Exhibit 10(VV)
Term Loan Note from
State Auto Financial Corporation to
KeyBank National Association
Dated as of
December 23, 2002
TERM LOAN NOTE
$15,000,000 Cleveland, Ohio As of December 23, 2002
FOR VALUE RECEIVED, the undersigned, STATE AUTO FINANCIAL
CORPORATION, an Ohio corporation (the "Borrower"), promises to pay to the order
of KEYBANK NATIONAL ASSOCIATION (hereinafter called the "Bank", which term shall
include any subsequent holder hereof) at 127 Public Square, Cleveland, Ohio
44114 or such other place as the Bank may from time to time designate in writing
the sum of Fifteen Million Dollars ($15,000,000) (hereinafter called the
"Principal Sum"), together with interest as hereinafter provided, and payable at
the time(s) and in the manner(s) hereinafter provided. The Borrower agrees that
the advance of the Principal Sum and all payments of principal and interest will
be evidenced by entries made by the Bank into its electronic data processing
system and/or internal memoranda maintained by the Bank. The Borrower further
agrees that the sum or sums shown on the most recent printout from the Bank's
electronic data processing system and/or such memoranda shall be rebuttably
presumptive evidence of the amount of the Principal Sum and of the amount of any
accrued interest.
1. INTEREST.
(a) RATES. The Principal Sum shall be comprised of, at the option of
the Borrower, Base Rate Portions and LIBOR Portions. Interest will accrue on the
unpaid balance of the Principal Sum until paid (i) as to the Base Rate Portions,
at a variable rate of interest per annum equal to the Base Rate, and (ii) as to
each LIBOR Portion, at a rate per annum equal to the sum of the Adjusted LIBOR
for the Interest Period of such LIBOR Portion, PLUS Seventy-five (75) Basis
Points.
(b) COMPUTATIONS OF INTEREST AND FEES. All interest shall be calculated
on the basis of a 360-day year for the actual number of days that the Principal
Sum or any part thereof remains unpaid. (including the day of advance but
excluding the day of payment). Each determination by the Bank of an interest
rate hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(c) PAYMENT NOT ON BANKING DAY. Whenever any payment hereunder shall be
stated to be due on a day other than a Banking Day, such payment shall be made
on the next succeeding Banking Day, except that, if such extension would cause
payment of interest on or principal of a LIBOR Portion to be made in the next
following calendar month, such payment shall be made on the immediately
preceding Banking Day. Any such extension or reduction of time shall in such
case be included in the computation of payment of interest.
2. PROCEDURES FOR RATE DESIGNATION.
(a) RATE CONVERSION AND CONTINUATION. Prior to the advance of the
Principal Sum to the Borrower, the Borrower delivered to the Bank an initial
borrowing request in which the Borrower designated the Types of Portions of such
advance that are, respectively, Base Rate Portion and LIBOR Portions. From and
after such advance, but subject to the terms and conditions of this Note, the
Borrower shall have the right to cause a Rate Conversion or Rate Continuation in
respect of any Portion then outstanding, upon request delivered by the Borrower
to the Bank not later than 12:00 noon (Cleveland, Ohio time) (i) on the day that
is the Banking Day on which the Borrower desires to convert any LIBOR Portion
into a Base Rate Portion, and (ii) on the day that is three (3) Banking Days
prior to the Banking
Page 1 of 18 Pages
Day on which the Borrower desires to (A) convert any Base Rate Portion into
a LIBOR Portion for a given Interest Period, (B) continue any LIBOR Portion as
a LIBOR Portion for an additional Interest Period of the same duration, or
(C) convert any LIBOR Portion having a particular Interest Period into a
LIBOR Portion having a different permissible Interest Period.
(b) CERTAIN LIMITATIONS AND REQUIREMENTS. Each such Rate Conversion or
Rate Continuation shall be subject to the following:
(i) If less than all the outstanding principal amount of a
Portion is converted or continued, the principal amount of such Portion
converted or continued shall, in the case of LIBOR Portions, not be
less than Five Hundred Thousand Dollars ($500,000) or additional
increments of One Hundred Thousand Dollars ($100,000) in excess
thereof;
(ii) Each Rate Conversion or Rate Continuation shall be
effected by the Bank by applying the proceeds of the Portion resulting
from such Rate Conversion or Rate Continuation to the Portion being
converted or continued, as the case may be, and the accrued interest on
any such Portion (or portion thereof) being converted or continued
shall be paid to the Bank at the time of such Rate Conversion or Rate
Continuation;
(iii) LIBOR Portions may not be converted or continued at a
time other than the end of the Interest Period applicable thereto
unless the Borrower shall pay, upon demand, any amounts due to the Bank
pursuant to Section 4(b) hereof;
(iv) No Portion may be converted into or continued as a LIBOR
Portion less than one month prior to the Stated Maturity Date;
(v) The Borrower shall not request a LIBOR Portion if, after
giving effect to such request, there would be outstanding more than
four (4) LIBOR Portions;
(vi) Without limiting any other right or remedy of the Bank
then available to the Bank, upon and during the continuance of an Event
of Default, the Borrower may not convert or continue any Portion into a
LIBOR Portion; and
(vii) Any LIBOR Portion that cannot be converted into or
continued as a LIBOR Portion by reason of any of the foregoing
limitations shall be automatically converted at the end of the Interest
Period in effect for such LIBOR Portion into a Base Rate Portion.
Each such request for a conversion or continuation (a "Rate Conversion/
Continuation Request") shall be transmitted by the Borrower to the Bank in
writing by a medium acceptable to the Bank prior to the effective date of the
Rate Conversion or Rate Continuation requested, in the form specified by the
Bank from time to time, setting forth (A) the identity and amount of the Portion
that the Borrower requests to be converted or continued, (B) the Type of Portion
into which such outstanding Portion is to be converted or continued, (C) if such
notice requests a Rate Conversion, the date of the Rate Conversion (which shall
be a Banking Day) and (D) in the case of a Portion being converted into or
continued as a LIBOR Portion, the Interest Period for such LIBOR Portion. The
Borrower may make Rate Conversion/Continuation Requests telephonically so long
as written confirmation of such Rate Conversion or Rate Continuation is received
by the Bank by 1:00 p.m. (Cleveland, Ohio time) on the same day of such
telephonic Rate Conversion/Continuation Request. The Bank may rely on such
telephonic Rate Conversion/Continuation Request to the same extent that the Bank
may rely on a written Rate Conversion/Continuation Request. Each Rate
Conversion/Continuation Request, whether telephonic or written, shall be
irrevocable and binding on the Borrower and subject to the breakage compensation
provisions of Section 4(b) hereof.
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The Borrower shall bear all risks related to its giving any Rate
Conversion/Continuation Request telephonically or by such other method of
transmission as the Borrower shall elect.
