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PROSPECTUS Rule 424(B)(2)
Registration Statement number 333-90529
STATE AUTO FINANCIAL CORPORATION
518 E. BROAD ST.
COLUMBUS, OHIO 43215-3976
(614) 464-5000
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1998 STATE AUTO AGENTS' STOCK OPTION PLAN
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We are offering 400,000 of our common shares, without par value, upon
the exercise of options granted to our insurance agents under the 1998 State
Auto Agents' Stock Option Plan.
When we grant an award of stock options, we will enter into a
Participation Agreement with you which sets forth additional terms of that
award. You should refer to the Participation Agreement for information
concerning the exercise price and number of shares that may be received when you
exercise your stock options. The common stock is listed on the Nasdaq National
Market under the symbol "STFC."
See "The Plan" below on page 2 for a description of the stock options.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
You should rely only on the information contained or incorporated by
reference in this document. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is not an offer to sell or a solicitation of an offer to buy any
securities other than securities offered by this document. This document is not
an offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction to any person to whom it is unlawful to make an offer or
solicitation in that jurisdiction. This document is dated January 28, 2000, and
you should not assume that the information contained in this document is
accurate as of any other date. Neither the mailing of this document nor the
issuance of any securities shall create any implication to the contrary.
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The date of this Prospectus is January 28, 2000
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<TABLE>
TABLE OF CONTENTS
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Business..................................................................................1
General................................................................................1
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995.......1
The Plan..................................................................................2
Administration of the Plan.............................................................2
Plan Eligibility.......................................................................2
The Grant of Stock Options.............................................................2
Option Prices..........................................................................2
Exercising an Option...................................................................2
Payment of the Option Price............................................................3
Available Shares.......................................................................3
The Exercise of Awards by Non-Participants.............................................3
The Termination of Awards..............................................................3
The Status of an Option Holder.........................................................3
Change of Control of the Company.......................................................3
Participant's Agreements...............................................................4
Conditions to Issue or Deliver Common Stock............................................4
Resale of Common Stock.................................................................4
Term of the Plan.......................................................................4
Federal Tax Considerations................................................................4
Other Considerations......................................................................5
Use of Proceeds...........................................................................5
Legal Matters.............................................................................5
Experts...................................................................................5
Where You Can Find More Information.......................................................5
Incorporation of Documents by Reference...................................................6
</TABLE>
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BUSINESS
Throughout this prospectus the words "we", "us", "our" and "State
Auto" refer to both State Auto Financial Corporation and our subsidiaries.
GENERAL
We are an insurance holding company engaged through our subsidiaries
in the property and casualty insurance business. We are approximately 70% owned
by State Automobile Mutual Insurance Company, an Ohio property and casualty
insurance company formed in 1921. Our principal operating subsidiaries and their
businesses are:
o State Auto Property and Casualty Insurance Company, a South Carolina
corporation, and Milbank Insurance Company, a South Dakota corporation,
which are regional standard insurers engaged primarily in writing personal
and commercial automobile, homeowners, commercial multi-peril, workers'
compensation and fire insurance.
o State Auto National Insurance Company, an Ohio corporation, which writes
personal automobile insurance for non-standard risks.
o Farmers Casualty Insurance Company, an Iowa domiciled standard property
casualty insurer, writing in Iowa and Kansas. Mid-Plains Insurance Company,
a subsidiary of Farmers Casualty Insurance Company, is an Iowa based
insurer which principally writes nonstandard auto insurance in Iowa and
Kansas.
o Stateco Financial Services, Inc., an Ohio corporation, provides investment
management services to affiliated companies and insurance premium finance
services to customers of State Auto Property and Casualty Insurance Company
and Milbank Insurance Company.
o State Auto Insurance Company, an Ohio corporation, which expects to offer
personal lines insurance in Ohio.
o Strategic Insurance Software, Inc., an Ohio corporation and a
wholly-owned subsidiary of State Auto Financial, develops and sells
software for the processing of insurance transactions, management of
insurance policy data and electronic interfacing of insurance policy
information between insurance companies and agencies.
o 518 Property Management and Leasing, LLC, an Ohio limited liability
company, owns and leases real and personal property to our affiliated
companies. The members of 518 Property Management and Leasing are State
Auto Property and Casualty Insurance Company and Stateco Financial
Services, Inc.
