1
10(BB)
PUT AGREEMENT
BETWEEN
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,
STATE AUTO FINANCIAL CORPORATION
AND
THE CHASE MANHATTAN BANK
DATED AUGUST 16, 1996
2
EXHIBIT D
to Credit Agreement
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STATE AUTOMOBILE MUTUAL INSURANCE COMPANY
STATE AUTO FINANCIAL CORPORATION
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PUT AGREEMENT
Dated as of August 16, 1996
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THE CHASE MANHATTAN BANK,
as Administrative Agent
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TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience of reference only.
Page
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Section 1. Definitions and Accounting Terms.................................................................... 1
1.02 Accounting Terms and Determinations.............................................................. 9
Section 2. Put................................................................................................. 10
2.01 Put.............................................................................................. 10
2.02 Purchase of Loans................................................................................ 11
2.03 Purchase of Pledged Stock........................................................................ 11
2.04 Obligations Unconditional........................................................................ 11
2.05 Reinstatement.................................................................................... 12
2.06 Payments......................................................................................... 13
2.07 U.S. Taxes....................................................................................... 13
Section 3. Representations and Warranties...................................................................... 14
3.01 Corporate Existence.............................................................................. 14
3.02 Financial Condition.............................................................................. 14
3.03 Litigation....................................................................................... 15
3.04 No Breach........................................................................................ 15
3.05 Action........................................................................................... 15
3.06 Approvals........................................................................................ 16
3.07 ERISA............................................................................................ 16
3.08 Taxes............................................................................................ 16
3.09 Investment Company Act........................................................................... 16
3.10 Public Utility Holding Company Act............................................................... 16
3.11 Material Agreements and Liens.................................................................... 16
3.12 Environmental Matters............................................................................ 17
3.13 Capitalization................................................................................... 17
3.14 Subsidiaries, Etc................................................................................ 17
3.15 True and Complete Disclosure..................................................................... 18
Section 4. Covenants of State Auto Mutual...................................................................... 19
4.01 Financial Statements Etc......................................................................... 19
4.02 Litigation....................................................................................... 22
4.03 Existence, Etc................................................................................... 22
4.04 Insurance........................................................................................ 23
4.05 Prohibition of Fundamental Changes............................................................... 23
4.06 Limitation on Liens.............................................................................. 24
4.07 Indebtedness..................................................................................... 25
4.08 Sale/Leaseback Transactions...................................................................... 26
4.09 Investments...................................................................................... 26
4.10 Certain Financial Covenants...................................................................... 27
4.11 NAIC Ratio....................................................................................... 27
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Page
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4.12 Interest Rate Protection Agreements.............................................................. 27
4.13 Lines of Business................................................................................ 28
4.14 Ceded Reinsurance................................................................................ 28
4.15 Transactions with Affiliates..................................................................... 28
4.16 Modifications of Certain Documents............................................................... 29
4.17 Indemnity for Certain Costs...................................................................... 29
4.18 Delivery of Documents on the Closing Date........................................................ 29
4.19 Delivery of Documents on Each Borrowing Date..................................................... 30
4.20 Delivery of Documents in Connection with the Extension of the Commitment
Termination Date.............................................................................. 31
4.21 Consent to Assignment, etc....................................................................... 31
Section 5. Miscellaneous....................................................................................... 32
5.01 Waiver........................................................................................... 32
5.02 Notices.......................................................................................... 32
5.03 Expenses, Etc.................................................................................... 33
5.04 Amendments, Etc.................................................................................. 34
5.05 Successors and Assigns........................................................................... 34
5.06 Captions......................................................................................... 34
5.07 Counterparts..................................................................................... 34
5.08 Governing Law; Submission to Jurisdiction........................................................ 34
5.09 Waiver of Jury Trial............................................................................. 35
5.10 Treatment of Certain Information; Confidentiality................................................ 35
5.11 No Liability..................................................................................... 35
5.12 Further Assurances............................................................................... 36
5.13 Severability..................................................................................... 36
5.14 Third-Party Beneficiaries........................................................................ 36
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Subsidiaries and Investments
SCHEDULE III - [Intentionally Omitted]
SCHEDULE IV - Equity Rights and Redemption Obligations
EXHIBIT A - Form of Put Notice
EXHIBIT B - Form of Opinion of Counsel to
the State Auto Obligors
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PUT AGREEMENT dated as of August 16, 1996, between:
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY, a mutual insurance
company duly organized and validly existing under the laws of the State
of Ohio ("STATE AUTO MUTUAL");
STATE AUTO FINANCIAL CORPORATION, a corporation duly organized
and validly existing under the laws of the State of Ohio ("STATE AUTO
FINANCIAL" and, together with State Auto Mutual, the "STATE AUTO
OBLIGORS"); and
THE CHASE MANHATTAN BANK, a New York banking corporation, as
agent (in such capacity, together with its successors in such capacity,
the "ADMINISTRATIVE AGENT") for the Lenders party to the Credit
Agreement referred to below.
SAF Funding Corporation (the "COMPANY"), certain lenders party
thereto from time to time (the "LENDERS") and the Administrative Agent are
parties to a Credit Agreement dated as of August 16, 1996 (as modified and
supplemented and in effect from time to time, the "CREDIT AGREEMENT"),
providing, subject to the terms and conditions thereof, for loans to be made by
the Lenders to the Company in an aggregate principal amount not exceeding
$100,000,000. The proceeds of such loans are to be used by the Company to
purchase certain preferred stock of State Auto Financial pursuant to a Standby
Purchase Agreement, dated as of the date hereof, among the Company and State
Auto Financial (as modified and supplemented and in effect from time to time as
permitted hereby, the "STANDBY PURCHASE AGREEMENT").
To induce the Lenders to enter into the Credit Agreement and
to make loans thereunder and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING TERMS. Capitalized terms
used but not defined herein shall have the respective meanings, assigned to such
terms in the Credit Agreement. In addition, as used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"AFFILIATE" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, State Auto
Mutual. As used in this definition, "CONTROL" (including, with its correlative
meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), PROVIDED that, in any
event, any Person that owns directly or indirectly securities having 5% or more
of the voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, (a) no individual shall be an Affiliate solely by reason of his or
her being a director, officer or
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employee of State Auto Mutual or any of its Subsidiaries and (b) State Auto
Mutual and its Subsidiaries shall not be deemed to be Affiliates of one another.
"APPLICABLE INSURANCE REGULATORY AUTHORITY" shall mean, when
used with respect to any Insurance Entity, the insurance department or similar
administrative authority or agency located in the State in which such Insurance
Entity is domiciled.
"ASSUMED REINSURANCE" shall mean reinsurance assumed by any
Insurance Entity from another Person (other than from another Insurance Entity).
"CAPITAL EXPENDITURES" shall mean, for any period,
expenditures (including, without limitation, the aggregate amount of Capital
Lease Obligations incurred during such period) made by State Auto Mutual or any
of its Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.
"CEDED REINSURANCE" shall mean reinsurance ceded by any
Insurance Entity to any other Person (other than to another Insurance Entity),
other than Surplus Relief Reinsurance.
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person,
any written or oral notice, claim, demand or other communication (collectively,
a "CLAIM") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (a) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (b) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law. The term "Environmental Claim" shall
include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAWS" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or toxic or
hazardous substances or wastes.
"EQUITY PUBLIC OFFERING" shall mean a public issuance or sale
by State Auto Mutual or any of its Material Subsidiaries after the Closing Date
pursuant to a registration statement filed under the Securities Act of 1933, as
amended, of any common stock.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or
business that is a member of any group of organizations (a) described in Section
414(b) or (c) of the Code of which State Auto Mutual
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is a member and (b) solely for purposes of potential liability under Section
302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created
under Section 302(f) of ERISA and Section 412(n) of the Code, described in
Section 414(m) or (o) of the Code of which State Auto Mutual is a member.
"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those that, in accordance with the last
sentence of Section 1.02(a) hereof, are to be used in making the calculations
for purposes of determining compliance with this Agreement.
"HAZARDOUS MATERIAL" shall mean, collectively, (a) any
petroleum or petroleum products, flammable materials, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, and transformers or
other equipment that contain polychlorinated biphenyls ("PCB'S"), (b) any
chemicals or other materials or substances that are now or hereafter become
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", "contaminants",
"pollutants" or words of similar import under any Environmental Law and (c) any
other chemical or other material or substance, exposure to which is now or
hereafter prohibited, limited or regulated under any Environmental Law.
"INDEBTEDNESS" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person; PROVIDED that Indebtedness shall not include (i)
obligations with respect to insurance policies, annuities, guaranteed investment
contracts and similar products underwritten by, or Reinsurance Agreements or
Retrocession Agreements entered into by, an Insurance Entity in the ordinary
course of its business and (ii) obligations with respect to Surplus Relief
Reinsurance ceded by an Insurance Entity.
"INSURANCE ENTITY" shall mean, collectively, State Auto Mutual
and the Subsidiaries of State Auto Mutual licensed to underwrite property and
casualty insurance.
"INTERCOMPANY POOLING ARRANGEMENT" shall mean the pooling
arrangement among State Auto Mutual, State Auto P&C and Milbank pursuant to
which (a) State Auto P&C cedes to State Auto Mutual all of its insurance
business, (b) Milbank cedes to State Auto Mutual its property and casualty
insurance business and (c) State Auto Mutual retains its property and casualty
insurance business, whereupon all such businesses are pooled and a portion
thereof is then ceded from State Auto Mutual to each of State Auto P&C and
Milbank and the balance thereof is retained by State Auto Mutual, as such
arrangement may be modified and supplemented and in effect from time to time.
"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any
Person, an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies. For purposes hereof, the "CREDIT EXPOSURE" at any time of any
Person under an Interest
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Rate Protection Agreement to which such Person is a party shall be determined at
such time in accordance with the standard methods of calculating credit exposure
under similar arrangements as prescribed from time to time by the Administrative
Agent, taking into account potential interest rate movements and the respective
termination provisions and notional principal amount and term of such Interest
Rate Protection Agreement.
"INVESTMENT" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit or capital contribution to, any other Person (including the
purchase of Property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such Property to such Person), but
excluding any such advance, loan or extension of credit having a term not
exceeding 90 days arising in connection with the sale of inventory or supplies
by such Person in the ordinary course of business; (c) the entering into of any
Guarantee of, or other contingent obligation with respect to, Indebtedness or
other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person; or (d) the entering
into of any Interest Rate Protection Agreement.
"LICENSE" shall have the meaning assigned to such term in
Section 3.17 hereof.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on (a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of State Auto Mutual and its Subsidiaries taken as
a whole, (b) the ability of State Auto Mutual to perform its obligations under
this Agreement, (c) the validity or enforceability of any of the Basic Documents
or (d) the rights and remedies of the Lenders and the Administrative Agent under
any of the Basic Documents.
"MATERIAL SUBSIDIARY" shall mean, as at any time, any of State
Auto Financial, State Auto P&C, Milbank, State Auto National Insurance Company,
State Auto Life Insurance Company, and any other Subsidiary of State Auto Mutual
that holds, directly or indirectly, more than 5% of the consolidated assets of
State Auto Mutual and its Subsidiaries at such time or that accounts for more
than 5% of the consolidated revenues of State Auto Mutual and its Subsidiaries
at such time.
"MILBANK" shall mean Milbank Insurance Company, a South Dakota
domiciled property and casualty insurance company.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined
as such in Section 3(37) of ERISA to which contributions have been made by State
Auto Mutual or any ERISA Affiliate and that is covered by Title IV of ERISA.
"NAIC" shall mean the National Association of Insurance
Commissioners and any successor thereto.
"NET AVAILABLE PROCEEDS" shall mean, with respect to any
Equity Public Offering, the aggregate amount of all cash received by State Auto
Mutual and its Material Subsidiaries in respect of such Equity Public Offering
net of reasonable expenses incurred by State Auto Mutual and its Material
Subsidiaries in connection therewith.
"OBLIGATIONS" shall have the meaning assigned to such term in
Section 2.04 hereof.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"PLAN" shall mean an employee benefit or other plan
established or maintained by State Auto Mutual or any ERISA Affiliate and that
is covered by Title IV of ERISA, other than a Multiemployer Plan.
"PLEDGED STOCK" shall mean the Preferred Stock pledged
pursuant to the Company Pledge Agreement to the Administrative Agent for the
benefit of the Lenders and all related rights in connection therewith.
"PREMIUM TO SURPLUS RATIO" shall mean, with respect to any
Person as at any date of determination thereof, the ratio (determined with
respect to such Person and its Subsidiaries in accordance with SAP) of (a) net
premiums written during the four consecutive calendar quarters ending on or most
recently ended prior to such date of determination to (b) Statutory Surplus as
at the last day of the calendar quarter ending on or most recently ended prior
to such date of determination.