3. PAYMENTS.
(a) Subject to the provisions of the Section 10 hereof, the Principal
Sum shall be due and payable in full on the Stated Maturity Date.
(b) Interest accrued on Base Rate Portions and LIBOR Portions shall be
due and payable:
(i) as to Base Rate Portions, quarterly, in arrears, on the
last day of each calendar quarter (in respect of the quarter then
ending), commencing with December 31, 2002, and at maturity (whether by
reason of acceleration or otherwise), and
(ii) as to each LIBOR Portion, (A) on the last day of the
Interest Period of such LIBOR Portion, (B) if such Interest Period has
a duration of more than three months, three months after the first day
of such Interest Period and (C) on the earlier date on which such LIBOR
Portion shall be converted to a Base Rate Portion or to a LIBOR Portion
of a different Interest Period or paid in full and at maturity (whether
by reason of acceleration or otherwise).
4. PREPAYMENT.
(a) PERMITTED PREPAYMENTS. Except for breakage compensation under
Section 4(b) hereof, the Borrower may prepay, without penalty or premium, not
later than 12:00 noon (Cleveland, Ohio time): (i) in the case of any LIBOR
Portion, upon at least three (3) Banking Days' notice to the Bank prior to the
date fixed for such prepayment; and (ii) in the case of any Base Rate Portion,
upon notice to the Bank not later than 12:00 noon (Cleveland, Ohio time) on the
date fixed for such prepayment, in each case stating the proposed date and
aggregate principal amount of the prepayment, and, upon such notice, shall
prepay the outstanding aggregate principal amount of such Portion in whole or in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid; provided, however, that (1) each partial prepayment of
a LIBOR Portion shall be in a principal amount of Five Hundred Thousand Dollars
($500,000) or additional increments of One Hundred Thousand Dollars ($100,000)
in excess thereof, and (2) each prepayment of a Base Rate Portion shall be in an
aggregate principal amount of One Hundred Thousand Dollars ($100,000) or
additional increments of Fifty Thousand Dollars ($50,000) in excess thereof. Any
prepayment of any LIBOR Portion made pursuant to this paragraph on other than
the last day of the Interest Period applicable thereto shall obligate the
Borrower to pay breakage compensation pursuant to Section 4(b) hereof.
(b) BREAKAGE COMPENSATION FOR LIBOR PORTIONS. The Borrower shall
compensate the Bank, upon its written request (which request shall set forth the
detailed basis for requesting and the method of calculating such compensation),
for all reasonable losses (including loss of profits), expenses and liabilities
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required by
the Bank to fund its LIBOR Portions) which the Bank may sustain: (i) if for any
reason (other than a default by the Bank), a conversion or continuation in
respect of a LIBOR Portion does not occur on a date specified therefor in a Rate
Conversion/Continuation Request (whether or not rescinded or withdrawn by or on
behalf of the Borrower), or (ii) if any repayment, prepayment, Rate
Continuation, Rate Conversion of any LIBOR Portion, or any portion thereof,
occurs on a date which is not the last day of the Interest Period of such LIBOR
Portion; or (iii) if any prepayment of any LIBOR Portion is not made on any date
specified in a notice of prepayment given
Page 3 of 18 Pages
by the Borrower; or (iv) as a consequence of any other default by the Borrower
to repay any LIBOR Portion when required by the terms of this Note.
5. RESERVES; TAXES; INDEMNITIES.
(a) RESERVES OR DEPOSIT REQUIREMENTS. If at any time any Law, treaty or
regulation (including, without limitation, Regulation D of the Board of
Governors of the Federal Reserve System) or the interpretation thereof by any
governmental authority charged with the administration thereof or any central
bank or other fiscal, monetary or other authority shall impose (whether or not
having the force of Law), modify or deem applicable any reserve and/or special
deposit requirement (other than reserves included in the Reserve Percentage, the
effect of which is reflected in the interest rate(s) of the LIBOR Portion(s) in
question) against assets held by, or deposits in or for the amount of any loans
by, the Bank, and the result of the foregoing is to increase the cost (whether
by incurring a cost or adding to a cost) to the Bank of making or maintaining
hereunder LIBOR Portions or to reduce the amount of principal or interest
received by the Bank with respect to such LIBOR Portions, then upon demand by
the Bank the Borrower shall pay to the Bank from time to time on each date on
which interest otherwise is due with respect to such Portions, as additional
consideration hereunder, additional amounts sufficient to fully compensate and
indemnify the Bank for such increased cost or reduced amount, assuming (which
assumption the Bank need not corroborate) such additional cost or reduced amount
was allocable to such LIBOR Portions. A certificate as to the increased cost or
reduced amount as a result of any event mentioned in this Section 5(a), setting
forth the calculations therefor, shall be promptly submitted by the Bank to the
Borrower and shall, in the absence of manifest error, be conclusive and binding
as to the amount thereof. Notwithstanding any other provision of this Note,
after any such demand for compensation by the Bank, the Borrower, upon at least
three (3) Banking Days' prior written notice to the Bank, may prepay the
affected LIBOR Portions in full or convert all LIBOR Portions to Base Rate
Portions regardless of the Interest Period of any thereof. Any such prepayment
or conversion shall entitle the Bank to the breakage compensation provided for
in Section 4(b) hereof.
(b) IMPOSITION OF TAXES. In the event that by reason of any Law,
regulation or requirement or in the interpretation thereof by an official
authority, or the imposition of any requirement of any central bank whether or
not having the force of Law, the Bank shall, with respect to this Note, be
subjected to any tax, levy, impost, charge, fee, duty, deduction or withholding
of any kind whatsoever (other than any tax imposed upon the total net income of
the Bank) and if any such measures or any other similar measure shall result in
an increase in the cost to the Bank of making or maintaining any LIBOR Portion
or in a reduction in the amount of principal, interest or commitment fee
receivable by the Bank in respect thereof, then the Bank shall promptly notify
the Borrower in writing stating the reasons therefor. The Borrower shall
thereafter pay to the Bank upon demand from time to time on each date on which
interest otherwise is due with respect to such LIBOR Portions, as additional
consideration hereunder, such additional amounts as will fully compensate the
Bank for such increased cost or reduced amount. A certificate as to any such
increased cost or reduced amount, setting forth the calculations therefor, shall
be submitted by the Bank to the Borrower and shall be rebuttably presumptive
evidence of the amount thereof. Notwithstanding any other provision of this
Note, after any such demand for compensation by the Bank, the Borrower, upon at
least three (3) Banking Days prior written notice to the Bank, may prepay the
affected LIBOR Portions in full or convert all LIBOR Portions to Base Rate
Portions regardless of the Interest Period of any thereof. Any such prepayment
or conversion shall entitle the Bank to breakage compensation provided for in
Section 4(b) hereof.
