Document:

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                                                                   Exhibit 10(U)

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                                  PUT AGREEMENT

                                      among

                   STATE AUTOMOBILE MUTUAL INSURANCE COMPANY,

                        STATE AUTO FINANCIAL CORPORATION,

                                       and

                                  BANK ONE, NA,
                                    as Agent

                          Dated as of November 19, 1999

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                                  PUT AGREEMENT

         This Put Agreement, dated as of November 19, 1999, is among State
Automobile Mutual Insurance Company, a mutual insurance company duly organized
and validly existing under the laws of the State of Ohio ("State Auto Mutual"),
State Auto Financial Corporation, a corporation duly organized and validly
existing under the laws of the State of Ohio ("State Auto Financial" and,
together with State Auto Mutual, the "State Auto Obligors"), and Bank One, NA,
as agent (in such capacity, together with its successors in such capacity, the
"Agent") for the Lenders party to the Credit Agreement referred to below.

                                    RECITALS:
                                    ---------

         A. SAF Funding Corporation (the "Borrower"), the lenders party thereto
from time to time (the "Lenders") and the Agent are parties to a Credit
Agreement, dated as of November 19, 1999 (as modified and supplemented and in
effect from time to time, the "Credit Agreement"), providing, subject to the
terms and conditions thereof, for term loans to be made by the Lenders to the
Borrower in an aggregate principal amount not exceeding $135,000,000.

         B. The proceeds of the term loans made to the Borrower under the Credit
Agreement are to be used by the Borrower to purchase certain preferred stock of
State Auto Financial pursuant to a Standby Purchase Agreement, dated as of the
date hereof, among the Borrower and State Auto Financial (as modified and
supplemented and in effect from time to time as permitted hereby, the "Standby
Purchase Agreement").

         NOW, THEREFORE, to induce the Lenders to enter into the Credit
Agreement and to make loans thereunder and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS
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         1.1 Definitions and Accounting Terms. Capitalized terms used but not
defined herein shall have the respective meanings, assigned to such terms in the
Credit Agreement. In addition, as used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.1 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):

         "Affiliate" shall mean any Person that directly or indirectly controls,
or is under common control with, or is controlled by, State Auto Mutual. As used
in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
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ownership interests, by contract or otherwise), provided that, in any event, any
Person that owns directly or indirectly securities having 5% or more of the
voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, (a) no individual shall be an Affiliate solely by reason of his or
her being a director, officer or employee of State Auto Mutual or any of its
Subsidiaries and (b) State Auto Mutual and its Subsidiaries shall not be deemed
to be Affiliates of one another.

         "Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time.

         "Applicable Insurance Regulatory Authority" shall mean, when used with
respect to any Insurance Entity, the insurance department or similar
administrative authority or agency located in the State in which such Insurance
Entity is domiciled.

         "Assumed Reinsurance" shall mean reinsurance assumed by any Insurance
Entity from another Person (other than from another Insurance Entity).

         "Capital Expenditures" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by State Auto Mutual or any of its
Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with Agreement Accounting Principles.

         "Ceded Reinsurance" shall mean reinsurance ceded by any Insurance
Entity to any other Person (other than to another Insurance Entity), other than
Surplus Relief Reinsurance.

         "Environmental Claim" shall mean, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"claim") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (a) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (b) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law. The term "Environmental Claim" shall
include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.

         "Environmental Laws" shall mean any and all present and future Federal,
state, local and foreign laws, rules or regulations, and any orders or decrees,
in each case as now or hereafter in effect, relating to the regulation or
protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing,

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distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.

         "Equity Public Offering" shall mean a public issuance or sale by State
Auto Mutual or any of its Material Subsidiaries after the Closing Date pursuant
to a registration statement filed under the Securities Act of 1933, as amended,
of any common stock.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.

         "ERISA Affiliate" shall mean any corporation or trade or business that
is a member of any group of organizations (a) described in Section 414(b) or (c)
of the Code of which State Auto Mutual is a member and (b) solely for purposes
of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which
State Auto Mutual is a member.

         "Excluded Taxes" means, in the case of each Lender or applicable
Lending Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (a) the jurisdiction under the laws of which
such Lender or the Agent is incorporated or organized or (b) the jurisdiction in
which the Agent's or such Lender's principal executive office or such Lender's
applicable Lending Installation is located.

         "Farmers Casualty" means Farmers Casualty Insurance Company, an Iowa
domiciled property and casualty insurance company.

         "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 Subsidiary of State Auto Financial which is engaged in the insurance
business as of the most recently ended calendar year (determined without
duplication in accordance with SAP) or (B) the aggregate net income earned by
each Subsidiary of State Auto Financial which is engaged in the insurance
business for the most recently ended four fiscal quarters (determined without
duplication in accordance with SAP), plus (ii) cash on hand at State Auto
Financial at the end of the most recently ended fiscal quarter, plus (iii) the
aggregate net income of each Subsidiary of State Auto Financial which is not
engaged in the insurance business for the most recently ended four fiscal
quarters (determined without duplication in accordance with Agreement Accounting
Principles) to (b) the sum of (i) interest payments on the Loans for the most
recent four quarters, plus (ii) scheduled principal amortization payments on the
Loans for the four fiscal quarters following the date of determination.

         "Hazardous Material" shall mean, collectively, (a) any petroleum or
petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and transformers or other equipment
that contain polychlorinated biphenyls ("PCB's"), (b) any chemicals or other
materials or substances that are now or hereafter become defined as or included
in the definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under
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any Environmental Law and (c) any other chemical or other material or substance,
exposure to which is now or hereafter prohibited, limited or regulated under any
Environmental Law.

         "Indebtedness" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person; provided that Indebtedness shall not include (i)
obligations with respect to insurance policies, annuities, guaranteed investment
contracts and similar products underwritten by, or Reinsurance Agreements or
Retrocession Agreements entered into by, an Insurance Entity in the ordinary
course of its business and (ii) obligations with respect to Surplus Relief
Reinsurance ceded by an Insurance Entity.

         "Insurance Entity" shall mean, collectively, State Auto Mutual and the
Subsidiaries of State Auto Mutual licensed to underwrite property and casualty
insurance.

         "Intercompany Pooling Arrangement" shall mean the pooling arrangement
among State Auto Mutual, State Auto P&C, Milbank, Midwest Security and Farmers
Casualty pursuant to which (a) State Auto P&C cedes to State Auto Mutual all of
its insurance business, (b) Milbank cedes to State Auto Mutual its property and
casualty insurance business, (c) Midwest Security cedes to State Auto Mutual its
property and casualty insurance business, (d) Farmers Casualty cedes to State
Auto Mutual its property and casualty insurance business and (e) State Auto
Mutual retains its property and casualty insurance business, whereupon all such
businesses are pooled and a portion thereof is then ceded from State Auto Mutual
to each of State Auto P&C, Milbank, Midwest Security and Farmers Casualty and
the balance thereof is retained by State Auto Mutual, as such arrangement may be
modified and supplemented and in effect from time to time.

         "Interest Rate Protection Agreement" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
For purposes hereof, the "credit exposure" at any time of any Person under an
Interest Rate Protection Agreement to which such Person is a party shall be
determined at such time in accordance with the standard methods of calculating
credit exposure under similar arrangements as prescribed from time to time by
the Agent, taking into account potential interest rate movements and the
respective termination provisions and notional principal amount and term of such
Interest Rate Protection Agreement.

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         "Investment" shall mean, for any Person: (a) the acquisition (whether
for cash, Property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person or any agreement to make any such acquisition
(including, without limitation, any "short sale" or any sale of any securities
at a time when such securities are not owned by the Person entering into such
sale); (b) the making of any deposit with, or advance, loan or other extension
of credit or capital contribution to, any other Person (including the purchase
of Property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such Property to such Person), but excluding
any such advance, loan or extension of credit having a term not exceeding 90
days arising in connection with the sale of inventory or supplies by such Person
in the ordinary course of business; (c) the entering into of any Guarantee of,
or other contingent obligation with respect to, Indebtedness or other liability
of any other Person and (without duplication) any amount committed to be
advanced, lent or extended to such Person; or (d) the entering into of any
Interest Rate Protection Agreement.

         "License" shall have the meaning assigned to such term in Section 3.17
hereof.

         "Material Adverse Effect" shall mean a material adverse effect on (a)
the Property, business, operations, financial condition, prospects, liabilities
or capitalization of State Auto Mutual and its Subsidiaries taken as a whole,
(b) the ability of State Auto Mutual to perform its obligations under this
Agreement, (c) the validity or enforceability of any of the Basic Documents or
(d) the rights and remedies of the Lenders and the Agent under any of the Basic
Documents.

         "Material Subsidiary" shall mean, as at any time, any of State Auto
Financial, State Auto P&C, Milbank, State Auto National Insurance Company, and
any other Subsidiary of State Auto Mutual that holds, directly or indirectly,
more than 5% of the consolidated assets of State Auto Mutual and its
Subsidiaries at such time or that accounts for more than 5% of the consolidated
revenues of State Auto Mutual and its Subsidiaries at such time.

         "Midwest Security" means Midwest Security Insurance Company, a
Wisconsin domiciled property and casualty insurance company.

         "Milbank" shall mean Milbank Insurance Company, a South Dakota
domiciled property and casualty insurance company.

         "Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by State Auto
Mutual or any ERISA Affiliate and that is covered by Title IV of ERISA.

         "NAIC" shall mean the National Association of Insurance Commissioners
and any successor thereto.

         "Net Available Proceeds" shall mean, with respect to any Equity Public
Offering, the aggregate amount of all cash received by State Auto Mutual and its
Material Subsidiaries in respect of such Equity Public Offering net of
reasonable expenses incurred by State Auto Mutual and its Material Subsidiaries
in connection therewith.

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         "Obligations" shall have the meaning assigned to such term in Section
2.4 hereof.

         "Other Taxes" is defined in Section 2.7(b).

         "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

         "Plan" shall mean an employee benefit or other plan established or
maintained by State Auto Mutual or any ERISA Affiliate and that is covered by
Title IV of ERISA, other than a Multiemployer Plan.

         "Pledged Stock" shall mean the Preferred Stock pledged pursuant to the
Company Pledge Agreement to the Agent for the benefit of the Lenders and all
related rights in connection therewith.

         "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 recently ended
prior to such date of determination to (b) Statutory Surplus as at the last day
of the calendar quarter ending on or most recently ended prior to such date of
determination.

         "Put Event" shall mean one or more of the following events shall have
occurred and be continuing:

                  (a) a Default;

                  (b) either State Auto Obligor shall default in the payment
         when due of any amount payable by it hereunder or State Auto Financial
         shall default in the payment when due of any amount payable by it under
         the Standby Purchase Agreement;

                  (c) State Auto Mutual or any of its Material Subsidiaries
         shall default in the payment when due of any principal of or interest
         on any of its other Indebtedness aggregating $5,000,000 or more; or any
         event specified in any note, agreement, indenture or other document
         evidencing or relating to any such Indebtedness shall occur if the
         effect of such event is to cause, or (with the giving of any notice or
         the lapse of time or both) to permit the holder or holders of such
         Indebtedness (or a trustee or agent on behalf of such holder or
         holders) to cause, such Indebtedness to become due, or to be prepaid in
         full (whether by redemption, purchase, offer to purchase or otherwise),
         prior to its stated maturity or to have the interest rate thereon reset
         to a level so that securities evidencing such Indebtedness trade at a
         level specified in relation to the par value thereof; or State Auto
         Mutual or any of its Material Subsidiaries shall default in the payment
         when due of any amount aggregating $10,000,000 or more under any
         Interest Rate Protection Agreement; or State Auto Mutual or any of its
         Material Subsidiaries shall default under any Interest Rate Protection
         Agreement if the effect of such default is to cause, or (with the
         giving of any notice or the lapse of time or both) to permit,
         termination or liquidation payment or payments by State Auto Mutual or
         any of its Material Subsidiaries aggregating $5,000,000 or more to
         become due;

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                  (d) any representation, warranty or certification made or
         deemed made herein or in any other Basic Document (or in any
         modification or supplement hereto or thereto) by either State Auto
         Obligor party thereto, or any certificate furnished to any Lender or
         the Agent pursuant to the provisions hereof or thereof, shall prove to
         have been false or misleading as of the time made or furnished in any
         material respect;

                  (e) State Auto Mutual shall default in the performance of any
         of its obligations under any of Sections 4.5 through 4.9 or 4.12
         through 4.17 hereof, State Auto Financial shall default in the
         performance of any of its obligations under the Standby Purchase
         Agreement; or either State Auto Obligor shall default in the
         performance of any of its other obligations under this Agreement and
         such default shall continue unremedied for a period of 30 or more days
         after the occurrence of such default;

                  (f) State Auto Mutual or any of its Material Subsidiaries
         shall admit in writing its inability to, or be generally unable to, pay
         its debts as such debts become due;

                  (g) State Auto Mutual or any of its Material Subsidiaries
         shall (i) apply for or consent to the appointment of, or the taking of
         possession by, a receiver, custodian, trustee, examiner or liquidator
         of itself or of all or a substantial part of its Property, (ii) make a
         general assignment for the benefit of its creditors, (iii) commence a
         voluntary case under the Bankruptcy Code, (iv) file a petition seeking
         to take advantage of any other law relating to bankruptcy, insolvency,
         reorganization, liquidation, dissolution, arrangement or winding-up, or
         composition or readjustment of debts, (v) fail to controvert in a
         timely and appropriate manner, or acquiesce in writing to, any petition
         filed against it in an involuntary case under the Bankruptcy Code or
         (vi) take any corporate action for the purpose of effecting any of the
         foregoing;

                  (h) a proceeding or case shall be commenced, without the
         application or consent of State Auto Mutual or any of its Material
         Subsidiaries, in any court of competent jurisdiction, seeking (i) its
         reorganization, liquidation, dissolution, arrangement or winding-up, or
         the composition or readjustment of its debts, (ii) the appointment of a
         receiver, custodian, trustee, examiner, liquidator or the like of State
         Auto Mutual or such Material Subsidiary or of all or any substantial
         part of its Property or (iii) similar relief in respect of State Auto
         Mutual or such Material Subsidiary under any law relating to
         bankruptcy, insolvency, reorganization, winding-up, or composition or
         adjustment of debts, and such proceeding or case shall continue
         undismissed, or an order, judgment or decree approving or ordering any
         of the foregoing shall be entered and continue unstayed and in effect,
         for a period of 60 or more days; or an order for relief against State
         Auto Mutual or such Material Subsidiary shall be entered in an
         involuntary case under the Bankruptcy Code;

                  (i) any Applicable Insurance Regulatory Authority shall
         appoint a rehabilitator, receiver, custodian, trustee, conservator or
         liquidator or the like (collectively, a "conservator") for any
         Insurance Entity, or cause possession of all or any substantial portion
         of the property of any Insurance Entity to be taken by any conservator
         (or any Insurance Regulatory Authority shall commence any action to
         effect any of the foregoing);

