INVESTMENT MANAGEMENT AGREEMENT
Exhibit 10.135
This Amended and Restated Investment Management Agreement (this “Agreement”) is made and
entered into this lst day of January 2010 by and between The Ohio Casualty Insurance
Company (the “Company”), an Ohio stock insurance company and Liberty Mutual Investment Advisors LLC
(the “Advisor”), a Massachusetts limited liability company and supersedes the prior agreement
between the parties dated August 24, 2007.
WHEREAS, the Company desires to enter into a contract for the purpose of appointing the
Advisor to manage the assets of its Account (hereinafter defined) in accordance with the terms
hereof; and
WHEREAS, the Advisor is willing to manage the assets of the Account in accordance with the
terms hereof;
NOW, THEREFORE, the Company and the Advisor hereby agree as follows:
1. Appointment. The Company hereby authorizes and appoints the Advisor as its investment
advisor and, as its agent and attorney-in-fact, to exercise the investment discretion set forth
below with respect to the assets of the Company’s Account. “Account” shall mean the assets which
Company notifies the Manager shall be included in the Account, together with the income, proceeds
and profits thereon. The Company hereby authorizes and appoints the Advisor, as its agent and
attorney-in-fact, to (i) execute all documentation on the Company’s behalf necessary to open
additional accounts in the Company’s name to facilitate investments made within the investment
discretion set forth in the Investment Guidelines, as defined below, and (ii) to execute all
documentation, on the Company’s behalf, to facilitate investment in securities for the Account.
2. Scope of Authorization for Investment Discretion. The Advisor shall manage the
Company’s Account in accordance with the investment policy and guidelines set forth on
Appendices A and B respectively (such guidelines, the “Investment Guidelines”), as such may
be amended from time-to-time by written agreement between the parties hereto. In connection
therewith, the Advisor shall have full power to supervise and direct the investment and
reinvestment of the cash, securities and other assets and to engage in such transactions on behalf
of the Company as the Advisor may deem appropriate, in the Advisor’s absolute discretion and
without prior consultation with the Company, subject only to this Agreement and the Investment
Guidelines. The Company hereby acknowledges that the Advisor need not seek approval prior to
engaging in any transaction where such transaction complies with the terms and conditions of the
Investment Guidelines. The Company acknowledges that performance objectives referred to in
Appendices A and B are intended as goals and not as an assurance or guarantee of performance.
In performing its duties under this Agreement, the Advisor will act in the interests of the
Company, except as otherwise provided herein. The Advisor will not deal with the assets in the
Company’s Account in its own interest or for its own account and, in particular, will not, without
prior written consent of the Company, as principal, sell assets to, purchase assets from, or borrow
money or other property from the Company’s Account.
Without limiting the foregoing, the Company hereby authorizes the Advisor:
(a) to act as the Company’s agent and attorney-in-fact with respect to the Company’s Account
and to have complete discretionary control over the composition of the assets in the Account,
including the power to make such acquisitions and disposals of investments as the Advisor considers
appropriate, but always in accordance with the Investment Guidelines;
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(b) to issue to brokers instructions to buy or to sell or otherwise trade in or deal with any
asset in the Account;
(c) to instruct any custodian of any asset in the Account to deliver any security or other
asset sold, exchanged or otherwise disposed of from the Account;
(d) to pay any fee incurred on behalf of the Company in providing services under this
Agreement, including commission expenses, attendant Securities and Exchange Commission transaction
fees and National Association of Insurance Commissioners transaction fees which shall be paid from
the Account in the conventional manner;
(e) to delegate any of its responsibilities, duties and authority set forth herein to, or
otherwise to utilize the investment management services of, any of its affiliates provided that the
Advisor will be fully accountable for any acts or omissions of an affiliate pursuant to such an
arrangement, as if such acts or omissions were its own;
(f) to place any securities on deposit with any governmental authority as may be necessary or
desirable to comply with applicable law, and to substitute other securities in their place;
(g) to perform any other act necessary or desirable to enable the Advisor to carry out
its obligations under this Agreement; and
(h) unless directed otherwise by the Company, to vote proxies on behalf of the
Account, solicited by or with respect to the issuers of securities in which the assets of
the Account may be invested, pursuant to proxy voting guidelines maintained by the Advisor.