(c) EURODOLLAR DEPOSIT UNAVAILABLE OR INTEREST RATE UNASCERTAINABLE. In
respect of any LIBOR Portion, in the event that the Bank shall have determined
that, by reason of circumstances affecting the London interbank market for
dollar deposits, adequate and reasonable means do not exist for
Page 4 of 18 Pages
ascertaining the LIBOR applicable to the Interest Period thereof, the Bank shall
promptly give notice of such determination to the Borrower and (i) any notice of
conversion or continuation of existing Portions to LIBOR Portions previously
given by the Borrower and not yet converted or continued, as the case may be,
shall be deemed a notice to make a Base Rate Portion, and (ii) the Borrower
shall be obligated either to prepay or to convert any outstanding LIBOR Portions
on the last day of the then current Interest Period or Periods with respect
thereto. Any such prepayment or conversion shall entitle the Bank to breakage
compensation provided for in Section 4(b) hereof.
(d) CHANGES IN LAW RENDERING LIBOR PORTIONS UNLAWFUL. If at any time
any new Law, treaty or regulation, or any change in any existing Law, treaty or
regulation, or any interpretation thereof by any governmental or other
regulatory authority charged with the administration thereof, shall make it
unlawful for the Bank to fund any LIBOR Portions which it is committed to make
hereunder with moneys obtained in the Eurodollar market, the commitment of the
Bank to fund LIBOR Portions shall, upon the happening of such event, forthwith
be suspended for the duration of such illegality, and the Bank shall by written
notice to the Borrower declare that its commitment with respect to such Portions
has been so suspended. If and when such illegality ceases to exist, such
suspension shall cease and the Bank shall similarly notify the Borrower. If any
such change shall make it unlawful for the Bank to continue in effect the
funding in the applicable Eurodollar market of any LIBOR Portion previously made
by it hereunder, the Bank shall, upon the happening of such event, notify the
Borrower thereof in writing stating the reasons therefor, and the Borrower
shall, on the earlier of (i) the last day of the then current Interest Period or
(ii) if required by such Law, regulation or interpretation, on such date as
shall be specified in such notice, either convert all LIBOR Portions to Base
Rate Portions to the extent permissible under this Note or prepay all LIBOR
Portions to the Bank in full. Any such prepayment or conversion shall entitle
the Bank to breakage compensation as provided in Section 4(b) hereof.
(e) CAPITAL ADEQUACY. If the Bank shall have determined, that, whether
in effect at the date of this Note or hereafter in effect, any applicable Law,
rule, regulation or guideline regarding capital adequacy, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or its
Lending Office) with any request or directive regarding capital adequacy
(whether or not having the force of Law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital allocated to the transactions contemplated by this Note
(or the capital of its holding company) as a consequence of its obligations
hereunder to a level below that which the Bank (or its holding company) could
have achieved but for such adoption, change or compliance (taking into
consideration the Bank's policies or the policies of its holding company with
respect to capital adequacy) by an amount deemed by the Bank to be material,
then from time to time, within 15 days after demand by the Bank, the Borrower
shall pay to the Bank such additional amount or amounts as will compensate the
Bank (or its holding company) for such reduction. The Bank will designate a
different lending office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of the Bank, be
otherwise disadvantageous to the Bank. A certificate of the Bank claiming
compensation under this section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, the Bank may use any reasonable
averaging and attribution methods. Failure on the part of the Bank to demand
compensation for any reduction in return on capital with respect to any period
shall not constitute a waiver of the Bank's rights to demand compensation for
any reduction in return on capital in such period or in any other period. The
protection of this Section 5(e) shall be available to the Bank regardless of any
possible contention of the invalidity or inapplicability of the Law, regulation
or other condition which shall have been imposed.
Page 5 of 18 Pages
6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Bank as follows:
(a) EXISTENCE; SUBSIDIARIES. The Borrower is a corporation, duly
organized and validly existing and in good standing under the Laws of the State
of Ohio and is duly qualified and authorized to do business wherever it owns any
real estate or personal property or transacts any substantial business. The
Borrower has no Subsidiaries, other than those listed on Schedule 6(a) hereto.
Each such Subsidiary is duly organized and validly existing and in good standing
under the laws of the state of its formation and is duly qualified and
authorized to do business wherever it owns any real estate or personal property
or transacts any substantial business.
(b) POWER, AUTHORIZATION AND CONSENT. The execution, delivery and
performance by the Borrower of this Note (i) are within the Borrower's legal
power and authority, (ii) have been duly authorized by all necessary or proper
action of the Borrower, (iii) do not require the consent or approval of any
governmental body, agency, authority or any other Person which has not been
obtained, (iv) will not violate (A) any provision of Law applicable to the
Borrower, (B) any provision of the Borrower's articles of incorporation or code
of regulations (or equivalent documents otherwise named), or (C) any material
agreement or material indenture by which the Borrower or its property is bound,
or (v) will not result in the creation or imposition of any lien or encumbrance
on any property or assets of the Borrower.
(c) LITIGATION; PROCEEDINGS. No action, suit, investigation or
proceeding is now pending or, to the knowledge of the Borrower, threatened,
against the Borrower, at Law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any federal, state, local or foreign
government or of any agency or subdivision thereof, or before any arbitrator or
panel of arbitrators, which, if determined adversely to the Borrower, has a
reasonable probability of causing or resulting in a material adverse effect on
the condition of the Borrower, financial or otherwise.
(d) FINANCIAL CONDITION. The financial statements of the Borrower for
the Fiscal Year ending December 31, 2001 and for the Fiscal Quarter ending
September 30, 2002, previously delivered to the Bank, are true and complete
(including, without limiting the generality of the foregoing, a disclosure of
all material contingent liabilities), have been prepared in accordance with GAAP
applied on a basis consistent and fairly present its then financial condition
and operations for the periods then ending. There has been no material change in
the Borrower's financial condition, properties or business since either such
date.
(e) LAWFUL OPERATIONS. The operations of the businesses of the Borrower
and its Subsidiaries are in compliance with all requirements imposed by Law or
regulation, whether federal, state or local, except where the noncompliance with
any such Laws could not be reasonably expected to result in a material adverse
effect the Borrower's financial condition, properties or business or its ability
to perform its obligations hereunder.
(f) REGULATION G/REGULATION U/REGULATION X COMPLIANCE. The Borrower is
not engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying "margin stock",
(as defined by Regulation U of the Board of Governors of the Federal Reserve
System of the United States (as amended from time to time)) and all official
rulings and interpretations thereunder or thereof, and at no time shall more
than 25% of the value of the assets of the Borrower that are subject to any
"arrangement" (as such term is used in section 221.2(g) of Regulation U) be
represented by "margin stock". No part of the proceeds of the Principal Sum will
be used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, (i) to purchase or to extend credit to others for the purpose of
purchasing "margin stock" or to carry or to extend credit to others for the
purpose of carrying stock which will be "margin stock" or (ii) for any purpose
that entails a violation
Page 6 of 18 Pages
of, or is inconsistent with, the provisions of the Regulations of the Board of
Governors of the Federal Reserve System of the United States, including
Regulation G, U or X.