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                  (j) a final judgment or judgments for the payment of money of
         $10,000,000 or more in the aggregate (exclusive of judgment amounts
         fully covered by insurance where the insurer has admitted liability in
         respect of such judgment) or of $25,000,000 or more in the aggregate
         (regardless of insurance coverage) shall be rendered by one or more
         courts, administrative tribunals or other bodies having jurisdiction
         against State Auto Mutual or any of its Subsidiaries and the same shall
         not be discharged (or provision shall not be made for such discharge),
         or a stay of execution thereof shall not be procured, within 30 days
         from the date of entry thereof and State Auto Mutual or the relevant
         Material Subsidiary shall not, within said period of 30 days, or such
         longer period during which execution of the same shall have been
         stayed, appeal therefrom and cause the execution thereof to be stayed
         during such appeal;

                  (k) an event or condition specified in Section 4.1(j) hereof
         shall occur or exist with respect to any Plan or Multiemployer Plan
         and, as a result of such event or condition, together with all other
         such events or conditions, State Auto Mutual or any ERISA Affiliate
         shall incur or in the opinion of the Required Lenders shall be
         reasonably likely to incur a liability to a Plan, a Multiemployer Plan
         or the PBGC (or any combination of the foregoing) that, in the
         determination of the Required Lenders, would (either individually or in
         the aggregate) have a Material Adverse Effect;

                  (l) a reasonable basis shall exist for the assertion against
         State Auto Mutual or any of its Subsidiaries, or any predecessor in
         interest of State Auto Mutual or any of its Subsidiaries or Affiliates,
         of (or there shall have been asserted against State Auto Mutual or any
         of its Subsidiaries) an Environmental Claim that, in the judgment of
         the Required Lenders is reasonably likely to be determined adversely to
         State Auto Mutual or any of its Subsidiaries, and the amount thereof
         (either individually or in the aggregate) is reasonably likely to have
         a Material Adverse Effect (insofar as such amount is payable by State
         Auto Mutual or any of its Subsidiaries but after deducting any portion
         thereof that is reasonably expected to be paid by other creditworthy
         Persons jointly and severally liable therefor);

                  (m) during any period of (i) 12 consecutive months if no Loans
         are outstanding or (ii) 25 consecutive months if any Loans are
         outstanding, a majority of the Board of Directors of State Auto Mutual,
         State Auto Financial or State Auto P&C, as the case may be, shall no
         longer be composed of individuals (x) who were members of said Board on
         the first day of such period, (y) whose election or nomination to said
         Board was approved by individuals referred to in clause (x) above
         constituting at the time of such election or nomination at least a
         majority of said Board or (z) whose election or nomination to said
         Board was approved by individuals referred to in clauses (x) and (y)
         above constituting at the time of such election or nomination at least
         a majority of said Board;

                  (n) except for expiration in accordance with its terms, any
         material provision of this Agreement or the Standby Purchase Agreement
         shall for whatever reason be terminated or cease to be in full force
         and effect without the consent of the Lenders as specified in Section
         10.17 of the Credit Agreement, or the validity or enforceability
         thereof shall be contested by either State Auto Obligor;

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                  (o) any "person" or "group" of "persons" (within the meaning
         of Section 13(d) of the Securities and Exchange Act of 1934, as
         amended) shall have the power, directly or indirectly, to vote or
         direct the voting of a greater number of the voting capital stock
         issued by State Auto Financial than State Auto Mutual; or State Auto
         Financial shall fail to own and control, beneficially (free and clear
         of all Liens), all of the capital stock issued by State Auto P&C (in
         each case irrespective of whether or not at the time securities or
         other ownership interests issued by State Auto Financial or State Auto
         P&C, as the case may be, or any other class or classes might have
         voting power by reason of the happening of any contingency); or

                  (p) the rating published by A.M. Best & Co. for (i) State Auto
         Mutual shall be less than (x) "A", at any time prior to the date of the
         occurrence of the catastrophe relating to the initial Loans under the
         Credit Agreement, (y) "B+", at any time during the period commencing on
         the first anniversary of the date of the occurrence of such catastrophe
         to but excluding the fourth anniversary thereof, and (z) "A-", at any
         time thereafter, or (ii) State Auto P&C shall be less than "A" at any
         time prior to the date of the occurrence of such catastrophe.

         "Put Notice" shall mean an instrument executed by the Agent
substantially in the form of Exhibit A hereto.

         "Put Purchase Date" shall mean the date specified in a Put Notice as
the date on which State Auto Mutual shall purchase all of the Loans or the
Pledged Stock, as specified therein.

         "Reinsurance Agreement" shall mean any agreement, contract, treaty or
other arrangement providing for Ceded Reinsurance by any Insurance Entity or any
Subsidiary of such Insurance Entity.

         "Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.

         "Retrocession Agreement" shall mean any agreement, contract, treaty or
other arrangement (other than Surplus Relief Reinsurance) whereby any Insurance
Entity or any Subsidiary of such Insurance Entity cedes reinsurance to other
insurers (other than to another Insurance Entity or any of its Subsidiaries).

         "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 Entity, the accounting
procedures and practices prescribed or permitted by the Applicable Insurance
Regulatory Authority, applied on a basis consistent with those that, in
accordance with the last sentence of

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<PAGE>   11
Section 1.2(a) hereof, are to be used in making the calculations for purposes of
determining compliance with this Agreement.

         "State Auto P&C" shall mean State Auto Property and Casualty Insurance
Company, a South Carolina corporation.

         "Statutory Statement" shall mean, as to any Insurance Entity, a
statement of the condition and affairs of such Insurance Entity, prepared in
accordance with statutory accounting practices required or permitted by the
Applicable Insurance Regulatory Authority, and filed with the Applicable
Insurance Regulatory Authority.

         "Statutory Surplus" shall mean, as at any date for any Insurance
Entity, the aggregate amount of surplus as regards policyholders (determined
without duplication in accordance with SAP) of such Insurance Entity.

         "Surplus Relief Reinsurance" shall mean any transaction in which any
Insurance Entity or any Subsidiary of such Insurance Entity cedes business under
a reinsurance agreement that would be considered a "financing-type" reinsurance
agreement as determined by the independent certified public accountants of State
Auto Mutual in accordance with principles published by the Financial Accounting
Standards Board or the Second Edition of the AICPA Audit Guide for Stock Life
Insurance Companies (pp. 91-92), as the same may be revised from time to time.

         "Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes and Other Taxes.

         "Tax Sharing Agreement" shall mean any tax sharing or allocation
agreement to which State Auto Mutual or any of its Subsidiaries is a party and
all tax indemnity agreements as to which State Auto Mutual or any of its
Subsidiaries is the beneficiary or obligor.

         "Wholly Owned Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which all of the equity securities
or other ownership interests (other than, in the case of a corporation,
directors' qualifying shares) are directly or indirectly owned or controlled by
such Person or one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.

         "Year 2000 Program" is defined in Section 3.19.

         1.2 Accounting Terms and Determinations.

         (a) Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Agent
hereunder shall (unless otherwise disclosed to the Agent in writing at the time
of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with Agreement Accounting Principals or with statutory
accounting practices applied on a basis consistent with those used in the
preparation of the latest financial statements furnished to the Agent hereunder
(which, prior to the delivery of the first financial

                                      -10-
<PAGE>   12
statements under Section 4.1 hereof, shall mean the audited, or annual
statutory, financial statements as at December 31, 1998 referred to in Section
3.2 hereof). All calculations made for the purposes of determining compliance
with this Agreement shall (except as otherwise expressly provided herein) be
made by application of Agreement Accounting Principles or with statutory
accounting practices applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial statements furnished to
the Agent pursuant to Section 4.1 hereof (or, prior to the delivery of the first
financial statements under Section 4.1 hereof, used in the preparation of the
audited, or annual statutory, financial statements as at December 31, 1998
referred to in Section 3.2 hereof) unless (i) State Auto Mutual shall have
objected to determining such compliance on such basis at the time of delivery of
such financial statements or (ii) the Required Lenders (through the Agent) shall
so object in writing within 30 days after delivery of such financial statements,
in either of which events such calculations shall be made on a basis consistent
with those used in the preparation of the latest financial statements as to
which such objection shall not have been made (which, if objection is made in
respect of the first financial statements delivered under Section 4.1 hereof,
shall mean the audited, or annual statutory, financial statements referred to in
Section 3.2 hereof).

         (b) State Auto Mutual shall deliver to the Agent at the same time as
the delivery of any annual or quarterly financial statement under Section 4.1
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles, or statutory accounting practices,
employed in the preparation of such statement and the application of accounting
principles, or statutory accounting practices, employed in the preparation of
the next preceding annual or quarterly financial statements as to which no
objection has been made in accordance with the last sentence of subsection (a)
above and (ii) reasonable estimates of the difference between such statements
arising as a consequence thereof.

         (c) To enable the ready and consistent determination of compliance with
the covenants set forth in Article IV hereof, State Auto Mutual will not change
the last day of its fiscal year from December 31, or the last days of the first
three fiscal quarters in each of its fiscal years from March 31, June 30 and
September 30 of each year, respectively.

                                      -11-
<PAGE>   13
                                   ARTICLE II

                                       PUT
                                       ---

         2.1 Put. At any time after the occurrence and during the continuance of
a Put Event, the Agent may (with the approval of the Required Lenders but not
otherwise), by delivering to State Auto Mutual a Put Notice, require State Auto
Mutual to purchase (a) from each Lender, all (but not less than all) of such
Lender's Loans, Notes and Commitment or (b) from the Agent, all (but not less
than all) of the Pledged Stock. In the event that a Put Event has occurred and
the Agent (with the consent of the Required Lenders) has elected to deliver a
Put Notice, it shall first attempt to require State Auto Mutual to purchase the
Pledged Stock; provided that if the Agent shall not be able, promptly (and in
any event within 5 Business Days of any such election) after the occurrence of
such Put Event, to sell the Pledged Stock to State Auto Mutual as contemplated
hereby, it may deliver a Put Notice requiring the purchase of each Lender's
Loans, Notes and Commitments.

         2.2 Purchase of Loans.

         (a) If such Put Notice requires that State Auto Mutual purchase each
Lender's Loans, Notes and Commitment, then, on the Put Purchase Date specified
in such Put Notice (which Put Purchase Date shall be at least three Business
Days after the date of delivery of such Put Notice), (i) State Auto Mutual shall
purchase from each Lender, and each Lender shall sell, assign and transfer to
State Auto Mutual, all of such Lender's Loans, Notes and Commitment, as
specified in such Put Notice and (ii) State Auto Mutual shall pay to the Agent
for account of each Lender an aggregate amount equal to the sum of (x) the
aggregate outstanding principal amount of Loans of such Lender plus (y) all
accrued and unpaid interest thereon to the Put Purchase Date plus (z) all other
amounts then payable to such Lender under the Basic Documents in respect thereof
(including all amounts that would be payable under Section 3.4 of the Credit
Agreement as if such portion of such Lender's Loans were being prepaid on the
Put Purchase Date) (such amounts to be determined by the Agent and notified in
writing by the Agent to State Auto Mutual prior to such Put Purchase Date). Upon
the occurrence of any Put Event referred to in clause (g), (h) or (i) of the
definition of such term in Section 1.1 hereof, State Auto Mutual shall
automatically and without any action (including, without limitation the giving
of notice) on the part of any other Person be required to purchase the entire
principal amount of the Loans then outstanding.

         (b) Such sale, assignment and transfer shall be without recourse to
each Lender and without representation and warranty by such Lender, except that
such Lender will represent and warrant to State Auto Mutual that, on the Put
Purchase Date, such Lender is the legal and beneficial owner of such portion of
such Lender's Loans, Notes and Commitment so sold, assigned and transferred,
free and clear of any adverse claim. Upon such sale, assignment and transfer and
to the extent thereof, State Auto Mutual shall have the obligations, rights and
benefits of a "Lender" under the Credit Agreement holding the Commitment and
Loans so sold, assigned and transferred and each Lender shall be released from
the Commitment so sold, assigned and transferred.

                                      -12-
<PAGE>   14
         2.3 Purchase of Pledged Stock. If such Put Notice requires that State
Auto Mutual purchase the Pledged Stock, then, on the Put Purchase Date specified
in such Put Notice (which Put Purchase Date shall be at least three Business
Days after the date of delivery of such Put Notice), (a) State Auto Mutual shall
purchase from the Agent, and the Agent shall sell, assign and transfer to State
Auto Mutual, the Pledged Stock, (b) State Auto Mutual shall pay to the Agent,
for account of the Lenders, an amount equal to the aggregate liquidation
preference of such Pledged Stock and all accrued but unpaid dividends thereon
(such amount to be determined by the Agent and notified in writing by the Agent
to State Auto Mutual prior to such Put Purchase Date) and (c) the Agent shall
apply such amount to the payment of the Obligations owing to the Lenders under
the Credit Documents.

         2.4 Obligations Unconditional. The obligations of State Auto Mutual
under Sections 2.1, 2.2, 2.3 and 5.3 hereof are absolute, unconditional and
irrevocable, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Borrower or any other Person under the
Credit Agreement, the Notes, the Pledge Agreements or any other agreement or
instrument referred to therein (collectively, the "Obligations"), or any
substitution, release or exchange of any other guarantee of or security for any
of the Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense available to State Auto
Mutual, it being the intent of this Section 2.4 that the obligations of State
Auto Mutual hereunder shall be absolute, unconditional and irrevocable under any
and all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence of any one or more of the following shall not alter
or impair the liability of State Auto Mutual hereunder which shall remain
absolute, unconditional and irrevocable as described above:

         (a) at any time or from time to time, without notice to State Auto
Mutual, the time for any performance of or compliance with any of the
Obligations shall be extended, or such performance or compliance shall be
waived;

         (b) any of the acts mentioned in any of the provisions of the Credit
Agreement, the Notes, the Pledge Agreements or any other agreement or instrument
referred to therein shall be done or omitted;

         (c) the maturity of any of the Obligations shall be accelerated, or any
of the Obligations shall be modified, supplemented or amended in any respect, or
any right under this Agreement, the Notes, the Pledge Agreements or any other
agreement or instrument referred to therein shall be waived or any guarantee of
any of the Obligations or any security therefor shall be released or exchanged
in whole or in part or otherwise dealt with; or

         (d) any change in the financial condition (including, without
limitation, insolvency or bankruptcy) of the Borrower.

State Auto Mutual hereby expressly waives all of the defenses referred to above
and diligence, presentment, demand of payment, protest and all notices
whatsoever (other than the Put Notice), and any requirement that the Agent or
any Lender exhaust any right, power or remedy or proceed against the Borrower
under the Credit Agreement, the Notes, the Pledge Agreements or any other

                                      -13-
<PAGE>   15
agreement or instrument referred therein, or against any other Person under any
other guarantee of, or security for, any of the Obligations.

         2.5 Reinstatement. If for any reason any payment received by the Agent
in respect of any of the Obligations prior to the consummation by State Auto
Mutual of a purchase contemplated by Section 2.2 or 2.3 hereof is rescinded or
must be otherwise restored by any Lender for any reason, whether as a result of
any proceedings in bankruptcy, insolvency or reorganization or otherwise,
following the consummation of such purchase, State Auto shall purchase from such
Lender, and such Lender shall sell, assign and transfer to State Auto Mutual,
all of the right, title and interest of such Lender in and to the payment so
rescinded or otherwise restored, and upon such sale, assignment and transfer,
State Auto Mutual shall pay to such Lender an amount equal to the payment so
rescinded or otherwise restored. State Auto Mutual hereby agrees that it will
indemnify the Agent and such Lender on demand for all reasonable costs and
expenses (including, without limitation, fees of counsel) incurred by the Agent
or such Lender in connection with such rescission or restoration.

