sold for
its own account, and (y) second any Registrable Securities requested to
be included in such registration by Requesting Holders, pro rata on the
basis of the number of Registrable Securities requested to be included
by such holders, and (z) third, any other securities of State Auto
Financial proposed to be included in such registration, allocated among
the holders thereof in accordance with the priorities then existing
among State Auto Financial and such holders; and
(ii) if such registration as initially proposed by State Auto
Financial was in whole or in part requested by holders of securities of
State Auto Financial, other than holders of Registrable Securities in
their capacities as such, pursuant to demand registration rights, (x)
first, such securities held by the holders initiating such registration
and, if applicable, any securities proposed by State Auto Financial to
be sold for its own account, allocated in accordance with the
priorities then existing among State Auto Financial and such holders,
and (y) second any Registrable Securities requested to be included in
such registration by Requesting Holders, pro rata on the basis of the
number of Registrable Securities requested to be included by such
holders, and (z) third, any other securities of State Auto Financial
proposed to be included in such registration, allocated among the
holders thereof in accordance with the priorities then existing among
State Auto Financial and the holders of such other securities;
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17
and any securities so excluded shall be withdrawn from and shall not be included
in such Piggyback Registration.
7.3 Registration Procedures. If and whenever State Auto Financial is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to Section 7.1 or 7.2 hereof, State
Auto Financial will use its best efforts to effect the registration and sale of
such Registrable Securities in accordance with the intended methods of
disposition thereof specified by the Requesting Holders. Without limiting the
foregoing, State Auto Financial in each such case will, as expeditiously as
possible:
(a) prepare and file with the Commission the requisite registration
statement to effect such registration and use its best efforts to cause such
registration statement to become effective as soon as practicable, provided that
as far in advance as practical before filing such registration statement or any
amendment or supplement thereto, State Auto Financial will furnish to the
Requesting Holders copies of reasonably complete drafts of all such documents
proposed to be filed (including exhibits), and any such holder shall have the
opportunity to object to any information pertaining solely to such holder that
is contained therein and State Auto Financial will make the corrections
reasonably requested by such holder with respect to such information prior to
filing any such registration statement or amendment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (i) such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement and (ii) 180 days after such
registration statement becomes effective;
(c) promptly notify each Requesting Holder and the underwriter or
underwriters, if any
(i) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been
filed and, with respect to such registration statement or any
post-effective amendment thereto, when the same has become effective;
(ii) of any written request by the Commission for amendments
or supplements to such registration statement or prospectus;
(iii) of the notification to State Auto Financial by the
Commission of its initiation of any proceeding with respect to the
issuance by the Commission of, or of the issuance by the Commission of,
any stop order suspending the effectiveness of such registration
statement (and State Auto Financial shall promptly attempt to have such
order withdrawn); and
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18
(iv) of the receipt by State Auto Financial of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the applicable securities or blue
sky laws of any jurisdiction;
(d) furnish to each seller of Registrable Securities covered by such
registration statement such number of conformed copies of such registration
statement and of each amendment and supplement thereto (in each case including
all exhibits and documents incorporated by reference), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
holder's Registrable Securities, and such other documents, as such seller may
reasonably request to facilitate the disposition of its Registrable Securities;
(e) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each holder thereof shall reasonably
request, to keep such registration or qualification in effect for so long as
such registration statement remains in effect, and take any other action which
may be reasonably necessary or advisable to enable such holder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
holder, except that State Auto Financial shall not for any such purpose be
required (i) to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this paragraph (e)
be obligated to be so qualified, (ii) to subject itself to taxation in any such
jurisdiction or (iii) to consent to general service of process in any
jurisdiction;
(f) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable each holder
thereof to consummate the disposition of such Registrable Securities;
(g) furnish to each Requesting Holder a signed counterpart, addressed
to such holder (and the underwriters, if any), of
(i) an opinion of counsel for State Auto Financial, dated the
effective date of such registration statement (or, if such registration
includes an underwritten Public Offering, dated the date of any closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such holder, and
(ii) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten Public Offering, dated the date of any closing under the
underwriting agreement), signed by the independent public accountants
who have certified State Auto Financial's financial statements included
in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
the accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to the underwriters in underwritten Public
- 15 -
19
Offerings of securities and, in the case of the accountants' letter, such other
financial matters, as such holder (or the underwriters, if any) may reasonably
request;
(h) notify each holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such holder promptly prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(i) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve (12) months, but not more than eighteen (18) months, beginning with
the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 promulgated thereunder;
(j) make available for inspection by any Requesting Holder, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of State Auto Financial
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause State Auto Financial's
officers, directors and employees to supply all information reasonably requested
by any such Inspector in connection with such registration statement, and permit
the Inspectors to participate in the preparation of such registration statement
and any prospectus contained therein and any amendment or supplement thereto.
Records which State Auto Financial determines, in good faith, to be confidential
and which it notifies the Inspectors are confidential shall not be disclosed by
the Inspectors unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in the registration statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction or (iii) the information in such Records has
been made generally available to the public. The seller of Registrable
Securities agrees by acquisition of such Registrable Securities that it will,
upon learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to State Auto Financial and allow State Auto
Financial, at State Auto Financial's expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;
(k) provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the effective
date of such registration statement; and
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20
(l) use its best efforts to cause all Registrable Securities covered by
such registration statement to be listed, upon official notice of issuance, on
any securities exchange on which any of the securities of the same class as the
Registrable Securities are then listed.