7. FINANCIAL REPORTING.
(a) QUARTERLY FINANCIAL STATEMENTS. The Borrower shall furnish to the
Bank promptly, and in any case within sixty (60) days after the end of each of
the first three (3) Fiscal Quarters of each Fiscal Year, an unaudited
Consolidated balance sheet of the Borrower as at the end of that period and the
related unaudited Consolidated statements of income and cash flows, all prepared
in accordance with GAAP and otherwise in form and detail satisfactory to the
Bank.
(b) ANNUAL FINANCIAL STATEMENTS. The Borrower shall furnish to the Bank
promptly, and in any case within ninety (90) days after the end of each Fiscal
Year, the Consolidated balance sheets of the Borrower and its Subsidiaries as at
the end of such Fiscal Year and the related Consolidated statement of income, of
shareholders' equity and of cash flows for such Fiscal Year, in each case
setting forth comparative figures for the preceding Fiscal Year, all in
reasonable detail and accompanied by the opinion with respect to such
Consolidated financial statements of independent public accountants of
recognized national standing selected by the Borrower and satisfactory to the
Bank, which opinion shall be unqualified and shall state that such accountants
audited such Consolidated financial statements in accordance with generally
accepted auditing standards, that such accountants believe that such audit
provides a reasonable basis for their opinion, and that in their opinion such
Consolidated financial statements present fairly, in all material respects, the
Consolidated financial position of the Borrower and its Subsidiaries as at the
end of such Fiscal Year and the Consolidated results of their operations and
cash flows for such Fiscal Year in conformity with generally accepted auditing
standards.
(c) OFFICER'S CERTIFICATES. The Borrower shall furnish to the Bank
concurrently with the financial statements delivered in connection with clause
(a) and (b) above, a certificate of the chief financial officer of the Borrower,
in form and content specified by the Bank, (A) certifying that (1) to his or her
knowledge and belief, those financial statements fairly present in all material
respects the financial condition and results of operations of the Borrower
(subject, in the case of interim financial statements, to routine year-end audit
adjustments) and (2) no Event of Default or Incipient Default then exists or if
any does, a brief description thereof and of the Borrower's intentions in
respect thereof, and (B) setting forth the calculations necessary to determine
whether or not the Borrower and its Subsidiaries are in compliance with
financial covenants in Section 8 hereof.
(d) QUARTERLY STATUTORY STATEMENTS. The Borrower shall cause each
Insurance Subsidiary to furnish to the Bank promptly, and in any case within
forty-five (45) days after the end of each of the first three (3) fiscal
quarters of such Insurance Subsidiary's fiscal year, its quarterly Statutory
Statement for such quarterly fiscal period, together with the opinion thereon of
a senior financial officer of such Insurance Subsidiary stating that such
Statutory Statement presents the financial condition of such Insurance
Subsidiary for the fiscal period in accordance with SAP.
(e) ANNUAL STATUTORY STATEMENTS AND CERTIFICATE OF VALUATION ACTUARY.
The Borrower shall cause each Insurance Subsidiary to furnish to the Bank
promptly, and in any case within ninety (90) days after the end of each fiscal
year of such Insurance Subsidiary, (i) its annual Statutory Statement for such
annual fiscal period, together with the opinion thereon of a senior financial
officer of such Insurance Subsidiary stating that such Statutory Statement
presents the financial condition of such Insurance Subsidiary for the fiscal
period in accordance with SAP and (ii) a certificate of a valuation actuary
affirming the adequacy of reserves taken by such Insurance Subsidiary in respect
of future policyholder benefits at the end of such fiscal year.
Page 7 of 18 Pages
(f) CERTIFICATE OF AUDITORS. The Borrower shall cause each Insurance
Subsidiary to furnish to the Bank promptly, and in any case within one hundred
eighty (180) days after the end of each fiscal year of such Insurance
Subsidiary, the opinion with respect to the most recent Statutory Statement of
each Insurance Subsidiary of independent public accountants of recognized
national standing selected by such Insurance Subsidiary and satisfactory to the
Bank, which opinion shall be shall state that such accountants audited such
Statutory Statement, that such accountants believe that such Statutory Statement
presents fairly, in all material respects, the financial position of such
Insurance Subsidiary for the period covered by such Statutory Statement in
conformity with SAP.
(g) NOTICE OF DEFAULT. Immediately upon becoming aware of the existence
of an Event of Default or Incipient Default, the Borrower shall deliver to the
Bank a written notice specifying the nature and period of existence thereof and
what action the Borrower is taking or propose to take in respect thereof.
(h) OTHER INFORMATION. Promptly upon receipt of a request therefor from
the Bank, the Borrower shall prepare and deliver to the Bank such other
information with respect to the business, property and financial condition of
the Borrower and its Subsidiaries, in form and content reasonably satisfactory
to the Bank, as the Bank may from time to time designate, including, but not
limited to, those reports and information required under the Put Agreement among
State Automobile Mutual Insurance Company, the Borrower and Bank One, NA, As
Agent, dated as of November 16, 2001, as amended (the "Put Agreement").
(i) FISCAL YEAR. The Borrower shall not change its Fiscal Year.
8. FINANCIAL COVENANTS.
(a) FIXED CHARGE COVERAGE. The Borrower shall not suffer or permit, as
of the end of any Fiscal Quarter, the Fixed Charge Coverage Ratio to be less
than 1.00 to 1.
(b) STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY. The Borrower
shall not suffer or permit its Subsidiary, State Auto Property and Casualty
Insurance Company:
(i) At any time, to have a Statutory Surplus of less than Two Hundred
Two Million Dollars ($202,000,000);
(ii) As at the end of any of its fiscal years, to have a Risk-Based
Capital Ratio of less than 3.00 to 1; or
(iii) At any time, to have a Premium to Surplus Ratio of more than 2.75
to 1.
9. OTHER COVENANTS. The Borrower shall perform each and all of the
following agreements until all indebtedness evidenced hereby is paid in full:
(a) CORPORATE EXISTENCE. The Borrower shall maintain, and cause each of
its Subsidiaries to maintain, (i) its corporate existence and (ii) its good
standing in the jurisdiction of its incorporation or organization and its
qualification in each other jurisdiction in which the failure so to do would
have a material adverse effect on its financial condition, business, operations
or property.
Page 8 of 18 Pages
(b) INSURANCE AUTHORIZATIONS. The Borrower shall cause each of its
Insurance Subsidiaries to remain authorized to issue policies of insurance and
in good standing under the regulations and other requirements of its Applicable
Insurance Regulatory Authority, provided that it is understood and agreed that
the Borrower shall be permitted to cause Mid-Plains Insurance Company to merge
with and into Farmers Casualty Insurance Company, with Farmers Casualty
Insurance Company being the survivor, should it determine that such a
transaction serves the Borrower's business interests.