Additionally, Midwest Security Insurance Company, a Wisconsin
domiciled standard personal lines property and casualty insurer, owned by State
Automobile Mutual Insurance Company, is managed by us.
At this time, we market our insurance products through approximately
12,500 independent insurance agents associated with approximately 2,200 agencies
in 26 states. Our insurance products are marketed primarily in the central and
eastern part of the United States, excluding New York, New Jersey and the New
England States.
Our principal executive office is located at 518 East Broad St.,
Columbus, Ohio 43215. Our telephone number is (614) 464-5000. You can find
additional information concerning State Auto and our business activities in the
documents incorporated by reference in this prospectus.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements contained in this prospectus and incorporated herein by
reference expressing the beliefs of our management and the other statements
which are not historical facts are forward looking statements that involve risks
and uncertainties. These risks and uncertainties include but are not limited to:
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o adverse state and federal legislative changes or judicial and
regulatory decisions;
o competitive products and pricing;
o weather and weather-related events or other types of catastrophic
events;
o geographic spread of risk;
o fluctuations of securities markets;
o general economic and business conditions that are less favorable
than expected;
o changes in technology or industry standards;
o shortages of labor and materials in storm hit areas;
o late reported claims and previously undisclosed damage;
o utilities and financial institutions disruptions;
o shortage of skilled personnel;
o regulatory or governmental systems breakdown; and
o other risk factors or uncertainties listed from time to time in
this prospectus or any document incorporated by reference in this
prospectus.
THE PLAN
ADMINISTRATION OF THE PLAN
The Plan will be administered by a Plan Administration Committee
consisting of at least three members appointed by our Board of Directors.
PLAN ELIGIBILITY
Our agents who will be eligible to receive options under the Plan are
those invited to participate pursuant to criteria established by the Plan
Administration Committee. Each person who receives an award under the Plan is
referred to as a Participant. We have no obligation to select any or all agents
for participation in the Plan. For purposes of the Plan, an agent is a person
who has entered into an agency agreement with us.
THE GRANT OF STOCK OPTIONS
Each year, we will grant options to Participants in the Plan based on
the formula set forth in the Plan and in each Participant's Participation
Agreement.
OPTION PRICES
As long as our shares of common stock are listed on the Nasdaq
National Market, the exercise price of options granted under the Plan will be
equal to the last reported sale price on the Nasdaq National Market on the day
of the grant under the terms of the Plan.
EXERCISING AN OPTION
Subject to certain restrictions, Participants may exercise options
that are vested. Each option will be effective for no more than ten (10) years.
If an option is not fully exercised by its expiration date it will terminate to
the extent not previously exercised.
A Participant may exercise an option by delivering written notice to
us and paying the exercise price. Participants may exercise options in full or
in part. A Participant will become a shareholder of those shares for which an
option is exercised at the time the Plan Administration Committee determines
that the exercise is valid, the option price has been received and a certificate
for the shares has been issued. We will issue shares of common stock as soon as
practicable after exercise.
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PAYMENT OF THE OPTION PRICE
A Participant may pay the exercise price of an option in cash or by
check. Additionally, Participant can pay the exercise price by delivering
previously held shares of the common stock or by a combination of cash and
shares. If a Participant uses shares for this payment, the value of each share
delivered shall be equal to the last reported sale price on the Nasdaq National
Market on the day the option is exercised.
AVAILABLE SHARES
Subject to adjustments for stock splits, stock dividends and other
changes in the number and character of shares of common stock available for
awards, we will grant awards for up to 400,000 shares of common stock under the
Plan. The shares that we will deliver upon the exercise of options may be
authorized but unissued shares of common stock or issued shares of common stock
which we have reacquired or a combination of both.
In the event of a stock split, stock dividend or similar change in the
number and character of shares of common stock available for awards, we will
adjust:
o The number of shares of common stock available for awards under
the Plan; and
o The exercise price per share of common stock under each
outstanding option.