State Auto Financial may require each holder of Registrable Securities
as to which any registration is being effected to, and each such holder, as a
condition to including Registrable Securities in such registration, shall,
furnish State Auto Financial with such information and affidavits regarding such
holder and the distribution of such securities as State Auto Financial may from
time to time reasonably request in writing in connection with such registration.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from State Auto Financial
of the happening of any event of the kind described in paragraph (h) of this
Section 7.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such paragraph (h) and, if so
directed by State Auto Financial, will deliver to State Auto Financial (at State
Auto Financial's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice. In the event State
Auto Financial shall give any such notice, the period referred to in paragraph
(b) of this Section 7.3 shall be extended by a number of days equal to the
number of days during the period from and including the giving of notice
pursuant to paragraph (h) of this Section 7.3 and to and including the date when
each holder of any Registrable Securities covered by such registration statement
shall receive the copies of the supplemented or amended prospectus contemplated
by such paragraph (h).
7.4 Underwritten Offerings.
(a) Underwritten Demand Offerings. In the case of any underwritten
Public Offering being effected pursuant to a Demand Registration, the Managing
Underwriter and any other underwriter or underwriters with respect to such
offering shall be selected, after consultation with State Auto Financial, by the
holders of a majority of the Registrable Securities to be included in such
underwritten offering with the consent of State Auto Financial, which consent
shall not be unreasonably withheld. State Auto Financial shall enter into an
underwriting agreement in customary form with such underwriter or underwriters,
which shall include, among other provisions, indemnities to the effect and to
the extent provided in Section 7.6 hereof and shall take all such other actions
as are reasonably requested by the Managing Underwriter in order to expedite or
facilitate the registration and disposition of the Registrable Securities. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to such underwriting agreement and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, State Auto Financial to and for the benefit of such underwriters
also be made to and for their benefit and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement also be conditions precedent to their obligations. No holder of
Registrable Securities shall be required to make any representations or
warranties to or agreements with State Auto Financial or the underwriters other
than representations, warranties
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21
or agreements regarding such holder and its ownership of the securities being
registered on its behalf and such holder's intended method of distribution and
any other representation required by law. No Requesting Holder may participate
in such underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting agreement. If
any Requesting Holder disapproves of the terms of an underwriting, such holder
may elect to withdraw therefrom and from such registration by notice to State
Auto Financial and the Managing Underwriter, and each of the remaining
Requesting Holders shall be entitled to increase the number of Registrable
Securities being registered to the extent of the Registrable Securities so
withdrawn in the proportion which the number of Registrable Securities being
registered by such remaining Requesting Holder bears to the total number of
Registrable Securities being registered by all such remaining Requesting
Holders.
(b) Underwritten Piggyback Offerings. If State Auto Financial at any
time proposes to register any of its securities in a Piggyback Registration and
such securities are to be distributed by or through one or more underwriters,
State Auto Financial will, subject to the provisions of Section 7.2(c) hereof,
use its best efforts, if requested by any holder of Registrable Securities, to
arrange for such underwriters to include the Registrable Securities to be
offered and sold by such holder among the securities to be distributed by such
underwriters, and such holders shall be obligated to sell their Registrable
Securities in such Piggyback Registration through such underwriters on the same
terms and conditions as apply to the other Company securities to be sold by such
underwriters in connection with such Piggyback Registration. The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between State Auto Financial and such underwriter
or underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of,
State Auto Financial to and for the benefit of such underwriters also be made to
and for their benefit and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement also be
conditions precedent to their obligations. No holder of Registrable Securities
shall be required to make any representations or warranties to or agreements
with State Auto Financial or the underwriters other than representations,
warranties or agreements regarding such holder and its ownership of the
securities being registered on its behalf and such holder's intended method of
distribution and any other representation required by law. No Requesting Holder
may participate in such underwritten offering unless such holder agrees to sell
its Registrable Securities on the basis provided in such underwriting agreement
and completes and executes all questionnaires, powers of attorney, indemnities
and other documents reasonably required under the terms of such underwriting
agreement. If any Requesting Holder disapproves of the terms of an underwriting,
such holder may elect to withdraw therefrom and from such registration by notice
to State Auto Financial and the Managing Underwriter, and each of the remaining
Requesting Holders shall be entitled to increase the number of Registrable
Securities being registered to the extent of the Registrable Securities so
withdrawn in the proportion which the number of Registrable Securities being
registered by such remaining Requesting Holder bears to the total number of
Registrable Securities being registered by all such remaining Requesting
Holders.