(c) RECORDS. The Borrower shall (a) at all times maintain true and
complete records and books of account and, without limiting the generality of
the foregoing, maintain appropriate reserves for possible losses and
liabilities, all in accordance with GAAP and (b) at all reasonable times and
upon reasonable prior notice permit the Bank to examine its books and records
and to make excerpts therefrom and transcripts thereof; provided, however, that
if an Event of Default shall have occurred and be continuing, no such prior
notice shall be required.
(d) INDEBTEDNESS. The Borrower shall not create, incur or suffer to
exist any Indebtedness of any kind, other than:
(i) the Indebtedness of the Borrower under this Note,
(ii) any other Indebtedness existing on the date hereof and
listed on Schedule 9(d) hereof, and
(iii) Indebtedness subordinated to the Borrower's obligations
hereunder in a writing satisfactory to the Bank.
(e) LIENS. The Borrower shall not (a) acquire any property subject to
any consignment, lease, land contract or other title retention contract (this
section shall not apply to true leases, consignments, tolling or other
possessory agreements in respect of the property of others whereby the Borrower
does not have legal or beneficial title to such property and which, pursuant to
GAAP, are not required to be capitalized), (b) sell or otherwise transfer any
receivables or other accounts, whether with or without recourse, or (c) suffer
or permit any property now owned or hereafter acquired by it to be or become
encumbered by any mortgage, security interest, financing statement or lien of
any kind or nature, other than:
(i) any lien for a tax, assessment or governmental charge or
levy which is not yet due and payable or which is being
contested in good faith and as to which the Borrower shall
have made appropriate reserves,
(ii) any lien securing only its workers' compensation,
unemployment insurance and similar obligations,
(iii) any mechanics, carrier's or similar common law or statutory
lien incurred in the normal course of business,
(iv) any transfer of a check or other medium of payment for
deposit or collection through normal banking channels or
any similar transaction in the normal course of business,
(v) easements, restrictions, minor title irregularities and
similar matters having no adverse effect as a practical
matter on the ownership or use of any Borrower's real
property, and
Page 9 of 18 Pages
(vi) any other liens existing on the date hereof which are
identified on Schedule 9(e) hereto.
(f) MERGER. The Borrower shall not merge or consolidate with or into,
or enter into any merger agreement with any other entity, or lease, sell or
transfer all or substantially all its property, assets and business to any other
entity.
(g) USE OF PROCEEDS. The Borrower shall use the proceeds of the
Principal Sum for the purpose of providing additional capital to its
Subsidiary, State Auto Property and Casualty Insurance Company.
(h) MOST FAVORED COVENANT STATUS. If the Borrower at any time after the
date hereof, issues or guarantees any unsecured Indebtedness for money borrowed
or represented by bonds, notes, debentures or similar securities in an aggregate
amount exceeding $25,000,000, to any lender or group of lenders acting in
concert with one another, or one or more institutional investors, pursuant to a
loan agreement, credit agreement, note purchase agreement, indenture, guaranty
or other similar instrument, which agreement, indenture, guaranty or instrument,
includes affirmative or negative business or financial covenants (or any events
of default or other type of restriction which would have the practical effect of
any affirmative or negative business or financial covenant, including, without
limitation, any "put" or mandatory prepayment of such Indebtedness upon the
occurrence of a "change of control") which are applicable to the Borrower, other
than those set forth herein, the Borrower shall promptly so notify the Bank and,
if the Bank shall so request by written notice to the Borrower, the Borrowers
and the Bank shall promptly amend this Note to incorporate some or all of such
provisions, in the discretion of the Bank, into this Note.
10. DEFAULT. The occurrence of any one or more of the following events
shall constitute an "Event of Default":
(a) PAYMENT. (i) If the Borrower shall fail to pay any portion of the
Principal Sum when due and payable or declared due and payable; or (ii) if the
Borrower shall fail to pay any portion of the interest or other sum evidenced
hereby when due and payable or declared due and payable or within five (5) days
thereafter.
(b) COVENANT. If the Borrower shall fail or omit to perform, observe or
satisfy any of the warranties, covenants, agreements or conditions contained in
this Note;
(c) CROSS DEFAULT. If (i) there shall occur a "Put Event" under the Put
Agreement, or there shall occur a "Default" under the Credit Agreement, or (ii)
the Borrower, after any applicable notice or grace period or both, (A) defaults
in the payment of any principal or interest due and owing upon any other
Indebtedness or in excess of Five Million Dollars ($5,000,000) in aggregate
principal amount or (B) defaults in the performance of any other agreement, term
or condition contained in any promissory note, agreement or other instrument
under which such Indebtedness or Indebtednesses in excess of Five Million
Dollars ($5,000,000) in the aggregate are evidenced, created, constituted,
secured or governed which default causes, or permits the holder(s) of such
Indebtedness or Indebtednesses the right to cause, the acceleration of the
maturity thereof;
(d) INSOLVENCY. If the Borrower shall become insolvent or suspend
business (other than a temporary work stoppage as a result of a strike, lockout
or other similar labor problem) or shall file a voluntary petition in
bankruptcy, or shall file a voluntary petition or an answer admitting the
jurisdiction
Page 10 of 18 Pages
of the court and the material allegations of, or shall consent to, any
involuntary petition pursuant to or purporting to be pursuant to any bankruptcy,
reorganization or insolvency law of any jurisdiction, or shall make an
assignment for the benefit of creditors, or shall apply for or consent to the
appointment of any receiver or trustee of, or of a substantial part of, the
property of the Borrower;
(e) INVOLUNTARY PROCEEDINGS. If an order shall be entered (without the
application, approval or consent of the Borrower) and shall not be dismissed or
stayed within thirty (30) days from its entry pursuant to or purporting to be
pursuant to any bankruptcy, reorganization or insolvency law of any jurisdiction
(i) approving an involuntary petition seeking reorganization; or (ii) approving
an involuntary petition seeking an arrangement with creditors of the Borrower;
(f) CHANGE OF CONTROL. A majority interest of the equity ownership of
the Borrower shall be sold, transferred, conveyed or otherwise disposed of or
the control or management of the Borrower shall materially change;
(g) JUDGMENTS. Final judgment for the payment of money in excess of
$1,000,000 shall be rendered against the Borrower, and the same shall remain
undischarged for a period of thirty (30) days during which execution shall not
be effectively stayed;
(h) WARRANTIES. If any representation, warranty or statement made in or
pursuant to this Note or any other related document or any other material
information furnished by the Borrower to the Bank shall be false or erroneous in
any material respect when furnished or made or deemed furnished or made
hereunder;
(i) TERMINATION OF PLAN OR CREATION OF WITHDRAWAL LIABILITY. If (a) any
Reportable Event (as defined in Title IV of the Employee Retirement Income
Security Act of 1974, as amended, except actions of general applicability by the
Secretary of Labor under Section 110 of such Act) occurs and the Bank, in its
sole determination, deem such Reportable Event to constitute grounds (i) for the
termination of any Plan by the Pension Benefit Guaranty Corporation or (ii) for
the appointment by the appropriate United States district court of a trustee to
administer any Plan and such Reportable Event shall not have been fully
corrected or remedied to the full satisfaction of the Bank within thirty (30)
days after giving of written notice of such determination to the Borrower by the
Bank or (b) any Plan shall be terminated within the meaning of Title IV of ERISA
(other than a Standard Termination, as that term is defined in Section 4041(b)
of ERISA), or (c) a trustee shall be appointed by the appropriate United States
district court to administer any Plan, or (d) the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any Plan or to appoint a
trustee to administer any Plan or (e) there occurs a withdrawal by the Borrower
or any Subsidiary from a multi-employer plan which results or may result in a
withdrawal liability in an amount that is material in relation to the business,
operations, affairs, financial condition, assets, or properties of the Borrower
and its Subsidiaries taken as a whole; or
(j) CREDIT AGREEMENT DRAW. SAF Funding Corporation shall issue a
"Borrowing Notice" under the Credit Agreement or otherwise shall receive an
"Advance" thereunder.