3. Reports and Compliance. Advisor shall promptly furnish to or place at the disposal of
the Company, as appropriate, such information, reports, evaluations, analysis, and opinions as the
Company may, at any time or from time to time, reasonably request. Additionally, Advisor shall
furnish such information, reports and evaluations as the Company may from time to time reasonably
request which may be necessary or appropriate in order to enable the Company to maintain oversight
over the Account and assure compliance with the Investment Guidelines.
4. Fees. The Advisor shall be entitled to compensation for its services hereunder as set
forth in Appendix C attached hereto, and which is made part of this Agreement. Commission
expenses and attendant Securities and Exchange Commission transaction fees resulting from
transactions executed on behalf of the Company shall be paid from the Account assets. Compensation
amounts owing between the parties shall be settled between the parties on a quarterly basis and
payments of amounts owing shall be made within 45 days after the end of the calendar quarter.
Charges or fees for services performed shall be reasonable and in conformity with statutory
accounting principles consistently applied. The books, accounts, and records shall be so maintained
as to clearly and accurately disclose the nature and details of the transactions including such
accounting information as is necessary to support the reasonableness of the charges or fees to the
respective parties.
5. Limits on Advisor Responsibility.
(a) The Advisor shall not be responsible for the solvency of or the performance of the
obligations of any third party bank, clearing organization, broker, intermediary, nominee or agent
appointed or employed by the Advisor in good faith for the performance of its duties but the
Advisor shall assign to the Company such rights (if any) as the Advisor may have against such
person in the event of the insolvency of any of the above or its failure properly to perform such
obligations and shall give, without further compensation, such assistance as the Company may
reasonably require to exercise such rights.
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(b) The Advisor shall be fully protected in acting and relying upon any written advice,
certificate, notice, instruction, request or other paper or document which the Advisor in good
faith believes to be genuine and to have been signed or presented by an authorized person or other
proper party or parties, and may assume that any person purporting to give such written advice or
other paper or document has been duly authorized to do so unless contrary instructions have been
delivered to the Advisor by the Company.
(c) The Advisor shall not be liable to the Company for any acts or omissions by the Advisor,
its employees and agents under and in connection with this Agreement, except by reason of acts or
omission constituting gross negligence, willful misconduct or fraud on the part of the Advisor,
including its employees. Notwithstanding any of the foregoing to the contrary, the provisions of
this Section 5 shall not be construed to provide for the exculpation of the Advisor or any
affiliate from any liability to the extent that such liability may not be waived, modified or
limited under applicable law, but shall be construed so as to effectuate the provisions of this
Section 5 to the fullest extent permitted by law.
(d) The Company shall reimburse and indemnify the Advisor for, and hold it harmless against,
any loss, liability or expense, including, without limit, reasonable counsel fees, incurred on the
part of the Advisor arising out of or in connection with its acceptance of, or the performance of
its duties and obligations under, this Agreement, as well as the costs and expenses of defending
against any claim or liability arising out of or relating to this Agreement unless such loss,
liability or expense is the result of acts or omissions by the Advisor constituting gross
negligence, willful misconduct or fraud; provided, however, that nothing contained herein shall
constitute a waiver or limitation of any rights which the Company may have under applicable
securities or other laws.
6. Representations and Agreements.
(a) The Advisor represents to and agrees with the Company that:
(1) the terms of this Agreement do not violate any obligation by which the Advisor is bound,
whether arising by contract, operation of law or regulation, or otherwise;
(2) this Agreement has been duly authorized, executed and delivered by the Advisor and
constitutes a legal, valid and binding agreement of the Advisor enforceable in accordance with its
terms, and the Advisor has full power and authority to enter into this Agreement and to perform its
duties hereunder;
(3) it shall maintain at all times during the term of this Agreement competent personnel to
perform the duties required of it hereunder, and the Advisor’s expenses in connection therewith
shall be borne by the Advisor; and
(4) the representations and warranties contained herein shall continue and remain in effect
during the term of this Agreement, and, if at any time during the term of this Agreement any event
occurred which would make any of these foregoing representations untrue, incomplete or inaccurate
in any respect, the Advisor will promptly notify the Company of such event.