7.5 Holdback Agreements By State Auto Financial and Other
Securityholders. Unless the Managing Underwriter otherwise agrees, State Auto
Financial and each holder of - 18 -
22
Registrable Securities agrees not to effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to and the 180 days
after the effective date of the registration statement filed in connection with
an underwritten offering made pursuant to a Demand Registration (or for such
shorter period of time as is sufficient and appropriate, in the opinion of the
Managing Underwriter, in order to complete the sale and distribution of the
securities included in such registration), except as part of such underwritten
registration and except pursuant to registrations on Form S-4 or Form S-8
promulgated by the Commission or any successor or similar forms thereto. State
Auto Financial also agrees, unless the Managing Underwriter otherwise agrees, to
cause each holder of its equity securities which is a party to a registration
rights agreement with State Auto Financial entered into on or after the date
hereof, and each holder of its equity securities, or of any securities
convertible into or exchangeable or exercisable for such securities, in each
case purchased from State Auto Financial, at any time after the date of this
Agreement (other than in a Public Offering), to agree, to the extent permitted
by law, not to effect any such public sale or distribution of such securities
(including a sale under Rule 144), during such period, except as part of such
underwritten registration.
7.6 Indemnification.
(a) Indemnification by State Auto Financial. State Auto Financial
shall, to the full extent permitted by law, indemnify and hold harmless each
seller of Registrable Securities included in any registration statement filed in
connection with a Demand Registration or a Piggyback Registration, its directors
and officers, and each other Person, if any, who controls any such seller within
the meaning of the Securities Act, against any losses, claims, damages, expenses
or liabilities, joint or several (together, "Losses"), to which such seller or
any such director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, and State Auto Financial will reimburse
such seller and each such director, officer and controlling Person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such Loss (or action or proceeding in respect
thereof); provided that State Auto Financial shall not be liable in any such
case to the extent that any such Loss (or action or proceeding in respect
thereof) arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to State Auto Financial through an instrument duly
executed by such seller specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any such
director, officer or controlling Person, and shall survive the transfer of such
securities by such seller. State Auto Financial shall also indemnify each other
Person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors and each other Person, if
any, who controls
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any such participating Person within the meaning of the Securities Act to the
same extent as provided above with respect to sellers of Registrable Securities.
(b) Indemnification by the Sellers. Each holder of Registrable
Securities which are included or are to be included in any registration
statement filed in connection with a Demand Registration or a Piggyback
Registration, as a condition to including Registrable Securities in such
registration statement, shall, to the full extent permitted by law, indemnify
and hold harmless State Auto Financial, its directors and officers, and each
other Person, if any, who controls State Auto Financial within the meaning of
the Securities Act, against any Losses to which State Auto Financial or any such
director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, if such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to State Auto Financial through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided however, that
the obligation to provide indemnification pursuant to this Section 7.6(b) shall
be several, and not joint and several, among such Indemnifying Parties on the
basis of the number of Registrable Securities included in such registration
statement and the aggregate amount which may be recovered from any holder of
Registrable Securities pursuant to the indemnification provided for in this
Section 7.6(b) in connection with any registration and sale of Registrable
Securities shall be limited to the total proceeds received by such holder from
the sale of such Registrable Securities. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of State
Auto Financial or any such director, officer or controlling Person and shall
survive the transfer of such securities by such seller. Such holders shall also
indemnify each other Person who participates (including as an underwriter) in
the offering or sale of Registrable Securities, their officers and directors and
each other Person, if any, who controls any such participating Person within the
meaning of the Securities Act to the same extent as provided above with respect
to State Auto Financial.
(c) Notices of Claims, etc. Promptly after receipt by an Indemnified
Party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding paragraph (a) or (b) of this Section 7.6,
such Indemnified Party will, if a claim in respect thereof is to be made against
an Indemnifying Party pursuant to such paragraphs, give written notice to the
latter of the commencement of such action, provided that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under the preceding paragraphs of this
Section 7.6, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, the Indemnifying Party shall be entitled to
participate in and, unless, in the reasonable judgment of any Indemnified Party,
a conflict of interest between such Indemnified Party and any Indemnifying Party
exists with respect to such claim, to assume
- 20 -
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the defense thereof, jointly with any other Indemnifying Party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; provided that the
Indemnified Party may participate in such defense at the Indemnified Party's
expense; and provided further that the Indemnified Party or Indemnified Parties
shall have the right to employ one counsel to represent it or them if, in the
reasonable judgment of the Indemnified Party or Indemnified Parties, it is
advisable for it or them to be represented by separate counsel by reason of
having legal defenses which are different from or in addition to those available
to the Indemnifying Party, and in that event the reasonable fees and expenses of
such one counsel shall be paid by the Indemnifying Party. If the Indemnifying
Party is not entitled to, or elects not to, assume the defense of a claim, it
will not be obligated to pay the fees and expenses of more than one counsel for
the Indemnified Parties with respect to such claim, unless in the reasonable
judgment of any Indemnified Party a conflict of interest may exist between such
Indemnified Party and any other Indemnified Parties with respect to such claim,
in which event the Indemnifying Party shall be obligated to pay the fees and
expenses of such additional counsel for the Indemnified Parties or counsels. No
Indemnifying Party shall consent to entry of any judgment or enter into any
settlement without the consent of the Indemnified Party. No Indemnifying Party
shall be subject to any liability for any settlement made without its consent,
which consent shall not be unreasonably withheld.
