Exhibit 10.4
INDEMNIFICATION
AGREEMENT
This Indemnification Agreement (this
“ Agreement ”) is made as of November 14,
2008, between State Automobile Mutual Insurance Company, an Ohio
mutual insurance company (“ State Auto ”), and
Mark A. Blackburn (the “ Director ”).
Background
Information
A. The Director is a member of State
Auto’s Board of Directors (the “ Board ”)
and, in that capacity, is performing valuable services for State
Auto.
B. The Code of Regulations of State
Auto, as amended and in effect on the date hereof (the “
Regulations ”), provides for indemnification of
directors of State Auto in accordance with Chapter 1702, Nonprofit
Corporation Law, of the Ohio Revised Code (the “ OCL
”). In addition, the OCL expressly provides that it is not
the exclusive source for indemnification rights and that individual
contracts of indemnification may be entered into between an Ohio
corporation and its directors.
C. The Board has evaluated the
sufficiency of liability insurance and the statutory
indemnification provided by the OCL as to their adequacy to protect
directors against the various legal risks and potential liabilities
associated with their serving as directors of State Auto, and the
Board has concluded that such insurance and statutory
indemnification may not be adequate protection to
directors.
D. In order to induce and encourage
highly experienced and capable persons to serve as members of the
Board, the Board has determined, after due consideration of the
terms of this Agreement and the various other options available to
State Auto, that this Agreement is not only reasonable and prudent,
but is necessary to promote and ensure the best interests of State
Auto.
E. The Board has further determined
that its prior form of indemnification agreement with its directors
should be replaced with a new form of indemnification
agreement.
Statement of
Agreement
The parties acknowledge the accuracy
of the foregoing Background Information and hereby agree as
follows:
§1. Agreement to Serve .
The Director agrees to continue to serve as a director of State
Auto, faithfully and to the best of the Director’s ability,
so long as elected or appointed and qualified in accordance with
the applicable provisions of the Regulations.
§2. Indemnification
.
(a) Indemnification of
Director . State Auto shall indemnify the Director to the
maximum extent permitted by the OCL in effect on the date of this
Agreement, and as the OCL may be hereafter amended from time to
time (but, in the case of any such amendment, only to the extent
the amendment permits State Auto to provide broader indemnification
rights and protection than the OCL permitted State Auto to provide
before the amendment), by reason of the Director serving as a
Corporate Fiduciary (as defined in Section 19
).
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(b) Indemnification for Expenses
When Wholly or Partly Successful . To the extent that the
Director is, by reason of the Director serving as a Corporate
Fiduciary, a party to and is successful, on the merits or
otherwise, in any Proceeding (as defined in Section 19
), State Auto shall indemnify the Director to the maximum extent
permitted by the OCL in effect on the date of this Agreement, and
as the OCL may be hereafter amended from time to time (but, in the
case of any such amendment, only to the extent the amendment
permits State Auto to provide broader indemnification rights and
protection than the OCL permitted State Auto to provide before the
amendment), against all Expenses (as defined in
Section 19 ) actually and reasonably incurred by the
Director or on the Director’s behalf in connection with such
Proceeding. If the Director is not wholly successful in such
Proceeding, but is successful, on the merits or otherwise, as to
one or more but less than all claims, issues or matters in such
Proceeding, then State Auto shall indemnify the Director against
all Expenses actually and reasonably incurred by the Director or on
the Director’s behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this section and
without limitation, the termination of any claim, issue or matter
in such a Proceeding by dismissal, with or without prejudice, shall
be deemed to be a successful result as to such claim, issue or
matter.
(c) Indemnification for Expenses
of a Witness . To the extent that the Director is, by reason of
the Director serving as a Corporate Fiduciary, a witness in any
Proceeding to which the Director is not a party, the Director shall
be indemnified against all Expenses actually and reasonably
incurred by the Director or on the Director’s behalf in
connection with such Proceeding.
§3. Additional
Indemnification . In addition to the indemnification provided
for in Section 2 of this Agreement, State Auto shall
indemnify the Director against all Expenses, judgments, penalties,
fines, excise taxes and amounts paid in settlement actually and
reasonably incurred by the Director or on the Director’s
behalf if, by reason of the Director serving as a Corporate
Fiduciary, the Director is, or is threatened to be made, a party to
or participant in any Proceeding (including a Proceeding by or in
the right of State Auto).