         2.6 Payments.

         (a) Except to the extent otherwise provided herein, all payments to be
made by State Auto Mutual under this Agreement shall be made in Dollars, in
immediately available funds, without deduction, set-off or counterclaim, to the
Agent at an account designated by the Agent to State Auto Mutual in writing, not
later than 12:00 noon (Chicago time) time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day).

         (b) The Agent may (but shall not be obligated to) debit the amount of
any such payment that is not made by such time to any ordinary deposit account
of State Auto Mutual with the Agent (with notice to State Auto Mutual), provided
that the Agent's failure to give such notice shall not affect the validity
thereof.

         2.7 Taxes. (a) All payments by State Auto Mutual to or for the account
of any Lender or the Agent hereunder shall be made free and clear of and without
deduction for any and all Taxes. If State Auto Mutual shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder to any
Lender or the Agent, (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.7) such Lender or the Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) State Auto Mutual shall make such deductions,
(iii) State Auto Mutual shall pay the full amount deducted to the relevant
authority in accordance with applicable law and (iv) State Auto Mutual shall
furnish to the Agent the original copy of a receipt evidencing payment thereof
within 30 days after such payment is made.

         (b) In addition, State Auto Mutual hereby agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or from
the execution or delivery of, or otherwise with respect to, this Agreement
("Other Taxes").

                                      -14-
<PAGE>   16
         (c) State Auto Mutual hereby agrees to indemnify the Agent and each
Lender for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed on amounts payable under this
Section 2.7) paid by the Agent or such Lender and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
Payments due under this indemnification shall be made within 30 days of the date
the Agent or such Lender makes demand therefor.

         (d) For any period during which a Lender that is not incorporated under
the laws of the United States of America or a state thereof (each a "Non-U.S.
Lender") has failed to provide the Borrower with an appropriate form pursuant to
Section 3.5(d) of the Credit Agreement (unless such failure is due to a change
in treaty, law or regulation, or any change in the interpretation or
administration thereof by any governmental authority, occurring subsequent to
the date on which a form originally was required to be provided), such Non-U.S.
Lender shall not be entitled to indemnification under this Section 2.7 with
respect to Taxes imposed by the United States; provided that, should a Non-U.S.
Lender which is otherwise exempt from or subject to a reduced rate of
withholding tax become subject to Taxes because of its failure to deliver a form
required under Section 3.5(d) of the Credit Agreement, State Auto Mutual shall
take such steps as such Non-U.S. Lender shall reasonably request to assist such
Non-U.S. Lender to recover such Taxes.

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

         Each State Auto Obligor represents and warrants (with respect to itself
and its Subsidiaries only) to the Agent and the Lenders that:

         3.1 Corporate Existence. Each of such State Auto Obligor and its
Material Subsidiaries: (a) is a corporation, partnership or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or other
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business and is in good
standing in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure so to qualify could
(either individually or in the aggregate) have a Material Adverse Effect.

         3.2 Financial Condition.

         (a) State Auto Mutual has heretofore furnished to each of the Lenders
consolidated balance sheets of State Auto Financial and its Subsidiaries as at
December 31, 1998 and the related consolidated statements of income, retained
earnings and cash flows of State Auto Financial and its Subsidiaries for the
fiscal year ended on said date, with the opinion thereon of Ernst & Young LLP,
and the unaudited consolidated balance sheets of State Auto

                                      -15-
<PAGE>   17
Financial and its Subsidiaries as at June 30, 1999 and the related consolidated
statements of income, retained earnings and cash flows of State Auto Financial
and its Subsidiaries for the three-month period ended on such date. All such
financial statements present fairly in all material respects the consolidated
financial condition of State Auto Financial and its Subsidiaries as at said
dates and the consolidated results of their operations for the fiscal year and
three-month period ended on said dates (subject, in the case of such financial
statements as at June 30, 1999, to normal year-end audit adjustments), all in
accordance with generally accepted accounting principles and practices applied
on a consistent basis. None of State Auto Financial nor any of its Material
Subsidiaries has on the date hereof any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in said balance sheets as at said dates. Since June
30, 1999, there has been no material adverse change in the consolidated
financial condition, operations, business or prospects taken as a whole of State
Auto Financial and its Subsidiaries from that set forth in said financial
statements as at June 30, 1999.

         (b) State Auto Mutual has heretofore furnished to each of the Lenders
the annual Statutory Statement of each Insurance Entity for the fiscal year
ended December 31, 1998, and the quarterly Statutory Statement of each Insurance
Entity for the fiscal quarter ended June 30, 1999, in each case as filed with
the Applicable Insurance Regulatory Authority. All such Statutory Statements
present fairly in all material respects the financial condition of each
Insurance Entity as at, and the results of operations for, the fiscal year ended
December 31, 1998, and fiscal quarter ended June 30, 1999, in accordance with
statutory accounting practices prescribed or permitted by the Applicable
Insurance Regulatory Authority. Since June 30, 1999, there has been no material
adverse change in the consolidated financial condition, operations, business or
prospects taken as a whole of State Auto Mutual from that set forth in said
Statutory Statement as at June 30, 1999.

         3.3 Litigation. There are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge such State Auto Obligor) threatened against State
Auto Mutual or any of its Subsidiaries that, if adversely determined could
(either individually or in the aggregate) have a Material Adverse Effect.

         3.4 No Breach. None of the execution and delivery of this Agreement and
the other Basic Documents to which such State Auto Obligor is a party, the
consummation of the transactions herein and therein contemplated or compliance
with the terms and provisions hereof and thereof (including, without limitation,
issuance of the Preferred Stock) will conflict with or result in a breach of, or
require any consent under, the charter or by-laws (or equivalent documents) of
such State Auto Obligor, or any applicable law or regulation, or any order,
writ, injunction or decree of any court or governmental authority or agency, or
any agreement or instrument to which State Auto Mutual or any of its
Subsidiaries is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any Property of State Auto Mutual or any of its Subsidiaries pursuant to
the terms of any such agreement or instrument.

                                      -16-
<PAGE>   18
         3.5 Action. Such State Auto Obligor has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents to which it is a party and, in the case of State
Auto Financial, to issue the Preferred Stock; the execution, delivery and
performance by such State Auto Obligor of each of the Basic Documents to which
it is a party (and, in the case of State Auto Financial, the issuance of the
Preferred Stock) have been duly authorized by all necessary corporate action on
its part (including, without limitation, any required shareholder approvals);
and this Agreement has been duly and validly executed and delivered by such
State Auto Obligor and constitutes, and each of the other Basic Documents to
which such State Auto Obligor is a party when executed and delivered will
constitute, its legal, valid and binding obligation, enforceable against such
State Auto Obligor in accordance with its terms, except as such enforceability
may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or
similar laws of general applicability affecting the enforcement of creditors'
rights and (b) the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

         3.6 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange (other than any authorizations, approvals,
consents, filings and registrations heretofore duly made or obtained and in full
force and effect), are necessary for the execution, delivery or performance by
either State Auto Obligor of this Agreement or any of the other Basic Documents
to which it is a party (or, in the case of State Auto Financial, for the
issuance of the Preferred Stock) or for the legality, validity or enforceability
hereof or thereof.

         3.7 ERISA. Each Plan, and, to the knowledge of the such State Auto
Obligor, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or state law, and
no event or condition has occurred and is continuing as to which State Auto
Mutual would be under an obligation to furnish a report to the Agent under
Section 4.1(j) hereof.

         3.8 Taxes. State Auto Mutual and its Subsidiaries are members of an
affiliated group of corporations filing consolidated returns for Federal income
tax purposes, of which State Auto Mutual is the "common parent" (within the
meaning of Section 1504 of the Code) of such group. State Auto Mutual and its
Material Subsidiaries have filed all Federal income tax returns and all other
material tax returns that are required to be filed by them and have paid all
taxes due pursuant to such returns or pursuant to any assessment received by
State Auto Mutual or any of its Material Subsidiaries. The charges, accruals and
reserves on the books of State Auto Mutual and its Material Subsidiaries in
respect of taxes and other governmental charges are, in the opinion of State
Auto Mutual, adequate. State Auto Mutual has not given or been requested to give
a waiver of the statute of limitations relating to the payment of any Federal,
state, local and foreign taxes or other impositions.

         3.9 Investment Company Act. Neither State Auto Mutual nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.

                                      -17-
<PAGE>   19
         3.10 Public Utility Holding Company Act. Neither State Auto Mutual nor
any of its Subsidiaries is a "holding company" or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.

         3.11 Material Agreements and Liens.

         (a) Part A of Schedule I hereto is a complete and correct list of each
credit agreement, loan agreement, indenture, purchase agreement, guarantee,
letter of credit or other arrangement providing for or otherwise relating to any
Indebtedness or any extension of credit (or commitment for any extension of
credit) to, or guarantee by, State Auto Mutual or any of its Subsidiaries,
outstanding on the date hereof the aggregate principal or face amount of which
equals or exceeds (or may equal or exceed) $5,000,000, and the aggregate
principal or face amount outstanding or that may become outstanding under each
such arrangement is correctly described in Part A of said Schedule I.

         (b) Part B of Schedule I hereto is a complete and correct list of each
Lien securing Indebtedness of any Person outstanding on the date hereof the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $5,000,000 and covering any Property of State Auto Mutual or any of its
Subsidiaries, and the aggregate Indebtedness secured (or that may be secured) by
each such Lien and the Property covered by each such Lien is correctly described
in Part B of said Schedule I.

         3.12 Environmental Matters. Each of State Auto Mutual and its
Subsidiaries has obtained all environmental, health and safety permits, licenses
and other authorizations required under all Environmental Laws to carry on its
business as now being or as proposed to be conducted, except to the extent
failure to have any such permit, license or authorization would not (either
individually or in the aggregate) have a Material Adverse Effect. Each of such
permits, licenses and authorizations is in full force and effect and each of
State Auto Mutual and its Subsidiaries is in compliance with the terms and
conditions thereof, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply therewith would not (either individually or in the aggregate)
have a Material Adverse Effect.

         3.13 Capitalization. The authorized capital stock of State Auto
Financial consists, on the date hereof, of an aggregate of 105,000,000 shares
consisting of (a) 100,000,000 shares of common stock, no par value, of which
40,565,812 shares are duly and validly issued and outstanding, each of which
shares is fully paid and nonassessable, (b) 2,500,000 shares of Class A
Preferred Stock, no par value, none of which shares are issued and outstanding
and (c) 2,500,000 shares of Class B Preferred Stock, no par value, none of which
shares are issued and outstanding. Upon issuance, each share of Class A
Preferred Stock will benefit from the Terms and Conditions of Class A Preferred
Stock attached to form of Class A Preferred Stock Certificate attached to the
Standby Purchase Agreement as Exhibit A. As of the date hereof, 70% of such
issued and outstanding shares of common stock are owned beneficially and of
record by State Auto Mutual. As of the date hereof, (i) except for this
Agreement and the

                                      -18-
<PAGE>   20
Standby Purchase Agreement and as set forth in Part A of Schedule III hereto,
there are no outstanding Equity Rights with respect to State Auto Financial and
(ii) except as set forth in Part B of Schedule III hereto, there are no
outstanding obligations of State Auto Financial or any of its Subsidiaries to
repurchase, redeem, or otherwise acquire any shares of capital stock of State
Auto Financial nor are there any outstanding obligations of State Auto Financial
or any of its Subsidiaries to make payments to any Person, such as "phantom
stock" payments, where the amount thereof is calculated with reference to the
fair market value or equity value of State Auto Financial or any of its
Subsidiaries.

         3.14 Subsidiaries, Etc.

         (a) Set forth in Part A of Schedule II hereto is a complete and correct
list of all Subsidiaries of State Auto Mutual on the date hereof and a
specification of which of such Subsidiaries are Insurance Entities and which are
Material Subsidiaries.

         (b) Set forth in Part B of Schedule II hereto is a complete and correct
list of all Investments (other than (x) Investments disclosed in Part A of said
Schedule II hereto and any other Investments existing as of the date hereof
permitted under Section 4.9 hereof and (y) Guarantees of Indebtedness the
aggregate principal or face amount of which Indebtedness is less than
$5,000,000) held by State Auto Mutual or any of its Subsidiaries in any Person
on the date hereof and, for each such Investment, (i) the identity of the Person
or Persons holding such Investment and (ii) the nature of such Investment.
Except as disclosed in Part B of Schedule II hereto, each of State Auto Mutual
and its Subsidiaries owns, free and clear of all Liens, all such Investments.

         3.15 True and Complete Disclosure. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of the
State Auto Obligors to the Agent or any Lender in connection with the
negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the date hereof by State
Auto Mutual and its Subsidiaries to the Agent and the Lenders in connection with
this Agreement and the other Basic Documents and the transactions contemplated
hereby and thereby will be true, complete and accurate in every material
respect, or (in the case of projections) based on reasonable estimates, on the
date as of which such information is stated or certified. There is no fact known
to either State Auto Obligor that could have a Material Adverse Effect that has
not been disclosed herein, in the other Basic Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Agent for use in connection with the transactions contemplated
hereby or thereby.

         3.16 No Reliance. State Auto Mutual has made, independently and without
reliance upon the Agent or any Lender, and based on such documents and
information as it has deemed appropriate, its own decision to enter into this
Agreement and has made (and will continue to make), independently and without
reliance upon the Agent or any Lender, and based

                                      -19-
<PAGE>   21
on such documents and information as it has deemed appropriate (or shall deem
appropriate at the time), its own legal, credit and tax analysis of the
transactions contemplated hereby.

         3.17 Insurance Licenses. Schedule T to the most recent Statutory
Statement of each Insurance Entity described in Section 3.2(b) hereof lists, as
of the date hereof, all of the jurisdictions in which each of the Insurance
Entities holds active licenses (including, without limitation, licenses or
certificates of authority from Applicable Insurance Regulatory Authorities),
permits or authorizations to transact insurance and reinsurance business or to
act as an insurance agent or broker (collectively, the "Licenses"). Each
Insurance Entity is in compliance in all material respects with each license
held by it. No License (to the extent material) is the subject of a proceeding
for suspension or revocation or any similar proceedings, there is no sustainable
basis for such a suspension or revocation, and to the knowledge of each State
Auto Obligor no such suspension or revocation has been threatened by any
licensing authority except in any such case where such proceedings would not
have a Material Adverse Effect.

         3.18 Year 2000. Each State Auto Obligor has made a full and complete
assessment of the Year 2000 Issues and has a realistic and achievable program
for remediating the Year 2000 Issues on a timely basis (the "Year 2000
Program"). Based on such assessment and on the Year 2000 Program no State Auto
Obligor reasonably anticipates that Year 2000 Issues will have a Material
Adverse Effect.