(d) Contribution. If the indemnity and reimbursement obligation
provided for in any paragraph of this Section 7.6 is unavailable or insufficient
to hold harmless an Indemnified Party in respect of any Losses (or actions or
proceedings in respect thereof) referred to therein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other hand in connection
with statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The parties
hereto agree that it would not be just and equitable if contributions pursuant
to this paragraph were to be determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the first sentence of this paragraph. The amount paid by an
Indemnified Party as a result of the Losses referred to in the first sentence of
this paragraph shall be deemed to include any legal and other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any Loss which is the subject of this paragraph.
No Indemnified Party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
- 21 -
25
(e) Other Indemnification. Indemnification similar to that specified in
the preceding paragraphs of this Section 7.6 (with appropriate modifications)
shall be given by State Auto Financial and each seller of Registrable Securities
with respect to any required registration or other qualification of securities
under any federal or state law or regulation of any governmental authority other
than the Securities Act. The provisions of this Section 7.6 shall be in addition
to any other rights to indemnification or contribution which an Indemnified
Party may have pursuant to law, equity, contract or otherwise.
(f) Indemnification Payments. The indemnification required by this
Section 7.6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or Losses
are incurred.
7.7 Covenants Relating to Rule 144. The Company will file reports in
compliance with the Exchange Act, will comply with all rules and regulations of
the Commission applicable in connection with the use of Rule 144 and take such
other actions and furnish such holder with such other information as such holder
may request in order to avail itself of such rule or any other rule or
regulation of the Commission allowing such holder to sell any Registrable
Securities without registration and will, at its expense, forthwith upon the
request of any holder of Registrable Securities, deliver to such holder a
certificate, signed by State Auto Financial's principal financial officer,
stating (a) State Auto Financial's name, address and telephone number (including
area code), (b) State Auto Financial's Internal Revenue Service identification
number, (c) State Auto Financial's Commission file number, (d) the number of
shares of each class of Stock outstanding as shown by the most recent report or
statement published by State Auto Financial, and (e) whether State Auto
Financial has filed the reports required to be filed under the Exchange Act for
a period of at least 90 days prior to the date of such certificate and in
addition has filed the most recent annual report required to be filed
thereunder.
7.8 References to holders of Registrable Securities. For purposes of
this Agreement, references to holders of the Registrable Securities or holders
of a majority of the Registrable Securities shall be deemed to refer to the
pledgee of the Registered Securities under the Pledge and Security Agreement
dated as of even date herewith between the Company and the Agent (as modified
and supplemented and in effect from time to time, the "Pledge Agreement") for so
long as the Pledge Agreement shall remain in effect.
ARTICLE VIII
MISCELLANEOUS
8.1 Waiver. No failure on the part of the either party hereto 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.
- 22 -
26
8.2 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 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 8.2. 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.
8.3 Amendments, Etc. Except as otherwise expressly provided in this
Agreement and subject to the Credit Agreement and the Put Agreement, any
provision of this Agreement may be modified or supplemented only by an
instrument in writing signed by each of State Auto Financial and the Company
(with the consent of the Agent and the Lenders as specified in the Credit
Agreement), and any provision of this Agreement may be waived by the Company
(with the consent of the Agent and the Lenders as specified in the Credit
Agreement).
8.4 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 State Auto Financial may not assign any of its
rights or obligations hereunder without the prior consent of the Company (with
the consent of the Agent and all of the Lenders).
8.5 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.
8.6 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.
8.7 Governing Law; Submission to Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the law of the State of Illinois.
Each of State Auto Financial and the Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Northern District of
Illinois and of the Supreme Court of the State of Illinois sitting in ▇▇▇▇
County (including its Appellate Division), and of any other appellate court in
the State of Illinois, for the purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. Each of
State Auto Financial and the Company hereby irrevocably waives, to the fullest
extent permitted by applicable law, any objection that it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
8.8 Waiver of Jury Trial. EACH OF STATE AUTO FINANCIAL AND THE COMPANY
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY
- 23 -
27
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
8.9 Further Assurances. State Auto Financial agrees that, from time to
time upon the written request of the Agent, State Auto Financial will execute
and deliver such further documents and do such other acts and things as the
Company, the Agent or any Lender (through the Agent) may reasonably request in
order fully to effect the purposes of this Agreement.
8.10 Payments by State Auto Financial. The Company hereby instructs
State Auto Financial to make any payments required to be made by State Auto
Financial hereunder or otherwise in respect of the Class A Preferred Stock
(including, without limitation, any amounts payable upon any redemption of the
Class A Preferred Stock, any dividends payable on the Class A Preferred Stock
and the commitment fee payable under Section 2.3 hereof) directly to the Agent,
for the benefit of the Lenders. Each such payment shall be made by State Auto
Financial in accordance with the provisions of the Credit Agreement.
8.11 Payments Received by the Company under Basic Documents. Any
amounts paid to the Company under any of the Basic Documents (other than the
proceeds of the Loans made under the Credit Agreement) shall be applied as
directed by State Auto Financial.
8.12 Third-Party Beneficiaries. Each of State Auto Financial and the
Company agrees that the Agent and each Lender shall be third-party beneficiaries
of this Agreement and shall be entitled to enforce its respective rights
hereunder as fully as if it were a party hereto.
8.13 Severability. If any provision hereof is invalid and unenforceable
in any jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction in
order to carry out the intentions of the parties hereto as nearly as may be
possible and (b) the invalidity or unenforceability of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of such
provision in any other jurisdiction.