The purpose and effect of this type of adjustment is to give you the same
economic rights in our common stock that you had prior to a stock split, stock
dividend or similar change. We will not make this type of adjustment unless the
adjustment would require an increase or decrease in the number of shares or
exercise price of at least 1%.
THE EXERCISE OF AWARDS BY NON-PARTICIPANTS
Under the Agents' Stock Option Plan Addendum, which you are required
to sign to become a Participant in the Plan, we will consent to allow you to
designate natural persons who are your owners the right to participate in the
Plan. Otherwise, you may not transfer awards other than by will or by the laws
of descent and distribution upon death. In the case of your death, your estate
or heirs may exercise the award within one (1) year of death, to the same extent
that you could have exercised the award at the time of your death.
THE TERMINATION OF AWARDS
All awards have a term of ten (10) years. If your agency agreement
terminates, you fail to meet your performance criteria as set forth in your
Participation Agreement and in the Plan, or you fail to pay us any amounts due
under your agency agreement on time, your option, to the extent not vested,
terminates. You will, however, be able to exercise your option to the extent
vested until the term lapses.
If your relationship with us terminates, you will not be eligible to
receive awards after the date of termination of the relationship. Any
outstanding but unexercised awards will terminate as described in the preceding
paragraph.
THE STATUS OF AN OPTION HOLDER
Receiving an option does not give you any right to continue your
relationship with us, and it does not interfere with our right to terminate our
relationship with you at any time. You will not have rights as a shareholder for
any shares of common stock subject to an option until the date we issue those
shares.
CHANGE OF CONTROL OF THE COMPANY
If we are a party to a merger or consolidation, other than a merger in
which we are the surviving corporation, the aggregate number of shares reserved
for issuance under the Plan and the number and exercise price of outstanding
options will be adjusted. The adjustment will entitle you to receive for the
original aggregate exercise price the number and type of shares of stock which
you would have received upon the happening of the
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event giving rise to the adjustment as if you had exercised all of your options
and held shares of common stock prior to the happening of the event.
PARTICIPANT'S AGREEMENTS
The terms and conditions of your award will be contained in an
agreement between you and us. The terms of your agreement will be consistent
with the terms of the Plan, but may include additional provisions and
restrictions that are not inconsistent with the Plan.
CONDITIONS TO ISSUE OR DELIVER COMMON STOCK
Our obligation to issue or deliver shares of common stock upon the
exercise of an award is subject to applicable laws and the approval of
applicable governmental and regulatory authorities, if necessary or appropriate.
RESALE OF COMMON STOCK
You may publicly sell shares of common stock acquired pursuant to the
Plan. However, if you may be considered our "affiliate" as defined in the SEC
rules under the Securities Act of 1933 any shares that you own may not be
re-offered or resold except:
o Under a separate prospectus covering those shares;
o In connection with Rule 144 under the rules of the Securities
Act; or
o Under another Securities Act exemption from registration.
TERM OF THE PLAN
The Plan will terminate on May 27, 2008, unless terminated earlier by
our Board of Directors. The termination of the Plan will not affect the
exercisability of outstanding options.
FEDERAL TAX CONSIDERATIONS
Options granted under the Plan are non-qualified options under the
Internal Revenue Code. Generally, the grant of options will not result in the
recognition of taxable income for federal income tax purposes. When a
Participant exercises an option, the Participant recognizes, as ordinary income,
the excess of the fair market value of the common stock on the date of exercise
over the exercise price. We will be allowed a deduction for federal income tax
purposes to the same extent and at the same time as the Participant recognizes
income.
The tax basis of a share acquired by exercise of an option with a cash
payment will be its fair market value used to determine the amount of taxable
income arising from the exercise of the option. Assuming the shares issued on
the exercise of an option are held as a capital asset, the holding period for
purposes of determining whether a subsequent sale of the share results in the
recognition of short-term or long-term capital gain or loss will begin on the
day of transfer of the share to the Participant.