                                   ARTICLE IV

                         COVENANTS OF STATE AUTO MUTUAL
                         ------------------------------

         State Auto Mutual covenants and agrees with the Agent that, so long as
any Obligations are outstanding or any Commitments are in effect:

         4.1 Financial Statements Etc. State Auto Mutual shall deliver to the
Agent (with sufficient copies for each of the Lenders):

                  (a) as soon as available and in any event within 60 days after
         the end of each quarterly fiscal period of each fiscal year of State
         Auto Financial, consolidated statements of income, retained earnings
         and cash flows of State Auto Financial and its Subsidiaries for such
         period and for the period from the beginning of the respective fiscal
         year to the end of such period, and the related consolidated balance
         sheets of State Auto Financial and its Subsidiaries as at the end of
         such period, setting forth in each case in comparative form the
         corresponding consolidated figures for the corresponding periods in the
         preceding fiscal year (except that, in the case of balance sheets, such
         comparison shall be to the last day of the prior fiscal year),
         accompanied by a certificate of a senior financial officer of State
         Auto Financial, which certificate shall state that said consolidated
         financial statements present fairly in all material respects the
         consolidated financial condition and results of operations of State
         Auto Financial and its Subsidiaries in accordance with generally
         accepted accounting principles, consistently applied, as at the end of,
         and for, such period (subject to normal year-end audit adjustments);

                                      -20-
<PAGE>   22
                  (b) as soon as available and in any event within 90 days after
         the end of each fiscal year of State Auto Financial, consolidated
         statements of income, retained earnings and cash flows of State Auto
         Financial and its Subsidiaries for such fiscal year and the related
         consolidated balance sheets of State Auto Financial and its
         Subsidiaries as at the end of such fiscal year, setting forth in each
         case in comparative form the corresponding consolidated figures for the
         preceding fiscal year, and accompanied by an opinion thereon of
         independent certified public accountants of recognized national
         standing, which opinion shall state that said consolidated financial
         statements present fairly in all material respects the consolidated
         financial condition and results of operations of State Auto Financial
         and its Subsidiaries as at the end of, and for, such fiscal year in
         accordance with generally accepted accounting principles;

                  (c) promptly after filing with the Applicable Insurance
         Regulatory Authority and in any event within 45 days after the end of
         each for the first three quarterly fiscal periods of each fiscal year
         of each Insurance Entity, its quarterly Statutory Statement for such
         quarterly fiscal period, together with the opinion thereon of a senior
         financial officer of such Insurance Entity stating that such Statutory
         Statement presents the financial condition of such Insurance Entity for
         such quarterly fiscal period in accordance with statutory accounting
         practices required or permitted by the Applicable Insurance Regulatory
         Authority;

                  (d) promptly after filing with the Applicable Insurance
         Regulatory Authority and in any event within 90 days after the end of
         each fiscal year of each Insurance Entity, the annual Statutory
         Statement of such Insurance Entity for such year, together with (i) the
         opinion thereon of a senior financial officer of such Insurance Entity
         stating that said annual Statutory Statement presents the financial
         condition of such Insurance Entity for such fiscal year in accordance
         with statutory accounting practices required or permitted by the
         Applicable Insurance Regulatory Authority and (ii) a certificate of a
         valuation actuary affirming the adequacy of reserves taken by such
         Insurance Entity in respect of future policyholder benefits as at the
         end of such fiscal year (as shown on such Statutory Statement);

                  (e) within 180 days after the end of each fiscal year of each
         Insurance Entity, the report of Ernst & Young LLP (or other independent
         certified public accountants of recognized national standing) on the
         annual Statutory Statements delivered pursuant to Section 4.1(d)
         hereof;

                  (f) promptly upon their becoming available, copies of all
         registration statements and regular periodic reports, if any, that
         State Auto Mutual or any of its Material Subsidiaries shall have filed
         with the Securities and Exchange Commission (or any governmental agency
         substituted therefor) or any national securities exchange;

                  (g) promptly upon the mailing thereof to the policyholders of
         State Auto Mutual generally and to the shareholders of State Auto
         Financial, copies of all financial statements, reports and proxy
         statements so mailed;

                                      -21-
<PAGE>   23

                  (h) promptly after State Auto Mutual receives the results of a
         triennial examination by the NAIC of the financial condition and
         operations of State Auto Mutual and/or any of its Material
         Subsidiaries, a copy thereof;

                  (i) promptly following the delivery or receipt by State Auto
         Mutual or any of its Material Subsidiaries of any correspondence,
         notice or report to or from any Applicable Insurance Regulatory
         Authority that relates, to any material extent, to the financial
         viability of State Auto Mutual or any of its Material Subsidiaries, a
         copy thereof;

                  (j) as soon as possible, and in any event within ten days
         after either State Auto Obligor knows or has reason to believe that any
         of the events or conditions specified below with respect to any Plan or
         Multiemployer Plan has occurred or exists, a statement signed by a
         senior financial officer of State Auto Mutual setting forth details
         respecting such event or condition and the action, if any, that State
         Auto Mutual or its ERISA Affiliate proposes to take with respect
         thereto (and a copy of any report or notice required to be filed with
         or given to the PBGC by State Auto Mutual or an ERISA Affiliate with
         respect to such event or condition):

                           (i) any reportable event, as defined in Section
                  4043(c) of ERISA and the regulations issued thereunder, with
                  respect to a Plan, as to which the PBGC has not by regulation
                  waived the requirement of Section 4043(a) of ERISA that it be
                  notified within 30 days of the occurrence of such event
                  (provided that a failure to meet the minimum funding standard
                  of Section 412 of the Code or Section 302 of ERISA, including,
                  without limitation, the failure to make on or before its due
                  date a required installment under Section 412(m) of the Code
                  or Section 302(e) of ERISA, shall be a reportable event
                  regardless of the issuance of any waivers in accordance with
                  Section 412(d) of the Code); and any request for a waiver
                  under Section 412(d) of the Code for any Plan;

                           (ii) the distribution under Section 4041 of ERISA of
                  a notice of intent to terminate any Plan or any action taken
                  by State Auto Mutual or an ERISA Affiliate to terminate any
                  Plan;

                           (iii) the institution by the PBGC of proceedings
                  under Section 4042 of ERISA for the termination of, or the
                  appointment of a trustee to administer, any Plan, or the
                  receipt by State Auto Mutual or any ERISA Affiliate of a
                  notice from a Multiemployer Plan that such action has been
                  taken by the PBGC with respect to such Multiemployer Plan;

                           (iv) the complete or partial withdrawal from a
                  Multiemployer Plan by State Auto Mutual or any ERISA Affiliate
                  that results in liability under Section 4201 or 4204 of ERISA
                  (including the obligation to satisfy secondary liability as a
                  result of a purchaser default) or the receipt by State Auto
                  Mutual or any ERISA Affiliate of notice from a Multiemployer
                  Plan that it is in reorganization or insolvency pursuant to
                  Section 4241 or 4245 of ERISA or that it intends to terminate
                  or has terminated under Section 4041A of ERISA;

                                      -22-
<PAGE>   24

                           (v) the institution of a proceeding by a fiduciary of
                  any Multiemployer Plan against State Auto Mutual or any ERISA
                  Affiliate to enforce Section 515 of ERISA, which proceeding is
                  not dismissed within 30 days; and

                           (vi) the adoption of an amendment to any Plan that,
                  pursuant to Section 401(a)(29) of the Code or Section 307 of
                  ERISA, would result in the loss of tax-exempt status of the
                  trust of which such Plan is a part if State Auto Mutual or an
                  ERISA Affiliate fails to timely provide security to the Plan
                  in accordance with the provisions of said Sections;

                  (k) within five Business Days after receipt, notice from any
         Applicable Insurance Regulatory Authority of any threatened or actual
         proceeding for suspension or revocation of any License or any similar
         proceeding with respect to any such License;

                  (l) promptly, notice of any denial of coverage, litigation, or
         arbitration arising out of any Reinsurance Agreements to which any
         Insurance Entity is a party which denial, litigation or arbitration
         involves $5,000,000 or more;

                  (m) promptly after either State Auto Obligor knows or has
         reason to believe that any Put Event (or any event that with notice or
         lapse of time or both would become a Put Event) has occurred, a notice
         of such Put Event (or such event) describing the same in reasonable
         detail and, together with such notice or as soon thereafter as
         possible, a description of the action that State Auto Mutual has taken
         or proposes to take with respect thereto;

                  (n) at the time it furnishes each set of financial statements
         pursuant to paragraph (a) or (b) above, a certificate of a senior
         financial officer of State Auto Mutual (i) to the effect that no Put
         Event (or any event that with notice or lapse of time or both would
         become a Put Event) has occurred and is continuing (or, if any Put
         Event (or any such event) has occurred and is continuing, describing
         the same in reasonable detail and describing the action that State Auto
         Mutual has taken or proposes to take with respect thereto) and (ii)
         setting forth in reasonable detail the computations necessary to
         determine whether the State Auto Obligors are in compliance with
         Section 4.10 hereof as of the end of the respective quarterly fiscal
         period or fiscal year; and

                  (o) from time to time such other information regarding the
         financial condition, operations, business or prospects of State Auto
         Mutual or any of its Subsidiaries (including, without limitation, any
         Plan or Multiemployer Plan and any reports or other information
         required to be filed under ERISA) as the Agent may reasonably request.

         4.2 Litigation. State Auto Mutual will promptly give to the Agent (with
sufficient copies for each Lender) notice of all legal or arbitral proceedings,
and of all proceedings by or before any governmental or regulatory authority or
agency, and any material development in respect of such legal or other
proceedings, affecting State Auto Mutual or any of its Subsidiaries, except
proceedings that, if adversely determined, would not (either individually or in
the aggregate) have a Material Adverse Effect.

         4.3 Existence. Etc.  State Auto Mutual will:

                                      -23-
<PAGE>   25

                  (a) and will cause each of its Material Subsidiaries to,
         preserve and maintain its legal existence and all of its material
         rights, privileges, licenses and franchises (provided that nothing in
         this Section 4.3 shall prohibit any transaction expressly permitted
         under Section 4.5 hereof);

                  (b) and will cause each of its Subsidiaries to, comply with
         the requirements of all applicable laws, rules, regulations and orders
         of governmental or regulatory authorities if failure to comply with
         such requirements could (either individually or in the aggregate) have
         a Material Adverse Effect;

                  (c) and will cause each of its Material Subsidiaries to, pay
         and discharge all taxes, assessments and governmental charges or levies
         imposed on it or on its income or profits or on any of its Property
         prior to the date on which penalties attach thereto, except for any
         such tax, assessment, charge or levy the payment of which is being
         contested in good faith and by proper proceedings and against which
         adequate reserves are being maintained;

                  (d) and will cause each of its Material Subsidiaries to, keep
         adequate records and books of account, in which complete entries will
         be made in accordance with generally accepted accounting principles
         (or, in the case of an Insurance Entity, statutory accounting
         principles) consistently applied; and

                  (e) and will cause each of its Material Subsidiaries to,
         permit representatives of any Lender or the Agent, during normal
         business hours, to examine, copy and make extracts from its books and
         records, to inspect any of its Properties, and to discuss its business
         and affairs with its officers, all to the extent reasonably requested
         by such Lender or the Agent (as the case may be).

         4.4 Insurance. State Auto Mutual will, and will cause each of its
Material Subsidiaries to, maintain insurance with financially sound and
reputable insurance companies, and with respect to Property and risks of a
character usually maintained by corporations engaged in the same or similar
business similarly situated, against loss, damage and liability of the kinds and
in the amounts customarily maintained by such corporations (including general
liability insurance, director's and officer's liability insurance, property
insurance and worker's compensation insurance), provided that, nothing in this
Section 4.4 shall be deemed to require State Auto Mutual or any of its Material
Subsidiaries to enter into any Reinsurance Agreement and provided, further, that
State Auto Mutual and its Material Subsidiaries may self-insure against such
hazards and risks, and in such amounts as is customary for corporations of a
similar size and in similar lines of business.

         4.5 Prohibition of Fundamental Changes.

         (a) State Auto Mutual will not, nor will it permit any of its Material
Subsidiaries to, enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution).

         (b) State Auto Mutual will not, nor will it permit any of its Material
Subsidiaries to, acquire any business or Property from, or capital stock of, or
be a party to any

                                      -24-
<PAGE>   26
acquisition of, any Person except for purchases of inventory and other Property
to be sold or used in the ordinary course of business, Assumed Reinsurance in
the ordinary course of business, Investments permitted under Section 4.9 hereof,
and Capital Expenditures.

         (c) State Auto Mutual will not, nor will it permit any of its Material
Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or a substantial part of its
business or Property, whether now owned or hereafter acquired.

         (d) Notwithstanding the foregoing provisions of this Section 4.5:

         (i) any Subsidiary of State Auto Mutual may be merged or consolidated
with or into: (x) State Auto Mutual if State Auto Mutual shall be the continuing
or surviving corporation or (y) any other such Subsidiary; provided that (A) if
any such transaction (other than a transaction described in clause (B) below)
shall be between a Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned
Subsidiary shall be the continuing or surviving corporation and (B) if any such
transaction shall be between State Auto Financial and any other such Subsidiary,
State Auto Financial shall be the surviving corporation;

         (ii) any Material Subsidiary of State Auto Mutual may sell, lease,
transfer or otherwise dispose of any or all of its Property (upon voluntary
liquidation or otherwise) to State Auto Mutual or a Wholly Owned Subsidiary of
State Auto Mutual;

         (iii) State Auto Mutual may merge or consolidate with or acquire any
other Person if (w) in the case of a merger or consolidation, State Auto Mutual
is the surviving corporation, (x) after giving effect thereto, no Put Event (and
no event that with notice or lapse of time or both would constitute a Put Event)
would exist hereunder, (y) the business activity engaged in by such other Person
would be permitted under Section 4.13 hereof if such other Person were a
Subsidiary of State Auto Mutual prior to such merger or consolidation and (z)
the aggregate amount of the Statutory Surplus (determined as at the date of the
relevant merger, consolidation or acquisition) of all such other Persons that
have been the subject of any merger, consolidation or acquisition pursuant to
this clause (iii) after the date hereof (other than any such merger,
consolidation or acquisition financed solely with Net Available Proceeds) shall
be less than $250,000,000; and

         (iv) any Material Subsidiary of State Auto Mutual may merge or
consolidate with or acquire any other Person if (w) in the case of a merger or
consolidation, the surviving corporation is a Wholly Owned Subsidiary of State
Auto Mutual; provided, that in the case of any merger or consolidation involving
State Auto Financial, the surviving corporation is State Auto Financial, (x)
after giving effect thereto, no Put Event (and no event that with notice or
lapse of time or both would constitute a Put Event) would exist hereunder, (y)
the business activity engaged in by such other Person would be permitted under
Section 4.13 hereof if such other Person were a Subsidiary of State Auto Mutual
prior to such merger or consolidation and (z) the aggregate amount of the
Statutory Surplus (determined as at the date of the relevant merger,
consolidation or acquisition) of all such other Persons that have been the
subject of any merger, consolidation or

                                      -25-
<PAGE>   27

acquisition pursuant to this clause (iv) during any calendar year (other than
any such merger, consolidation or acquisition financed solely with Net Available
Proceeds) shall be less than $100,000,000.

