EXECUTIVE AGREEMENT
Amended and Restated as of May 11, 2005
This Amended and Restated Executive
Agreement (the “Agreement”) dated as of May 11,
2005, is by and between State Auto Financial Corporation, an Ohio
corporation, (the “Corporation”), whose principal
office is located at 518 East Broad Street, Columbus, Ohio, 43215
and Robert H. Moone (the “Executive”).
The Corporation considers the
establishment and maintenance of a sound and vital management to be
an important part of its overall corporate strategy and to be
essential to protecting and enhancing the interests of the
Corporation and its shareholders. As part of this corporate
strategy, the Corporation wishes to act to retain its
well-qualified executive officers notwithstanding any actual or
threatened change in control of the Corporation or its parent,
State Automobile Mutual Insurance Company (“State Auto
Mutual”).
Executive is a party to an Employment
Agreement with the Corporation dated May 22, 2003, as amended
from time to time. The Employment Agreement does not address the
impact of a Change in Control (as defined below), except to
incorporate by reference the provisions of this
Agreement.
The Executive is the Chairman,
President and Chief Executive Officer of the Corporation and its
affiliates and subsidiaries and the Executive’s services,
experience and knowledge of the affairs of the Corporation, and
reputation and contacts in the industry are extremely valuable to
the Corporation. The Executive’s continued dedication,
availability, advice, and counsel to the Corporation are deemed
important to the Corporation, its Board of Directors (the
“Board”), and its shareholders. It is, therefore, in
the best interests of the Corporation to secure the continued
services of the Executive notwithstanding any actual or threatened
change in control of the Corporation. Accordingly, the Board,
acting by and through its Executive Compensation Committee, has
approved this Agreement with the Executive and authorized its
execution and delivery on behalf of the Corporation.
In consideration of the mutual
covenants set forth herein and INTENDING TO BE LEGALLY BOUND
HEREBY, the Corporation and Executive hereby agree as
follows:
1. Term of Agreement . This Agreement will begin on
the date entered above and will continue in effect through
May 31, 2006. The term of this Agreement will be extended
automatically for up to one additional year if Executive and the
Corporation extend the term of the Employment Agreement, pursuant
to its terms, provided that this Agreement shall terminate
concurrent with the termination of the Employment Agreement.
Notwithstanding the above, if a “Change of Control” (as
defined herein) of the Corporation occurs during the term of this
Agreement, the term of this Agreement will be extended for
thirty-six (36) months beyond the end of the month in which
any such Change of Control occurs.
2. Definitions. The following defined terms shall have the
meanings set forth below, for purposes of this
Agreement:
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(a) Annual Award. “Annual Award” means the
cash payment paid or payable to the Executive with respect to a
fiscal year under the Corporation’s Incentive Bonus
Arrangement with Executive.
(b) Annual Base Salary. “Annual Base
Salary” means the greater of (1) the highest annual rate
of base salary in effect for the Executive during the 12 month
period immediately prior to a Change of Control or, (2) the
annual rate of base salary in effect at the time Notice of
Termination is given (or on the date employment is terminated if no
Notice of Termination is required).
(c) Cause. “Cause” shall mean the following:
(i)the willful and continued failure of the Executive to perform
substantially the Executive’s duties with State Auto (other
than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance
is delivered to the Executive by the Board or an elected officer of
State Auto which specifically identifies the manner in which the
Board or such elected officer believes that the Executive has not
substantially performed the Executive’s duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious
to State Auto, as determined by the Board. For purposes of this
provision, no act or failure to act, on the part of the Executive,
shall be considered “willful” unless it is done, or
omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive’s action or omission was
in the best interests of State Auto. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by
the Board or upon the advice of counsel for State Auto, shall be
conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of State Auto.
Nothing in this Agreement will limit the right of the Executive or
the Executive’s beneficiaries to contest the validity or
propriety of any such determination.