If a Participant delivers shares of common stock that he or she
already owns as payment of the exercise price of shares acquired on the exercise
of an option, the delivery will not result in the recognition of a capital gain
or loss on the previously owned stock. The number of option shares received in
excess of the previously owned shares given up, in effect, are "purchased" with
the untaxed appreciation on the previously owned stock. A Participant's tax
basis and holding period for the number of shares received equal to the number
of shares delivered will be the same as that for the shares delivered. A
Participant's tax basis for shares received in excess of the number of shares
delivered will equal the fair market value of the shares used to determine the
amount of taxable income arising from the exercise of the option. A
Participant's holding period for those excess shares will begin on the date the
shares are transferred to the Participant.
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We will report the amount of taxable income arising from the exercise
of an option on IRS Form 1099. You should consult your tax advisor to determine
the income tax consequences of holding and exercising any awards granted under
the Plan and of selling any stock acquired pursuant to that exercise, as well as
to determine the effect of any state or local taxes.
The Plan is not qualified under Section 401(a) of the Internal Revenue
Code and is not subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended.
OTHER CONSIDERATIONS
The Plan will continue in effect until all awards that we have granted
expire. We will not grant any awards under the Plan after May 27, 2008. Our
Board of Directors may amend, suspend or terminate the Plan. However, no action
shall adversely affect or impair in any material respect any award granted under
the Plan without the consent of the Participant holding the award.
USE OF PROCEEDS
We will use any proceeds from the exercise of awards for general
corporate purposes.
LEGAL MATTERS
The legality of the common stock offered under this prospectus will be
passed upon by Porter, Wright, Morris & Arthur LLP.
EXPERTS
The consolidated financial statements of State Auto Financial
Corporation at December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, incorporated by reference in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon and incorporated by reference
herein, and are included in reliance upon such report given the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and, therefore, we file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. You can inspect and copy any document we file with the Commission at
the following locations:
o At the Public Reference Room of the Commission, Room
1024-Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549;
o At the Public Reference Room of the Commission's regional
office at Seven World Trade Center, 13th Floor, New York,
New York 10048;
o At the Public Reference Room of the Commission's regional
office at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661;
o By writing the Commission, Public Reference Section,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549;
o At the offices of the National Association of Securities
Dealers, Inc., Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006; or
o From the Commission's web site at www.sec.gov.
Some of these locations may charge a prescribed fee or modest fee for
copies.
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We have filed with the Commission a registration statement and related
exhibits under the Securities Act of 1933 with respect to the securities. As
permitted by the Commission, this prospectus, which constitutes a part of the
registration statement, does not contain all the information included in the
registration statement. Such additional information may be obtained from the
locations described above. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete. You
should refer to the contract or other document for all the details.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference the information
we file with it, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and information that we later file
with the Commission will automatically update and supersede this information.
Accordingly, we incorporate by reference the following documents we filed with
the Commission pursuant to Section 13 of the Securities Exchange Act of 1934
(Commission File Number 0-19289):
o Our Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (filed March 30, 1999);
o Our Quarterly Reports on Form 10-Q for the quarters ended March
31, 1999 (filed May 14, 1999), June 30, 1999 (filed August 13,
1999) and September 30, 1999 (Filed November 12, 1999);
o Our Proxy Statement for the Annual Meeting of Shareholders held
on May 27, 1999 (filed April 26, 1999);
o The description of our common stock, contained in the
registration statement on Form 8-A filed with the Commission
pursuant to Section 12 of the Securities Exchange Act of 1934 and
all amendments thereto and reports filed for the purpose of
updating such description; and
o All documents filed by us with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 after the date of this prospectus and before the offering
of the common stock thereby is completed (other than portions of
such documents described in paragraphs (i), (k) and (l) of Item
402 of Regulation S-K promulgated by the Commission).
These documents are or will be available for inspection or copying at
the locations identified above under the caption "Where You Can Find More
Information." We will provide without charge to each to whom this prospectus is
delivered, upon written or oral request, a copy of any and all of the documents
that have been incorporated by reference in this prospectus (other than exhibits
to such documents unless such exhibits are specifically incorporated by
reference). You should direct requests for documents to:
State Auto Insurance Corporation
518 East Broad St.
Columbus, Ohio 43215-3976
Attention: James E. Duemey, Vice President
Telephone Number: (614) 464-5000
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