Notwithstanding the foregoing, State
Auto shall not be obligated under this Agreement to provide
indemnification to the Director in the following
situations:
(a) In connection with any
Proceeding in which a court of competent jurisdiction determines,
in a final adjudication from which there is no further right of
appeal, that the Director’s actions were knowingly
fraudulent, deliberately dishonest or willfully
wrongful;
(b) In connection with any
Proceeding in which a court of competent jurisdiction determines,
in a final adjudication from which there is no further right of
appeal, that indemnification under the specific circumstances would
be unlawful;
(c) In connection with any
Proceeding in which the only liability asserted against the
Director is pursuant to section 1702.55 of the OCL;
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(d) To the extent payment has
actually been made to or on behalf of the Director under any
insurance policy or other indemnity provision, except with respect
to any excess beyond the amount paid under any insurance policy or
other indemnity provision;
(e) In connection with an accounting
of profits made from the purchase and sale (or sale and purchase)
by the Director of securities of State Auto within the meaning of
Section 16(b) of the Securities Exchange Act of 1934, as
amended (the “ Exchange Act ”), or similar
provisions of state statutory law or common law;
(f) With respect to any conduct of
the Director that does not directly relate to the Director’s
services as a Corporate Fiduciary; or
(g) In connection with any
Proceeding (or any part of any Proceeding) initiated by the
Director, including any Proceeding (or any part of any Proceeding)
initiated by the Director against State Auto or other Corporate
Fiduciaries, unless:
(i) The Proceeding is brought by the
Director to enforce any of the Director’s rights under this
Agreement or to collect money due under this Agreement;
(ii) The Board authorized the
Proceeding (or any part of any Proceeding) prior to its initiation;
or
(iii) State Auto provides the
indemnification, in its sole discretion, pursuant to the powers
vested in State Auto under applicable law.
As applicable, any determination
shall be made under the procedures, and subject to the
presumptions, set forth in Sections 6 and 7 of this
Agreement.
§4. Contribution
.
(a) If in connection with an
Indemnifiable Event (as defined in Section 19 ) State
Auto is jointly liable with the Director (or would be if joined in
the applicable Proceeding), State Auto shall pay the entire amount
of such Indemnifiable Event without requiring the Director to
contribute to such payment, and State Auto waives and relinquishes
any right of contribution it may have against the Director. State
Auto shall not enter into any settlement of any Proceeding in which
State Auto is jointly liable with the Director (or would be if
joined in such Proceeding) unless such settlement provides for a
full and final release of all claims asserted against the
Director.
(b) Without diminishing or impairing
the obligations of State Auto set forth in the preceding
subsection, if, for any reason, the Director shall be required to
pay any amount in connection with an Indemnifiable Event in which
State Auto is jointly liable with the Director (or would be if
joined in the applicable Proceeding), State Auto shall contribute
to such payment an amount equal to the relative benefits received
by State Auto and all Corporate Fiduciaries, other than the
Director, who are jointly liable with the Director (or would be if
joined in the applicable Proceeding), on the one hand, and
the
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Director, on the other hand, from
the transaction from which such Indemnifiable Event arose;
provided, however, that the proportion determined on the basis of
relative benefit may, to the extent necessary to conform to law, be
further adjusted by reference to the relative fault of State Auto
and all Corporate Fiduciaries, other than the Director, who are
jointly liable with the Director (or would be if joined in the
applicable Proceeding), on the one hand, and the Director, on the
other hand, in connection with the events that resulted in the
Indemnifiable Event, as well as any other equitable considerations
which the law may require to be considered. The relative fault of
State Auto and all Corporate Fiduciaries, other than the Director,
who are jointly liable with the Director (or would be if joined in
the applicable Proceeding), on the one hand, and the Director, on
the other hand, shall be determined by reference to, among other
things, the degree to which their actions were motivated by intent
to gain personal profit or advantage, the degree to which their
liability is primary or secondary and the degree to which their
conduct is active or passive.
(c) State Auto agrees to fully
indemnify and hold the Director harmless from any claims of
contribution which may be brought by Corporate Fiduciaries, other
than the Director, who may be jointly liable with the Director in
connection with an Indemnifiable Event.
(d) To the maximum extent
permissible under applicable law, if the indemnification provided
for in this Agreement is unavailable to the Director for any reason
whatsoever, State Auto, in lieu of indemnifying the Director, shall
contribute to the amount incurred by the Director in connection
with the Indemnifiable Event, in such proportion as is deemed fair
and reasonable in light of all of the circumstances of such
Proceeding in order to reflect:
(i) The relative benefits received
by State Auto and the Director as a result of the event(s) or
transaction(s) giving rise to the Indemnifiable Event;
and
(ii) The relative fault of State
Auto, the Director and other Corporate Fiduciaries in connection
with such event(s) or transaction(s).