"PUT EVENT" shall mean one or more of the following events
shall have occurred and be continuing:
(a) an Event of Default;
(b) either State Auto Obligor shall default in the payment
when due of any amount payable by it hereunder or State Auto Financial
shall default in the payment when due of any amount payable by it under
the Standby Purchase Agreement;
(c) State Auto Mutual or any of its Material Subsidiaries
shall default in the payment when due of any principal of or interest
on any of its other Indebtedness aggregating $5,000,000 or more; or any
event specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness shall occur if the
effect of such event is to cause, or (with the giving of any notice or
the lapse of time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity or to have the interest rate thereon reset
to a level so that securities evidencing such Indebtedness trade at a
level specified in relation to the par value thereof; or State Auto
Mutual or any of its Material Subsidiaries shall default in the payment
when due of any amount aggregating $10,000,000 or more under any
Interest Rate Protection Agreement; or State Auto Mutual or any of its
Material Subsidiaries shall default under any Interest Rate Protection
Agreement if the effect of such default is to cause, or (with the
giving of any notice or the lapse of time or both) to permit,
termination or liquidation payment or payments by State Auto Mutual or
any of its Material Subsidiaries aggregating $5,000,000 or more to
become due;
(d) any representation, warranty or certification made or
deemed made herein or in any other Basic Document (or in any
modification or supplement hereto or thereto) by either State Auto
Obligor party thereto, or any certificate furnished to any Lender or
the Administrative Agent pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading as of the time made or
furnished in any material respect;
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(e) State Auto Mutual shall default in the performance of any
of its obligations under any of Sections 4.05 through 4.09 or 4.12
through 4.17 hereof; State Auto Financial shall default in the
performance of any of its obligations under the Standby Purchase
Agreement; or either State Auto Obligor shall default in the
performance of any of its other obligations under this Agreement and
such default shall continue unremedied for a period of 30 or more days
after the occurrence of such default;
(f) State Auto Mutual or any of its Material Subsidiaries
shall admit in writing its inability to, or be generally unable to, pay
its debts as such debts become due;
(g) State Auto Mutual or any of its Material Subsidiaries
shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee, examiner or liquidator
of itself or of all or a substantial part of its Property, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Bankruptcy Code, (iv) file a petition seeking
to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding-up, or
composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Bankruptcy Code or
(vi) take any corporate action for the purpose of effecting any of the
foregoing;
(h) a proceeding or case shall be commenced, without the
application or consent of State Auto Mutual or any of its Material
Subsidiaries, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator or the like of State
Auto Mutual or such Material Subsidiary or of all or any substantial
part of its Property or (iii) similar relief in respect of State Auto
Mutual or such Material Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 or more days; or an order for relief against State
Auto Mutual or such Material Subsidiary shall be entered in an
involuntary case under the Bankruptcy Code;
(i) any Applicable Insurance Regulatory Authority shall
appoint a rehabilitator, receiver, custodian, trustee, conservator or
liquidator or the like (collectively, a "CONSERVATOR") for any
Insurance Entity, or cause possession of all or any substantial portion
of the property of any Insurance Entity to be taken by any conservator
(or any Insurance Regulatory Authority shall commence any action to
effect any of the foregoing);
(j) a final judgment or judgments for the payment of money of
$10,000,000 or more in the aggregate (exclusive of judgment amounts
fully covered by insurance where the insurer has admitted liability in
respect of such judgment) or of $25,000,000 or more in the aggregate
(regardless of insurance coverage) shall be rendered by one or more
courts, administrative tribunals or other bodies having jurisdiction
against State Auto Mutual or any of its Subsidiaries and the same shall
not be discharged (or provision shall not be made for such discharge),
or a stay of execution thereof shall not be procured, within 30 days
from the date of entry thereof and State Auto Mutual or the relevant
Material Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal;
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(k) an event or condition specified in Section 4.01(j) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan
and, as a result of such event or condition, together with all other
such events or conditions, State Auto Mutual or any ERISA Affiliate
shall incur or in the opinion of the Majority Lenders shall be
reasonably likely to incur a liability to a Plan, a Multiemployer Plan
or the PBGC (or any combination of the foregoing) that, in the
determination of the Majority Lenders, would (either individually or in
the aggregate) have a Material Adverse Effect;
(l) a reasonable basis shall exist for the assertion against
State Auto Mutual or any of its Subsidiaries, or any predecessor in
interest of State Auto Mutual or any of its Subsidiaries or Affiliates,
of (or there shall have been asserted against State Auto Mutual or any
of its Subsidiaries) an Environmental Claim that, in the judgment of
the Majority Lenders is reasonably likely to be determined adversely to
State Auto Mutual or any of its Subsidiaries, and the amount thereof
(either individually or in the aggregate) is reasonably likely to have
a Material Adverse Effect (insofar as such amount is payable by State
Auto Mutual or any of its Subsidiaries but after deducting any portion
thereof that is reasonably expected to be paid by other creditworthy
Persons jointly and severally liable therefor);
(m) during any period of (1) 12 consecutive months if no Loans
are outstanding or (2) 25 consecutive months if any Loans are
outstanding, a majority of the Board of Directors of State Auto
Financial or State Auto P&C, as the case may be, shall no longer be
composed of individuals (i) who were members of said Board on the first
day of such period, (ii) whose election or nomination to said Board was
approved by individuals referred to in clause (i) above constituting at
the time of such election or nomination at least a majority of said
Board or (iii) whose election or nomination to said Board was approved
by individuals referred to in clauses (i) and (ii) above constituting
at the time of such election or nomination at least a majority of said
Board;
(n) except for expiration in accordance with its terms, any
material provision of this Agreement or the Standby Purchase Agreement
shall for whatever reason be terminated or cease to be in full force
and effect without the consent of the Lenders as specified in Section
10.09 of the Credit Agreement, or the validity or enforceability
thereof shall be contested by either State Auto Obligor;
(o) any "person" or "group" of "persons" (within the meaning
of Section 13(d) of the Securities and Exchange Act of 1934, as
amended) shall have the power, directly or indirectly, to vote or
direct the voting of a greater number of the voting capital stock
issued by State Auto Financial than State Auto Mutual; or State Auto
Financial shall fail to own and control, beneficially (free and clear
of all Liens), all of the capital stock issued by State Auto P&C (in
each case irrespective of whether or not at the time securities or
other ownership interests issued by State Auto Financial or State Auto
P&C, as the case may be, or any other class or classes might have
voting power by reason of the happening of any contingency); or
(p) the rating published by A.M. Best & Co. for (i) State Auto
Mutual shall be less than (x) "A", at any time prior to the date of the
occurrence of the catastrophe relating to the initial Loans under the
Credit Agreement, (y) "B", at any time during the period commencing on
the first anniversary of the date of the occurrence of such catastrophe
to but excluding the fourth anniversary thereof, and (z) "A-", at any
time thereafter, or (ii) State Auto P&C shall be less than "A" at any
time prior to the date of the occurrence of such catastrophe.
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"PUT NOTICE" shall mean an instrument executed by the
Administrative Agent substantially in the form of Exhibit A hereto.
"PUT PURCHASE DATE" shall mean the date specified in a Put
Notice as the date on which State Auto Mutual shall purchase all of the Loans or
the Pledged Stock, as specified therein.
"REINSURANCE AGREEMENT" shall mean any agreement, contract,
treaty or other arrangement providing for Ceded Reinsurance by any Insurance
Entity or any Subsidiary of such Insurance Entity.
"RELEASE" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without limitation,
the movement of Hazardous Materials through ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata.
"RETROCESSION AGREEMENT" shall mean any agreement, contract,
treaty or other arrangement (other than Surplus Relief Reinsurance) whereby any
Insurance Entity or any Subsidiary of such Insurance Entity cedes reinsurance to
other insurers (other than to another Insurance Entity or any of its
Subsidiaries).
"RISK-BASED CAPITAL RATIO" shall mean, with respect to any
Person as at any date of determination thereof, the ratio of (a) Total Adjusted
Capital (as defined by the NAIC) for such Person as at such date of
determination to (b) Authorized Control Level Risk-Based Capital (as defined by
the NAIC) for such Person as at such date of determination.
"SAP" shall mean, with respect to any Insurance Entity, the
accounting procedures and practices prescribed or permitted by the Applicable
Insurance Regulatory Authority, applied on a basis consistent with those that,
in accordance with the last sentence of Section 1.02(a) hereof, are to be used
in making the calculations for purposes of determining compliance with this
Agreement.
"STATE AUTO P&C" shall mean State Auto Property and Casualty
Insurance Company, a South Carolina corporation.
"STATUTORY STATEMENT" shall mean, as to any Insurance Entity,
a statement of the condition and affairs of such Insurance Entity, prepared in
accordance with statutory accounting practices required or permitted by the
Applicable Insurance Regulatory Authority, and filed with the Applicable
Insurance Regulatory Authority.
"STATUTORY SURPLUS" shall mean, as at any date for any
Insurance Entity, the aggregate amount of surplus as regards policyholders
(determined without duplication in accordance with SAP) of such Insurance
Entity.
"SURPLUS RELIEF REINSURANCE" shall mean any transaction in
which any Insurance Entity or any Subsidiary of such Insurance Entity cedes
business under a reinsurance agreement that would be considered a
"financing-type" reinsurance agreement as determined by the independent
certified public accountants of State Auto Mutual in accordance with principles
published by the Financial Accounting Standards Board or the Second Edition of
the AICPA Audit Guide for Stock Life Insurance Companies (pp. 91-92), as the
same may be revised from time to time.
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"TAX SHARING AGREEMENT" shall mean any tax sharing or
allocation agreement to which State Auto Mutual or any of its Subsidiaries is a
party and all tax indemnity agreements as to which State Auto Mutual or any of
its Subsidiaries is the beneficiary or obligor.
"WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any
Person, any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
1.02 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered to
the Administrative Agent hereunder shall (unless otherwise disclosed to the
Administrative Agent in writing at the time of delivery thereof in the manner
described in subsection (b) below) be prepared, in accordance with generally
accepted accounting principles or statutory accounting practices, as the case
may be, applied on a basis consistent with those used in the preparation of the
latest financial statements furnished to the Administrative Agent hereunder
(which, prior to the delivery of the first financial statements under Section
4.01 hereof, shall mean the audited, or annual statutory, financial statements
as at December 31, 1995 referred to in Section 3.02 hereof). All calculations
made for the purposes of determining compliance with this Agreement shall
(except as otherwise expressly provided herein) be made by application of
generally accepted accounting principles or statutory accounting practices, as
the case may be, applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial statements furnished to
the Administrative Agent pursuant to Section 4.01 hereof (or, prior to the
delivery of the first financial statements under Section 4.01 hereof, used in
the preparation of the audited, or annual statutory, financial statements as at
December 31, 1995 referred to in Section 3.02 hereof) unless (i) State Auto
Mutual shall have objected to determining such compliance on such basis at the
time of delivery of such financial statements or (ii) the Majority Lenders
(through the Administrative Agent) shall so object in writing within 30 days
after delivery of such financial statements, in either of which events such
calculations shall be made on a basis consistent with those used in the
preparation of the latest financial statements as to which such objection shall
not have been made (which, if objection is made in respect of the first
financial statements delivered under Section 4.01 hereof, shall mean the
audited, or annual statutory, financial statements referred to in Section 3.02
hereof).
(b) State Auto Mutual shall deliver to the Administrative
Agent at the same time as the delivery of any annual or quarterly financial
statement under Section 4.01 hereof (i) a description in reasonable detail of
any material variation between the application of accounting principles, or
statutory accounting practices, employed in the preparation of such statement
and the application of accounting principles, or statutory accounting practices,
employed in the preparation of the next preceding annual or quarterly financial
statements as to which no objection has been made in accordance with the last
sentence of subsection (a) above and (ii) reasonable estimates of the difference
between such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 4 hereof, State Auto Mutual
will not change the last day of its fiscal year from December 31, or the last
days of the first three fiscal quarters in each of its fiscal years from March
31, June 30 and September 30 of each year, respectively.
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Section 2. PUT.