“Change of Control” means the occurrence of any of the
following:
(1) Any “person” (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power
of the Corporation’s then outstanding securities, excluding
(i) any acquisition by the Corporation or any Subsidiary;
(ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation, a Subsidiary or
State Auto Mutual or any acquisition by State Auto Mutual;
or
(2) A majority of the Board of Directors of the Corporation at
any time is comprised of other than Continuing Directors (for
purposes of this Agreement, the term “Continuing
Director” means a director who was either (A) first
elected or appointed as a Director prior to the date of this
Agreement; or (B) subsequently elected or appointed as a
director if such director was nominated or appointed by at least
two thirds of the then Continuing Directors); or
(3) Any event or transaction if the Corporation would be
required to report it in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Exchange Act;
or
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(4) Any of the following occurs:
(A) a merger or consolidation of the Corporation, other than a
merger or consolidation in which the voting securities of the
Corporation immediately prior to the merger or consolidation
continue to represent (either by remaining outstanding or being
converted into securities of the surviving entity) 51% or more of
the combined voting power of the Corporation or surviving entity
immediately after the merger or consolidation with another
entity;
(B) a sale, exchange, lease, mortgage, pledge, transfer, or
other disposition (in a single transaction or a series of related
transactions) of all or substantially all of the assets of the
Corporation which shall include, without limitation, the sale of
assets or earning power aggregating more than 50% of the assets or
earning power of the Corporation on a consolidated
basis;
(C) a liquidation or dissolution of the
Corporation;
(D) a reorganization, reverse stock split, or recapitalization
of the Corporation which would result in any of the foregoing;
or
(E) a transaction or series of related transactions having,
directly or indirectly, the same effect as any of the
foregoing.
(5) As respects State Auto Mutual, the parent of the
Corporation, any of the following occurs:
(A) State Auto Mutual affiliates with or is merged into or
consolidated with a third party and as a result, a majority of the
Board of Directors of State Auto Mutual is comprised of other than
Continuing Directors (as defined above).
(B) State Auto Mutual is subject to an order of rehabilitation
or liquidation entered by the insurance commissioner of the state
of domicile of State Auto Mutual.
(C) State Auto Mutual completes a conversion to a stock
insurance company and as a result of which a majority of the Board
of Directors of State Auto Mutual is comprised of other than
Continuing Directors (as defined above).
(e) Change Year. “Change Year” means the fiscal
year in which a Change of Control occurs.
(f) Disability. “Disability” means that, as a
result of the Executive’s incapacity due to physical or
mental illness, the Executive shall be eligible for the receipt of
benefits under the Corporation’s long term disability plan
described in the State Auto Insurance Companies Employee Reference
Guide, as of the date hereof.
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(g) Employee Benefits. “Employee Benefits” means
the perquisites, benefits, and service credit for benefits as
provided under any and all employee retirement income and welfare
benefit policies, plans, programs, or arrangements in which the
Executive is entitled to participate, including without limitation
any stock option, stock purchase, stock appreciation, savings,
pension, supplemental executive retirement, or other retirement
income or welfare benefit, deferred compensation, incentive
compensation, group or other life, health, medical/hospital, or
other insurance (whether funded by actual insurance or self-insured
by the Corporation), disability, salary continuation, expense
reimbursement, and other employee benefit policies, plans,
programs, or arrangements that may now exist or any equivalent
successor policies, plans, programs, or arrangements that may be
adopted hereafter, providing perquisites and benefits at least as
great in a monetary equivalent as are payable thereunder prior to a
Change in Control.
(h) Employment Agreement. “Employment Agreement”
means an executed employment agreement between the Corporation and
the Executive.
(i) Highest Incentive Bonus. “Highest Incentive
Bonus” means the greater of the Executive’s Potential
Annual Award for (a) the Change Year or (b) the year
immediately preceding the Change Year.
(j) Incentive Bonus Arrangement. “Incentive Bonus
Arrangement” means the Corporation’s Incentive Bonus
Arrangement for the Executive in effect for any calendar year(s)
during the period this Agreement is in force.
(k) Notice of Termination. “Notice of
Termination” means a written notice indicating the specific
termination provision in this Agreement relied upon and setting
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the employment under the
provision so indicated.
(l) Potential Annual Award. “Potential Annual
Award” means the maximum possible Annual Award the Executive
could receive according to his or her Incentive Bonus Arrangement
for the calendar year immediately preceding the Change Year or the
calendar year that is the Change Year, whichever is higher,
assuming that (1) the parameters for the maximum Annual Award,
under the Executive’s Incentive Bonus Arrangement were met
(whether or not such parameters for such maximum Annual Award
actually were or could be met) and (2) the Executive’s
Annual Base Salary is used to determine the Potential Annual
Award.
(m) Retirement. “Retirement” means having
reached normal retirement age as defined in the State Auto
Insurance Companies’ Employee Retirement Plan (“State
Auto Pension Plan”) or taking early retirement in accordance
with the terms of the State Auto Pension Plan.
(n) Severance Benefits. “Severance Benefits”
means the benefits described in Section 4 of this Agreement,
as adjusted by the applicable provisions of Section 5 of this
Agreement.
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(o) Subsidiary. “Subsidiary” means any
corporation, insurance company, or other entity a majority of the
voting control of which is directly or indirectly owned or
controlled at the time by the Corporation.