(b) The Company represents to and agrees with the Advisor that:
(1) the terms of this Agreement do not violate any obligation by which the Company is bound,
whether arising by contract, operation of law or regulation, or otherwise;
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(2) the Company is the sole owner of the assets covered hereby and such assets are free and
clear of any and all liens and restrictions on their transfer or sale, except for applicable
transfer restrictions under various securities laws;
(3) this Agreement has been duly authorized, executed and delivered by the Company and
constitutes a legal, valid and binding agreement of the Company enforceable in accordance with its
terms, and the Company has full power and authority to enter into this Agreement and to perform its
duties hereunder;
(4) the Account is not subject to the U.S. Employee Retirement Income Security Act of 1974, as
amended (“ERISA”);
(5) it is not a “Benefit Plan Investor,” as defined under ERISA;
(6) the Company will deliver or cause to be delivered to the Advisor in writing, all the
information, documents and instruments that the Advisor may reasonably request in order to perform
its duties hereunder; and
(7) the representations and warranties contained herein shall continue and remain in effect
during the term of this Agreement, and, if at any time during the term of this Agreement any event
occurred which would make any of these foregoing representations untrue, incomplete or inaccurate
in any respect, the Company will promptly notify the Advisor of such event.
7. Acknowledgements and Consents. The Company acknowledges that:
(a) the Advisor may place orders for the execution of transactions with or through such
brokers, dealers or banks as the Advisor may select in its sole discretion. In selecting such
broker, Advisor will give primary consideration to obtaining the most favorable price and efficient
execution. The Advisor may consider, in addition, the financial stability and reputation of brokers
and dealers and the brokerage and research services (as those terms are defined in Section 28(e) of
the Securities and Exchange Act of 1934, as amended) provided by brokers and dealers that may
benefit the Company. The Advisor may, and is authorized to, consistent with its duty of best
execution and in compliance with all applicable securities laws, pay a commission for executing a
transaction which may be greater than the amount of the commission another broker or dealer might
have charged for effecting that transaction, provided that the Advisor determines in good faith
that such amount of commission was reasonable in relation to the value of the brokerage and
research services provided. Subject to the foregoing, the Company acknowledges that such research
services rendered may be useful in providing services to clients other than the Company, and that
not all such information will necessarily be used by the Advisor in connection with rendering
services to the Company. The Company understands and agrees that it will not direct brokerage, and
that the choice of brokers is in the Advisor’s sole discretion;
(b) (i) the Advisor acts as adviser to other clients and may give advice, and take action,
with respect to any of those clients which may differ from the advice given, or the time or nature
of action taken, with respect to the Company’s Account; (ii) where there is a limited supply of a
security, the Advisor will use its best efforts to allocate or rotate investment opportunities in a
fair and equitable manner, and the Company acknowledges that the Advisor cannot assure, and assumes
no responsibility for, equality among all accounts and customers; (iii) affiliates of the Advisor
and officers, directors and employees of the Advisor and such affiliates of the Advisor may engage
in transactions, or cause or advise other customers to engage in transactions, which may differ
from or be identical to transactions engaged in by the Advisor for the Account and the Company
acknowledges that the Advisor and affiliates of the Advisor and officers, directors and employees
of the Advisor and such affiliates of the Advisor may at any time acquire, increase, decrease or
dispose of positions in securities or other assets which are, at the same time being acquired, held
or disposed of for the Company’s Account; and (iv) the
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Advisor shall not have any obligation to recommend any transaction or initiate the purchase or
sale of any security or other asset for the Account which any of such affiliates or any of the
officers, directors or employees of Advisor or such affiliates may engage in for their own
accounts or the account of any other customer, except as otherwise required by applicable law;
(c) from time to time the Advisor may determine, in its reasonable judgment, to sell a
security for the Company that certain of the Advisor’s investment advisory clients or the clients
of its affiliated broker-dealer wishes to buy, or buy a security that certain of the Advisor’s
investment advisory clients or the clients of its affiliated broker-dealer wishes to sell. Such an
agency-cross transaction could result in the payment of fees to the Advisor by both the Company and
such other client. By execution of this agreement, the Company authorizes and grants consent to the
Advisor to participate in agency-cross transactions involving the Account. The Company may revoke
its consent at any time by written notice to the Advisor; and
(d) the Advisor may aggregate sales and purchase orders for the Company’s Account with similar
orders being made concurrently for other accounts managed by the Advisor, if in the Advisor’s
reasonable judgment such aggregation shall result in an overall economic benefit to the Company’s
Account, taking into consideration the selling or purchase price, brokerage commission and other
expenses; in such case the actual prices applicable to the transaction will be averaged among the
accounts for which the transaction is effected, including the Company’s Account.