         4.6 Limitation on Liens. State Auto Mutual will not, nor will it permit
any of its Material Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of its Property, whether now owned or hereafter acquired,
except:

                  (a) Liens in existence on the date hereof and listed in Part B
         of Schedule I hereto;

                  (b) Liens imposed by any governmental authority for taxes,
         assessments or charges not yet due or that are being contested in good
         faith and by appropriate proceedings if adequate reserves with respect
         thereto are maintained on the books of State Auto Mutual or the
         affected Material Subsidiaries, as the case may be, in accordance with
         Agreement Accounting Principles (or, in the case of any Insurance
         Entity, SAP);

                  (c) carriers', warehousemen's, mechanics', materialmen's,
         repairmen's or other like Liens arising in the ordinary course of
         business that are not overdue for a period of more than 30 days or that
         are being contested in good faith and by appropriate proceedings and
         Liens securing judgments but only to the extent for an amount and for a
         period not resulting in a Put Event under clause (j) of the definition
         of "Put Event" in Section 1.1 hereof;

                  (d) pledges or deposits under worker's compensation,
         unemployment insurance and other social security legislation;

                  (e) deposits to secure the performance of bids, trade
         contracts (other than for Indebtedness), leases, statutory obligations,
         surety and appeal bonds, performance bonds and other obligations of a
         like nature incurred in the ordinary course of business;

                  (f) easements, rights-of-way, restrictions and other similar
         encumbrances incurred in the ordinary course of business and
         encumbrances consisting of zoning restrictions, easements, licenses,
         restrictions on the use of Property or minor imperfections in title
         thereto that do not in any case materially detract from the value of
         the Property subject thereto or interfere with the ordinary conduct of
         the business of State Auto Mutual or any of its Material Subsidiaries;

                  (g) Liens arising under escrows, trusts, custodianships,
         separate accounts, funds withheld procedures, and similar deposits,
         arrangements, or agreements established with respect to insurance
         policies, annuities, guaranteed investment contracts and similar
         products underwritten by, or Reinsurance Agreements entered into by,
         any Insurance Entity in the ordinary course of business;

                  (h) deposits with insurance regulatory authorities;

                                      -26-
<PAGE>   28
                  (i) Liens on Property of any corporation that becomes a
         Subsidiary of State Auto Mutual after the date hereof, provided that
         such Liens are in existence at the time such corporation becomes a
         Subsidiary of State Auto Mutual and were not created in anticipation
         thereof;

                  (j) Liens upon real and/or tangible personal Property acquired
         after the date hereof (by purchase, construction or otherwise) by State
         Auto Mutual or any of its Material Subsidiaries, each of which Liens
         either (i) existed on such Property before the time of its acquisition
         and was not created in anticipation thereof or (ii) was created solely
         for the purpose of securing Indebtedness representing, or incurred to
         finance, refinance or refund, the cost (including the cost of
         construction) of such Property; provided that (x) no such Lien shall
         extend to or cover any Property of State Auto Mutual or such Material
         Subsidiary other than the Property so acquired and improvements thereon
         and (y) the principal amount of Indebtedness secured by any such Lien
         shall at no time exceed 80% of the fair market value (as determined in
         good faith by a senior financial officer of State Auto Mutual) of such
         Property at the time it was acquired (by purchase, construction or
         otherwise); and

                  (k) additional Liens upon real and/or personal Property
         created after the date hereof, provided that the aggregate Indebtedness
         secured thereby and incurred on and after the date hereof shall not
         exceed $15,000,000 in the aggregate at any one time outstanding.

         4.7 Indebtedness. State Auto Mutual will not, nor will it permit any of
its Material Subsidiaries to, create, incur or suffer to exist any Indebtedness
except:

                  (a) Indebtedness created pursuant hereto;

                  (b) Indebtedness outstanding on the date hereof and listed in
         Part A of Schedule I hereto;

                  (c) Indebtedness of Material Subsidiaries of State Auto Mutual
         to State Auto Mutual or to other Material Subsidiaries of State Auto
         Mutual; and

                  (d) additional Indebtedness of State Auto Mutual and its
         Material Subsidiaries (including, without limitation, Capital Lease
         Obligations and other Indebtedness secured by Liens permitted under
         Sections 4.6(j) or 4.6(k) hereof) up to but not exceeding $15,000,000
         at any one time outstanding.

         4.8 Sale/Leaseback Transactions. State Auto Mutual will not, nor will
it permit any of its Material Subsidiaries to, enter into any an arrangement
with any Person (other than State Auto Mutual or any of its Material
Subsidiaries) providing for the leasing to State Auto Mutual or any of its
Material Subsidiaries for a period of more than five years of any Property which
has been or is to be sold or transferred by State Auto Mutual or such Material
Subsidiary to such Person or to any other Person (other than State Auto Mutual
or any of its Material Subsidiaries), to which funds have been or are to be
advanced by such Person on the security of the Property subject to such lease (a
"Sale/Leaseback Transaction") if, after giving effect thereto, the Value (as
defined below) of all Sale/Leaseback Transactions at such time

                                      -27-
<PAGE>   29
would exceed 10% of the Statutory Surplus of State Auto Mutual at such time. For
purposes of this Section 4.8, "Value" shall mean, with respect to any
Sale/Leaseback Transaction as at any time, the amount equal to the greater of
(a) the net proceeds of the sale or transfer of the Property subject to such
Sale/Leaseback Transaction and (b) the fair value, in the opinion of the board
of directors of State Auto Mutual of such Property at the time of entering into
such Sale/Leaseback Transaction, in either case divided first by the number of
full years of the term of the lease and then multiplied by the number of full
years of such term remaining at the time of determination, without regard to any
renewal or extension options contained in such lease.

         4.9 Investments.

         (a) State Auto Mutual will not, nor will it permit any of its Material
Subsidiaries to, make or permit to remain outstanding any Investments except (i)
Investments outstanding on the date hereof and identified in Part B of Schedule
II hereto, (ii) operating deposit accounts with banks, (iii) Permitted
Investments, (iv) Investments by State Auto Mutual and its Material Subsidiaries
in State Auto Mutual and its Subsidiaries, (v) Interest Rate Protection
Agreements, provided that, without limiting the obligation of State Auto Mutual
under Section 4.12 hereof, when entering into any Interest Rate Protection
Agreement that at the time has, or at any time in the future may give rise to,
any credit exposure, the aggregate credit exposure under all Interest Rate
Protection Agreements (excluding the Interest Rate Protection Agreement being
entered into pursuant to Section 4.12 hereof) shall not exceed $10,000,000, and
(vi) Investments of Insurance Entities not prohibited by clause (b) of this
Section 4.9.

         (b) State Auto Mutual will not permit any Insurance Entity to make any
Investment if, on the date of which such Investment is made and after giving
effect thereto, the aggregate value of Investments (other than equity
Investments) held by such Insurance Entity that are rated lower than "2" by the
NAIC or are not rated by the NAIC would exceed 5% of the value of total invested
assets. As used in this Section 4.9(b), the "value" of an Investment refers to
the value of such Investment that would be shown on the most recent Statutory
Statement of the relevant Insurance Entity prepared in accordance with SAP.

         4.10 Certain Financial Covenants.

         (a) Statutory Surplus. State Auto Mutual will not permit its Statutory
Surplus at any time to be less than (a) $495,671,189, at any time prior to the
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement (provided that no Loans are outstanding at such time) and (b)
$425,000,000, at any time during the period from and including the date of
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement to but excluding the date all Loans shall have been required to
be repaid in full pursuant to the terms of the Credit Agreement. State Auto
Mutual will not permit the Statutory Surplus of State Auto P&C to be less than
$135,467,450 at any time prior to the occurrence of a catastrophe giving rise to
Loans being outstanding under the Credit Agreement (provided that no Loans are
outstanding at such time).

         (b) Risk-Based Capital Ratio. State Auto Mutual will not permit its
Risk-Based Capital Ratio at any time to be less than (a) 4.00 to 1, at any time
prior to the occurrence of a catastrophe giving rise to Loans being outstanding
under the Credit Agreement (provided

                                      -28-
<PAGE>   30
that no Loans are outstanding at such time) and (b) 3.00 to 1, at any time
during the period from and including the date of occurrence of a catastrophe
giving rise to Loans being outstanding under the Credit Agreement to but
excluding the date all Loans shall have been required to be repaid in full
pursuant to the terms of the Credit Agreement. State Auto Mutual will not permit
the Risk-Based Capital Ratio of State Auto P&C to be less than 4.00 to 1 at any
time prior to the occurrence of a catastrophe giving rise to Loans being
outstanding under the Credit Agreement (provided that no Loans are outstanding
at such time).

         (c) Premium to Surplus. State Auto Mutual will not permit its Premium
to Surplus Ratio at any time to exceed (a) 2.00 to 1, at any time prior to the
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement (provided that no Loans are outstanding at such time) and (b)
3.00 to 1, at any time during the period from and including the date of
occurrence of a catastrophe giving rise to Loans being outstanding under the
Credit Agreement to but excluding the date all Loans shall have been required to
be repaid in full pursuant to the terms of the Credit Agreement. State Auto
Mutual will not permit the Premium to Surplus Ratio of State Auto P&C to exceed
3.00 to 1 at any time prior to the occurrence of a catastrophe giving rise to
Loans being outstanding under the Credit Agreement (provided that no Loans are
outstanding at such time).

         (d) Fixed Charge Coverage Ratio. State Auto Financial will not permit
its Fixed Charge Coverage Ratio, determined as of the end of each of its fiscal
quarters, to be less than 1.00 to 1.00 at any time during the period from and
including the date of occurrence of a catastrophe giving rise to Loans being
outstanding under the Credit Agreement to but excluding the date all Loans shall
have been required to be repaid in full pursuant to the terms of the Credit
Agreement.

         4.11 NAIC Ratio. In the event that the NAIC or any Applicable Insurance
Regulatory Authority shall at any time promulgate any risk-based capital ratio
requirements or guidelines, State Auto Mutual will cause each Insurance Entity
to comply with the minimum requirements or guidelines applicable to it as
established by the NAIC or such Applicable Insurance Regulatory Authority.

         4.12 Interest Rate Protection Agreements. State Auto Mutual will within
five days after the date of each purchase of Preferred Stock under the Standby
Purchase Agreement, cause State Auto Financial to enter into, and thereafter
maintain in full force and effect, one or more Interest Rate Protection
Agreements with one or more of the Lenders (and/or with a bank or other
financial institution having capital, surplus and undivided profits of at least
$500,000,000), that effectively would enable State Auto Financial (in a manner
satisfactory to the Agent) to protect itself against floating interest rates as
to a notional principal amount at least equal to 100% of the aggregate
Redemption Value of the Preferred Stock for a period of at least six years
measured from the date of the purchase of the Preferred Stock.

         4.13 Lines of Business. State Auto Mutual will not, nor will it permit
any of its Subsidiaries to, engage to any substantial extent in any line or
lines of business activity other than the business of owning and operating
property and casualty insurance companies as conducted on the date hereof and
businesses related or incidental thereto (it being understood that the
businesses of Strategic Insurance Software, Inc., Stateco Financial Services,
Inc. and 518

                                      -29-
<PAGE>   31

Property Management and Leasing, LLC, to the extent conducted as of the date
hereof, are related to the business of owning and operating property and
casualty insurance companies). It is also understood and agreed that the
foregoing includes State Auto Mutual assuming reinsurance with premiums in an
aggregate amount not to exceed $15,000,000 from third parties.

         4.14 Ceded Reinsurance. State Auto Mutual will not, nor will it permit
any other Insurance Entity to:

                  (a) enter into any Reinsurance Agreement with any Person other
         than (i) another Insurance Entity, (ii) any Person for which the most
         recently published rating by A.M. Best & Co. is "B+" or higher or, if
         such Person is not rated by A.M. Best & Co., which has a Statutory
         Surplus (or the equivalent thereof) of not less than $100,000,000,
         (iii) any Person that posts security under such Reinsurance Agreement
         in an amount equal to the total liabilities assumed by such Person,
         through a letter of credit issued by an "authorized bank" (as such term
         is defined by the Applicable Insurance Regulatory Authority) or cash
         collateral deposit or (iv) any other reinsurers acceptable to the
         Agent, provided however, that for purposes of the foregoing clause
         (ii), any "NA" designation shall not be considered a rating of A.M.
         Best & Co.;

                  (b) enter into any Reinsurance Agreement or Reinsurance
         Agreements with Lloyd's of London if the aggregate amount of
         reinsurance ceded thereby would exceed 15% of the aggregate premium
         volume of reinsurance ceded by the Insurance Entities.

                  (c) enter into any Surplus Relief Reinsurance except with
         another Insurance Entity; or

                  (d) enter into any Reinsurance Agreement or Reinsurance
         Agreements if such Reinsurance Agreements will result in a 20% or more
         reduction of net premium volume for the Insurance Entities in any
         12-month period.

         4.15 Transactions with Affiliates. Except as expressly permitted by
this Agreement, State Auto Mutual will not, nor will it permit any of its
Material Subsidiaries to, directly or indirectly: (a) make any Investment in an
Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire Property from an Affiliate; or (d) enter into any other transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, Guarantees and assumptions of obligations of an Affiliate);
provided that (i) any Affiliate who is an individual may serve as a director,
officer or employee of State Auto Mutual or any of its Material Subsidiaries and
receive reasonable compensation for his or her services in such capacity and
(ii) State Auto Mutual and its Material Subsidiaries may enter into transactions
(other than extensions of credit by State Auto Mutual or any of its Material
Subsidiaries to an Affiliate) providing for the leasing of Property, the
rendering or receipt of services or the purchase or sale of inventory and other
Property in the ordinary course of business if the monetary or business
consideration arising therefrom would be substantially as advantageous to State
Auto Mutual and its Material Subsidiaries as the monetary or business
consideration that would obtain in a comparable transaction with a Person not an
Affiliate.

                                      -30-
<PAGE>   32

         4.16 Modifications of Certain Documents. State Auto Mutual will not,
and will not permit any of its Subsidiaries to, (a) consent to any modification,
supplement or waiver of (i) the charter or by-laws of State Auto Mutual, (ii)
the charter or by-laws of State Auto Financial, (iii) any material term of any
Retrocession Agreement or Reinsurance Agreement relating to property and
catastrophic risk insurance other than the Intercompany Pooling Arrangement or
(iv) without the prior consent of the Agent (with the approval of the Required
Lenders, such approval not to be unreasonably withheld), the Intercompany
Pooling Agreement if such modification, supplement or waiver would result in the
ceding to State Auto Mutual of [70]% or more of the catastrophic loss risk
subject to such arrangement or (b) in any manner alter or change the
preferences, rights or powers of the Preferred Stock or permit State Auto
Financial to issue any additional securities so as to affect adversely the
Preferred Stock.

         4.17 Indemnity for Certain Costs. State Auto Financial agrees with the
Agent that it will indemnify the Borrower, promptly upon demand therefor, for
all or any portion of (a) the fees, costs and expenses payable by the Borrower
under Article III of the Credit Agreement including, without limitation, in the
event that interest for any Lender in respect of any period is computed at the
Base Rate, for the excess (if any) of the amount of such interest computed at
the Base Rate for such period over the amount of interest that would have been
payable in respect of such period had such interest been computed at the
relevant Eurodollar Rate for such period and (b) the excess of interest in
respect of any period payable by the Borrower under Section 2.11 of the Credit
Agreement at 2% over the interest in respect of such period that would have been
payable had the relevant Default not occurred. Each of State Auto Financial,
State Auto Mutual and the Agent agrees that the Borrower shall be a third-party
beneficiary of this Agreement.

