Exhibit 10 (LL)
Amendment No. 3 to
Management and Operations Agreement
Effective January 1, 2002
AMENDMENT NO. 3 TO
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MANAGEMENT AND OPERATIONS AGREEMENT
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This Amendment No. 3 to Management and Operations Agreement (this
"Amendment") is entered into and effective as of January 1, 2002, among State
Automobile Mutual Insurance Company, an Ohio corporation ("Mutual"); State Auto
Financial Corporation, an Ohio corporation ("State Auto Financial"); State Auto
Property and Casualty Insurance Company, a South Carolina corporation ("State
Auto P&C"); State Auto National Insurance Company, an Ohio corporation
("National"); Milbank Insurance Company, a South Dakota corporation ("Milbank");
State Auto Insurance Company, an Ohio corporation ("State Auto IC"); Stateco
Financial Services, Inc., an Ohio corporation ("Stateco"); Strategic Insurance
Software, Inc., an Ohio corporation ("S.I.S."); and 518 Property Management and
Leasing, LLC, an Ohio limited liability company ("518 PML").
RECITALS
A. Effective January 1, 2000, Mutual, State Auto Financial, State Auto P&C,
National, Milbank, State Auto IC, Stateco, S.I.S. and 518 PML entered into a
Management and Operations Agreement and First Amendment thereto dated as of
January 1, 2000, which was subsequently amended by Amendment No. 2 thereto,
effective as of October 1, 2001 (together, the "Agreement"), providing for,
among other things, the management of the Managed Companies (as defined therein)
by State Auto P&C.
B. The parties to the Agreement now desire to amend the Agreement as of the
effective date hereof to substitute independent committees of Mutual and
Financial, respectively, for the Coordinating Committee charged with addressing
conflicts of interest which may arise from certain business opportunities.
NOW, THEREFORE, intending to be legally bound, the parties to this
Amendment hereby agree as follows:
1. RECITALS; DEFINITIONS. The Background Information contained in the
Agreement and in the Recitals to this Amendment are each hereby
incorporated by reference into the body of this Amendment. Capitalized
terms not otherwise defined in this Amendment shall have the meanings set
forth in the Agreement. All references in the Agreement to "this Agreement"
shall be deemed to refer to the Agreement as amended hereby; and all
references in the Agreement to the "Managed Companies" shall be amended to
include all of the parties to this Amendment. All references in the
Agreement to the "Service Companies" shall be deemed to refer to those
Managed Companies which are not insurance companies under applicable law.
2. AMENDMENT OF THE AGREEMENT. Subject to the satisfaction of the conditions
set forth in Section 5 below, effective as of the date first written above,
the Agreement shall be deemed amended and supplemented by this Amendment.
To the extent not expressly amended or supplemented by this Amendment, the
terms and provisions of the Agreement shall remain in full force and effect
without alteration for the remaining term thereof. Until the deemed
effective date of this Amendment as set forth in Section 5 below, the
Agreement shall be deemed to have governed the rights and obligations of
the parties thereto in accordance therewith, without taking into account
the amendments contemplated hereby.
3. Section 9 of the Agreement is hereby amended in its entirety to provide as
follows:
9. CONFLICTS OF INTEREST -- The parties hereby acknowledge that, due to
the common management of Mutual and the State Auto Financial Group,
conflicts of interest may arise with respect to business opportunities
available to such companies. In order to deal with such conflicts of
interest on an equitable basis, the following guidelines shall be used
to determine which company may avail itself of a business opportunity:
(a) As used herein, Mutual Independent Committee shall mean a
committee established by the Board of Directors of Mutual and
comprised solely of persons who are not, and during the past three
years have not been, directors, officers or employees of companies in
the State Auto Financial Group or employees of Mutual or any wholly
owned subsidiary of Mutual. The Mutual Independent Committee members
shall also represent the interests of all wholly owned subsidiaries of
Mutual (together with Mutual, each "a Mutual Company" and, together,
the "Mutual Companies").
(b) As used herein, Financial Independent Committee shall mean a
committee established by the Board of Directors of State Auto
Financial and comprised solely of persons who are not, and during the
past three years have not been, directors, officers or employees of
Mutual or any wholly owned subsidiary of Mutual or employees of any
company in the State Auto Financial Group. The Financial Independent
Committee members shall also represent the interests of all
subsidiaries of Financial (together with Financial, each "a Financial
Company" and, together, the "Financial Companies").