2.01 PUT. At any time after the occurrence and during the
continuance of a Put Event, the Administrative Agent may (with the approval of
the Majority Lenders but not otherwise), by delivering to State Auto Mutual a
Put Notice, require State Auto Mutual to purchase (a) from each Lender, all (but
not less than all) of such Lender's Loans, Notes and Commitment or (b) from the
Administrative Agent, all (but not less than all) of the Pledged Stock. In the
event that a Put Event has occurred and the Administrative Agent (with the
consent of the Majority Lenders) has elected to deliver a Put Notice, it shall
first attempt to require State Auto Mutual to purchase the Pledged Stock;
PROVIDED that if the Administrative Agent shall not be able, promptly (and in
any event within 5 Business Days of any such election) after the occurrence of
such Put Event, to sell the Pledged Stock to State Auto Mutual as contemplated
hereby, it may deliver a Put Notice requiring the purchase of each Lender's
Loans, Notes and Commitments.
2.02 PURCHASE OF LOANS.
(a) If such Put Notice requires that State Auto Mutual
purchase each Lender's Loans, Notes and Commitment, then, on the Put Purchase
Date specified in such Put Notice (which Put Purchase Date shall be at least
three Business Days after the date of delivery of such Put Notice), (i) State
Auto Mutual shall purchase from each Lender, and each Lender shall sell, assign
and transfer to State Auto Mutual, all of such Lender's Loans, Notes and
Commitment, as specified in such Put Notice and (ii) State Auto Mutual shall pay
to the Administrative Agent for account of each Lender an aggregate amount equal
to the sum of (x) the aggregate outstanding principal amount of Loans of such
Lender PLUS (y) all accrued and unpaid interest thereon to the Put Purchase Date
PLUS (z) all other amounts then payable to such Lender under the Basic Documents
in respect thereof (including all amounts that would be payable under Section
5.05 of the Credit Agreement as if such portion of such Lender's Loans were
being prepaid on the Put Purchase Date) (such amounts to be determined by the
Administrative Agent and notified in writing by the Administrative Agent to
State Auto Mutual prior to such Put Purchase Date). Upon the occurrence of any
Put Event referred to in clause (g), (h) or (i) of the definition of such term
in Section 1.01 hereof, State Auto Mutual shall automatically and without any
action (including, without limitation the giving of notice) on the part of any
other Person be required to purchase the entire principal amount of the Loans
then outstanding.
(b) Such sale, assignment and transfer shall be without
recourse to each Lender and without representation and warranty by such Lender,
except that such Lender will represent and warrant to State Auto Mutual that, on
the Put Purchase Date, such Lender is the legal and beneficial owner of such
portion of such Lender's Loans, Notes and Commitment so sold, assigned and
transferred, free and clear of any adverse claim. Upon such sale, assignment and
transfer and to the extent thereof, State Auto Mutual shall have the
obligations, rights and benefits of a "Lender" under the Credit Agreement
holding the Commitment and Loans so sold, assigned and transferred and each
Lender shall be released from the Commitment so sold, assigned and transferred.
2.03 PURCHASE OF PLEDGED STOCK. If such Put Notice requires
that State Auto Mutual purchase the Pledged Stock, then, on the Put Purchase
Date specified in such Put Notice (which Put Purchase Date shall be at least
three Business Days after the date of delivery of such Put Notice), (a) State
Auto Mutual shall purchase from the Administrative Agent, and the Administrative
Agent shall sell, assign and transfer to State Auto Mutual, the Pledged Stock,
(b) State Auto Mutual shall pay to the Administrative Agent, for account of the
Lenders, an amount equal to the aggregate liquidation preference of such Pledged
Stock and all accrued but unpaid dividends thereon (such amount to be
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determined by the Administrative Agent and notified in writing by the
Administrative Agent to State Auto Mutual prior to such Put Purchase Date) and
(c) the Administrative Agent shall apply such amount to the payment of the
Obligations owing to the Lenders under the Credit Documents.
2.04 OBLIGATIONS UNCONDITIONAL. The obligations of State Auto
Mutual under Sections 2.01, 2.02, 2.03 and 5.03 hereof are absolute,
unconditional and irrevocable, irrespective of the value, genuineness, validity,
regularity or enforceability of the obligations of the Company or any other
Person under the Credit Agreement, the Notes, the Pledge Agreements or any other
agreement or instrument referred to therein (collectively, the "OBLIGATIONS"),
or any substitution, release or exchange of any other guarantee of or security
for any of the Obligations, and, to the fullest extent permitted by applicable
law, irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense available to State Auto
Mutual, it being the intent of this Section 2.04 that the obligations of State
Auto Mutual hereunder shall be absolute, unconditional and irrevocable under any
and all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence of any one or more of the following shall not alter
or impair the liability of State Auto Mutual hereunder which shall remain
absolute, unconditional and irrevocable as described above:
(a) at any time or from time to time, without notice to State
Auto Mutual, the time for any performance of or compliance with any of
the Obligations shall be extended, or such performance or compliance
shall be waived;
(b) any of the acts mentioned in any of the provisions of the
Credit Agreement, the Notes, the Pledge Agreements or any other
agreement or instrument referred to therein shall be done or omitted;
(c) the maturity of any of the Obligations shall be
accelerated, or any of the Obligations shall be modified, supplemented
or amended in any respect, or any right under this Agreement, the
Notes, the Pledge Agreements or any other agreement or instrument
referred to therein shall be waived or any guarantee of any of the
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(d) any change in the financial condition (including, without
limitation, insolvency or bankruptcy) of the Company.
State Auto Mutual hereby expressly waives all of the defenses referred to above
and diligence, presentment, demand of payment, protest and all notices
whatsoever (other than the Put Notice), and any requirement that the
Administrative Agent or any Lender exhaust any right, power or remedy or proceed
against the Company under the Credit Agreement, the Notes, the Pledge Agreements
or any other agreement or instrument referred therein, or against any other
Person under any other guarantee of, or security for, any of the Obligations.
2.05 REINSTATEMENT. If for any reason any payment received by
the Administrative Agent in respect of any of the Obligations prior to the
consummation by State Auto Mutual of a purchase contemplated by Section 2.02 or
2.03 hereof is rescinded or must be otherwise restored by any Lender for any
reason, whether as a result of any proceedings in bankruptcy, insolvency or
reorganization or otherwise, following the consummation of such purchase, State
Auto shall purchase from such Lender, and such Lender shall sell, assign and
transfer to State Auto Mutual, all of the right, title and interest of such
Lender in and to the payment so rescinded or otherwise restored, and upon such
sale, assignment and transfer, State Auto Mutual shall pay to such Lender an
amount equal to the payment so rescinded or otherwise restored. State Auto
Mutual hereby agrees that it will indemnify the Administrative Agent and
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such Lender on demand for all reasonable costs and expenses (including, without
limitation, fees of counsel) incurred by the Administrative Agent or such Lender
in connection with such rescission or restoration.
2.06 PAYMENTS.
(a) Except to the extent otherwise provided herein, all
payments to be made by State Auto Mutual under this Agreement shall be made in
Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Administrative Agent at an account designated by the
Administrative Agent to State Auto Mutual in writing, not later than 1:00 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).
(b) The Administrative Agent may (but shall not be obligated
to) debit the amount of any such payment that is not made by such time to any
ordinary deposit account of State Auto Mutual with the Administrative Agent
(with notice to State Auto Mutual), PROVIDED that the Administrative Agent's
failure to give such notice shall not affect the validity thereof.
2.07 U.S. TAXES.
(a) State Auto Mutual agrees to pay to each Lender that is not
a U.S. Person such additional amounts as are necessary in order that the net
payment of any amount due to such non-U.S. Person hereunder after deduction for
or withholding in respect of any U.S. Taxes imposed with respect to such payment
(or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will
not be less than the amount stated herein to be then due and payable, PROVIDED
that the foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Lender hereunder unless such
Lender is, on the date hereof (or on the date it becomes a Lender as
provided in Section 11.05(b) of the Credit Agreement) and on the date
of any change in the Applicable Lending Office of such Lender, either
entitled to submit a Form 1001 (relating to such Lender and entitling
it to a complete exemption from withholding on all interest to be
received by it under the Credit Agreement in respect of the Loans) or
Form 4224 (relating to all interest to be received by such Lender under
the Credit Agreement in respect of the Loans), or
(ii) to any U.S. Taxes imposed solely by reason of the
failure by such non-U.S. Person to comply with applicable
certification, information, documentation or other reporting
requirements concerning the nationality, residence, identity or
connections with the United States of America of such non-U.S. Person
if such compliance is required by statute or regulation of the United
States of America as a precondition to relief or exemption from such
U.S. Taxes.
For the purposes of this Section 2.07(a), (w) "U.S. PERSON" shall mean a
citizen, national or resident of the United States of America, a corporation,
partnership or other entity created or organized in or under any laws of the
United States of America or any State thereof, or any estate or trust that is
subject to Federal income taxation regardless of the source of its income, (x)
"U.S. TAXES" shall mean any present or future tax, assessment or other charge or
levy imposed by or on behalf of the United States of America or any taxing
authority thereof or therein (but excluding any taxes imposed as a result of a
present or former connection between such non-U.S. Person or the Administrative
Agent and the United States of America or any taxing authority thereof or
therein (except a connection arising solely from such non-U.S. Person or the
Administrative Agent having executed, delivered or performed its obligations or
received a payment under or enforced this Agreement or the Notes), (y) "FORM
1001" shall mean
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Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the Department
of the Treasury of the United States of America and (z) "FORM 4224" shall mean
Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected
with the Conduct of a Trade or Business in the United States) of the Department
of the Treasury of the United States of America (or in relation to either such
Form such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates). Each of the Forms referred to in the foregoing
clauses (C) and (D) shall include such successor and related forms as may from
time to time be adopted by the relevant taxing authorities of the United States
of America to document a claim to which such Form relates.
(b) Within 30 days after paying any amount to the
Administrative Agent or any Lender from which it is required by law to make any
deduction or withholding, and within 30 days after it is required by law to
remit such deduction or withholding to any relevant taxing or other authority,
State Auto Mutual shall deliver to the Administrative Agent for delivery to such
non-U.S. Person evidence satisfactory to such Person of such deduction,
withholding or payment (as the case may be).
Section 3. REPRESENTATIONS AND WARRANTIES. Each State Auto
Obligor represents and warrants (with respect to itself and its Subsidiaries
only) to the Administrative Agent and the Lenders that:
3.01 CORPORATE EXISTENCE. Each of such State Auto Obligor and
its Material Subsidiaries: (a) is a corporation, partnership or other entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or other
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business and is in good
standing in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure so to qualify could
(either individually or in the aggregate) have a Material Adverse Effect.
3.02 FINANCIAL CONDITION.
(a) State Auto Mutual has heretofore furnished to each of the
Lenders consolidated balance sheets of State Auto Financial and its Subsidiaries
as at December 31, 1995 and the related consolidated statements of income,
retained earnings and cash flows of State Auto Financial and its Subsidiaries
for the fiscal year ended on said date, with the opinion thereon of Ernst &
Young LLP, and the unaudited consolidated balance sheets of State Auto Financial
and its Subsidiaries as at March 31, 1996 and the related consolidated
statements of income, retained earnings and cash flows of State Auto Financial
and its Subsidiaries for the three-month period ended on such date. All such
financial statements present fairly in all material respects the consolidated
financial condition of State Auto Financial and its Subsidiaries as at said
dates and the consolidated results of their operations for the fiscal year and
three-month period ended on said dates (subject, in the case of such financial
statements as at March 31, 1996, to normal year-end audit adjustments), all in
accordance with generally accepted accounting principles and practices applied
on a consistent basis. None of State Auto Financial nor any of its Material
Subsidiaries has on the date hereof any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in said balance sheets as at said dates. Since March
31, 1996, there has been no material adverse change in the consolidated
financial condition, operations, business or prospects taken as a whole of State
Auto Financial and its Subsidiaries from that set forth in said financial
statements as at March 31, 1996.
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(b) State Auto Mutual has heretofore furnished to each of the
Lenders the annual Statutory Statement of each Insurance Entity for the fiscal
year ended December 31, 1995, and the quarterly Statutory Statement of each
Insurance Entity for the fiscal quarter ended March 31, 1996, in each case as
filed with the Applicable Insurance Regulatory Authority. All such Statutory
Statements present fairly in all material respects the financial condition of
each Insurance Entity as at, and the results of operations for, the fiscal year
ended December 31, 1995, and fiscal quarter ended March 31, 1996, in accordance
with statutory accounting practices prescribed or permitted by the Applicable
Insurance Regulatory Authority. Since March 31, 1996, there has been no material
adverse change in the consolidated financial condition, operations, business or
prospects taken as a whole of State Auto Mutual from that set forth in said
Statutory Statement as at March 31, 1996.
3.03 LITIGATION. There are no legal or arbitral proceedings,
or any proceedings by or before any governmental or regulatory authority or
agency, now pending or (to the knowledge such State Auto Obligor) threatened
against State Auto Mutual or any of its Subsidiaries that, if adversely
determined could (either individually or in the aggregate) have a Material
Adverse Effect.