         4.18 Delivery of Documents on the Closing Date. On the Closing Date,
State Auto Mutual will deliver to the Agent (with sufficient copies for each
Lender) each of the following documents each of which shall be satisfactory to
the Agent in form and substance:

                  (a) certified copies of the charter and by-laws (or equivalent
         documents) of each State Auto Obligor and of all corporate authority
         for such State Auto Obligor (including, without limitation, board of
         director resolutions and evidence of the incumbency, including specimen
         signatures, of officers) with respect to the execution, delivery and
         performance of such of the Basic Documents to which such State Auto
         Obligor is intended to be a party and each other document to be
         delivered by such State Auto Obligor from time to time in connection
         herewith (and the Agent and each Lender may conclusively rely on such
         certificate until it receives notice in writing from State Auto Mutual
         to the contrary);

                  (b) a certificate of a senior officer of State Auto Mutual,
         dated the Closing Date, to the effect that (i) no Put Event (and no
         event that with notice or lapse of time or both would become a Put
         Event) shall have occurred and be continuing and (ii) the
         representations and warranties made by the State Auto Obligors in
         Article III hereof shall be true and complete on and as of the Closing
         Date with the same force and effect as if made on and as of the Closing
         Date (or, if any such representation or warranty is expressly stated to
         have been made as of a specific date, as of such specific date);

                                      -31-
<PAGE>   33
                  (c) an opinion, dated the Closing Date, of John Lowther,
         general counsel of each State Auto Obligor, substantially in form of
         Exhibit B hereto and covering such other matters as the Agent or any
         Lender may reasonably request (and each State Auto Obligor hereby
         instructs such counsel to deliver such opinion to the Lenders and the
         Agent);

                  (d) certified true, correct and complete copies of all
         Retrocession Agreements and Reinsurance Agreements in effect on the
         Closing Date;

                  (e) certified true, correct and complete copies of all Tax
         Sharing Agreements in effect on the Closing Date;

                  (f) evidence that the transactions contemplated by the Basic
         Documents shall have been approved by each Applicable Insurance
         Regulatory Authority with respect to State Auto Mutual, State Auto P&C
         and Milbank; and

                  (g) such other documents as the Agent or any Lender or counsel
         to Bank One may reasonably request.

         4.19 Delivery of Documents on Each Borrowing Date. On the date of each
borrowing by the Borrower under the Credit Agreement (and as a condition
thereto), State Auto Mutual will deliver to the Agent (with sufficient copies
for each Lender) each of the following documents each of which shall be
satisfactory to the Agent in form and substance:

                  (a) a certificate of a senior officer of State Auto Mutual,
         dated the date of such borrowing, (1) to the effect that, both
         immediately prior to the making of such Loan and also after giving
         effect thereto and to the intended use thereof, (i) no Put Event (and
         no event that with notice or lapse of time or both would become a Put
         Event) shall have occurred and be continuing and (ii) the
         representations and warranties made by the State Auto Obligors in
         Article III hereof (excluding, in the case of the
         representation and warranty made by the State Auto Obligors in the last
         sentence of clauses (a) and (b) of Section 3.2 hereof, any such change
         to the extent such change results from the catastrophic
         loss claims and/or loss adjustment expenses to which the borrowing by
         the Borrower under the Credit Agreement and related issuance of
         Preferred Stock relates) shall be true and complete on and as of such
         date of borrowing with the same force and effect as if made on and as
         of such date of borrowing (or, if any such representation or warranty
         is expressly stated to have been made as of a specific date, as of such
         specific date) and (2) describing in reasonable detail the catastrophic
         loss claims and/or loss adjustment expenses to which such borrowing
         relates;

                  (b) such other documents as the Agent or any Lender or counsel
         to Bank One may reasonably request (including, without limitation,
         opinions of counsel to the State Auto Obligors relating to the issuance
         of the Preferred Stock in connection with such borrowing).

         4.20 Delivery of Documents in Connection with the Extension of the
Commitment Termination Date. On each of the "Request Date" and the "Existing
Commitment Termination Date" (in each case as defined in Section 2.19 of the
Credit Agreement) State Auto

                                      -32-
<PAGE>   34
Mutual will deliver to the Agent (with sufficient copies for each Lender) each
of the following documents each of which shall be satisfactory to the Agent in
form and substance:

                  (a) a certificate of a senior officer of State Auto Mutual,
         dated such date, to the effect that (i) no Put Event (and no event that
         with notice or lapse of time or both would become a Put Event) shall
         have occurred and be continuing and (ii) the representations and
         warranties made by the State Auto Obligors in Article III hereof shall
         be true and complete on and as of such date of borrowing with the same
         force and effect as if made on and as of such date of borrowing (or, if
         any such representation or warranty is expressly stated to have been
         made as of a specific date, as of such specific date).

                  (b) a certificate of a senior officer of State Auto Mutual,
         dated such date, to the effect that (i) the "Probable Maximum Loss" (as
         defined below) of the State Auto Obligors for the 250-year return
         period shall not exceed (x) $220,000,000 for earthquake peril and (y)
         $150,000,000 for hurricane peril and (ii) attached thereto is a true,
         correct and complete copy of the report prepared by the applicable
         Modelling Firm (as defined below) in connection with the calculation
         referred to in the definition of "Probable Maximum Loss" below. For
         purposes of this clause (b), "Probable Maximum Loss" shall mean, for
         any date, the "probable maximum loss" as most recently calculated prior
         to such date by Risk Management Solutions, Inc., Applied Insurance
         Research, EQECAT Inc., Tillinghast (a Towers Perrin Company) or another
         independent modelling firm satisfactory to the Agent (each, a
         "Modelling Firm").

         4.21 Consent to Assignment, etc.

         (a) To the extent contemplated by the Company Pledge Agreement, or
otherwise after and during the continuance of a Default, the Agent and any
designee or assignee thereof shall be entitled to exercise any and all rights of
the Borrower under the Standby Purchase Agreement and the Pledged Stock in
accordance with the terms of the Standby Purchase Agreement and such Pledged
Stock, and State Auto Financial shall comply in all respects with such exercise.
Without limiting the generality of the foregoing, to the extent contemplated by
the Company Pledge Agreement, or otherwise after and during the continuance of a
Default, the Agent and any designee or assignee thereof shall have the full
right and power to enforce directly against State Auto Financial all obligations
of State Auto Financial under the Standby Purchase Agreement and the Pledged
Stock and otherwise to exercise all remedies thereunder and to make all demands
and give all notices and make all requests required or permitted to be made by
the Borrower under the Standby Purchase Agreement or the Pledged Stock. Nothing
herein shall require the Agent or such designee or assignee to cure any default
of the Borrower under the Standby Purchase Agreement or to perform any act, duty
or obligation of the Borrower under the Standby Purchase Agreement, but shall
only give them the option so to do.

         (b) State Auto Financial will not, without the prior written consent of
the Agent, (i) cancel, suspend or terminate the Standby Purchase Agreement or
consent to or accept any such cancellation, suspension or termination thereof,
(ii) amend, supplement or otherwise modify the Standby Purchase Agreement or
(iii) petition, request or take any other legal or

                                      -33-
<PAGE>   35
administrative action which seeks, or may reasonably be expected, to so rescind,
cancel, terminate or suspend or amend or modify the Standby Purchase Agreement.

         (c) A foreclosure of, or other exercise of remedies under, the Company
Pledge Agreement or any sale thereunder by the Agent or its assignee or
designee, whether by judicial proceedings or under any power of sale contained
therein, or any conveyance from the Borrower to the Agent, the Lenders or any
such assignee or designee, in lieu thereof, shall not require the consent of
State Auto Financial.

         (d) Upon the exercise by the Agent of any of the remedies set forth in
Section 5.05 of the Company Pledge Agreement, the Agent may assign its rights
and interests and the rights and interests of the Borrower under the Standby
Purchase Agreement and/or the Pledged Stock to any other Person.

         (e) State Auto Financial will not be released from any of its
obligations under the Standby Purchase Agreement or the Pledged Stock pursuant
to any assignment or transfer (including by reason of a merger, consolidation,
sale of substantially all of its assets or otherwise), and shall not delegate
any of its obligations under the Standby Purchase Agreement or the Pledged
Stock, unless the Agent shall have previously consented in writing to such
release or delegation, as the case may be.

                                   ARTICLE V

                                  MISCELLANEOUS
                                  -------------

         5.1 Waiver. No failure on the part of the Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.

         5.2 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party at
its address or facsimile number set forth on the signature pages hereof or at
such other address or facsimile number as such party may hereafter specify for
the purpose by notice to the Agent and the Borrower in accordance with the
provisions of this Section 5.2. Each such notice, request or other communication
shall be effective (a) if given by facsimile transmission, when transmitted to
the facsimile number specified in this Section and confirmation of receipt is
received, (b) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid, or (c) if
given by any other means, when delivered (or, in the case of electronic
transmission, received) at the address specified in this Section.

         5.3 Expenses; Indemnification. (a) State Auto Mutual and State Auto
Financial jointly and severally agree to reimburse the Agent for any costs,
internal charges and out-of-pocket expenses (including reasonable attorneys'
fees and time charges of attorneys for

                                      -34-
<PAGE>   36

the Agent, which attorneys may be employees of the Agent) paid or incurred by
the Agent in connection with the preparation, negotiation, execution, delivery,
syndication, review, amendment, modification, and administration of the Basic
Documents. State Auto Mutual and State Auto Financial also jointly and severally
agree to reimburse the Agent and the Lenders for any costs, internal charges and
out-of-pocket expenses (including attorneys' fees and time charges of attorneys
for the Agent and the Lenders, which attorneys may be employees of the Agent or
the Lenders) paid or incurred by the Agent or any Lender in connection with the
collection and enforcement of the Loan Documents.

         (b) State Auto Mutual and State Auto Financial hereby jointly and
severally agree to indemnify the Agent, each Lender, their respective
affiliates, and each of their directors, officers and employees against all
losses, claims, damages, penalties, judgments, liabilities and expenses
(including, without limitation, all expenses of litigation or preparation
therefor whether or not the Agent any Lender or any affiliate is a party
thereto) which any of them may pay or incur arising out of or relating to this
Agreement, the other Basic Documents, the transactions contemplated hereby or
the direct or indirect application or proposed application of the proceeds of
any Loan except to the extent that they are determined in a final non-appealable
judgment by a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the party seeking indemnification. The
obligations of State Auto Mutual and State Auto Financial under this Section 5.3
shall survive the termination of this Agreement.

         5.4 Amendments, Etc. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be modified or supplemented only
by an instrument in writing signed by each State Auto Obligor and the Agent
(with the consent of the Lenders as specified in Section 10.17 of the Credit
Agreement), and any provision of this Agreement may be waived by the Agent (with
the consent of the Lenders as specified in Section 10.17 of the Credit
Agreement).

         5.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, provided, that neither State Auto Obligor may assign any of
its rights or obligations hereunder without the prior consent of the Agent (with
the consent of all of the Lenders).

         5.6 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.

         5.7 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.

         5.8 CHOICE OF LAW. THE BASIC DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, 735 ILCS SECTION 105/5-1 ET
SEQ, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF

                                      -35-
<PAGE>   37
THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS.

         5.9 CONSENT TO JURISDICTION. EACH STATE AUTO OBLIGOR HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH STATE AUTO OBLIGOR
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST ANY STATE AUTO OBLIGOR IN THE COURTS OF ANY
OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY STATE AUTO OBLIGOR AGAINST
THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.

         5.10 WAIVER OF JURY TRIAL. EACH STATE AUTO OBLIGOR, THE AGENT AND EACH
LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.

         5.11 Treatment of Certain Information; Confidentiality.

         (a) Each State Auto Obligor acknowledges that from time to time
financial advisory, investment banking and other services may be offered or
provided to State Auto Mutual or one or more of its Subsidiaries (in connection
with this Agreement or otherwise) by any Lender or by one or more subsidiaries
or affiliates of such Lender and such State Auto Obligor hereby authorizes each
Lender to share any information delivered to such Lender by or on behalf of
State Auto Mutual and its Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Lender to enter into the Credit Agreement,
to any such subsidiary or affiliate, it being understood that any such
subsidiary or affiliate receiving such information shall be bound by the
provisions of paragraph (b) below as if it were a Lender hereunder. Such
authorization shall survive the termination of this Agreement.

         (b) The Agent and each Lender agrees to hold any confidential
information which it may receive from either State Auto Obligor pursuant to this
Agreement in confidence, except for disclosure (i) to its Affiliates and to
other Lenders and their respective Affiliates, so long as such Affiliate or
other Lender agrees to be bound by the provisions of this Section, (ii) to legal
counsel, accountants, and other professional advisors to such Lender or to a
Transferee, (iii)

                                      -36-
<PAGE>   38
to regulatory officials, (iv) to any Person as requested pursuant to or as
required by law, regulation, or legal process, (v) to any Person in connection
with any legal proceeding to which such Lender is a party, (vi) to such Lender's
direct or indirect contractual counterparties in swap agreements or to legal
counsel, accountants and other professional advisors to such counterparties, and
(vii) permitted by Section 12.4 of the Credit Agreement.

         5.12 No Liability. Except as expressly provided herein, neither the
Agent nor any Lender shall be responsible or have any liability for (a) any
statements, warranties or representations made in or in connection with the
Credit Agreement, any other Basic Document or any other instrument or document
furnished pursuant thereto, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement, any
other Basic Document or any other instrument or document furnished pursuant
thereto and (b) the financial condition of the Borrower or any other Person or
any other obligation of or the performance or observance by the Borrower, any
other Person or any other obligor of any of their respective obligations under
the Credit Agreement or any other Basic Document or any other instrument or
document furnished pursuant thereto.

         5.13 Further Assurances. Each State Auto Obligor agrees that, from time
to time upon the written request of the Agent, such State Auto Obligor will
execute and deliver such further documents and do such other acts and things as
the Lender may reasonably request in order fully to effect the purposes of this
Agreement.

         5.14 Severability of Provisions. Any provision in any Basic Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Basic Documents are declared
to be severable.

         5.15 Third-Party Beneficiaries. Each State Auto Obligor agrees that
each Lender shall be a third-party beneficiary of this Agreement and shall be
entitled to enforce its rights hereunder as fully as if it were a party hereto.

                            [signature page follows]

                                      -37-
<PAGE>   39

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.