8. Termination. This Agreement may be terminated by the Advisor upon 180 days written
notice to the Company, and terminated by the Company at any time upon written notice to the
Advisor, termination effective upon receipt of such notice by the Advisor (the “Termination Date”).
Upon termination, the Advisor shall have no further investment management responsibility for assets
in the Account, but shall have reasonable time, not to exceed 90 days, to transfer assets to a
custodian of the Company’s selection. The fee payable to the Advisor pursuant hereto will be
prorated to the Termination Date and any unearned portion of prepaid fees will be refunded to the
Company.
9. Enforceability. If any provisions of this Agreement are held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provision, and the Agreement shall
be construed and enforced as if such provisions had not been included.
10. Assignment. No assignment of this Agreement, including by operation of law, may be made
by any party to this Agreement without the consent of the other parties hereto. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the parties hereto,
their successors and assigns.
11. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or
the breach of the same, shall be settled by arbitration in accordance with the rules of the
American Arbitration Association, or another nationally recognized arbitration association mutually
agreed upon by the parties hereto. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction. All arbitration expenses shall be borne equally by the
Advisor and the Company. Notwithstanding any of the foregoing to the contrary, the provisions of
this Section 11 do not constitute a waiver of any right provided by any applicable law, including
the right to choose the forum, whether arbitration or adjudication, in which to seek resolution of
disputes.
12. Governing Law. This Agreement shall be construed in accordance with applicable federal
law and, to the extent not preempted, the laws of The Commonwealth of Massachusetts without regard
to its conflict of laws principles.
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13. Counterparts and Facsimile. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, and all of which, when taken together, shall
constitute one and the same instrument.
14. Entire Agreement/Amendment. This Agreement, including the Appendices hereto,
constitutes the entire agreement among the parties with respect to the subject matter hereof and
supersedes all previous agreements, promises, representations, understandings and negotiations,
whether written or oral, between the parties with respect to the subject matter hereof. This
Agreement, including the Appendices hereto, may not be amended except in writing signed by each of
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Investment Management Agreement to be
executed as of the date set forth above.
| The Ohio Casualty Insurance Company |
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| By: | 
|
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| Name: | Xxxxxxx X. Xxxxxx | |||
| Title: | Vice President, Chief Financial Officer and Treasurer | |||
| Liberty Mutual Investment Advisors LLC |
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| By: | 
|
|||
| Name: | A. Xxxxxxxxx Xxxxxxxx | |||
| Title: | Vice President | |||
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Appendix A
STATEMENT OF INVESTMENT POLICY
The investment policy of the Company like that of the other portfolios managed for the accounts of
Liberty Mutual Group of Companies (LMG) has been formulated with two basic tenets in mind. First,
as property and casualty insurance companies, the primary purpose of the investment portfolio is to
support the Company’s insurance operations and to be consistent with the Company’s objectives for
long-term financial strength in order to meet its obligations to policyholders. Second, as
insurance company, the preponderance of risk assumed should be in the underwriting of the Company’s
insurance products, not in the investment of its assets. Within these broad risk parameters,
management of the portfolio will focus on maximizing the long-term after-tax total rate of return
on invested assets through disciplined asset allocation and security selection, balanced with the
need for the portfolio to produce investment income, stable cash flow, and sufficient liquidity.