3.04 NO BREACH. None of the execution and delivery of this
Agreement and the other Basic Documents to which such State Auto Obligor is a
party, the consummation of the transactions herein and therein contemplated or
compliance with the terms and provisions hereof and thereof (including, without
limitation, issuance of the Preferred Stock) will conflict with or result in a
breach of, or require any consent under, the charter or by-laws (or equivalent
documents) of such State Auto Obligor, or any applicable law or regulation, or
any order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which State Auto Mutual or any of its
Subsidiaries is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any Property of State Auto Mutual or any of its Subsidiaries pursuant to
the terms of any such agreement or instrument.
3.05 ACTION. Such State Auto Obligor has all necessary
corporate power, authority and legal right to execute, deliver and perform its
obligations under each of the Basic Documents to which it is a party and, in the
case of State Auto Financial, to issue the Preferred Stock; the execution,
delivery and performance by such State Auto Obligor of each of the Basic
Documents to which it is a party (and, in the case of State Auto Financial, the
issuance of the Preferred Stock) have been duly authorized by all necessary
corporate action on its part (including, without limitation, any required
shareholder approvals); and this Agreement has been duly and validly executed
and delivered by such State Auto Obligor and constitutes, and each of the other
Basic Documents to which such State Auto Obligor is a party when executed and
delivered will constitute, its legal, valid and binding obligation, enforceable
against such State Auto Obligor in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of
creditors' rights and (b) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.06 APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange (other than any authorizations, approvals,
consents, filings and registrations heretofore duly made or obtained and in full
force and effect), are necessary for the execution, delivery or performance by
either State Auto Obligor of this Agreement or any of the other Basic Documents
to which it is a party (or, in the case of State Auto Financial, for the
issuance of the Preferred Stock) or for the legality, validity or enforceability
hereof or thereof.
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3.07 ERISA. Each Plan, and, to the knowledge of the such State
Auto Obligor, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or state law, and
no event or condition has occurred and is continuing as to which State Auto
Mutual would be under an obligation to furnish a report to the Administrative
Agent under Section 4.01(j) hereof.
3.08 TAXES. State Auto Mutual and its Subsidiaries are members
of an affiliated group of corporations filing consolidated returns for Federal
income tax purposes, of which State Auto Mutual is the "common parent" (within
the meaning of Section 1504 of the Code) of such group. State Auto Mutual and
its Material Subsidiaries have filed all Federal income tax returns and all
other material tax returns that are required to be filed by them and have paid
all taxes due pursuant to such returns or pursuant to any assessment received by
State Auto Mutual or any of its Material Subsidiaries. The charges, accruals and
reserves on the books of State Auto Mutual and its Material Subsidiaries in
respect of taxes and other governmental charges are, in the opinion of State
Auto Mutual, adequate. State Auto Mutual has not given or been requested to give
a waiver of the statute of limitations relating to the payment of any Federal,
state, local and foreign taxes or other impositions.
3.09 INVESTMENT COMPANY ACT. Neither State Auto Mutual nor
any of its Subsidiaries is an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
3.10 PUBLIC UTILITY HOLDING COMPANY ACT. Neither State Auto
Mutual nor any of its Subsidiaries is a "holding company", or an "affiliate" of
a "holding company" or a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
3.11 MATERIAL AGREEMENTS AND LIENS.
(a) Part A of Schedule I hereto is a complete and correct list
of each credit agreement, loan agreement, indenture, purchase agreement,
guarantee, letter of credit or other arrangement providing for or otherwise
relating to any Indebtedness or any extension of credit (or commitment for any
extension of credit) to, or guarantee by, State Auto Mutual or any of its
Subsidiaries, outstanding on the date hereof the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $5,000,000, and the
aggregate principal or face amount outstanding or that may become outstanding
under each such arrangement is correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list
of each Lien securing Indebtedness of any Person outstanding on the date hereof
the aggregate principal or face amount of which equals or exceeds (or may equal
or exceed) $5,000,000 and covering any Property of State Auto Mutual or any of
its Subsidiaries, and the aggregate Indebtedness secured (or that may be
secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule I.
3.12 ENVIRONMENTAL MATTERS. Each of State Auto Mutual and its
Subsidiaries has obtained all environmental, health and safety permits, licenses
and other authorizations required under all Environmental Laws to carry on its
business as now being or as proposed to be conducted, except to the extent
failure to have any such permit, license or authorization would not (either
individually or in the aggregate) have a Material Adverse Effect. Each of such
permits, licenses and authorizations is in full
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force and effect and each of State Auto Mutual and its Subsidiaries is in
compliance with the terms and conditions thereof, and is also in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply therewith would not (either
individually or in the aggregate) have a Material Adverse Effect.
3.13 CAPITALIZATION. The authorized capital stock of State
Auto Financial consists, on the date hereof, of an aggregate of 35,000,000
shares consisting of (a) 30,000,000 shares of common stock, no par value, of
which 18,086,863 shares are duly and validly issued and outstanding, each of
which shares is fully paid and nonassessable, (b) 2,500,000 shares of Class A
Preferred Stock, no par value, none of which shares are issued and outstanding
and (c) 2,500,000 shares of Class B Preferred Stock, no par value, none of which
shares are issued and outstanding. As of the date hereof, 67% of such issued and
outstanding shares of common stock are owned beneficially and of record by State
Auto Mutual. As of the date hereof, (i) except for this Agreement and the
Standby Purchase Agreement and as set forth in Part A of Schedule IV hereto,
there are no outstanding Equity Rights with respect to State Auto Financial and
(ii) except as set forth in Part B of Schedule IV hereto, there are no
outstanding obligations of State Auto Financial or any of its Subsidiaries to
repurchase, redeem, or otherwise acquire any shares of capital stock of State
Auto Financial nor are there any outstanding obligations of State Auto Financial
or any of its Subsidiaries to make payments to any Person, such as "phantom
stock" payments, where the amount thereof is calculated with reference to the
fair market value or equity value of State Auto Financial or any of its
Subsidiaries.
3.14 SUBSIDIARIES, ETC.
(a) Set forth in Part A of Schedule II hereto is a complete
and correct list of all Subsidiaries of State Auto Mutual on the date hereof and
a specification of which of such Subsidiaries are Insurance Entities and which
are Material Subsidiaries.
(b) Set forth in Part B of Schedule II hereto is a complete
and correct list of all Investments (other than (i) Investments disclosed in
Part A of said Schedule II hereto and any other Investments existing as of the
date hereof permitted under Section 4.09 hereof and (ii) Guarantees of
Indebtedness the aggregate principal or face amount of which Indebtedness is
less than $5,000,000) held by State Auto Mutual or any of its Subsidiaries in
any Person on the date hereof and, for each such Investment, (i) the identity of
the Person or Persons holding such Investment and (ii) the nature of such
Investment. Except as disclosed in Part B of Schedule II hereto, each of State
Auto Mutual and its Subsidiaries owns, free and clear of all Liens, all such
Investments.
3.15 TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the State Auto Obligors to the Administrative 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 Administrative Agent and
the Lenders in connection with this Agreement and the other Basic Documents and
the transactions contemplated hereby and thereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or
certified. There is no fact known to either State Auto Obligor that could have a
Material Adverse Effect that has not been disclosed herein, in the other Basic
Documents or in a report, financial statement, exhibit, schedule, disclosure
letter or other
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writing furnished to the Administrative Agent for use in connection with the
transactions contemplated hereby or thereby.
3.16 NO RELIANCE. State Auto Mutual has made, independently
and without reliance upon the Administrative Agent or any Lender, and based on
such documents and information as it has deemed appropriate, its own decision to
enter into this Agreement and has made (and will continue to make),
independently and without reliance upon the Administrative Agent or any Lender,
and based on such documents and information as it has deemed appropriate (or
shall deem appropriate at the time), its own legal, credit and tax analysis of
the transactions contemplated hereby.
3.17 INSURANCE LICENSES. Schedule T to the most recent
Statutory Statement of each Insurance Entity described in Section 3.02(b) hereof
lists, as of the date hereof, all of the jurisdictions in which each of the
Insurance Entities holds active licenses (including, without limitation,
licenses or certificates of authority from Applicable Insurance Regulatory
Authorities), permits or authorizations to transact insurance and reinsurance
business or to act as an insurance agent or broker (collectively, the
"LICENSES"). Each Insurance Entity is in compliance in all material respects
with each license held by it. No License (to the extent material) is the subject
of a proceeding for suspension or revocation or any similar proceedings, there
is no sustainable basis for such a suspension or revocation, and to the
knowledge of each State Auto Obligor no such suspension or revocation has been
threatened by any licensing authority except in any such case where such
proceedings would not have a Material Adverse Effect.
Section 4. COVENANTS OF STATE AUTO MUTUAL. State Auto Mutual
covenants and agrees with the Administrative Agent that, so long as any
Obligations are outstanding or any Commitments are in effect:
4.01 FINANCIAL STATEMENTS ETC. State Auto Mutual shall
deliver to the Administrative Agent (with sufficient copies for each of the
Lenders):
(a) as soon as available and in any event within 60 days after
the end of each quarterly fiscal period of each fiscal year of State
Auto Financial, consolidated statements of income, retained earnings
and cash flows of State Auto Financial and its Subsidiaries for such
period and for the period from the beginning of the respective fiscal
year to the end of such period, and the related consolidated balance
sheets of State Auto Financial and its Subsidiaries as at the end of
such period, setting forth in each case in comparative form the
corresponding consolidated figures for the corresponding periods in the
preceding fiscal year (except that, in the case of balance sheets, such
comparison shall be to the last day of the prior fiscal year),
accompanied by a certificate of a senior financial officer of State
Auto Financial, which certificate shall state that said consolidated
financial statements present fairly in all material respects the
consolidated financial condition and results of operations of State
Auto Financial and its Subsidiaries in accordance with generally
accepted accounting principles, consistently applied, as at the end of,
and for, such period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 90 days after
the end of each fiscal year of State Auto Financial, consolidated
statements of income, retained earnings and cash flows of State Auto
Financial and its Subsidiaries for such fiscal year and the related
consolidated balance sheets of State Auto Financial and its
Subsidiaries as at the end of such fiscal year, setting forth in each
case in comparative form the corresponding consolidated figures for the
preceding fiscal year, and accompanied by an opinion thereon of
independent certified public accountants of
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recognized national standing, which opinion shall state that said
consolidated financial statements present fairly in all material
respects the consolidated financial condition and results of
operations of State Auto Financial and its Subsidiaries as at the end
of, and for, such fiscal year in accordance with generally accepted
accounting principles;
(c) promptly after filing with the Applicable Insurance
Regulatory Authority and in any event within five Business Days after
the date on which each Insurance Entity is required (after giving
effect to any extensions) to file with the Applicable Insurance
Regulatory Authority its quarterly Statutory Statement for each of the
first three quarterly fiscal periods of each fiscal year of such
Insurance Entity, such quarterly Statutory Statement of such Insurance
Entity for such quarterly fiscal period, together with the opinion
thereon of a senior financial officer of such Insurance Entity stating
that such Statutory Statement presents the financial condition of such
Insurance Entity for such quarterly fiscal period in accordance with
statutory accounting practices required or permitted by the Applicable
Insurance Regulatory Authority;
(d) promptly after filing with the Applicable Insurance
Regulatory Authority and in any event within five Business Days after
the date on which each Insurance Entity is required (after giving
effect to any extensions) to file with the Applicable Insurance
Regulatory Authority its annual Statutory Statement, the annual
Statutory Statement of such Insurance Entity for such year, together
with (i) the opinion thereon of a senior financial officer of such
Insurance Entity stating that said annual Statutory Statement presents
the financial condition of such Insurance Entity for such fiscal year
in accordance with statutory accounting practices required or
permitted by the Applicable Insurance Regulatory Authority and (ii) a
certificate of a valuation actuary affirming the adequacy of reserves
taken by such Insurance Entity in respect of future policyholder
benefits as at the end of such fiscal year (as shown on such Statutory
Statement);
(e) within 180 days after the end of each fiscal year of each
Insurance Entity, the report of Ernst & Young LLP (or other independent
certified public accountants of recognized national standing) on the
annual Statutory Statements delivered pursuant to Section 4.01(d)
hereof;
(f) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that
State Auto Mutual or any of its Material Subsidiaries shall have filed
with the Securities and Exchange Commission (or any governmental agency
substituted therefor) or any national securities exchange;
(g) promptly upon the mailing thereof to the shareholders of
State Auto Mutual generally, copies of all financial statements,
reports and proxy statements so mailed;
(h) promptly after State Auto Mutual receives the results of a
triennial examination by the NAIC of the financial condition and
operations of State Auto Mutual and/or any of its Material
Subsidiaries, a copy thereof;
(i) promptly following the delivery or receipt by State Auto
Mutual or any of its Material Subsidiaries of any correspondence,
notice or report to or from any Applicable Insurance Regulatory
Authority that relates, to any material extent, to the financial
viability of State Auto Mutual or any of its Material Subsidiaries, a
copy thereof;
(j) as soon as possible, and in any event within ten days
after either State Auto Obligor knows or has reason to believe that any
of the events or conditions specified below with respect to any Plan or
Multiemployer Plan has occurred or exists, a statement signed by a
senior
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financial officer of State Auto Mutual setting forth details
respecting such event or condition and the action, if any, that State
Auto Mutual or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with
or given to the PBGC by State Auto Mutual or an ERISA Affiliate with
respect to such event or condition):
(i) any reportable event, as defined in Section
4043(c) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which the PBGC has not by regulation
waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event
(PROVIDED that a failure to meet the minimum funding standard
of Section 412 of the Code or Section 302 of ERISA, including,
without limitation, the failure to make on or before its due
date a required installment under Section 412(m) of the Code
or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with
Section 412(d) of the Code); and any request for a waiver
under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of
ERISA of a notice of intent to terminate any Plan or any
action taken by State Auto Mutual or an ERISA Affiliate to
terminate any Plan;
(iii) the institution by the PBGC of proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by State Auto Mutual or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been
taken by the PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by State Auto Mutual or any ERISA Affiliate
that results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by State Auto
Mutual or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate
or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a
fiduciary of any Multiemployer Plan against State Auto Mutual
or any ERISA Affiliate to enforce Section 515 of ERISA, which
proceeding is not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan
that, pursuant to Section 401(a)(29) of the Code or Section
307 of ERISA, would result in the loss of tax-exempt status of
the trust of which such Plan is a part if State Auto Mutual or
an ERISA Affiliate fails to timely provide security to the
Plan in accordance with the provisions of said Sections;
(k) within five Business Days after receipt, notice from any
Applicable Insurance Regulatory Authority of any threatened or actual
proceeding for suspension or revocation of any License or any similar
proceeding with respect to any such License;
(l) promptly, notice of any denial of coverage, litigation, or
arbitration arising out of any Reinsurance Agreements to which any
Insurance Entity is a party which denial, litigation or arbitration
involves $5,000,000 or more;
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(m) promptly after either State Auto Obligor knows or has
reason to believe that any Put Event (or any event that with notice or
lapse of time or both would become a Put Event) has occurred, a notice
of such Put Event (or such event) describing the same in reasonable
detail and, together with such notice or as soon thereafter as
possible, a description of the action that State Auto Mutual has taken
or proposes to take with respect thereto;
(n) at the time it furnishes each set of financial statements
pursuant to paragraph (a) or (b) above, a certificate of a senior
financial officer of State Auto Mutual (i) to the effect that no Put
Event (or any event that with notice or lapse of time or both would
become a Put Event) has occurred and is continuing (or, if any Put
Event (or any such event) has occurred and is continuing, describing
the same in reasonable detail and describing the action that State Auto
Mutual has taken or proposes to take with respect thereto) and (ii)
setting forth in reasonable detail the computations necessary to
determine whether the State Auto Obligors are in compliance with
Section 4.10 hereof as of the end of the respective quarterly fiscal
period or fiscal year; and
(o) from time to time such other information regarding the
financial condition, operations, business or prospects of State Auto
Mutual or any of its Subsidiaries (including, without limitation, any
Plan or Multiemployer Plan and any reports or other information
required to be filed under ERISA) as the Administrative Agent may
reasonably request.
