Exhibit 10(LL)
AMENDMENT NO. 3
TO
MANAGEMENT AND OPERATIONS AGREEMENT
EFFECTIVE JANUARY 1, 2002
AMENDMENT NO. 3 TO
------------------
MANAGEMENT AND OPERATIONS AGREEMENT
-----------------------------------
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
1
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;
2
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;
3
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
4
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/ Robert H. Moone
-----------------------------------------------
Robert H. Moone, President
STATE AUTO FINANCIAL CORPORATION
By: /s/ Robert H. Moone
-----------------------------------------------
Robert H. Moone, President
STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY
By: /s/ Robert H. Moone
-----------------------------------------------
Robert H. Moone, President
STATE AUTO NATIONAL INSURANCE COMPANY
By: /s/ Robert H. Moone
-----------------------------------------------
Robert H. Moone, President
MILBANK INSURANCE COMPANY
By: /s/ Robert H. Moone
-----------------------------------------------
Robert H. Moone, President
STATE AUTO INSURANCE COMPANY
By: /s/ Robert H. Moone
-----------------------------------------------
Robert H. Moone, President
5
STATECO FINANCIAL SERVICES, INC.
By: /s/ Robert H. Moone
-----------------------------------------------
Robert H. Moone, President
STRATEGIC INSURANCE SOFTWARE, INC.
By: /s/ Robert H. Moone
-----------------------------------------------
Robert H. Moone, President
518 PROPERTY AND MANAGEMENT LEASING, LLC
By: /s/ Robert H. Moone
-----------------------------------------------
Robert H. Moone, President
6