3. Eligibility for Severance Benefits. The Corporation or
its successor shall pay or provide to the Executive the Severance
Benefits if the Executive’s employment is terminated
voluntarily or involuntarily during the term of this Agreement,
either:
(a) by the Corporation (1) at any time within
36 months after a Change of Control of the Corporation, or
(2) at any time prior to a Change of Control but after the
commencement of any discussions with a third party relating to a
possible Change of Control of the Corporation involving such third
party, if such termination is in contemplation of such possible
Change of Control and such Change of Control is actually
consummated within 12 months after the date of such termination, in
either case; unless the termination is on account of the
Executive’s death or Disability or for Cause, provided that,
in the case of a termination on account of the Executive’s
Disability or for Cause, the Corporation shall give Notice of
Termination to the Executive with respect thereto; and
(b) by the Executive (1) at any time within
36 months after a Change of Control of the Corporation or
(2) at any time after the commencement of any discussions with
a third party relating to a possible Change of Control involving
such third party, if such Change of Control is actually consummated
within 12 months after the date of such termination, and, in
any such case, provided that the Executive shall give Notice of
Termination to the Corporation with respect thereto.
4. Severance Benefits.
The Executive, if eligible under Section 3, shall receive the
following Severance Benefits, adjusted by the applicable provisions
of Section 5 (in addition to accrued compensation, bonuses,
and vested benefits and stock options);
(a) Annual Base Salary. In addition to any accrued
compensation payable as of the Executive’s termination of
employment (either by reason of Executive’s Employment
Agreement or otherwise), a lump sum cash amount equal to the
Executive’s Annual Base Salary, multiplied by 3.
(b) Annual Incentive Compensation. In addition to any
compensation otherwise payable pursuant to the Executive’s
Incentive Bonus Arrangement and the bonus payable under the
Corporation’s Quality Performance Bonus Plan
(“QPB”), a lump sum cash amount equal to the
Executive’s Highest Incentive Bonus and the total QPB paid to
Executive during the calendar year immediately preceding the Change
Year, multiplied by 3. In order to be entitled to a payment
pursuant to this Section 4(b), the Executive must have been a
party to Incentive Bonus Arrangement at some time during the
12 month period immediately preceding the Change of
Control.
(c) Insurance Benefits. For a three year period, commencing
on the date the employment is terminated, the Corporation will
arrange to provide to the Executive at the Corporation’s
expense, with:
(1) Health Care. Health care coverage comparable to that in
effect for the Executive immediately prior to the termination (or,
if more favorable to the
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Executive, that furnished generally to salaried employees of the
Corporation on the date immediately preceding the Change in
Control), including, but not limited to, hospital, surgical,
medical, dental, prescription, and dependent coverage. Upon the
expiration of the health care benefits required to be provided
pursuant to this subsection 4(c), the Executive shall be entitled
to the continuation of such benefits under the provisions of the
Consolidated Omnibus Budget Reconciliation Act. Health care
benefits otherwise receivable by the Executive pursuant to this
subsection 4(c) shall be reduced to the extent comparable benefits
are actually received by the Executive from a subsequent employer
during the five-year period following the date the employment is
terminated and any such benefits actually received by the Executive
shall be reported by the Executive to the Corporation.
(2) Life Insurance. Life and accidental death and
dismemberment insurance coverage (including any supplemental
coverage, purchase opportunity, and double indemnity for accidental
death that was available to the Executive) equal (including policy
terms) to that in effect at the time Notice of Termination is given
(or on the date the employment is terminated if no Notice of
Termination is required) or, if more favorable to the Executive,
equal to that in effect at the date immediately prior to the Change
of Control.
(3) Disability Insurance. Disability insurance coverage
(including policy terms) equal to that in effect at the time Notice
of Termination is given (or on the date employment is terminated if
no Notice of Termination is required) or, if more favorable to the
Executive, equal to that in effect immediately prior to the Change
of Control; provided, however, that no income replacement benefits
will be payable under such disability policy with regard to the
three year period following a termination of employment provided
that the payments payable under subsections 4(a) and (b) above
have been made.
In the event the Executive’s
participation in any such plan or program is not permitted, the
Corporation will directly provide, at no after-tax cost to the
Executive, the benefits to which the Executive would be entitled
under such plans and programs.
(d) Retirement Benefits. The Executive will be entitled to
receive retirement benefits as provided herein, so that the total
retirement benefits the Executive receives from the Corporation
will approximate the total retirement benefits the Executive would
have receiv
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