                                     STATE AUTOMOBILE MUTUAL INSURANCE COMPANY

                                     By: /s/ Steven J. Johnston
                                         ---------------------------------------
                                     Title: Senior Vice President
                                            ------------------------------------

                                     Address for Notices:

                                     State Automobile Mutual Insurance Company
                                     518 East Broad Street
                                     Columbus, Ohio 43215
                                     Attention:  John Lowther, Esq.
                                     Telecopier No.: (614) 464-4911
                                     Telephone No.: (614) 464-5052

                                     STATE AUTO FINANCIAL CORPORATION

                                     By: /s/ Steven J. Johnston
                                         ---------------------------------------
                                     Title: Senior Vice President
                                            ------------------------------------

                                     Addresses for Notices:

                                     State Automobile Mutual Insurance Company
                                     518 East Broad Street
                                     Columbus, Ohio 43215
                                     Attention:  John Lowther, Esq.
                                     Telecopier No.: (614) 464-4911
                                     Telephone No.: (614) 464-5052

                                      S-1
                               [TO PUT AGREEMENT]
<PAGE>   40
                                     BANK ONE, NA

                                     By: /s/ Thomas A. Kiepura II
                                         ---------------------------------------
                                     Title: Assistant Vice President
                                            ------------------------------------

                                     Addresses for Notices:

                                     1 Bank One Plaza
                                     Chicago, Illinois 60670
                                     Attention:  Cynthia W. Priest
                                     Telecopier No.:  (312) 732-4033
                                     Telephone No.:  (312) 732-9565

                                       S-2
                               [TO PUT AGREEMENT]
<PAGE>   41
                                  Put Agreement

                                   Schedule I

                                     Part A

                      Indebtedness in Excess of $5,000,000

State Auto Financial owes State Auto Mutual $30,000,000 under a Credit Agreement
dated May 1999. On November 11, 1999, the boards of directors of State Auto
Financial and State Auto Mutual are expected to approve an additional
$20,000,000 line of credit from State Auto Mutual to State Auto Financial. These
monies have been used to effect a stock repurchase program.
<PAGE>   42
                                  Put Agreement

                                   Schedule I

                                     Part B

                                      Liens

None
<PAGE>   43
                                  Put Agreement

                                   Schedule II

                                     Part A

                        Subsidiaries of State Auto Mutual

See attached Organizational Chart.
<PAGE>   44
<TABLE>
                                                      ORGANIZATIONAL STRUCTURE
                                                                 OF
                                                  STATE AUTO HOLDING COMPANY SYSTEM

<S>       <C>                               <C>                         <C>       <C>                           <C>
         - - - - - - - - -
         l     Public    l
         l       31%     l
         - - - - - - - - -
                  l
                  l
                  l
======================================                  69%             =======================================
l  State Auto Financial Corporation  l----------------------------------l  State Automobile Mutual Insurance  l
l         Ohio Corporation           l                                  l       Company Ohio Corporation*     l
======================================                                  =======================================
 l                                                                       l
 l                                                                       l
 l        ===========================                                    l        ========================
 l  100%  l  State Auto Property &  l  15%                               l  100%  l   Midwest Security   l
 l--------l     Casualty South      l-------l                            l--------l  Ins. Co. Wisconsin  l
 l        l  Carolina Corporation*  l       l                            l        l     Corporation*     l
 l        ===========================       l                            l        ========================
 l                                          l                            l
 l                                          l     ====================   l
 l        ===========================       l     l                  l   l        ========================
 l  100%  l  State Auto National    l       l     l   518 Property   l   l  100%  l  Associated Services l
 l--------l         Ins. Co.        l       l-----l  Management and  l   l--------l      Agency Ohio     l
 l        l   Ohio Corporation*     l       l     l   Leasing, LLC   l   l        l      Corporation     l
 l        ===========================       l     l                  l   l        ========================
 l                                          l     ====================   l
 l                                          l                            l
 l        ===========================       l                            l        ========================
 l  100%  l    Stateco Financial    l   85% l                            l  100%  l  Facilitators, Inc.  l
 l--------l      Services, Inc.     l-------l                            l--------l    South Carolina    l
 l        l     Ohio Corporation    l                                    l        l      Corporation     l
 l        ===========================                                    l        ========================
 l                                                                       l
 l                                                                       l
 l        ===========================                                    l        ========================      ====================
 l  100%  l      Strategic Ins.     l                                    l  100%  l  Columbus Marketing, l  52% l  Call Insurance  l
 l--------l      Software, Inc.     l                                    l--------l       Inc. Ohio      l------l    Agency Ohio   l
 l        l     Ohio Corporation    l                                             l      Corporation     l      l    Corporation   l
 l        ===========================                                             ========================      ====================
 l
 l
 l        =============================
 l  100%  l      Milbank Insurance    l
 l--------l        Company South      l
 l        l     Dakota Corporation*   l
 l        =============================
 l
 l
 l        =============================        =========================
 l  100%  l     Farmers Casualty      l  100%  l       Mid-Plains      l
 l--------l     Insurance Company     l--------l   Insurance Company   l
 l        l     Iowa Corporation*     l        l    Iowa Corporation*  l
 l        =============================        =========================
 l
 l
 l        =============================
 l  100%  l        State Auto         l
 l--------l     Insurance Company     l
          l     Ohio Corporation*     l
          =============================
</TABLE>

*Insurance Entities
<PAGE>   45

                                  Put Agreement

                                   Schedule II

                                     Part B

                                   Investments

1. See Forms "Schedule D" attached for:

                  State Auto Mutual
                  State Auto P&C
                  State Auto National
                  Milbank Insurance Company
                  Midwest Security Insurance Company
                  Farmers Casualty Insurance Company
                  Mid-Plains Insurance Company
                  518 Property Management and Leasing, LLC
                  Stateco Financial Services, Inc.
                  Strategic Insurance Software, Inc.

   Reflecting information as of September 30, 1999

2. As of September 30, 1999, State Auto Mutual had in place 34 loans to its
independent agencies with a total amount outstanding of $3,639,728.38.

<PAGE>   46
                                  Put Agreement

                                  Schedule III

                                     Part A

                                  Equity Rights

As of November 1, 1999, State Auto Financial has granted 2,481,469 stock options
to members of management under State Auto Financial's 1991 Stock Option Plan of
which 2,355,811 are outstanding. As of November 1, 1999, State Auto Financial
has granted 174,000 stock options to "outside" directors on the boards of
directors of State Auto Financial and State Auto Mutual pursuant to the terms of
the 1991 Directors' Stock Option Plan. State Auto Financial also has registered
2,400,000 shares to be issued pursuant to an Employee Stock Purchase Plan (the
"ESPP") of which 1,473,805 shares have been purchased pursuant to the ESPP as of
November 1, 1999.

State Auto Financial intends to register 400,000 shares as part of an agents'
stock option plan. Options for 16,538 option shares have been issued under this
plan but are not exercisable at this time.

<PAGE>   47
                                  Put Agreement

                                  Schedule III

                                     Part B

In August 1999, Strategic Insurance Software, Inc. ("S.I.S.") completed the
repurchase of all shares of S.I.S. from holders other than State Auto Financial
except for 60,000 shares, which the holders thereof (2 individuals) are
contractually obligated to sell no later than January 4, 2000.

<PAGE>   48
                                                                EXHIBIT A to the
                                                                   Put Agreement

                              [Form of Put Notice]

                                     [Date]

State Automobile Mutual Insurance Company
State Auto Financial Corporation
[Address]

         Re:      Put Agreement dated as of November 19, 1999, between State
                  Automobile Mutual Insurance Company, State Auto Financial
                  Corporation and Bank One, NA, as Agent.

Dear Ladies and Gentlemen:

         Reference is made to the Put Agreement dated as of November 19, 1999
(as modified and supplemented and in effect from time to time, the "Put
Agreement"), among State Automobile Mutual Insurance Company ("State Auto
Mutual"), State Auto Financial Corporation and Bank One, NA, as Agent.
Capitalized terms used but not defined herein shall have the respective meanings
assigned to such terms in the Put Agreement.

         [Pursuant to Section 2.2 of the Put Agreement, the undersigned hereby
requires that State Auto Mutual purchase all of each Lender's Loans, Note and
Commitment. The aggregate purchase price payable by State Auto Mutual for all
such Loans, Notes and Commitments shall be $_______________ representing the sum
of (a) principal of such Loans in the amount of $_______________, plus (b)
accrued and unpaid interest thereon in the amount of $______________, plus (c)
other amounts payable under the Basic Documents in respect thereof in the amount
of $_______________.]

         [Pursuant to Section 2.3 of the Put Agreement, the undersigned hereby
requires that State Auto Mutual purchase all of the Pledged Stock for an
aggregate purchase price equal to $_______________ representing the sum of (a)
the aggregate Redemption Value of such Pledged Stock in the amount of
$_____________, plus (b) accrued and unpaid dividends thereon in the amount of
$_______________.]

         The Put Purchase Date for such purchase shall be _______________,
_____.

                             BANK ONE, NA, as Agent

                             By
                               --------------------------------------------

                              Title:
                                    ---------------------------------------

                                       A-1

<PAGE>   49
                                                                EXHIBIT B to the
                                                                   Put Agreement

         [Form of Opinion of General Counsel of the State Auto Obligors]

                                                               November 19, 1999

To each of the Lenders party to the
Credit Agreement referred to
below and Bank One, NA,
as Agent

Ladies and Gentlemen:

         I am the general counsel of State Automobile Mutual Insurance Company
("State Auto Mutual") and State Auto Financial Corporation ("State Auto
Financial" and, together with State Auto Mutual, the "State Auto Obligors") and
have acted as counsel to the State Auto Obligors in connection with (i) the Put
Agreement dated as of November 19, 1999 (the "Put Agreement") among the State
Auto Obligors and Bank One, NA, in its capacity as Agent (the "Agent") on behalf
of the lenders party to a Credit Agreement dated as of November 19, 1999, among
SAF Funding Corporation, the Agent and (ii) the agreements, instruments and
other documents referred to in the next paragraph. All capitalized terms used
but not defined herein have the respective meanings given to such terms in the
Put Agreement. This opinion letter is delivered to you pursuant to Section
4.18(c) of the Put Agreement.

         In rendering the opinions expressed below, I have examined the
following agreements, instruments and other documents:

         (a)      the Credit Agreement;

         (b)      the Pledge Agreements;

         (c)      the Put Agreement;

         (d)      the Standby Purchase Agreement (collectively with the Put
                  Agreement, the "State Auto Agreements"); and

         (e)      such records of the State Auto Obligors and such other
                  documents as I have deemed necessary as a basis for the
                  opinions expressed below.

         In my examination, I have assumed the genuineness of all signatures,
the authenticity of all documents submitted to me as originals and the
conformity with authentic original documents of all documents submitted to me as
copies. When relevant facts were not independently established, I have relied
upon certificates of governmental officials and appropriate representatives of
the State Auto Obligors and upon representations made in or pursuant to the
State Auto Agreements.

                                      B-1

<PAGE>   50
         In rendering the opinions expressed below, I have assumed, with respect
to all of the documents referred to in this opinion letter, that (except, to the
extent set forth in the opinions expressed below, as to the State Auto
Obligors):

         (i)      such documents have been duly authorized by, have been duly
                  executed and delivered by, and constitute legal, valid,
                  binding and enforceable obligations of, all of the parties to
                  such documents;

         (ii)     all signatories to such documents have been duly authorized;
                  and

         (iii)    all of the parties to such documents are duly organized and
                  validly existing and have the power and authority (corporate,
                  partnership or other) to execute, deliver and perform such
                  documents.

         Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:

                  1. State Auto Mutual is a mutual insurance company duly
         organized, validly existing and in good standing under the laws of the
         State of Ohio. State Auto Financial is a corporation duly organized,
         validly existing and in good standing under the laws of the State of
         Ohio.

                  2. Each State Auto Obligor has all requisite corporate power
         and authority to execute and deliver, and to perform its obligations
         and to incur liabilities under, the State Auto Agreements to which it
         is a party.

                  3. The execution, delivery and performance by each State Auto
         Obligor of, and the incurrence by such State Auto Obligor of
         liabilities under, each State Auto Agreement to which such State Auto
         Obligor is a party, have been duly authorized by all necessary
         corporate action on the part of such State Auto Obligor.

                  4. Each State Auto Agreement has been duly executed and
         delivered by each State Auto Obligor party thereto.

                  5. Under Ohio conflict of laws principles, the stated choice
         of Illinois law to govern the State Auto Agreements will be honored by
         the courts of the State of Ohio and the State Auto Agreements will be
         construed in accordance with, and will be treated as being governed by,
         the law of the State of Illinois. However, if the State Auto Agreements
         were stated to be governed by and construed in accordance with the law
         of the State of Ohio, or if an Ohio court were to apply the law of the
         State of Ohio to the State Auto Agreements, each State Auto Agreement
         would constitute the legal, valid and binding obligation of each State
         Auto Obligor party thereto, enforceable against such State Auto Obligor
         in accordance with its terms, except as may be limited by bankruptcy,
         insolvency, reorganization, moratorium, fraudulent conveyance or
         transfer or other similar laws relating to or affecting the rights of
         creditors generally and except as the enforceability of the State Auto
         Agreements is subject to the application of general principles of
         equity (regardless of whether considered in a proceeding in equity or
         at

<PAGE>   51
         law), including, without limitation, (a) the possible unavailability of
         specific performance, injunctive relief or any other equitable remedy
         and (b) concepts of materiality, reasonableness, good faith and fair
         dealing.

                  6. No authorization, approval or consent of, and no filing or
         registration with, any governmental or regulatory authority or agency
         of the United States of America or the State of Ohio (other than any
         authorizations, approvals, consents, filings and registrations
         heretofore duly made or obtained and in full force and effect) is
         required on the part of either State Auto Obligor for the execution,
         delivery or performance by such State Auto Obligor of, or for the
         incurrence by such State Auto Obligor of any liabilities under, the
         State Auto Agreements to which such State Auto Obligor is a party.

                  7. The execution, delivery and performance by each State Auto
         Obligor of, and the consummation by such State Auto Obligor of the
         transactions contemplated by, the State Auto Agreements to which such
         State Auto Obligor is a party do not and will not (a) violate any
         provision of the Articles of Incorporation or Code of Regulations of
         such State Auto Obligor, (b) violate any applicable law, rule or
         regulation of the United States of America or the State of Ohio, (c)
         violate any order, writ, injunction or decree of any court or
         governmental authority or agency or any arbitral award applicable to
         such State Auto Obligor of which I have knowledge (after due inquiry)
         or (d) result in a breach of, constitute a default under, require any
         consent under, or result in the acceleration or required prepayment of
         any indebtedness pursuant to the terms of, any agreement or instrument
         of which I have knowledge (after due inquiry) to which such State Auto
         Obligor or any of its Subsidiaries is a party or by which any of them
         is bound or to which any of them is subject, or result in the creation
         or imposition of any Lien upon any Property of such State Auto Obligor
         or any of its Subsidiaries pursuant to the terms of any such agreement
         or instrument.

                  8. I have no knowledge (after due inquiry) of any legal or
         arbitral proceedings, or any proceedings by or before any governmental
         or regulatory authority or agency, now pending or threatened against or
         affecting either State Auto Obligor or any of their respective
         Properties that, if adversely determined, could have a Material Adverse
         Effect.

                  9. State Auto Financial has duly authorized and reserved for
         issuance 2,500,000 shares of Class A Preferred Stock.

                  The foregoing opinions are subject to the following comments
         and qualifications:

                  (A) The enforceability of Section 5.3 of the Put Agreement and
         Section 7.6 of the Standby Purchase Agreement may be limited by (i)
         laws rendering unenforceable indemnification contrary to Federal or
         state securities laws and the public policy underlying such laws and
         (ii) laws limiting the enforceability of provisions exculpating or
         exempting a party from, or requiring indemnification of a party for,
         its own action or inaction, to the extent such action or inaction
         involves gross negligence, recklessness or willful or unlawful conduct.

<PAGE>   52
                  (B) The enforceability of provisions in the State Auto
         Agreements to the effect that terms may not be waived or modified
         except in writing may be limited under certain circumstances.

                  (C) I express no opinion as to the first sentence of Section
         5.08 of the Put Agreement or the second sentence of Section 8.7 of the
         Standby Purchase Agreement, insofar as either such sentence relates to
         the subject matter jurisdiction of the United States District Court for
         the Northern District of Illinois sitting in Chicago, Illinois to
         adjudicate any controversy related to the applicable State Auto
         Agreement.