4.02 LITIGATION. State Auto Mutual will promptly give to the
Administrative Agent (with sufficient copies for each Lender) notice of all
legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings, affecting State Auto Mutual or any
of its Subsidiaries, except proceedings that, if adversely determined, would not
(either individually or in the aggregate) have a Material Adverse Effect.
4.03 EXISTENCE, ETC. State Auto Mutual will:
(a) and will cause each of its Material Subsidiaries to,
preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (PROVIDED that nothing in
this Section 4.03 shall prohibit any transaction expressly permitted
under Section 4.05 hereof);
(b) and will cause each of its Subsidiaries to, comply with
the requirements of all applicable laws, rules, regulations and orders
of governmental or regulatory authorities if failure to comply with
such requirements could (either individually or in the aggregate) have
a Material Adverse Effect;
(c) and will cause each of its Material Subsidiaries to, pay
and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its Property
prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
(d) and will cause each of its Material Subsidiaries to, keep
adequate records and books of account, in which complete entries will
be made in accordance with generally accepted accounting principles
(or, in the case of an Insurance Entity, statutory accounting
principles) consistently applied; and
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(e) and will cause each of its Material Subsidiaries to,
permit representatives of any Lender or the Administrative Agent,
during normal business hours, to examine, copy and make extracts from
its books and records, to inspect any of its Properties, and to discuss
its business and affairs with its officers, all to the extent
reasonably requested by such Lender or the Administrative Agent (as the
case may be).
4.04 INSURANCE. State Auto Mutual will, and will cause each of
its Material Subsidiaries to, maintain insurance with financially sound and
reputable insurance companies, and with respect to Property and risks of a
character usually maintained by corporations engaged in the same or similar
business similarly situated, against loss, damage and liability of the kinds and
in the amounts customarily maintained by such corporations (including general
liability insurance, director's and officer's liability insurance, property
insurance and worker's compensation insurance), PROVIDED that, nothing in this
Section 4.04 shall be deemed to require State Auto Mutual or any of its Material
Subsidiaries to enter into any Reinsurance Agreement and PROVIDED, FURTHER, that
State Auto Mutual and its Material Subsidiaries may self-insure against such
hazards and risks, and in such amounts as is customary for corporations of a
similar size and in similar lines of business.
4.05 PROHIBITION OF FUNDAMENTAL CHANGES.
(a) State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, enter into any transaction of merger or consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution).
(b) State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, acquire any business or Property from, or capital
stock of, or be a party to any acquisition of, any Person except for purchases
of inventory and other Property to be sold or used in the ordinary course of
business, Assumed Reinsurance in the ordinary course of business, Investments
permitted under Section 4.09 hereof, and Capital Expenditures.
(c) State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or a substantial part of its
business or Property, whether now owned or hereafter acquired.
(d) Notwithstanding the foregoing provisions of this Section
4.05:
(i) any Subsidiary of State Auto Mutual may be merged or
consolidated with or into: (x) State Auto Mutual if State Auto Mutual
shall be the continuing or surviving corporation or (y) any other such
Subsidiary; PROVIDED that (A) if any such transaction (other than a
transaction described in clause (B) below) shall be between a
Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary
shall be the continuing or surviving corporation and (B) if any such
transaction shall be between State Auto Financial and any other such
Subsidiary, State Auto Financial shall be the surviving corporation;
(ii) any Material Subsidiary of State Auto Mutual may sell,
lease, transfer or otherwise dispose of any or all of its Property
(upon voluntary liquidation or otherwise) to State Auto Mutual or a
Wholly Owned Subsidiary of State Auto Mutual;
(iii) State Auto Mutual may merge or consolidate with or acquire
any other Person if (w) in the case of a merger or consolidation, State
Auto Mutual is the surviving corporation, (x) after giving effect
thereto, no Put Event (and no event that with notice or lapse of time
or both would
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constitute a Put Event) would exist hereunder, (y) the business
activity engaged in by such other Person would be permitted under
Section 4.13 hereof if such other Person were a Subsidiary of State
Auto Mutual prior to such merger or consolidation and (z) the
aggregate amount of the Statutory Surplus (determined as at the date
of the relevant merger, consolidation or acquisition) of all such
other Persons that have been the subject of any merger, consolidation
or acquisition pursuant to this clause (iii) after the date hereof
(other than any such merger, consolidation or acquisition financed
solely with Net Available Proceeds) shall be less than $250,000,000;
and
(iv) any Material Subsidiary of State Auto Mutual may merge or
consolidate with or acquire any other Person if (w) in the case of a
merger or consolidation, the surviving corporation is a Wholly Owned
Subsidiary of State Auto Mutual; PROVIDED, that in the case of any
merger or consolidation involving State Auto Financial, the surviving
corporation is State Auto Financial, (x) after giving effect thereto,
no Put Event (and no event that with notice or lapse of time or both
would constitute a Put Event) would exist hereunder, (y) the business
activity engaged in by such other Person would be permitted under
Section 4.13 hereof if such other Person were a Subsidiary of State
Auto Mutual prior to such merger or consolidation and (z) the aggregate
amount of the Statutory Surplus (determined as at the date of the
relevant merger, consolidation or acquisition) of all such other
Persons that have been the subject of any merger, consolidation or
acquisition pursuant to this clause (iv) during any calendar year
(other than any such merger, consolidation or acquisition financed
solely with Net Available Proceeds) shall be less than $100,000,000.
4.06 LIMITATION ON LIENS. State Auto Mutual will not, nor will
it permit any of its Material Subsidiaries to, create, incur, assume or suffer
to exist any Lien upon any of its Property, whether now owned or hereafter
acquired, except:
(a) Liens in existence on the date hereof and listed in Part
B of Schedule I hereto;
(b) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of State Auto Mutual or the
affected Material Subsidiaries, as the case may be, in accordance with
GAAP (or, in the case of any Insurance Entity, SAP);
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that
are being contested in good faith and by appropriate proceedings and
Liens securing judgments but only to the extent for an amount and for a
period not resulting in a Put Event under clause (j) of the definition
of "Put Event" in Section 1.01 hereof;
(d) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto that do not in
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any case materially detract from the value of the Property subject
thereto or interfere with the ordinary conduct of the business of
State Auto Mutual or any of its Material Subsidiaries;
(g) Liens arising under escrows, trusts, custodianships,
separate accounts, funds withheld procedures, and similar deposits,
arrangements, or agreements established with respect to insurance
policies, annuities, guaranteed investment contracts and similar
products underwritten by, or Reinsurance Agreements entered into by,
any Insurance Entity in the ordinary course of business;
(h) deposits with insurance regulatory authorities;
(i) Liens on Property of any corporation that becomes a
Subsidiary of State Auto Mutual after the date hereof, PROVIDED that
such Liens are in existence at the time such corporation becomes a
Subsidiary of State Auto Mutual and were not created in anticipation
thereof;
(j) Liens upon real and/or tangible personal Property acquired
after the date hereof (by purchase, construction or otherwise) by State
Auto Mutual or any of its Material Subsidiaries, each of which Liens
either (i) existed on such Property before the time of its acquisition
and was not created in anticipation thereof or (ii) was created solely
for the purpose of securing Indebtedness representing, or incurred to
finance, refinance or refund, the cost (including the cost of
construction) of such Property; PROVIDED that (x) no such Lien shall
extend to or cover any Property of State Auto Mutual or such Material
Subsidiary other than the Property so acquired and improvements thereon
and (y) the principal amount of Indebtedness secured by any such Lien
shall at no time exceed 80% of the fair market value (as determined in
good faith by a senior financial officer of State Auto Mutual) of such
Property at the time it was acquired (by purchase, construction or
otherwise); and
(k) additional Liens upon real and/or personal Property
created after the date hereof, PROVIDED that the aggregate Indebtedness
secured thereby and incurred on and after the date hereof shall not
exceed $10,000,000 in the aggregate at any one time outstanding.
4.07 INDEBTEDNESS. State Auto Mutual will not, nor will it
permit any of its Material Subsidiaries to, create, incur or suffer to exist any
Indebtedness except:
(a) Indebtedness created pursuant hereto;
(b) Indebtedness outstanding on the date hereof and listed in
Part A of Schedule I hereto;
(c) Indebtedness of Material Subsidiaries of State Auto
Mutual to State Auto Mutual or to other Material Subsidiaries of State
Auto Mutual; and
(d) additional Indebtedness of State Auto Mutual and its
Material Subsidiaries (including, without limitation, Capital Lease
Obligations and other Indebtedness secured by Liens permitted under
Sections 4.06(j) or 4.06(k) hereof) up to but not exceeding $10,000,000
at any one time outstanding.