Asset management should also provide safety through adequate diversification of risk, the
preservation of principal, and the avoidance of unacceptable levels of asset/liability mismatches.
Within this context, individual investment decisions will be based on fundamental economic,
financial, credit and security analysis/selection combined with relative value considerations among
securities and market sectors. The specific terms and conditions of individual securities and the
specific asset’s fit within the total portfolio framework will be evaluated prior to investment.
The overall policy will be managed through adherence to a set of broadly defined policy guidelines
designed to give the advisor discretion in meeting portfolio objectives. This investment policy and
the investment guidelines, all of which will be reviewed on a periodic basis in conjunction with
changing regulatory and business requirements, are subject to the final approval of the Company’s
Board of Directors or a duly appointed and authorized committee thereof.
The ongoing implementation of the investment policy will be the responsibility of the investment
advisor through the authority granted by the Company’s Board of Directors. The investment advisor
consists of the same group of investment professionals responsible for managing the other
insurance companies investment assets of LMG, currently totaling over $50.0 billion. As such, the
implementation and maintenance of the investment policy will occur within the same basic
framework, as LMG’s other portfolios and adjusted, when and where appropriate, to accommodate the
specific requirements of the Company. All investment related decisions and transactions will be
implemented by those individuals with proven abilities to do so effectively and that have been
granted that authority by the Company’s Board of Director through the Chief Investment Officer of
LMG. All investment transactions will be reported to the respective Boards at its regularly
scheduled meetings.
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Appendix B
INVESTMENT GUIDELINES
The investments will be managed on a full discretionary basis, subject to the
guidelines and constraints described below and in a manner consistent with the
overall policy framework. Table 1 below presents broad policy guidelines as to the
percent of total long-term assets that may be invested in any particular asset
category. The level of exposure within the established range will be governed by the
fundamental long-term outlook for total returns within the given asset category in
relation to assessed risk combined with shorter-term tactical or technical issues.
Any investment in assets classes other than those outlined in Table 1 will be
reviewed with the Company’s Boards of Directors prior to purchase.
Table 1
Asset Category Guidelines
| Maximum % of | ||||
| Invested Assets or | ||||
| Asset Category | Surplus | Limits Within Asset Category | ||
Debt Obligations: |
||||
Noninvestment Grade
|
Lesser of 5% of assets or 50% of surplus | 0.5% of invested assets per issuer | ||
Equities: |
||||
Public Common Securities
|
Lesser of 10% of assets or 50% of surplus | 2% of invested assets per issuer | ||
Preferred Securities /Direct Investments |
Up to 10% of assets | 2% of invested assets per issuer | ||
Limited Partnership,
LLC’s or other
investment fund vehicles
|
Lesser of 10% of invested assets or 50% of surplus | None |
Maturity Constraints: The expected average maturity of the Company’s holdings of
debt obligations will not exceed 15 years.
OTHER AUTHORIZED INVESTMENT PRACTICES
Reverse repurchase-agreements may be entered into for purposes of liquidity
management and yield enhancement to the degree that the total amount outstanding
does not exceed 25% of portfolio assets and the original term does not exceed 90
days. Such reverse repurchase agreements will be executed in a manner consistent
with standard industry practices regarding the pledging of collateral,
marking-to-market, et cetera.
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The Ohio Casualty Insurance Company
and
Liberty Mutual Investment Advisors LLC
and
Liberty Mutual Investment Advisors LLC
Compensation
Advisor shall receive a quarterly management fee calculated as follows:
{(the market value under US GAAP of all cash and securities in the Company Account on the
first day of each calendar quarter plus the market value under US GAAP of all cash
and securities in the Company Account on the last day of that same calendar quarter)
divided by two} times .00045.
For the purposes of the above calculations, the market value of the securities shall be determined
as of the close of business on the first and last days of each quarter.
Company shall be responsible for all custody related charges and wire transfer fees originating
from the custody account.
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