[signature page follows]
- 24 -
28
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 AUTO FINANCIAL CORPORATION
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Title: Senior Vice President
-----------------------------------
Address for Notices:
State Auto Financial Corporation
5 ▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telecopier No.: ▇▇▇-▇▇▇-▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
SAF FUNDING CORPORATION
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
Title: Vice President
-----------------------------------
Address for Notices:
SAF Funding Corporation
▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier No.: ▇▇▇-▇▇▇-▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
S-1
[TO STANDBY PURCHASE AGREEMENT]
29
Standby Purchase Agreement
Schedule I
Part A
Equity Rights
As of November 1, 1999, State Auto Financial has granted 2,481,469 stock options
to members of management under State Auto Financial's 1991 Stock Option Plan of
which 2,355,811 are outstanding. As of November 1, 1999, State Auto Financial
has granted 174,000 stock options to "outside" directors on the boards of
directors of State Auto Financial and State Auto Mutual pursuant to the terms of
the 1991 Directors' Stock Option Plan. State Auto Financial also has registered
2,400,000 shares to be issued pursuant to an Employee Stock Purchase Plan (the
"ESPP") of which 1,473,805 shares have been purchased pursuant to the ESPP as of
November 1, 1999.
State Auto Financial intends to register 400,000 shares as part of an agents'
stock option plan. Options for 16,538 option shares have been issued under this
plan but are not exercisable at this time.
30
Standby Purchase Agreement
Schedule I
Part B
In August 1999, Strategic Insurance Software, Inc. ("S.I.S.") completed the
repurchase of all shares of S.I.S. from holders other than State Auto Financial
except for 60,000 shares, which the holders thereof (two individuals) are
contractually obligated to sell no later than January 4, 2000.
31
EXHIBIT A to the
Standby Purchase Agreement
[Form Class A Preferred Stock Certificate]
32
[Front of Class A Preferred Stock Certificate]
CERTIFICATE
NUMBER SHARES
------ ------
---------------- ----------------
STATE AUTO FINANCIAL CORPORATION
Incorporated under the laws
of the State of Ohio
CUSIP __________
SEE REVERSE SIDE FOR CERTAIN TRANSFER
RESTRICTIONS AND OTHER IMPORTANT INFORMATION
This is to Certify that ______________________________ is the owner of
______________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF
CLASS A PREFERRED STOCK NO PAR VALUE OF
State Auto Financial Corporation
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
WITNESS the seal of the Corporation and the signatures of its duly
authorized officers.
-------------------------- ------------------------------
Secretary Chief Executive Officer
------------------------------
President
33
[Reverse of Class A Preferred Stock Certificate]
STATE AUTO FINANCIAL CORPORATION
The Corporation will furnish upon request and without charge to each
shareholder the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock series within a class of
stock of the Corporation, as well as the qualifications, limitations and
restrictions relating to those preferences and/or rights.
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED AND SOLD ONLY IF
REGISTERED PURSUANT TO THE PROVISIONS OF SAID SECURITIES ACT OR IF AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
In addition, the shares evidenced by this certificate are subject to the
restrictions on transfer set forth in the Terms and Conditions attached hereto.
34
TERMS AND CONDITIONS
of
CLASS A PREFERRED STOCK
of
STATE AUTO FINANCIAL CORPORATION
--------------------------------------------------------------------------------
Pursuant to Section 1701.14 of the
Ohio General Corporation Law
--------------------------------------------------------------------------------
Section 1. General.
The certificate to which these Terms and Conditions are attached
represents one or more shares of Class A Preferred Stock, no par value (the
"Class A Preferred Stock"), of State Auto Financial Corporation, an Ohio
corporation (the "Corporation"). The stated value and liquidation preference per
share of the Class A Preferred Stock shall be equal to $1,000,000 (the
"Redemption Value").
Section 2. Definitions.
Capitalized terms used herein shall have the meanings set forth in this
Section 2:
"Applicable Redemption Dates" means, with respect to any shares of
Class A Preferred Stock, each of the 2nd, 4th, 6th, 8th, 10th, 12th, 14th, l6th,
18th, 20th, 22nd and 24th Quarterly Dates immediately following the date of
issuance of such shares of Class A Preferred Stock.
"Bank One" means Bank One, NA and any successor entity.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" shall mean any day on which (a) commercial banks are not
authorized or required to close in New York City or Chicago and (b) (prior to
the Rate Conversion Date) dealings in Dollar deposits are carried out in the
London interbank market.
"By-Laws" means the Code of Regulations of the Corporation, as amended
or restated from time to time.
"Certificate of Incorporation" means the Articles of Incorporation of
the Corporation as amended or restated from time to time.
"Class A Preferred Stock" has the meaning assigned to such term in
Section 1 hereof.
35
"Class B Preferred Stock" means all Class B Preferred Stock, no par
value, issued by the Corporation.
"Common Stock" means all common stock, of any series and of any par
value or no par value issued by the Corporation.
"Corporation" means State Auto Financial Corporation, an Ohio
corporation.
"Credit Agreement" means the Credit Agreement dated as of November 19,
1999, between SAF Funding, the Lenders party thereto and Bank One, as Agent, as
modified and supplemented and in effect from time to time, a copy of which is
maintained on file in the Principal Corporate Office.