11. REMEDIES.
(a) OPTIONAL ACCELERATION. Upon the occurrence of an Event of Default
described in any one or more of subparagraphs (a), (b), (c), (f), (g), (h), (i)
or (j) of Section 10 hereof, and at any time thereafter, if any such Event of
Default shall then be continuing, the entire Principal Sum and all interest and
other sums evidenced hereby shall, at the option of the Bank and without demand,
notice, or legal
Page 11 of 18 Pages
process of any kind be declared, and immediately shall become, due and payable;
and the Bank may exercise such rights and remedies as are available to it
hereunder, at law or in equity.
(b) AUTOMATIC ACCELERATION. Upon the occurrence of an Event of Default
described in either of subparagraphs (d) or (e) of Section 10 hereof, the entire
Principal Sum and all interest and other sums evidenced hereby shall
automatically without any action by the Bank, and without demand, notice or
legal process of any kind, be declared, and immediately shall become, due and
payable; and the Bank may exercise such rights and remedies as are available to
it hereunder, at law or in equity.
(c) OFFSETS. If there shall occur or exist any Event of Default, the
Bank shall have the right at any time to set off against, and to appropriate and
apply toward the payment of, any and all indebtedness then owing by the Borrower
to the Bank, whether or not the same shall then have matured, any and all
deposit balances and all other indebtedness then held or owing by that Bank to
or for the credit or account of the Borrower, all without notice to or demand
upon the Borrower or any other person, all such notices and demands being hereby
expressly waived by the Borrower.
(d) DEFAULT INTEREST. If any principal, interest or other sum due under
this Note shall not be paid when due, or if the Principal Sum shall not be paid
at maturity, whether such maturity occurs by reason of lapse of time or by
operation of any provision of acceleration of maturity herein contained (and
without waiving any Event of Default resulting therefrom or limiting any right
or remedy of the Bank), the Principal Sum and the unpaid interest thereon and
any other sum due hereunder shall bear interest, payable on demand, at the
Increased Rate. The Borrower acknowledges that this calculation will result in
the accrual of interest on interest, and the Borrower expressly consents and
agrees to this provision. In addition, notwithstanding anything to the contrary
contained in this Note, upon and during the continuance of an Event of Default,
but without waiving such Event of Default or limiting any right or remedy of the
Bank in respect thereof, all of the Principal Sum and the unpaid interest
thereon and any other sum due hereunder shall bear interest at the Increased
Rate.
(e) LATE CHARGE. Any installment or other payment of interest not paid
within three (3) days after the date on which such payment or installment is due
shall be subject to a late charge equal to five percent (5%) of the amount of
the installment or payment; provided that the charging and payment thereof shall
not be deemed to waive any Event of Default occurring by reason of such failure
to pay.
12. GENERAL PROVISIONS.
(a) CERTAIN WAIVERS. The Borrower hereby waives presentment, notice of
dishonor, protest, notice of protest, and diligence in bringing suit against the
Borrower, and consents that without discharging the Borrower the time of payment
may be extended an unlimited number of times before or after maturity without
notice.
(b) AMENDMENTS. No amendment, modification, termination, or waiver of
any provision of this Note, nor consent to any variance therefrom, shall be
effective unless the same shall be in writing and signed by the Bank (and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given).
(c) CAPTIONS. The captions used herein are for reference only and shall
not be deemed a part of this Note. If any of the terms or provisions of this
Note shall be deemed unenforceable, the enforceability of the remaining terms
and provisions shall not be affected. This Note shall be governed by and
construed in accordance with the law of the State of Ohio.
Page 12 of 18 Pages
(d) BANK EXPENSE; INDEMNIFICATION. The Borrower agrees to pay to the
Bank on demand all costs and expenses (including, without limitation, attorneys'
fees) paid or incurred to prepare and negotiate this Note and related documents,
to modify this Note or any related document, to obtain payment of the
indebtedness evidenced hereby, enforce the provisions of this Note, or to defend
any claims made or threatened against the Bank arising out of the transactions
contemplated hereby (including without limitation, preparations for and
consultations concerning any such matters). The Borrower agrees to indemnify the
Bank and its directors, officers, employees and agents from, and hold each
harmless against, any and all losses, liabilities, claims, damages or expenses
incurred in connection with the loan evidenced hereby, the administration and
enforcement thereof and all transactions incident thereto, except by reason of
the gross negligence or willful misconduct of the Lender.
(e) NOTICES. All notices, requests, demands and other communications
provided for hereunder shall be in writing and addressed to the following
address (or at such other address as may be specified by such party to the other
party in writing):
To the Bank: KeyBank National Association
127 Public Square
Cleveland, Ohio 44114
Attention: Large Corporate
Telecopy: 216.689.4981
To the Borrower: State Auto Financial Corporation
518 East Broad Street
Columbus, Ohio 43215
Attention: Scott Jones
Telecopy: 614.719.0740.
All notices, statements, requests, demands and other communications provided for
hereunder shall be deemed to be given or made when delivered party (including,
without limitation, delivery by facsimile transmission) or forty-eight (48)
hours after being deposited in the mails with postage prepaid by registered or
certified mail, addressed as aforesaid, except that notices from the Borrower to
the Bank pursuant to any of the provisions hereof shall not be effective until
received by the Bank.
(f) GOVERNING LAW; BINDING EFFECT. This Note and any other related
documents shall be governed by and construed in accordance with the Laws of the
State of Ohio and the respective rights and obligations of the Borrower and the
Bank shall be governed by Ohio Law. This Note shall bind the Borrower and its
successors and assigns and shall inure to the benefit of the Bank and its
successors and assigns, including, without limitation, any subsequent holder of
this Note.
