Exhibit 10.3
OFFICER INDEMNIFICATION
AGREEMENT
This Officer Indemnification
Agreement (this “ Agreement ”) is made as of
May 8, 2009, between State Auto Financial Corporation, an Ohio
corporation (“ State Auto ”), and Steven E.
English (the “ Executive Officer ”).
Background
Information
A. The Executive Officer is a member
of State Auto’s senior management 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
officers of State Auto in accordance with Chapter 1701, General
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 officers.
C. The State Auto Board of Directors
(the “ Board ”) has evaluated the sufficiency of
liability insurance and the statutory indemnification provided by
the OCL as to their adequacy to protect certain executive officers
against the various legal risks and potential liabilities
associated with the performance of their duties on behalf of State
Auto, and the Board has concluded that such insurance and statutory
indemnification may not be adequate protection to such
officers.
D. 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
reasonable and prudent and in the best interests of State
Auto.
Statement of
Agreement
The parties acknowledge the accuracy
of the foregoing Background Information and hereby agree as
follows:
§1. Agreement to Serve .
The Executive Officer agrees to continue to serve as an officer of
State Auto, faithfully and to the best of the Executive
Officer’s ability, so long as elected or appointed as an
officer of State Auto by the Board.
§2. Indemnification
.
(a) Indemnification of Executive
Officer . State Auto shall indemnify the Executive Officer 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 Executive Officer 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
Executive Officer is, by reason of the Executive Officer 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 Executive
Officer 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 Executive Officer or on the Executive
Officer’s behalf in connection with such Proceeding. If the
Executive Officer 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 Executive Officer against all
Expenses actually and reasonably incurred by the Executive Officer
or on the Executive Officer’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 Executive Officer is, by
reason of the Executive Officer serving as a Corporate Fiduciary, a
witness in any Proceeding to which the Executive Officer is not a
party, the Executive Officer shall be indemnified against all
Expenses actually and reasonably incurred by the Executive Officer
or on the Executive Officer’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 Executive Officer against all Expenses, judgments,
penalties, fines, excise taxes and amounts paid in settlement
actually and reasonably incurred by the Executive Officer or on the
Executive Officer’s behalf if, by reason of the Executive
Officer serving as a Corporate Fiduciary, the Executive Officer 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 Executive Officer 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 Executive Officer’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;
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(c) In connection with any
Proceeding in which the only liability asserted against the
Executive Officer is pursuant to section 1701.95 of the
OCL;
(d) To the extent payment has
actually been made to or on behalf of the Executive Officer 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 Executive Officer 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 Executive Officer that does not directly relate to the
Executive Officer’s services as a Corporate Fiduciary;
or
(g) In connection with any
Proceeding (or any part of any Proceeding) initiated by the
Executive Officer, including any Proceeding (or any part of any
Proceeding) initiated by the Executive Officer against State Auto
or other Corporate Fiduciaries, unless:
(i) The Proceeding is brought by the
Executive Officer to enforce any of the Executive Officer’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 Executive Officer (or would be if
joined in the applicable Proceeding), State Auto shall pay the
entire amount of such Indemnifiable Event without requiring the
Executive Officer to contribute to such payment, and State Auto
waives and relinquishes any right of contribution it may have
against the Executive Officer. State Auto shall not enter into any
settlement of any Proceeding in which State Auto is jointly liable
with the Executive Officer (or would be if joined in such
Proceeding) unless such settlement provides for a full and final
release of all claims asserted against the Executive
Officer.
(b) Without diminishing or impairing
the obligations of State Auto set forth in the preceding
subsection, if, for any reason, the Executive Officer shall be
required to pay any amount in connection with an Indemnifiable
Event in which State Auto is jointly liable
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with the Executive Officer (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 Executive Officer, who are jointly liable with the Executive
Officer (or would be if joined in the applicable Proceeding), on
the one hand, and the Executive Officer, 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 Executive Officer,
who are jointly liable with the Executive Officer (or would be if
joined in the applicable Proceeding), on the one hand, and the
Executive Officer, 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 Executive Officer, who are jointly
liable with the Executive Officer (or would be if joined in the
applicable Proceeding), on the one hand, and the Executive Officer,
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 Executive Officer harmless from any claims
of contribution which may be brought by Corporate Fiduciaries,
other than the Executive Officer, who may be jointly liable with
the Executive Officer 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 Executive Officer for
any reason whatsoever, State Auto, in lieu of indemnifying the
Executive Officer, shall contribute to the amount incurred by the
Executive Officer 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 Executive Officer 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 Executive Officer 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 Executive Officer in connection with any
Proceeding within 30 days after the receipt by State Auto of an
indemnification statement and undertaking from the Executive
Officer 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.
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If the Executive Officer is subsequently
required to repay the amount of any advancement of Expenses to
State Auto, then any amounts payable by the Executive Officer to
State Auto may be offset by any obligations due to the Executive
Officer from State Auto, so that only net amounts shall be required
to be transferred between the parties.
§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
Executive Officer 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 Executive Officer is entitled to indemnification under this
Agreement:
(a) If the Executive Officer desires
to request indemnification pursuant to this Agreement, then the
Executive Officer 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 Executive
Officer and are reasonably necessary to determine whether and to
what extent the Executive Officer 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 Executive Officer has requested indemnification
pursuant to this Agreement.
(b) A determination as to the
Executive Officer’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 Executive
Officer;
(iii) By the shareholders 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 Executive Officer. The Executive Officer
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
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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, 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 Executive Officer 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 Executive Officer has met the applicable standard of
conduct, nor an actual determination by State Auto that the
Executive Officer has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the
Executive Officer has not met the applicable standard of
conduct.
(e) The Executive Officer shall be
deemed to have acted in good faith if the Executive Officer’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 Executive Officer by other 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 Executive Officer shall not be imputed to the Executive
Officer 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 Executive Officer has at all times acted in good faith and
in a manner the Executive Officer 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
Executive Officer’s entitlement to indemnification must be
made by the person, persons or entity empowered or selected under
Section 6 to make such determination not later than 60
days after the final disposition of the Proceeding, whether by
judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its
equivalent. If a determination is not made within such period, the
requisite determination of entitlement to indemnification shall be
deemed