§5. Advancement of
Expenses . State Auto shall advance all Expenses incurred by or
on behalf of the Director in connection with any Proceeding within
30 days after the receipt by State Auto of an indemnification
statement and undertaking from the Director substantially in the
form attached hereto as Exhibit A (the “
Indemnification Statement and Undertaking ”)
requesting such advance or advances from time to time, whether
prior to or after final disposition of such Proceeding.
Any advances of Expenses made
pursuant to this section shall be unsecured and interest
free.
If the Director is subsequently
required to repay the amount of any advancement of Expenses to
State Auto, then any amounts payable by the Director to State Auto
may be offset by any obligations due to the Director from State
Auto, so that only net amounts shall be required to be transferred
between the parties.
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§6. Procedures and
Presumptions for Determination of Entitlement to
Indemnification . Subject to the terms and conditions of this
Agreement, it is the intent of this Agreement to secure for the
Director rights of indemnity that are as favorable as may be
permitted under the OCL and public policy of the State of Ohio.
Accordingly, the parties agree that the following procedures and
presumptions shall apply in the event of any question as to whether
the Director is entitled to indemnification under this
Agreement:
(a) If the Director desires to
request indemnification pursuant to this Agreement, then the
Director shall submit to the secretary of State Auto an
Indemnification Statement and Undertaking, along with all documents
and information as are reasonably available to the Director and are
reasonably necessary to determine whether and to what extent the
Director is entitled to indemnification. The secretary of State
Auto shall, promptly upon receipt of such Indemnification Statement
and Undertaking, advise the Board in writing that the Director has
requested indemnification pursuant to this Agreement.
(b) A determination as to the
Director’s entitlement to indemnification under this
Agreement shall be made in the specific case by one of the
following four methods, which shall be at the election of the
Board:
(i) By a majority vote of a quorum
consisting of the Disinterested Directors (as defined in
Section 19 );
(ii) If the quorum described in
Section 6(b)(i) is not obtainable or if a majority vote
of the Disinterested Directors so directs, by Independent Counsel
(as defined in Section 19 ) in a written opinion to the
Board, a copy of which shall be delivered to the
Director;
(iii) By the members of State Auto;
or
(iv) By the Court of Common Pleas
(as defined in Section 18(a) ).
(c) If the determination of
entitlement to indemnification is to be made by Independent Counsel
pursuant to Section 6(b) of this Agreement, the
Independent Counsel shall be selected as provided in this
subsection. The Independent Counsel shall be selected by the Board,
and the secretary of State Auto shall promptly give written notice
of such selection to the Director. The Director may, within ten
days after such written notice of selection shall have been given,
deliver to State Auto, as the case may be, a written objection to
such selection; provided, however, that such objection may be
asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of “ Independent
Counsel ” as defined in Section 19 of this
Agreement, and the objection shall set forth with particularity the
factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel.
If a written objection is made and substantiated by the Board, the
Independent Counsel selected may not serve as Independent Counsel
unless and until such objection is withdrawn or the Court of Common
Pleas has determined that such objection is without merit. State
Auto shall pay any and all reasonable fees and Expenses of
Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 6(b) of this
Agreement,
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and State Auto shall pay all
reasonable fees and Expenses incident to the procedures of this
subsection, regardless of the manner in which such Independent
Counsel was selected or appointed.
(d) In making a determination with
respect to entitlement to indemnification under this Agreement, the
person or persons or entity making such determination shall presume
that the Director is entitled to indemnification under this
Agreement. Anyone seeking to overcome this presumption shall have
the burden of proof and the burden of persuasion by clear and
convincing evidence. Neither the failure of State Auto to have made
a determination prior to the commencement of any action pursuant to
this Agreement that indemnification is proper in the circumstances
because the Director has met the applicable standard of conduct,
nor an actual determination by State Auto that the Director has not
met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Director has not met the
applicable standard of conduct.
(e) The Director shall be deemed to
have acted in good faith if the Director’s action is based on
the records or books of account of the Enterprise (as defined in
Section 19 of this Agreement), including financial
statements, or on information supplied to the Director by the
officers of the Enterprise in the course of their duties, or on the
advice of legal counsel for the Enterprise or on information or
records given or reports made to the Enterprise by an independent
certified public accountant or by an appraiser or other expert
selected with reasonable care by the Enterprise. In addition, the
knowledge and/or actions, or failure to act, of any Corporate
Fiduciary other than the Director shall not be imputed to the
Director for purposes of determining the right to indemnification
under this Agreement. Whether or not the foregoing provisions of
this subsection are satisfied, it shall in any event be presumed
that the Director has at all times acted in good faith and in a
manner the Director reasonably believed to be in or not opposed to
the best interests of State Auto. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of
persuasion by clear and convincing evidence.
(f) The determination of the
Director’s entitlement to indemnification must be
made