4.08 SALE/LEASEBACK TRANSACTIONS. State Auto Mutual will not,
nor will it permit any of its Material Subsidiaries to, enter into any
arrangement with any Person (other than State Auto Mutual or any of its Material
Subsidiaries) providing for the leasing to State Auto Mutual or any of its
Material Subsidiaries for a period of more than five years of any Property which
has been or is to be sold or
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transferred by State Auto Mutual or such Material Subsidiary to such Person or
to any other Person (other than State Auto Mutual or any of its Material
Subsidiaries), to which funds have been or are to be advanced by such Person on
the security of the Property subject to such lease (a "SALE/LEASEBACK
TRANSACTION") if, after giving effect thereto, the Value (as defined below) of
all Sale/Leaseback Transactions at such time would exceed 10% of the Statutory
Surplus of State Auto Mutual at such time. For purposes of this Section 4.08,
"VALUE" shall mean, with respect to any Sale/Leaseback Transaction as at any
time, the amount equal to the greater of (a) the net proceeds of the sale or
transfer of the Property subject to such Sale/Leaseback Transaction and (b) the
fair value, in the opinion of the board of directors of State Auto Mutual of
such Property at the time of entering into such Sale/Leaseback Transaction, in
either case divided first by the number of full years of the term of the lease
and then multiplied by the number of full years of such term remaining at the
time of determination, without regard to any renewal or extension options
contained in such lease.
4.09 INVESTMENTS.
(a) State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, make or permit to remain outstanding any Investments
except (i) Investments outstanding on the date hereof and identified in Part B
of Schedule II hereto, (ii) operating deposit accounts with banks, (iii)
Permitted Investments, (iv) Investments by State Auto Mutual and its Material
Subsidiaries in State Auto Mutual and its Subsidiaries, (v) Interest Rate
Protection Agreements, PROVIDED that, without limiting the obligation of State
Auto Mutual under Section 4.12 hereof, when entering into any Interest Rate
Protection Agreement that at the time has, or at any time in the future may give
rise to, any credit exposure, the aggregate credit exposure under all Interest
Rate Protection Agreements (excluding the Interest Rate Protection Agreement
being entered into pursuant to Section 4.12 hereof) shall not exceed
$10,000,000, and (vi) Investments of Insurance Entities not prohibited by clause
(b) of this Section 4.09.
(b) State Auto Mutual will not permit any Insurance Entity to
make any Investment if, on the date of which such Investment is made and after
giving effect thereto, the aggregate value of Investments (other than equity
Investments) held by such Insurance Entity that are rated lower than "2" by the
NAIC or are not rated by the NAIC would exceed 5% of the value of total invested
assets. As used in this Section 4.09(b), the "value" of an Investment refers to
the value of such Investment that would be shown on the most recent Statutory
Statement of the relevant Insurance Entity prepared in accordance with SAP.
4.10 CERTAIN FINANCIAL COVENANTS.
(a) STATUTORY SURPLUS. State Auto Mutual will not permit its
Statutory Surplus at any time to be less than (a) $400,000,000, at any time
prior to the occurrence of a catastrophe giving rise to Loans being outstanding
under the Credit Agreement (PROVIDED that no Loans are outstanding at such time)
and (b) $250,000,000, at any time during the period from and including the date
of occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement to but excluding the date all Loans shall have been required to
be repaid in full pursuant to the terms of the Credit Agreement. State Auto
Mutual will not permit the Statutory Surplus of State Auto P&C to be less than
$80,000,000 at any time prior to the occurrence of a catastrophe giving rise to
Loans being outstanding under the Credit Agreement (PROVIDED that no Loans are
outstanding at such time).
(b) RISK-BASED CAPITAL RATIO. State Auto Mutual will not
permit its Risk-Based Capital Ratio at any time to be less than (a) 4.00 to 1,
at any time prior to the occurrence of a catastrophe giving rise to Loans being
outstanding under the Credit Agreement (PROVIDED that no Loans are outstanding
at such time) and (b) 2.50 to 1, at any time during the period from and
including the date of occurrence of a catastrophe giving rise to Loans being
outstanding under the Credit Agreement to but excluding the date
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all Loans shall have been required to be repaid in full pursuant to the terms of
the Credit Agreement. State Auto Mutual will not permit the Risk-Based Capital
Ratio of State Auto P&C to be less than 4.00 to 1 at any time prior to the
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement (PROVIDED that no Loans are outstanding at such time).
(c) PREMIUM TO SURPLUS. State Auto Mutual will not permit its
Premium to Surplus Ratio at any time to exceed (a) 2.00 to 1, at any time prior
to the occurrence of a catastrophe giving rise to Loans being outstanding under
the Credit Agreement (PROVIDED that no Loans are outstanding at such time) and
(b) 3.00 to 1, at any time during the period from and including the date of
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement to but excluding the date all Loans shall have been required to
be repaid in full pursuant to the terms of the Credit Agreement. State Auto
Mutual will not permit the Premium to Surplus Ratio of State Auto P&C to exceed
3.00 to 1 at any time prior to the occurrence of a catastrophe giving rise to
Loans being outstanding under the Credit Agreement (PROVIDED that no Loans are
outstanding at such time).
4.11 NAIC RATIO. In the event that the NAIC or any Applicable
Insurance Regulatory Authority shall at any time promulgate any risk-based
capital ratio requirements or guidelines, State Auto Mutual will cause each
Insurance Entity to comply with the minimum requirements or guidelines
applicable to it as established by the NAIC or such Applicable Insurance
Regulatory Authority.
4.12 INTEREST RATE PROTECTION AGREEMENTS. State Auto Mutual
will within five days after the date of each purchase of Preferred Stock under
the Standby Purchase Agreement, cause State Auto Financial to enter into, and
thereafter maintain in full force and effect, one or more Interest Rate
Protection Agreements with one or more of the Lenders (and/or with a bank or
other financial institution having capital, surplus and undivided profits of at
least $500,000,000), that effectively would enable State Auto Financial (in a
manner satisfactory to the Administrative Agent) to protect itself against
floating interest rates as to a notional principal amount at least equal to 100%
of the aggregate Redemption Value of the Preferred Stock for a period of at
least six years measured from the date of the purchase of the Preferred Stock.
4.13 LINES OF BUSINESS. State Auto Mutual will not, nor will
it permit any of its Subsidiaries to, engage to any substantial extent in any
line or lines of business activity other than the business of owning and
operating property and casualty insurance companies as conducted on the date
hereof and businesses related or incidental thereto (it being understood that
the businesses of State Auto Life Insurance Company, Strategic Insurance
Software, Inc. and Stateco Financial Services, Inc., to the extent conducted as
of the date hereof, are related to the business of owning and operating property
and casualty insurance companies).
4.14 CEDED REINSURANCE. State Auto Mutual will not, nor will
it permit any other Insurance Entity to:
(a) enter into any Reinsurance Agreement with any Person other
than (i) another Insurance Entity, (ii) any Person for which the most
recently published rating by A.M. Best & Co. is "B+" or higher or, if
such Person is not rated by A.M. Best & Co., which has a Statutory
Surplus (or the equivalent thereof) of not less than $100,000,000,
(iii) any Person that posts security under such Reinsurance Agreement
in an amount equal to the total liabilities assumed by such Person,
through a letter of credit issued by an "authorized bank" (as such term
is defined by the Applicable Insurance Regulatory Authority) or cash
collateral deposit or (iv) any other reinsurers acceptable to the
Administrative Agent, PROVIDED, however, that for purposes of the
foregoing clause (ii), any "NA" designation shall not be considered a
rating of A.M. Best & Co;
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(b) enter into any Reinsurance Agreement or Reinsurance
Agreements with Lloyd's of London if the aggregate amount of
reinsurance ceded thereby would exceed 15% of the aggregate premium
volume of reinsurance ceded by the Insurance Entities.
(c) enter into any Surplus Relief Reinsurance except with
another Insurance Entity; or
(d) enter into any Reinsurance Agreement or Reinsurance
Agreements if such Reinsurance Agreements will result in a 20% or more
reduction of net premium volume for the Insurance Entities in any
12-month period.
4.15 TRANSACTIONS WITH AFFILIATES. Except as expressly
permitted by this Agreement, State Auto Mutual will not, nor will it permit any
of its Material Subsidiaries to, directly or indirectly: (a) make any Investment
in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire Property from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, Guarantees and assumptions of obligations of an Affiliate);
PROVIDED that (i) any Affiliate who is an individual may serve as a director,
officer or employee of State Auto Mutual or any of its Material Subsidiaries and
receive reasonable compensation for his or her services in such capacity and
(ii) State Auto Mutual and its Material Subsidiaries may enter into transactions
(other than extensions of credit by State Auto Mutual or any of its Material
Subsidiaries to an Affiliate) providing for the leasing of Property, the
rendering or receipt of services or the purchase or sale of inventory and other
Property in the ordinary course of business if the monetary or business
consideration arising therefrom would be substantially as advantageous to State
Auto Mutual and its Material Subsidiaries as the monetary or business
consideration that would obtain in a comparable transaction with a Person not an
Affiliate.
4.16 MODIFICATIONS OF CERTAIN DOCUMENTS. State Auto Mutual
will not, and will not permit any of its Subsidiaries to, (a) consent to any
modification, supplement or waiver of (i) the charter or by-laws of State Auto
Mutual, (ii) the charter or by-laws of State Auto Financial, (iii) any material
term of any Retrocession Agreement or Reinsurance Agreement relating to property
and catastrophic risk insurance other than the Intercompany Pooling Arrangement
or (iv) without the prior consent of the Administrative Agent (with the approval
of the Majority Lenders, such approval not to be unreasonably withheld), the
Intercompany Pooling Agreement if such modification, supplement or waiver would
result in the ceding to State Auto Mutual of 70% or more of the catastrophic
loss risk subject to such arrangement or (b) in any manner alter or change the
preferences, rights or powers of the Preferred Stock or permit State Auto
Financial to issue any additional securities so as to affect adversely the
Preferred Stock.
4.17 INDEMNITY FOR CERTAIN COSTS. State Auto Financial agrees
with the Administrative Agent that it will indemnify the Company, promptly upon
demand therefor, for all or any portion of (a) the fees, costs and expenses
payable by the Company under Section 5.01, 5.05 or 5.06 of the Credit Agreement
including, without limitation, in the event that interest for any Lender in
respect of any period is computed at the Base Rate, for the excess (if any) of
the amount of such interest computed at the Base Rate for such period over the
amount of interest that would have been payable in respect of such period had
such interest been computed at the relevant Eurodollar Rate for such period and
(b) the excess of interest in respect of any period payable by the Company under
Section 3.02 of the Credit Agreement at the Post-Default Rate over the interest
in respect of such period that would have been payable had the relevant Default
not occurred. Each of State Auto Financial, State Auto Mutual and the
Administrative Agent agrees that the Company shall be a third-party beneficiary
of this Agreement.
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4.18 DELIVERY OF DOCUMENTS ON THE CLOSING DATE. On the Closing
Date, State Auto Mutual will deliver to the Administrative Agent (with
sufficient copies for each Lender) each of the following documents each of which
shall be satisfactory to the Administrative Agent in form and substance:
(a) certified copies of the charter and by-laws (or equivalent
documents) of each State Auto Obligor and of all corporate authority
for such State Auto Obligor (including, without limitation, board of
director resolutions and evidence of the incumbency, including specimen
signatures, of officers) with respect to the execution, delivery and
performance of such of the Basic Documents to which such State Auto
Obligor is intended to be a party and each other document to be
delivered by such State Auto Obligor from time to time in connection
herewith (and the Administrative Agent and each Lender may conclusively
rely on such certificate until it receives notice in writing from State
Auto Mutual to the contrary);
(b) a certificate of a senior officer of State Auto Mutual,
dated the Closing Date, to the effect that (i) no Put Event (and no
event that with notice or lapse of time or both would become a Put
Event) shall have occurred and be continuing and (ii) the
representations and warranties made by the State Auto Obligors in
Section 3 hereof shall be true and complete on and as of the Closing
Date with the same force and effect as if made on and as of the
Closing Date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific
date);
(c) an opinion, dated the Closing Date, of Xxxx Xxxxxxx,
general counsel of each State Auto Obligor, substantially in form of
Exhibit B hereto and covering such other matters as the Administrative
Agent or any Lender may reasonably request (and each State Auto Obligor
hereby instructs such counsel to deliver such opinion to the Lenders
and the Administrative Agent);
(d) certified true, correct and complete copies of all
Retrocession Agreements and Reinsurance Agreements in effect on the
Closing Date;
(e) certified true, correct and complete copies of all Tax
Sharing Agreements in effect on the Closing Date;
(f) evidence that the transactions contemplated by the Basic
Documents shall have been approved by each Applicable Insurance
Regulatory Authority with respect to State Auto Mutual, State Auto P&C
and Milbank; and
(g) such other documents as the Administrative Agent or any
Lender or special New York counsel to Chase may reasonably request.