13. CERTAIN DEFINITIONS. As used in this Note, the following terms shall
have the following meanings:
"ADJUSTED LIBOR" shall mean a rate per annum equal to the quotient
obtained (rounded upwards, if necessary, to the nearest 1/100th of 1%) by
DIVIDING (i) the applicable LIBOR rate by (ii) 1.00 MINUS the Reserve
Percentage, and which Adjusted LIBOR shall be automatically adjusted on and as
of the effective date of any change in the Reserve Percentage.
"BANKING DAY" shall mean a day of the year on which banks are not
required or authorized to close in Cleveland, Ohio and New York, New York;
provided, however, that, when used in connection with a LIBOR Loan, "Banking
Day" shall mean any such day on which banks are open for dealings in or quoting
deposit rates for dollar deposits in the London interbank market.
Page 13 of 18 Pages
"BASE RATE" shall mean, at any time, the higher of (i) the per annum
rate equal to the Fed Funds Rate, PLUS one hundred fifty Basis Points at such
time and (ii) the Prime Rate at such time.
"BASE RATE PORTION" shall mean those Portions of the Principal Sum on
which the Borrower shall pay interest at a rate based on the Base Rate.
"BASIS POINT" shall mean one one-hundredth of one percent (0.01%).
"BORROWER" shall have the meaning assigned to such term in the first
paragraph of this Note.
"CONSOLIDATED" shall mean the Borrower and its Subsidiaries, taken as a
whole in accordance with GAAP.
"CREDIT AGREEMENT" shall mean the Amended and Restated Credit Agreement
among SAF Funding Corporation, as borrower, certain "Lender" parties thereto,
Bank One, NA, as agent, the Bank, as syndication agent, and National City Bank,
as documentation agent, dated November 16, 2001, as amended.
"EUROCURRENCY LIABILITIES" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"FED FUNDS RATE" shall mean, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Banking Day, for the next preceding Banking Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Banking Day, the average of the quotations for such day on such
transactions received by the Bank from three (3) federal funds brokers of
recognized standing selected by it.
"FISCAL QUARTER" shall mean any of the four consecutive three-month
fiscal accounting periods collectively forming a Fiscal Year of the Borrower,
consistent with the Borrower's past practice.
"FISCAL YEAR" shall mean the Borrower's regular annual accounting
period which shall end December 31, 2002, in respect of the Borrower's current
annual accounting period, and which thereafter shall end on December 31 of each
succeeding calendar year.
"FIXED CHARGE COVERAGE RATIO" means the ratio of (a) the sum of (i) the
greater of (A) 10% of the aggregate amount of statutory capital and surplus of
each Insurance Subsidiary as of the most recently ended calendar year
(determined without duplication in accordance with SAP) or (B) the aggregate net
income earned by each Insurance Subsidiary for the most recently ended four
Fiscal Quarters (determined without duplication in accordance with SAP), PLUS
(ii) cash on hand at the Borrower at the end of the most recently ended Fiscal
Quarter, PLUS (iii) the aggregate net income of each Subsidiary (other than
Insurance Subsidiaries) for the most recently ended four Fiscal Quarters
(determined without duplication in accordance with GAAP) to (b) the sum of (i)
interest payments on the Borrower's Consolidated Indebtedness for the most
recent four quarters, PLUS (ii) scheduled principal amortization payments on the
Borrower's Consolidated Indebtedness for the four Fiscal Quarters following the
date of determination.
"INCIPIENT DEFAULT" shall mean an event, condition or thing which
constitutes, or which with the lapse of any applicable grace period or the
giving of notice or both would constitute, any
Page 14 of 18 Pages
Event of Default and which has not been appropriately waived by the Lenders in
writing or fully corrected prior to becoming an actual Event of Default.
"INCREASED RATE" shall mean, at any time and from time to time, (i) as
to each Portion then outstanding, a rate of interest per annum which is Two
Hundred (200) Basis Points in excess of the rate of interest otherwise accruing
on such Portion at such time, and (ii) as to other obligations of the Borrower
hereunder, Two Hundred (200) Basis Points in excess of the Base Rate.
"INDEBTEDNESS" means, with respect to any person or entity ("Person"),
without duplication, (i) all indebtedness for money borrowed of such Person;
(ii) all bonds, notes, debentures and similar debt securities of such Person;
(iii) the deferred purchase price of capital assets or services which in
accordance with GAAP would be shown on the liability side of the balance sheet
of such Person; (iv) the face amount of all letters of credit issued for the
account of such Person and, without duplication, all drafts drawn thereunder;
(v) all obligations, contingent or otherwise, of such Person in respect of
bankers' acceptances; (vi) all Indebtedness of a second Person secured by any
lien on any property owned by such first Person, whether or not such
Indebtedness has been assumed; (vii) all capitalized lease obligations of such
Person and all Indebtedness of such Person secured by purchase money liens;
(viii) the present value, determined on the basis of the implicit interest rate,
of all basic rental obligations under all "synthetic" leases (i.e. leases
accounted for by the lessee as operating leases under which the lessee is the
"owner" of the leased property for Federal income tax purposes); (ix) all
obligations of such Person to pay a specified purchase price for goods or
services whether or not delivered or accepted, i.e., take-or-pay and similar
obligations; (x) all net obligations of such Person under any so-called `hedge',
`swap', `collar', `cap' or similar interest rate or currency fluctuation
protection agreements; (xi) the full outstanding balance of trade receivables,
notes or other instruments sold with full recourse (and the portion thereof
subject to potential recourse, if sold with limited recourse), other than in any
such case any thereof sold solely for purposes of collection of delinquent
accounts; (xii) the stated value, or liquidation value if higher, of all
redeemable stock (or membership interest or other equity interest) of such
Person; and (xiii) all guaranty and other secondary obligations of such Person;
provided that (a) neither trade payables nor other similar accrued expenses, in
each case arising in the ordinary course of business, unless evidenced by a
note, shall constitute Indebtedness; and (b) the Indebtedness of any Person
shall in any event include (without duplication) the Indebtedness of any other
entity (including any general partnership in which such Person is a general
partner) to the extent such Person is liable thereon as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness provide expressly that such Person is
not liable thereon.
"INSURANCE SUBSIDIARY" shall mean State Auto Property and Casualty
Company, Milbank Insurance Company, State Auto National Insurance Company, State
Auto Insurance Company, Farmers Casualty Insurance Company, Mid-Plains Insurance
Company and, at any time, each other Subsidiary engaged in the insurance
underwriting business at such time.