"Dividend Rate" means, for each Eurodollar Rate Period relating to any
Class A Preferred Stock, the Eurodollar Rate for such Eurodollar Rate Period
plus 1% per annum; provided, however, that if, as of the last day of any fiscal
quarter of State Auto Mutual, the Statutory Surplus of State Auto Mutual, as
reflected in the most recent annual or quarterly financial statements of State
Auto Mutual delivered pursuant to Section 4.1(a) or (b) of the Put Agreement
(the "Financials"), is less than $575,000,000, then the "Dividend Rate" shall be
the Eurodollar Rate for such Eurodollar Rate Period plus 1.25% per annum until
such time as the Lenders receive Financials from State Auto Mutual indicating
that the Statutory Surplus of State Auto Mutual as reflected therein is
$575,000,000 or more; provided, further, that from and after the Rate Conversion
Date, the "Dividend Rate" means a rate per annum equal to 8%. Adjustments, if
any, to the Dividend Rate shall be effective five Business Days after the
Lenders have received the applicable Financials.
"Dollars" and "$" mean lawful money of the United States of America.
"Eurodollar Base Rate" means, with respect to any shares of Class A
Preferred Stock for the relevant Eurodollar Rate Period, the applicable British
Bankers' Association Interest Settlement Rate for deposits in U.S. dollars
appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period, and having a maturity equal
to such Eurodollar Rate Period, provided that, (a) if Reuters Screen FRBD is not
available to Bank One for any reason, the applicable Eurodollar Base Rate for
the relevant Eurodollar Rate Period shall instead be the applicable British
Bankers' Association Interest Settlement Rate for deposits in U.S. dollars as
reported by any other generally recognized financial information service as of
11:00 a.m. (London time) two Business Days prior to the first day of such
Eurodollar Rate Period, and having a maturity equal to such Eurodollar Rate
Period, and (b) if no such British Bankers' Association Interest Settlement Rate
is available to Bank One, the applicable Eurodollar Base Rate for the relevant
Eurodollar Rate Period shall instead be the rate determined by Bank One to be
the rate at which Bank One or one of its Affiliate banks offers to place
deposits in U.S. dollars with first-class banks in the London interbank market
at approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Eurodollar Rate Period, in the approximate amount of the aggregate
Redemption Value of such shares of Class A Preferred Stock and having a maturity
equal to such Interest Period.
36
"Eurodollar Rate" means, for any shares of Class A Preferred Stock for
any Eurodollar Rate Period, the sum of (a) the quotient of (i) the Eurodollar
Base Rate applicable to such Eurodollar Rate Period, divided by (ii) one minus
the Reserve Requirement (expressed as a decimal) applicable to such Eurodollar
Period.
"Eurodollar Rate Period" means, with respect to any shares of Class A
Preferred Stock, each period commencing on the date such Class A Preferred Stock
is issued or (in the case of a continuation of one Eurodollar Rate Period to the
next) the last day of the next preceding Eurodollar Rate Period for such Class A
Preferred Stock and ending on the numerically corresponding day in the third
calendar month thereafter, except that each Eurodollar Rate Period that
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (a) no Eurodollar Rate Period may commence
before and end after any Applicable Redemption Date unless, after giving effect
thereto, the aggregate Redemption Value of shares of Class A Preferred Stock
having Eurodollar Rate Periods that end after such Applicable Redemption Date
shall be equal to or less than the aggregate Redemption Value of shares of Class
A Preferred Stock scheduled to be outstanding after giving effect to the
redemption payments required to be made on such Applicable Redemption Date; and
(b) each Eurodollar Rate Period that would otherwise end on a day that is not a
Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day); and (c) notwithstanding clause (a) above, no Eurodollar
Rate Period shall have a duration of less than three months.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by Bank One from three Federal
funds brokers of recognized standing selected by Bank One in its sole
discretion.
"Holder" means SAF Funding or any subsequent holder of shares of Class
A Preferred Stock.
"Loans" means the Loans made to SAF Funding under the Credit Agreement.
"Person" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust, a limited liability company or other entity.
"Principal Corporate Office" means the principal corporate office of
the Corporation located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇.
"Quarterly Dates" means the last Business Day of March, June, September
and December in each year, the first of which shall be the last Business Day of
December, 1999.
37
"Rate Conversion Date" shall mean the first date upon which the Holder
is a person or entity other than any of SAF Funding, State Automobile Mutual
Insurance Company, an Ohio mutual insurance company, any Lender party to the
Credit Agreement or the Agent under the Credit Agreement.
"Redemption Value" has the meaning assigned to such term in Section 1
hereof.
"Reserve Requirement" has the meaning assigned to such term in the
Credit Agreement.
"SAF Funding" means SAF Funding Corporation, a Delaware corporation.
"Secretary" means the Secretary of the Corporation.
"Trigger Event" means the occurrence of (a) any "Event of Default"
described in the Credit Agreement (other than those events described in Section
7.5 or 7.6 thereof) and the acceleration of the Loans thereunder; or (b) an
"Event of Default" described in Section 7.5 or 7.6 of the Credit Agreement.
Section 3. Dividends and Distributions.