4.19 DELIVERY OF DOCUMENTS ON EACH BORROWING DATE. On the date
of each borrowing by the Company under the Credit Agreement (and as a condition
thereto), State Auto Mutual will deliver to the Administrative Agent (with
sufficient copies for each Lender) each of the following documents each of which
shall be satisfactory to the Administrative Agent in form and substance:
(a) a certificate of a senior officer of State Auto Mutual,
dated the date of such borrowing, (1) to the effect that, both
immediately prior to the making of such Loan and also after giving
effect thereto and to the intended use thereof, (i) no Put Event (and
no event that
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with notice or lapse of time or both would become a Put Event) shall
have occurred and be continuing and (ii) the representations and
warranties made by the State Auto Obligors in Section 3 hereof
(excluding, in the case of the representation and warranty made by the
State Auto Obligors in the last sentence of clauses (a) and (b) of
Section 3.02 hereof, any such change to the extent such change results
from the catastrophic loss claims and/or loss adjustment expenses to
which the borrowing by the Company under the Credit Agreement and
related issuance of Preferred Stock relates) shall be true and
complete on and as of such date of borrowing with the same force and
effect as if made on and as of such date of borrowing (or, if any such
representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date) and (2) describing in
reasonable detail the catastrophic loss claims and/or loss adjustment
expenses to which such borrowing relates;
(b) such other documents as the Administrative Agent or any
Lender or special New York counsel to Chase may reasonably request
(including, without limitation, opinions of counsel to the State Auto
Obligors relating to the issuance of the Preferred Stock in connection
with such borrowing).
4.20 DELIVERY OF DOCUMENTS IN CONNECTION WITH THE EXTENSION OF
THE COMMITMENT TERMINATION DATE. On each of the "Request Date" and the "Existing
Commitment Termination Date" (in each case as defined in Section 2.10 of the
Credit Agreement) State Auto Mutual will deliver to the Administrative Agent
(with sufficient copies for each Lender) each of the following documents each of
which shall be satisfactory to the Administrative Agent in form and substance:
(a) a certificate of a senior officer of State Auto Mutual,
dated such date, to the effect that (i) no Put Event (and no event that
with notice or lapse of time or both would become a Put Event) shall
have occurred and be continuing and (ii) the representations and
warranties made by the State Auto Obligors in Section 3 hereof shall be
true and complete on and as of such date of borrowing with the same
force and effect as if made on and as of such date of borrowing (or, if
any such representation or warranty is expressly stated to have been
made as of a specific date, as of such specific date).
(b) a certificate of a senior officer of State Auto Mutual,
dated such date, to the effect that (i) the "Probable Maximum Loss" (as
defined below) of the State Auto Obligors for the 250-year return
period shall not exceed (x) $400,000,000 for earthquake peril and (y)
$250,000,000 for hurricane peril and (ii) attached thereto is a true,
correct and complete copy of the report prepared by the applicable
Modelling Firm (as defined below) in connection with the calculation
referred to in the definition of "Probable Maximum Loss" below. For
purposes of this clause (b), "PROBABLE MAXIMUM LOSS" shall mean, for
any date, the "probable maximum loss" as most recently calculated prior
to such date by Risk Management Solutions, Inc., Applied Insurance
Research, EQECAT Inc., Xxxxxxxxxxx (a Towers Xxxxxx Company) or another
independent modelling firm satisfactory to the Administrative Agent
(each, a "MODELLING FIRM").
4.21 CONSENT TO ASSIGNMENT, ETC.
(a) To the extent contemplated by the Company Pledge
Agreement, or otherwise after and during the continuance of an Event of Default,
the Administrative Agent and any designee or assignee thereof shall be entitled
to exercise any and all rights of the Company under the Standby Purchase
Agreement and the Pledged Stock in accordance with the terms of the Standby
Purchase Agreement and such Pledged Stock, and State Auto Financial shall comply
in all respects with such exercise. Without limiting the generality of the
foregoing, to the extent contemplated by the Company
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Pledge Agreement, or otherwise after and during the continuance of an Event of
Default, the Administrative Agent and any designee or assignee thereof shall
have the full right and power to enforce directly against State Auto Financial
all obligations of State Auto Financial under the Standby Purchase Agreement and
the Pledged Stock and otherwise to exercise all remedies thereunder and to make
all demands and give all notices and make all requests required or permitted to
be made by the Company under the Standby Purchase Agreement or the Pledged
Stock. Nothing herein shall require the Administrative Agent or such designee or
assignee to cure any default of the Company under the Standby Purchase Agreement
or to perform any act, duty or obligation of the Company under the Standby
Purchase Agreement, but shall only give them the option so to do.
(b) State Auto Financial will not, without the prior written
consent of the Administrative Agent, (i) cancel, suspend or terminate the
Standby Purchase Agreement or consent to or accept any such cancellation,
suspension or termination thereof, (ii) amend, supplement or otherwise modify
the Standby Purchase Agreement or (iii) petition, request or take any other
legal or administrative action which seeks, or may reasonably be expected, to so
rescind, cancel, terminate or suspend or amend or modify the Standby Purchase
Agreement.
(c) A foreclosure of, or other exercise of remedies under, the
Company Pledge Agreement or any sale thereunder by the Administrative Agent or
its assignee or designee, whether by judicial proceedings or under any power of
sale contained therein, or any conveyance from the Company to the Administrative
Agent, the Lenders or any such assignee or designee, in lieu thereof, shall not
require the consent of State Auto Financial.
(d) Upon the exercise by the Administrative Agent of any of
the remedies set forth in Section 5.05 of the Company Pledge Agreement, the
Administrative Agent may assign its rights and interests and the rights and
interests of the Company under the Standby Purchase Agreement and/or the Pledged
Stock to any other Person.
(e) State Auto Financial will not be released from any of its
obligations under the Standby Purchase Agreement or the Pledged Stock pursuant
to any assignment or transfer (including by reason of a merger, consolidation,
sale of substantially all of its assets or otherwise), and shall not delegate
any of its obligations under the Standby Purchase Agreement or the Pledged
Stock, unless the Administrative Agent shall have previously consented in
writing to such release or delegation, as the case may be.
Section 5. MISCELLANEOUS.
5.01 WAIVER. No failure on the part of the Administrative
Agent or any Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
5.02 NOTICES. All notices, requests and other communications
provided for herein shall be given or made in writing (including, without
limitation, by telecopy) delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof (or, as to the
Administrative Agent, on the signature pages of the Credit Agreement) or, as to
any party, at such other address as shall be designated by such party in a
notice to each other party. Except as otherwise
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provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopier or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
5.03 EXPENSES, ETC. State Auto Mutual and State Auto Financial
jointly and severally agree to pay or reimburse each of the Lenders and the
Administrative Agent for: (a) all reasonable and documented out-of-pocket costs
and expenses of the Administrative Agent (including, without limitation, the
reasonable and documented fees and expenses of Milbank, Tweed, Xxxxxx & XxXxxx,
special New York counsel to Chase) in connection with (i) the negotiation,
preparation, execution and delivery of this Agreement and the other Basic
Documents and the making of the Loans under the Credit Agreement and (ii) the
negotiation or preparation of any modification, supplement or waiver of any of
the terms of this Agreement or any of the other Basic Documents (whether or not
consummated); (b) all reasonable out-of-pocket costs and expenses of the Lenders
and the Administrative Agent (including, without limitation, the reasonable fees
and expenses of legal counsel) in connection with (i) any Put Event (and any
event that with notice or lapse of time or both would become a Put Event) and
any enforcement or collection proceedings with respect to any Basic Document
resulting therefrom, including, without limitation, all manner of participation
in or other involvement with (x) bankruptcy, insolvency, receivership,
foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory
proceedings and (z) workout, restructuring or other negotiations or proceedings
(whether or not the workout, restructuring or transaction contemplated thereby
is consummated) and (ii) the enforcement of this Section 5.03; and (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Basic Documents or any other document referred to herein or
therein.
Each of State Auto Mutual and State Auto Financial hereby
jointly and severally agrees to indemnify the Administrative Agent and each
Lender and their respective directors, officers, employees, attorneys and agents
(each, an "INDEMNIFIED PERSON") from, and hold each of them harmless against,
any and all losses, liabilities, claims, damages or expenses incurred by any of
them (including, without limitation, any and all losses, liabilities, claims,
damages or expenses incurred by the Administrative Agent to any Lender, whether
or not the Administrative Agent or any Lender is a party thereto) arising out of
or by reason of any investigation or litigation or other proceedings (including
any threatened investigation or litigation or other proceedings) relating to or
arising out of the Loans under the Credit Agreement or any actual or proposed
use by the Company of the proceeds thereof or otherwise relating to or arising
out of any Basic Document, including, without limitation, the reasonable fees
and disbursements of counsel incurred in connection with any such investigation
or litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses claimed by an Indemnified Person to the extent
finally determined by a court of competent jurisdiction to have been incurred
directly and primarily by reason of the gross negligence or willful misconduct
of such Indemnified Person. Promptly after receipt by any Indemnified Person of
notice of any complaint or the commencement of any action or proceeding with
respect to which indemnification is being sought hereunder, such Indemnified
Person will notify State Auto Mutual in writing of such complaint or of the
commencement of such action or proceeding, but failure so to notify State Auto
Mutual will not relieve the State Auto Obligors from any liability which the
State Auto Obligors may have hereunder or otherwise, except to the extent that
such failure materially prejudices the rights of the State Auto Obligors. If so
elected by either State Auto Obligor, such State Auto Obligor will assume the
defense of such action or proceeding, including the employment of counsel
reasonably satisfactory to such Indemnified Person and the payment of the fees
and disbursements of such counsel. In the event, however, that such Indemnified
Person determines in its reasonable judgment that having common counsel would
present such counsel with a conflict of interest or if neither State Auto
Obligor assumes the defense of the action or proceeding in a timely manner, then
such Indemnified Person may employ separate counsel to represent or defend such
Indemnified Person in any such action or proceeding and the
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State Auto Obligors jointly and severally agree to pay or reimburse such
Indemnified Person for the reasonable fees and disbursements of such counsel,
PROVIDED, however, that the State Auto Obligors will not be required to pay or
reimburse the fees and disbursements of more than one separate counsel for all
Indemnified Persons in any jurisdiction in any single action or proceeding. In
any action or proceeding the defense of which a State Auto Obligor assumes, the
Indemnified Person (a) will cooperate with the such State Auto Obligor in
defending such action or proceeding, but the State Auto Obligors jointly and
severally agree to pay or reimburse all expenses of such Indemnified Person of
so cooperating and (b) will have the right to participate in such litigation and
to retain its own counsel at such Indemnified Person's own expense. No
Indemnified Person shall be responsible or liable to State Auto Mutual or any of
its Subsidiaries, the Company or any other Person for any consequential damages
that may be alleged in connection with any of the Basic Documents and the
transactions contemplated thereby.
5.04 AMENDMENTS, ETC. Except as otherwise expressly provided
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by each State Auto Obligor
and the Administrative Agent (with the consent of the Lenders as specified in
Section 10.09 of the Credit Agreement), and any provision of this Agreement may
be waived by the Administrative Agent (with the consent of the Lenders as
specified in Section 10.09 of the Credit Agreement).
5.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, PROVIDED, that neither State Auto Obligor may
assign any of its rights or obligations hereunder without the prior consent of
the Administrative Agent (with the consent of all of the Lenders).
5.06 CAPTIONS. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
5.07 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
5.08 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
shall be governed by, and construed in accordance with, the law of the State of
New York. Each State Auto Obligor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of the Supreme Court of the State of New York sitting in New York
County (including its Appellate Division), and of any other appellate court in
the State of New York, for the purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. Each
State Auto Obligor 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.
5.09 WAIVER OF JURY TRIAL. EACH OF STATE AUTO MUTUAL, STATE
AUTO FINANCIAL AND THE ADMINISTRATIVE AGENT HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
5.10 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY.
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(a) Each State Auto Obligor acknowledges that from time to
time financial advisory, investment banking and other services may be offered or
provided to State Auto Mutual or one or more of its Subsidiaries (in connection
with this Agreement or otherwise) by any Lender or by one or more subsidiaries
or affiliates of such Lender and such State Auto Obligor hereby authorizes each
Lender to share any information delivered to such Lender by or on behalf of
State Auto Mutual and its Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Lender to enter into the Credit Agreement,
to any such subsidiary or affiliate, it being understood that any such
subsidiary or affiliate receiving such information shall be bound by the
provisions of paragraph (b) below as if it were a Lender hereunder. Such
authorization shall survive the termination of this Agreement.