"INTEREST PERIOD" shall mean, for each LIBOR Portion, the period
commencing on the date on which such Portion is advanced by the Bank or the date
of the Rate Conversion or Rate Continuation of any Portion into a LIBOR Portion
and ending on the numerically corresponding day of the period selected by the
Borrower pursuant to the provisions hereof and each subsequent period commencing
on the last day of the immediately preceding Interest Period in respect of such
Portion and ending on the last day of the period selected by the Borrower
pursuant to the provisions hereof. The duration of each such Interest Period
shall be one (1), two (2), three (3) or six (6) months, in each case as the
Borrower may select, upon delivery to the Bank of a Rate Conversion/Continuation
Request therefor; provided, however, that:
(i) no Interest Period may end on a date later than the Stated
Maturity Date;
Page 15 of 18 Pages
(ii) if there is no such numerically corresponding day in the month
that is such, as the case may be, first, second, third or
sixth month after the commencement of an Interest Period, such
Interest Period shall end on the last day of such month; and
(iii) whenever the last day of any Interest Period in respect of a
LIBOR Portion would otherwise occur on a day other than a
Banking Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Banking Day;
provided, however, that if such extension would cause the last
day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall
occur on the immediately preceding Banking Day.
"LAW" shall mean any law, treaty, regulation, statute or ordinance,
common law, civil law, or any case precedent, ruling, requirement, directive or
request having the force of law of any foreign or domestic governmental
authority, agency or tribunal.
"LIBOR" shall mean, with respect to any LIBOR Loan for any Interest
Period, the per annum rate of interest, determined by the Agent in accordance
with its usual procedures (which determination shall be conclusive and binding
absent manifest error) as of approximately 11:00 A.M. (London time) two (2)
Banking Days prior to the beginning of such Interest Period pertaining to such
LIBOR Loan, appearing on page 3750 of the Dow Jones Telerate Service (or any
successor to or substitute page of such Service, or any successor to or
substitute for such Service providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the Agent from
time to time for purposes of providing quotations of interest rates applicable
to dollar deposits in the London interbank market) as the rate in the London
interbank market for dollar deposits in immediately available funds with a
maturity comparable to such Interest Period. In the event that such a rate
quotation is not available for any reason, then the rate shall be the rate,
determined by the Agent as of approximately 11:00 A.M. (London time) two (2)
Banking Days prior to the beginning of such Interest Period pertaining to such
LIBOR Loan, to be the average (rounded upwards, if necessary, to the nearest one
sixteenth of one percent (1/16th of 1%)) of the per annum rates of interest at
which dollar deposits in immediately available funds approximately equal in
principal amount to such LIBOR Loan and for a maturity comparable to the
Interest Period are offered to KeyBank by prime banks in the London interbank
market.
"LIBOR PORTIONS" shall mean those Portions of the Principal Sum on
which the Borrower shall pay interest at a rate based on LIBOR.
"NAIC" shall mean the National Association of Insurance Commissioners
and any successor thereto.
"PERSON" shall mean an individual, partnership, limited liability
company, corporation (including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"PLAN" shall mean any employee pension benefit plan subject to Title IV
of the Employee Retirement Income Security Act of 1974, as amended, established
or maintained by Holdings, any Subsidiary, or any member of the Controlled
Group, or any such Plan to which the Borrower, any Subsidiary, or any member of
the Controlled Group is required to contribute on behalf of any of its employees
(other than a Multi-Employer Plan, as that term is defined in Section 414(f) of
the Code).
"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
Page 16 of 18 Pages
recently ended prior to such date of determination to (b) Statutory Surplus as
at the last day of the calendar quarters ending on or most recently ended prior
to such date of determination.
"PRIME RATE" shall mean that interest rate established from time to
time by the Bank as its so-called "prime" rate (or equivalent rate otherwise
named), whether or not such rate is publicly announced; the Prime Rate may not
necessarily be the lowest interest rate charged by the Bank for commercial or
other extensions of credit.
"PRINCIPAL SUM" shall have the meaning assigned to such term in the
first paragraph of this Note.
"PUT AGREEMENT" shall have the meaning assigned to such term in Section
7(h) hereof.
"RATE CONTINUATION" shall mean a continuation of a LIBOR Portion having
a particular Interest Period as a LIBOR Portion having an Interest Period of the
same duration pursuant to the provisions of Section 2(a) hereof.
"RATE CONVERSION" refers to a conversion of a Portion of one Type into
a Portion of another Type and, with respect to a LIBOR Portion, from one
permissible Interest Period to another permissible Interest Period pursuant to
the provisions of Section 2(a) hereof.
"RATE CONVERSION/CONTINUATION REQUEST" shall have the meaning assigned
to such term in Section 2(b) hereof.
"RESERVE PERCENTAGE" shall mean for any day that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve requirements) for
a member bank of the Federal Reserve System in Cleveland, Ohio, in respect of
"Eurocurrency Liabilities".
"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 Subsidiary, the
accounting procedures and practices prescribed or permitted by the Applicable
Insurance Regulatory Authority, applied on a basis consistent with those that
are to be used in making the calculations for purposes of determining compliance
with this Note.
"STATED MATURITY DATE" shall mean December __, 2003.
"STATUTORY STATEMENT" shall mean as to any Insurance Subsidiary a
statement of the condition and affairs of such Insurance Subsidiary, prepared in
accordance with SAP and filed with the Applicable Insurance Regulatory
Authority.
"STATUTORY SURPLUS" shall mean, as at any date for any Insurance
Subsidiary, the aggregate amount of surplus as regards policyholders (determined
without duplication in accordance with SAP) of such Insurance Subsidiary.
Page 17 of 18 Pages
"SUBSIDIARY" shall mean an existing or future corporation, limited
liability company or other entity more than fifty percent (50%) of the
outstanding capital stock, membership interest or other equity interests or
voting power, or both, of which is (or upon the exercise of all outstanding
warrants, options and other rights would be) directly or indirectly owned at the
time in question by the Borrower or by any Subsidiary of the Borrower.
"TERM" shall mean the period of time commencing on the date of this
Note and ending on the Stated Maturity Date or such other date on which the
Principal Sum and all other sums owing hereunder shall have been paid and
satisfied in full.
"TYPE" shall mean, when used in respect of any Portion, LIBOR or Base
Rate, as applicable to such Portion.
14. WAIVER OF JURY TRIAL.
THE BORROWER AND, BY ITS ACCEPTANCE OF THIS NOTE, THE BANK HEREBY
IRREVOCABLY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE OR ANY OTHER RELATED
DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS
NOTE OR ANY OTHER RELATED DOCUMENT AND THE RELATIONSHIPS THEREBY ESTABLISHED.
The scope of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter of
this transaction, including, without limitation, contract claims, tort claims,
breach of duty claims, and all other statutory and common law claims. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS OF THIS NOTE. In the event of litigation, this provision may be
filed as a written consent to a trial by the court.
IN WITNESS WHEREOF, the Borrower has hereunto set its hands as
of the date first above written.
STATE AUTO FINANCIAL CORPORATION
By /s/ Steven J. Johnston
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_________________, its Sr. Vice President
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