(a) The Holder, in preference to the holders of shares of Class B
Preferred Stock and the holders of shares of Common Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds of the
Corporation legally available for the payment of dividends, dividends at the
Dividend Rate on the Redemption Value of each share, payable in arrears in cash.
Accrued dividends on the Class A Preferred Stock shall be payable on the last
day of each Eurodollar Rate Period for the applicable Class A Preferred Stock
and upon the redemption of any Class A Preferred Stock (but only on the
aggregate Redemption Value of the Class A Preferred Stock so redeemed), provided
that after the Rate Conversion Date, said dividends shall be payable quarterly
on the last Business Day of March, June, September and December of each year.
(b) Dividends payable with respect to any share of Class A Preferred
Stock shall begin to accrue at the Dividend Rate and be cumulative from the date
of issuance of such Class A Preferred Stock (whether or not such dividends have
been declared and whether or not there shall be net profits or net assets of the
Corporation legally available for the payment of such dividends). Dividends paid
on the shares of Class A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of Holder entitled to receive payment of a dividend declared thereon, which
record date shall be no more than thirty (30) days prior to the date fixed for
the payment thereof.
(c) The Holder shall not be entitled to receive any dividends or other
distributions except as provided in these Terms and Conditions.
(d) Whenever (i) any dividend payable pursuant to paragraph (a) of this
Section 3 has not been paid when due, thereafter and until all accrued and
unpaid dividends
38
payable pursuant to paragraph (a) of this Section 3 have been paid in full or
(ii) the Corporation shall not have redeemed shares of Class A Preferred Stock
on the date such redemption is required pursuant to Section 5 hereof, thereafter
and until such redemption payment shall have been made the Corporation shall not
(A) declare or pay dividends on any shares of Class B Preferred Stock or Common
Stock or make any other distributions on any shares of Class B Preferred Stock
or Common Stock, whether upon liquidation, redemption or otherwise; or (B)
redeem or purchase or otherwise acquire for consideration any shares of Class B
Preferred Stock or Common Stock, whether upon liquidation, redemption, or
otherwise.
Section 4. Voting Rights.
Except as provided in the Certificate of Incorporation, and except for
any voting rights provided by law, the Holder shall have no voting rights and
its consent shall not be required for the taking of any corporate action.
Section 5. Redemption.
(a) On each of the first eleven Applicable Redemption Dates for any
shares of Class A Preferred Stock the Corporation shall redeem, without prior
notice to the Holder, out of funds legally available therefor, one-twelfth of
the number of shares of Class A Preferred Stock issued on the date of issuance
of such shares of Class A Preferred Stock, by paying to the Holder the aggregate
Redemption Value for such Class A Preferred Stock so redeemed plus any accrued
but unpaid dividends thereon. On the twelfth Applicable Redemption Date for such
shares of Class A Preferred Stock the Corporation shall redeem, without prior
notice to the Holder, out of funds legally available therefor, the balance of
the number of shares of Class A Preferred Stock issued on such date of issuance,
by paying to the Holder the aggregate Redemption Value for such Class A
Preferred Stock so redeemed plus any accrued but unpaid dividends thereon.
(b) Upon the occurrence and during the continuance of any Trigger
Event, the Holder may require the Corporation to redeem out of funds of the
Corporation legally available therefor, all or any portion of the Class A
Preferred Stock for a redemption price equal to the aggregate Redemption Value
for the Class A Preferred Stock so redeemed plus any accrued but unpaid
dividends thereon. Upon written notice delivered by the Holder to the President
of the Corporation, such Redemption Value plus such dividends shall be
immediately due and payable.
(c) The Corporation may, by delivering written notice that is received
by the Holder not later than 10:00 a.m. New York time on the third Business Day
prior to the date of the relevant redemption, redeem out of funds of the
Corporation legally available therefor, all or any portion of the Class A
Preferred Stock for a redemption price equal to the aggregate Redemption Value
for the Class A Preferred Stock so redeemed plus any accrued but unpaid
dividends thereon.
(d) From and after the date of a redemption, unless default shall be
made by the Corporation in providing for the payment of the aggregate Redemption
Value for the Class A Preferred Stock so redeemed plus accrued but unpaid
dividends thereon, all dividends on the Class A Preferred Stock so redeemed
shall cease to accrue, and from and after the date of redemption so specified,
unless default shall be made by the Corporation as aforesaid, all rights
39
of the Holder with respect to such shares, except the right to receive such
Redemption Value and dividends, shall cease and terminate.
Section 6. Reacquired Shares.
Any shares of Class A Preferred Stock redeemed, purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof and shall be restored to the
status of authorized but unissued shares of Class A Preferred Stock of the
Corporation and may thereafter be issued. Upon any redemption pursuant to
Section 5 hereof of a fractional number of shares of Class A Preferred Stock,
the Corporation shall reissue to the Holder Class A Preferred Stock having an
aggregate Redemption Value equal to the $1,000,000 multiplied by the sum of 1
minus such fractional number.