(b) Each Lender and the Administrative Agent agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by either State Auto Obligor pursuant to
this Agreement that is identified by such State Auto Obligor as being
confidential at the time the same is delivered to the Administrative Agent,
PROVIDED that nothing herein shall limit the disclosure of any such information
(i) after such information shall have become public (other than through a
violation of this Section 5.10), (ii) to the extent required by statute, rule,
regulation or judicial process, (iii) to counsel for any of the Lenders or the
Administrative Agent, (iv) to bank examiners (or any other regulatory authority
having jurisdiction over any Lender or the Administrative Agent), or to auditors
or accountants, (v) to the Administrative Agent or any other Lender (or to Chase
Securities Inc.), (vi) in connection with any litigation to which any one or
more of the Lenders or the Administrative Agent is a party, or in connection
with the enforcement of rights or remedies hereunder or under any other Basic
Document, (vii) to a subsidiary or affiliate of such Lender as provided in
paragraph (a) above or (viii) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) first executes and delivers to the respective Lender an
acknowledgement to the effect that it is bound by the provisions of this Section
5.10(b), which acknowledgement may be included as part of the respective
assignment or participation agreement pursuant to which such assignee or
participant acquires an interest in the Loans under the Credit Agreement);
PROVIDED, FURTHER, that in no event shall any Lender or the Administrative Agent
be obligated or required to return any materials furnished by either State Auto
Obligor.
5.11 NO LIABILITY. Except as expressly provided herein,
neither the Administrative Agent nor any Lender shall be responsible or have any
liability for (a) any statements, warranties or representations made in or in
connection with the Credit Agreement, any other Basic Document or any other
instrument or document furnished pursuant thereto, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement, any other Basic Document or any other instrument or document
furnished pursuant thereto and (b) the financial condition of the Company or any
other Person or any other obligation of or the performance or observance by the
Company, any other Person or any other obligor of any of their respective
obligations under the Credit Agreement or any other Basic Document or any other
instrument or document furnished pursuant thereto.
5.12 FURTHER ASSURANCES. Each State Auto Obligor agrees that,
from time to time upon the written request of the Administrative Agent, such
State Auto Obligor will execute and deliver such further documents and do such
other acts and things as the Lender may reasonably request in order fully to
effect the purposes of this Agreement.
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5.13 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 and shall be liberally construed in favor of the Administrative
Agent and the Lenders 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.
5.14 THIRD-PARTY BENEFICIARIES. Each State Auto Obligor agrees
that each Lender shall be a third-party beneficiary of this Agreement and shall
be entitled to enforce its rights hereunder as fully as if it were a party
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY
By /s/ Xxxxxx X. Xxxxx
---------------------------------------
Title: President
Address for Notices:
State Automobile Mutual Insurance Company
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
Attention: Xxxx Xxxxxxx, Esq.
Telecopier No.: 000-000-0000
Telephone No.: 000-000-0000
STATE AUTO FINANCIAL CORPORATION
By /s/ Xxxxxx X. Xxxxx
---------------------------------------
Title: President
Address for Notices:
State Auto Financial Corporation
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
Attention: Xxxx Xxxxxxx, Esq.
Telecopier No.: 000-000-0000
38
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Telephone No.: 000-000-0000
39
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XXX XXXXX XXXXXXXXX BANK,
as Administrative Agent
By_________________________
Title:
40
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SCHEDULE I
[Material Agreements and Liens]
41
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SCHEDULE II
[Subsidiaries and Xxxxxxxxxxx]
00
-00-
XXXXXXXX XXX
[Intentionally Omitted]
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SCHEDULE IV
[Equity Rights and Redemption Obligations]
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EXHIBIT A to the
Put Agreement
[Form of Put Notice]
[Date]
State Automobile Mutual Insurance Company
State Auto Financial Corporation
[Address]
Re: Put Agreement dated as of August 16, 1996, between State Automobile Mutual
Insurance Company, State Auto Financial Corporation and The Chase
Manhattan Bank, as Administrative Agent.
Dear Ladies and Gentlemen:
Reference is made to the Put Agreement dated as of August 16,
1996 (as modified and supplemented and in effect from time to time, the "PUT
AGREEMENT"), between State Automobile Mutual Insurance Company ("STATE AUTO
MUTUAL"), State Auto Financial Corporation and The Chase Manhattan Bank, as
Administrative Agent. Capitalized terms used but not defined herein shall have
the respective meanings assigned to such terms in the Put Agreement.
[Pursuant to Section 2.02 of the Put Agreement, the
undersigned hereby requires that State Auto Mutual purchase all of each Lender's
Loans, Note and Commitment. The aggregate purchase price payable by State Auto
Mutual for all such Loans, Notes and Commitments shall be $_______________
representing the sum of (a) principal of such Loans in the amount of
$_______________, PLUS (b) accrued and unpaid interest thereon in the amount of
$_______________, PLUS (c) other amounts payable under the Basic Documents in
respect thereof in the amount of $ .]
[Pursuant to Section 2.03 of the Put Agreement, the
undersigned hereby requires that State Auto Mutual purchase all of the Pledged
Stock for an aggregate purchase price equal to $_______________ representing the
sum of (a) the aggregate Redemption Value of such Pledged Stock in the amount of
$_______________, PLUS (b) accrued and unpaid dividends thereon in the amount of
$_______________.]
The Put Purchase Date for such purchase shall be
_______________.
THE CHASE MANHATTAN BANK, as
Administrative Agent
By_________________________
Title:
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EXHIBIT B to the
Put Agreement
[Form of Opinion of General Counsel of the State Auto Obligors]
August 16, 1996
To each of the Lenders party to the
Credit Agreement referred to
below and The Chase Manhattan Bank,
as Administrative Agent
Ladies and Gentlemen:
I am the general counsel of State Automobile Mutual Insurance
Company ("STATE AUTO MUTUAL") and State Auto Financial Corporation ("STATE AUTO
FINANCIAL and, together with State Auto Mutual, the "STATE AUTO OBLIGORS") and
have acted as counsel to the State Auto Obligors in connection with (i) the Put
Agreement dated as of August 16, 1996 (the "PUT AGREEMENT") among the State Auto
Obligors and The Chase Manhattan Bank, in its capacity as administrative agent
(the "ADMINISTRATIVE AGENT") on behalf of the lenders party to a Credit
Agreement dated as of August 16, 1996 among SAF Funding Corporation, the
Administrative Agent and (ii) the agreements, instruments and other documents
referred to in the next paragraph. All capitalized terms used but not defined
herein have the respective meanings given to such terms in the Put Agreement.
This opinion letter is delivered to you pursuant to Section 4.04(c) of the Put
Agreement.
In rendering the opinions expressed below, I have examined the
following agreements, instruments and other documents:
(a) the Credit Agreement;
(b) the Pledge Agreements;
(c) the Put Agreement;
(d) the Standby Purchase Agreement (collectively with the Put
Agreement, the "STATE AUTO AGREEMENTS"); and
(e) such records of the State Auto Obligors and such other
documents as I have deemed necessary as a basis for the
opinions expressed below.
In my examination, I have assumed the genuineness of all
signatures, the authenticity of all documents submitted to me as originals and
the conformity with authentic original documents of all documents submitted to
me as copies. When relevant facts were not independently established, I have
relied upon certificates of governmental officials and appropriate
representatives of the State Auto Obligors and upon representations made in or
pursuant to the State Auto Agreements.
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In rendering the opinions expressed below, I have assumed,
with respect to all of the documents referred to in this opinion letter, that
(except, to the extent set forth in the opinions expressed below, as to the
State Auto Obligors):
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid,
binding and enforceable obligations of, all of the parties to
such documents;
(ii) all signatories to such documents have been duly authorized;
and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate,
partnership or other) to execute, deliver and perform such
documents.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:
1. State Auto Mutual is a mutual insurance company duly
organized, validly existing and in good standing under the laws of the
State of Ohio. State Auto Financial is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Ohio.
2. Each State Auto Obligor has all requisite corporate power
and authority to execute and deliver, and to perform its obligations
and to incur liabilities under, the State Auto Agreements to which it
is a party.
3. The execution, delivery and performance by each State Auto
Obligor of, and the incurrence by such State Auto Obligor of
liabilities under, each State Auto Agreement to which such State Auto
Obligor is a party, have been duly authorized by all necessary
corporate action on the part of such State Auto Obligor.
4. Each State Auto Agreement has been duly executed and
delivered by each State Auto Obligor party thereto.
5. Under Ohio conflict of laws principles, the stated choice
of New York law to govern the State Auto Agreements will be honored by
the courts of the State of Ohio and the State Auto Agreements will be
construed in accordance with, and will be treated as being governed by,
the law of the State of New York. However, if the State Auto Agreements
were stated to be governed by and construed in accordance with the law
of the State of Ohio, or if an Ohio court were to apply the law of the
State of Ohio to the State Auto Agreements, each State Auto Agreement
would constitute the legal, valid and binding obligation of each State
Auto Obligor party thereto, enforceable against such State Auto Obligor
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
transfer or other similar laws relating to or affecting the rights of
creditors generally and except as the enforceability of the State Auto
Agreements is subject to the application of general principles of
equity (regardless of whether considered in a proceeding in equity or
at law), including, without limitation, (a) the possible
unavailability of specific performance, injunctive relief or any other
equitable remedy and (b) concepts of materiality, reasonableness, good
faith and fair dealing.
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6. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency
of the United States of America or the State of Ohio (other than any
authorizations, approvals, consents, filings and registrations
heretofore duly made or obtained and in full force and effect) is
required on the part of either State Auto Obligor for the execution,
delivery or performance by such State Auto Obligor of, or for the
incurrence by such State Auto Obligor of any liabilities under, the
State Auto Agreements to which such State Auto Obligor is a party.
7. The execution, delivery and performance by each State Auto
Obligor of, and the consummation by such State Auto Obligor of the
transactions contemplated by, the State Auto Agreements to which such
State Auto Obligor is a party do not and will not (a) violate any
provision of the Articles of Incorporation or Code of Regulations of
such State Auto Obligor, (b) violate any applicable law, rule or
regulation of the United States of America or the State of Ohio, (c)
violate any order, writ, injunction or decree of any court or
governmental authority or agency or any arbitral award applicable to
such State Auto Obligor of which I have knowledge (after due inquiry)
or (d) result in a breach of, constitute a default under, require any
consent under, or result in the acceleration or required prepayment of
any indebtedness pursuant to the terms of, any agreement or instrument
of which I have knowledge (after due inquiry) to which such State Auto
Obligor or any of its Subsidiaries is a party or by which any of them
is bound or to which any of them is subject, or result in the creation
or imposition of any Lien upon any Property of such State Auto Obligor
or any of its Subsidiaries pursuant to the terms of any such agreement
or instrument.
8. I have no knowledge (after due inquiry) of any legal or
arbitral proceedings, or any proceedings by or before any governmental
or regulatory authority or agency, now pending or threatened against or
affecting the either State Auto Obligor or any of their respective
Properties that, if adversely determined, could have a Material Adverse
Effect.
9. State Auto Financial has duly authorized and reserved for
issuance 2,500,000 shares of Class A Preferred Stock.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 5.03 of the Put Agreement
and Section 6.04 of the Standby Purchase Agreement may be limited by
(i) laws rendering unenforceable indemnification contrary to Federal or
state securities laws and the public policy underlying such laws and
(ii) laws limiting the enforceability of provisions exculpating or
exempting a party from, or requiring indemnification of a party for,
its own action or inaction, to the extent such action or inaction
involves gross negligence, recklessness or wilful or unlawful conduct.
(B) The enforceability of provisions in the State Auto
Agreements to the effect that terms may not be waived or modified
except in writing may be limited under certain circumstances.
(C) I express no opinion as to the second sentence of Section
5.08 of the Put Agreement or the second sentence of Section 7.07 of the
Standby Purchase Agreement, insofar as either such sentence relates to
the subject matter jurisdiction of the United States District Court for
the Southern District of New York to adjudicate any controversy related
to the applicable State Auto Agreement.
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The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of Ohio,
and I do not express any opinion as to the laws of any other jurisdiction. The
opinions contained in this letter are rendered only as of the date hereof and I
undertake no obligation to update this letter or the opinions contained herein
after the date hereof. The opinions contained in this letter only constitute my
professional judgment as to the consequences of and the applicability of certain
laws to the documents and agreements referred to and the parties thereto and
should not be considered to be a guarantee of any particular result.
At the request of my clients, this opinion letter is provided
to you by me in my capacity as counsel to the State Auto Obligors, and this
opinion letter may not be relied upon by any Person for any purpose other than
in connection with the transactions contemplated by the Basic Documents without,
in each instance, my prior written consent.
Very truly yours,