(c) A business opportunity shall not be required to be presented
to an Independent Committee, as described in 9(d) below, if such
business opportunity:
1. Involves the purchase or sale on the open market of marketable
securities;
2. Involves the new issue of stocks or bonds in a public offering
registered or exempt from registration under the Securities Act
of 1933, as amended;
3. Does not fit within the investment criteria and guidelines
established by their respective investment committees, including
without limitation debt to equity mix, of either all Mutual
Companies or all Financial Companies;
4. Involves the underwriting of policies of insurance or
reinsurance;
5. Involves purchase by State Auto Financial of securities issued by
it; or
6. Involves a sale or purchase of any property or security which is
not a material transaction to the State Auto Company which is a
party to the sale or purchase or involves the sale or purchase of
marketable securities at the market price or an approximation
thereof.
(d) All other business opportunities shall be presented by
management, either at a joint meeting of the Mutual Independent
Committee and Financial Independent Committee or by another means
which assures that each shall receive substantially equivalent
information regarding the business opportunity. The Mutual Independent
Committee and the Financial Independent Committee, jointly or, at the
request of either, separately, shall each review and evaluate such
business opportunities and the appropriate allocation thereof, using
such factors as it considers relevant, which may include, without
limitation:
1. Whether the opportunity was developed by a Mutual or Financial
Company;
2. Whether the opportunity was received by a Mutual or Financial
Company;
3. Whether a Mutual or Financial Company has a history of engaging
in the particular activity which is the subject of the
opportunity;
4. Whether the opportunity is within the scope and regular course of
business activities of a Mutual or Financial Company;
5. Whether public disclosures create an expectation that a
particular opportunity will be pursued by a Mutual or Financial
Company;
6. The views of officers of Mutual and State Auto Financial
(including common officers) as to whether the opportunity does
not meet the investment policies or objectives, or the
underwriting or claims guidelines, or is inconsistent with the
cash flow or tax situation of the Mutual Companies or members of
the State Auto Financial Group;
7. The respective ability (including, without limitation, financial
and legal ability) of the Mutual and Financial Companies to
acquire or pursue the opportunity; and
8. The willingness of a third party to deal with a Mutual or
Financial Company as the case may be.
Based upon such review and evaluation, such Independent Committees shall
seek to arrive at a joint recommendation to the Boards of Directors of
Mutual and State Auto Financial (which may be made only upon approval of a
majority of members of the Mutual Independent Committee and a majority of
members of the Financial Independent Committee) as to whether or not such
business opportunity should be pursued and, if so, by which Company. If a
joint recommendation is not approved, each Independent Committee shall
report the same to its respective Board, along with its recommendation in
respect of the business opportunity. The Boards of Directors of Mutual and
of State Auto Financial must then act on the recommendation of its
respective Committee, after considering all other factors deemed relevant
by them.
4. Section 16 of the Agreement is hereby amended in its entirety to provide as
follows:
16. AMENDMENTS -- This Agreement may be amended by the parties, upon
authority of their officers without specific director approval, if
such amendment is solely for the purpose of clarification and does not
change the substance of this Agreement and the parties have obtained
an opinion of legal counsel to that effect. Additionally, any present
or future subsidiary or affiliate of Mutual or State Auto Financial
may be added as a party to this Agreement by an amendment entered into
by Mutual, State Auto Financial and the new party, after approval of
the Independent Committee of each of Mutual and State Auto Financial
and the directors of each and of the new party. Except as otherwise
specifically provided in this Agreement, all other amendments to this
Agreement must be presented to the Independent Committee of Mutual and
of State Auto Financial and be approved by the directors of each
Company pursuant to the procedures set forth in Section 9.
5. EFFECTIVENESS. This Amendment shall be deemed effective as of January 1,
2002, upon receipt (or deemed receipt) of all necessary regulatory
approvals, the unanimous approval of the Board of Directors of Mutual
(specifically including the members of the Independent Committee of the
Board of Directors of Mutual) and the unanimous approval of the Board of
Directors of State Auto Financial (specifically including the members of
the Independent Committee of the Board of Directors of State Auto
Financial). Unless and until all such approvals are received or deemed
received, this Amendment shall not bind the parties hereto or amend or
supplement the Agreement.
6. REAFFIRMATION OF BALANCE OF THE AGREEMENT. Except as expressly amended
hereby, the Agreement is hereby reaffirmed by the parties hereto. All terms
and provisions of Sections 6 through 17 of the Agreement shall apply to and
be deemed incorporated into this Amendment.
In Witness whereof, each of the parties hereto has subscribed its name
below effective as of the date first above written, subject to the provisions of
Section 5 above.
STATE AUTOMOBILE MUTUAL INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, President
STATE AUTO FINANCIAL CORPORATION
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, President
STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, President
STATE AUTO NATIONAL INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, President
MILBANK INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, President
STATE AUTO INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, President
STATECO FINANCIAL SERVICES, INC.
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, President
STRATEGIC INSURANCE SOFTWARE, INC.
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, President
518 PROPERTY AND MANAGEMENT LEASING, LLC
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, President