Section 7. Liquidation, Dissolution or Winding Up.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the Holder shall be entitled to
receive out of the assets of the Corporation available for distribution to its
stockholders an amount equal to the Redemption Value per share plus all accrued
and unpaid dividends thereon to the date of such payment, and no distribution
shall be made to the holders of shares of Common Stock, the Class B Preferred
Stock or any other capital stock of the Corporation unless prior thereto the
Holder shall have received an amount equal to the Redemption Value per share
plus all accrued and unpaid dividends thereon, to the date of such payment.
Section 8. Rank.
The Class A Preferred Stock shall rank as to dividends and distribution
of assets prior to the Class B Preferred Stock, the Common Stock and all other
shares of stock of the Corporation.
Section 9. Payments.
Except to the extent otherwise provided herein, all payments to be made
by the Corporation in respect of the Class A Preferred Stock shall be made in
Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Holder at an account designated by the Holder, not later
than 12:00 p.m. New York 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). If the due date of any payment
hereunder would otherwise fall on a day that is not a Business Day, such date
shall be extended to the next succeeding Business Day, and dividends shall be
payable on the aggregate Redemption Value of any shares of Class A Preferred
Stock for the period of such extension.
Section 10. Fiscal Year.
The Corporation will not change the last day of its fiscal year from
December 31 of each year.
40
EXHIBIT B to the
Standby Purchase Agreement
[Form of Purchase Notice]
[Date]
SAF Funding Corporation
-----------------------------
-----------------------------
-----------------------------
Re: Standby Purchase Agreement dated as of November 19, 1999,
among State Auto Financial Corporation and SAF Funding
Corporation (as modified and supplemented and in effect from
time to time, the "Standby Purchase Agreement").
Ladies and Gentlemen:
Reference is made to the Standby Purchase Agreement referred to above.
Capitalized terms used but not defined herein shall have the respective meanings
assigned to such terms in the Standby Purchase Agreement.
Pursuant to Section 2.2 of the Standby Purchase Agreement, State Auto
Financial hereby notifies you that it intends to sell to you ________ shares of
Class A Preferred Stock with an aggregate Redemption Value of
$____________________(1) on _____________, 199__(2).
STATE AUTO FINANCIAL CORPORATION
By
-------------------------------------------
Title:
------------------------------------
----------
(1) Insert an amount at least equal to $10,000,000 or a larger multiple of
$1,000,000.
(2) Insert a date falling on or after the fourth Business Day following the
date of this Purchase Notice.
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EXHIBIT C to the
Standby Purchase Agreement
[Form of Opinion of General Counsel of State Auto Financial)
------------------, ----
SAF Funding Corporation (the "Company")
To Bank One, NA,
as Agent (the "Agent") under, and
each of the Lenders party to, the
Credit Agreement dated as of
November 19, 1999, among the Company,
the Agent and such Lenders
Ladies and Gentlemen:
I am the general counsel of State Auto Financial Corporation ("State
Auto Financial") and have acted as counsel to State Auto Financial in connection
with the Standby Purchase Agreement dated as of November 19, 1999 (the "Standby
Purchase Agreement") between State Auto Financial and the Company, pursuant to
which the Company has agreed to purchase, from time to time, a certain number of
shares of State Auto Financial's Class A Redeemable Preferred Stock, no par
value per share (the "Class A Preferred Stock"). This opinion letter is
delivered to you pursuant to Section 3(b) of the Standby Purchase Agreement in
connection with the proposed issuance and sale by State Auto Financial, and the
purchase by the Company, on the date hereof, of ____ shares of the Class A
Preferred Stock (the "Purchased Stock").
In rendering the opinions expressed below, I have examined the
following agreements, instruments and other documents:
(a) the Standby Purchase Agreement;
(b) certificates evidencing the Purchased Stock (the "Purchased
Stock Certificates"); and
(c) such records of State Auto Financial 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
State Auto Financial and upon representations made in or pursuant to the Standby
Purchase Agreement.
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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 Financial is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Ohio.
2. State Auto Financial has all requisite corporate power and
authority to issue and sell the Purchased Stock and execute and deliver
the Purchased Stock Certificates.
3. The issuance and sale of the Purchased Stock to the Company
and execution and delivery by State Auto Financial of the Purchased
Stock Certificates have been duly authorized by all necessary corporate
action on the part of State Auto Financial.
4. The Purchased Stock Certificates have been duly executed
and delivered by State Auto Financial.
5. 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 State Auto Financial for issuance and sale of
the Purchased Stock to the Company and the execution and delivery of
the Purchased Stock Certificates.
6. The issuance and sale of the Purchased Stock to the Company
and the execution and delivery of the Purchased Stock do not and will
not (a) violate any provision of the Articles of Incorporation or Code
of Regulations of State Auto Financial, (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
State Auto Financial 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
Financial 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 State Auto Financial or
any of its Subsidiaries pursuant to the terms of any such agreement or
instrument.
7. The Purchased Shares are validly issued and outstanding,
are fully paid and non-assessable and have, and entitle the holders
thereof to, the relative rights and preferences set forth with respect
to the Class A Preferred Stock in the Purchased Stock Certificates.
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
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agency, now pending or threatened against or affecting State Auto
Financial or any of its Property that, if adversely determined, could
have a Material Adverse Effect (excluding any Material Adverse Effect
resulting from the catastrophic loss claims and/or loss adjustment
expenses to which the issuance of the Purchased Stock relates).
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 State Auto Financial, 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,