         The foregoing opinions are limited to matters involving the Federal
laws of the United States of America and the law of the State of Ohio, and I do
not express any opinion as to the laws of any other jurisdiction. The opinions
contained in this letter are rendered only as of the date hereof and I undertake
no obligation to update this letter or the opinions contained herein after the
date hereof. The opinions contained in this letter only constitute my
professional judgment as to the consequences of and the applicability of certain
laws to the documents and agreements referred to and the parties thereto and
should not be considered to be a guarantee of any particular result.

         At the request of my clients, this opinion letter is provided to you by
me in my capacity as counsel to the State Auto Obligors, and this opinion letter
may not be relied upon by any Person for any purpose other than in connection
with the transactions contemplated by the Basic Documents without, in each
instance, my prior written consent.

                                    Very truly yours,<PAGE>   1
                                                                   Exhibit 10(V)

================================================================================

                           STANDBY PURCHASE AGREEMENT

                                     between

                        STATE AUTO FINANCIAL CORPORATION

                                       and

                             SAF FUNDING CORPORATION

                          Dated as of November 19, 1999

================================================================================

<PAGE>   2
<TABLE>
                                 TABLE OF CONTENTS
<CAPTION>
Section                                                                        Page
-------                                                                        ----
<S>                                                                            <C>
ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS.....................................1
   1.1  Definitions and Accounting Terms.........................................1

ARTICLE II - PURCHASE OF PREFERRED STOCK.........................................6
   2.1  Purchases................................................................6
   2.2  Notices of Purchases.....................................................6
   2.3  Commitment Fee...........................................................6

ARTICLE III - CONDITIONS TO PURCHASE.............................................6

ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF STATE AUTO FINANCIAL..............7
   4.1  Corporate Existence......................................................7
   4.2  Litigation...............................................................7
   4.3  No Breach................................................................8
   4.4  Action...................................................................8
   4.5  Approvals................................................................8
   4.6  Capitalization...........................................................8
   4.7  True and Complete Disclosure.............................................9

ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................9
   5.1  Investment...............................................................9
   5.2  No Agreement to Transfer.................................................9
   5.3  Knowledge and Experience.................................................9
   5.4  Access to Information....................................................9
   5.5  Risk....................................................................10
   5.6  Restrictions on Transfer................................................10

ARTICLE VI - COVENANTS..........................................................10
   6.1  Transfer................................................................10
   6.2  Redemption..............................................................10
   6.3  Use of Proceeds.........................................................10

ARTICLE VII - REGISTRATION RIGHTS...............................................11
   7.1  Demand Registration.....................................................11
   7.2  Piggyback Registrations.................................................12
   7.3  Registration Procedures.................................................14
   7.4  Underwritten Offerings..................................................17
   7.5  Holdback Agreements By State Auto Financial and Other Securityholders...18
   7.6  Indemnification.........................................................19
   7.7  Covenants Relating to Rule 144..........................................22
   7.8  References to holders of Registrable Securities.........................22
</TABLE>

<PAGE>   3
<TABLE>
<S>                                                                            <C>
ARTICLE VIII - MISCELLANEOUS....................................................22
   8.1  Waiver..................................................................22
   8.2  Notices.................................................................23
   8.3  Amendments, Etc.........................................................23
   8.4  Successors and Assigns..................................................23
   8.5  Captions................................................................23
   8.6  Counterparts............................................................23
   8.7  Governing Law; Submission to Jurisdiction...............................23
   8.8  Waiver of Jury Trial....................................................23
   8.9  Further Assurances......................................................24
   8.10 Payments by State Auto Financial........................................24
   8.11 Payments Received by the Company under Basic Documents..................24
   8.12 Third-Party Beneficiaries...............................................24
   8.13 Severability............................................................24
</TABLE>

                                    SCHEDULES

Schedule I        Equity Rights and Repurchase Obligations

                                    EXHIBITS

Exhibit A         Class A Preferred Stock Certificate
Exhibit B         Purchase Notice
Exhibit C         Opinion of General Counsel of State Auto Financial

                                     - ii -
<PAGE>   4
                           STANDBY PURCHASE AGREEMENT

         This Standby Purchase Agreement, dated as of November 19, 1999, is by
and between State Auto Financial Corporation, a corporation duly organized and
validly existing under the laws of the State of Ohio ("State Auto Financial"),
and SAF Funding Corporation, a Delaware corporation (the "Company").

                                   RECITALS:
                                   ---------

         A. State Auto Financial seeks to raise funds for catastrophic loss
claims and/or loss adjustment expenses that may be made from time to time for
residential and commercial property under insurance coverage underwritten by
State Automobile Mutual Insurance Company, an Ohio mutual insurance company
("State Auto Mutual"), and certain of its affiliates, which have been reinsured
by State Auto Property and Casualty Insurance Company, a South Carolina
corporation ("State Auto P&C").

         B. State Auto Financial intends to raise such funds through the
issuance and sale by State Auto Financial and the purchase by the Company, from
time to time, of State Auto Financial's Class A Preferred Stock, no par value
per share (the "Class A Preferred Stock").

         C. State Auto Financial desires to issue and sell its Class A Preferred
Stock from time to time to the Company in accordance with the terms and
conditions set forth in this Agreement.

         NOW, THEREFORE, for and in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

         1.1 Definitions and Accounting Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1.1
or in other provisions of this Agreement in the singular to have the same
meanings when used in the plural and vice versa):

         "Agent" shall mean Bank One, NA, as agent under the Credit Agreement.

         "Basic Documents" shall have the meaning assigned thereto in the Credit
Agreement.

         "Commission" shall mean the United States Securities and Exchange
Commission, or any successor governmental agency or authority.

         "Commitment" shall have the meaning assigned thereto in the Credit
Agreement.

<PAGE>   5
         "Company Pledge Agreement" shall mean the Pledge and Security
Agreement, dated as of the date hereof, among the Company and the Agent, as
modified and supplemented and in effect from time to time.

         "Credit Agreement" shall mean the Credit Agreement, dated as of the
date hereof, among the Company, the Agent and the Lenders, as modified and
supplemented and in effect from time to time.

         "Cutback Registration" shall mean any Demand Registration or Piggyback
Registration to be effected as an underwritten Public Offering in which the
Managing Underwriter with respect thereto advises State Auto Financial and the
Requesting Holders in writing that, in its opinion, the number of securities
requested to be included in such registration (including securities of State
Auto Financial which are not Registrable Securities) exceed the number which can
be sold in such offering without a material reduction in the selling price
anticipated to be received for the securities to be sold in such Public
Offering.

         "Demand Registration" shall mean any registration of Registrable
Securities under the Securities Act effected in accordance with Section 7.1
hereof.

         "Effective Long-Form Registration" shall mean a Long-Form Registration
that results in an Effective Registration.

         "Effective Registration" shall mean a Demand Registration which (a) has
been declared or ordered effective in accordance with the rules of the
Commission, (b) has been kept effective for the period of time contemplated by
Section 7.3(b) hereof and (c) has resulted in the Registrable Securities
requested to be included in such registration actually being sold (except by
reason of some act or omission on the part of the Requesting Holders); provided
that for purposes of this Agreement (i) a Cutback Registration shall not be an
Effective Registration and (ii) a Demand Registration in which State Auto
Financial includes securities for sale for the account of State Auto Financial
shall not be an Effective Registration.

         "Effective Short-Form Registration" shall mean a Short-Form
Registration that results in an Effective Registration.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

         "Form S-1" shall mean Form S-1 promulgated by the Commission under the
Securities Act, or any successor or similar long-form registration statement.

         "Form S-2" shall mean Form S-2 promulgated by the Commission under the
Securities Act, or any successor or similar short-form registration statement.

         "Form S-3" shall mean Form S-3 promulgated by the Commission under the
Securities Act, or any successor or similar short-form registration statement.

         "Indemnified Party" shall mean a party entitled to indemnity in
accordance with Section 7.6 hereof.

                                     - 2 -
<PAGE>   6
         "Indemnifying Party" shall mean a party obligated to provide indemnity
in accordance with Section 7.6 hereof.

         "Inspectors" shall have the meaning assigned thereto in Section 7.3(j)
hereof.

         "Lenders" shall have the meaning assigned thereto in the Credit
Agreement.

         "Lien" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement (other than an operating lease)
relating to such Property.

         "Loans" shall have the meaning assigned thereto in the Credit
Agreement.

         "Long-Form Registration" shall mean a Demand Registration effected by
the filing of a registration statement on Form S-1 with the Commission.

         "Losses" shall have the meaning assigned thereto in Section 7.6(a)
hereof.

         "Majority Lenders" shall have the meaning assigned thereto in the
Credit Agreement.

         "Managing Underwriter" shall mean, with respect to any Public Offering,
the underwriter or underwriters managing such Public Offering.

         "Material Adverse Effect" shall mean a material adverse effect on (a)
the Property, business, operations, financial condition, prospects, liabilities
or capitalization of State Auto Mutual and its Subsidiaries taken as a whole,
(b) the ability of State Auto Financial to issue the Class A Preferred Stock to
or perform its obligations under this Agreement, (c) the ability of State Auto
Mutual or State Auto Financial to perform its respective obligations under the
Put Agreement, (d) the validity or enforceability of any of the Basic Documents
or (e) the rights and remedies of the Lenders and the Agent under any of the
Basic Documents.

         "NASD" shall mean the National Association of Securities Dealers.

         "Notice of Demand Registration" shall have the meaning assigned thereto
in Section 7.1(a) hereof.

         "Notice of Piggyback Registration" shall have the meaning assigned
thereto in Section 7.2(a) hereof.

         "Piggyback Registration" shall mean any registration of equity
securities of State Auto Financial under the Securities Act (other than a
registration in respect of a dividend reinvestment or similar plan for
stockholders of State Auto Financial or on Form S-4 or Form S-8 promulgated by
the Commission, or any successor or similar forms thereto), whether

                                     - 3 -
<PAGE>   7
for sale for the account of State Auto Financial or for the account of any
holder of securities of State Auto Financial (other than Registrable
Securities).

         "Property" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.

         "Public Offering" shall mean any offering of any equity securities of
State Auto Financial to the public, either on behalf of State Auto Financial or
any of its securityholders, pursuant to an effective registration statement
under the Securities Act.

         "Purchase Commitment" shall mean the obligation of the Company to
purchase Class A Preferred Stock with an aggregate original Redemption Value of
not more than $135,000,000.

         "Purchase Commitment Termination Date" shall mean November 17, 2000;
provided that if the "Commitment Termination Date" under the Credit Agreement is
extended as provided therein, the Purchase Commitment Termination Date shall,
automatically and without any action on the part of State Auto Financial or the
Company, be extended to the date to which said "Commitment Termination Date" has
been so extended.

         "Purchase Date" shall have the meaning assigned thereto in Section 2.2
hereof.

         "Purchase Notice" shall mean a Purchase Notice substantially in the
form of Exhibit B hereto.

         "Put Agreement" shall mean the Put Agreement, dated as of the date
hereof, among State Auto Mutual, State Auto Financial and the Agent, as modified
and supplemented and in effect from time to time.

         "Put Dishonor" shall mean the failure of State Auto Mutual for any
reason after its receipt of a Put Notice (as defined in the Put Agreement) to
comply with its obligations under the Put Agreement to purchase each Lender's
Loans, Notes and Commitment (each, as defined in the Put Agreement) or the Class
A Preferred Stock, as specified in such Put Notice.

         "Put Event" shall have the meaning assigned thereto in the Put
Agreement.

         "Quarterly Dates" shall mean the last Business Day of March, June,
September and December in each year, the first of which shall be the first such
day after the day hereof.

         "Records" shall have the meaning assigned thereto in Section 7.3(j)
hereof.

         "Redemption Value" shall mean, with respect to any Class A Preferred
Stock, the "Redemption Value" for such Class A Preferred Stock set forth in the
certificate evidencing such Class A Preferred Stock.

         "Registrable Securities" shall mean (a) any shares of Class A Preferred
Stock purchased pursuant to Section 2.1 hereof and (b) any additional shares of
Class A Preferred Stock issued or distributed by way of a dividend, stock split
or other distribution in respect of

                                     - 4 -
<PAGE>   8
such Class A Preferred Stock purchased pursuant to Section 2.1 hereof, or
acquired by way of any rights offering or similar offering made in respect of
such Class A Preferred Stock. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall have
been distributed to the public pursuant to Rule 144 or (iii) they shall have
ceased to be outstanding.

         "Registration Expenses" shall mean all expenses incident to State Auto
Financial's performance of or compliance with its obligations under this
Agreement to effect the registration of Registrable Securities in a Demand
Registration or a Piggyback Registration, including, without limitation, all
registration, filing, securities exchange listing and NASD fees, all
registration, filing, qualification and other fees and expenses of complying
with securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for State Auto Financial and of its independent public accountants, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, the reasonable fees and
disbursements of a single counsel and single firm of accountants retained by the
holders of a majority of the Registrable Securities being registered, premiums
and other costs of policies of insurance against liabilities arising out of the
Public Offering of the Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any, in respect of Registrable Securities, which shall be payable by
each holder thereof.

         "Registration Request" shall have the meaning assigned thereto in
Section 7.1 hereof.

         "Requesting Holders" shall mean, with respect to any Demand
Registration or Piggyback Registration, the holders of Registrable Securities
requesting to have Registrable Securities included in such registration in
accordance with this Agreement.

         "Rule 144" shall mean Rule 144 promulgated by the Commission under the
Securities Act, and any successor provision thereto.

         "Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

         "Short-Form Registration" shall mean a Demand Registration effected by
the filing of a registration statement on Form S-2 or Form S-3 with the
Commission.

         "State Auto Mutual" shall mean the meaning assigned thereto in the
first Whereas clause of this Agreement.

         "State Auto P&C" shall mean the meaning assigned thereto in the first
Whereas clause of this Agreement.

         "Subsidiary" shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having

                                     - 5 -
<PAGE>   9
by the terms thereof ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions of such corporation,
partnership or other entity (irrespective of whether or not at the time
securities or other ownership interests of any other class or classes of such
corporation, partnership or other entity shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.

                                   ARTICLE II

                           PURCHASE OF PREFERRED STOCK

         2.1 Purchases. The Company agrees, on the terms and conditions of this
Agreement, to purchase from State Auto Financial in one or more transactions,
Class A Preferred Stock with an aggregate Redemption Value of not more than
$135,000,000. The purchase price payable by the Company for each share of Class
A Preferred Stock shall be equal to the Redemption Value thereof.

         2.2 Notices of Purchases. State Auto Financial shall give the Company
notice of each purchase hereunder by delivering to the Company a Purchase Notice
not less than four Business Days prior to the date of such purchase (the
"Purchase Date"). Not later than 2:00 p.m. New York time on the Purchase Date
specified for each such purchase, the Company shall make available the amount of
the purchase price of the Class A Preferred Stock to be purchased by it by
depositing in immediately available funds such purchase price in an account
designated by State Auto Financial.

         2.3 Commitment Fee. State Auto Financial shall pay to the Company a
commitment fee on the daily average unused amount (based on the aggregate
Redemption Value of not more than $135,000,000 of Class A Preferred Stock) of
the Company's Purchase Commitment, for the period from and including the date
hereof to but not including the earlier of the date such Purchase Commitment is
terminated and the Purchase Commitment Termination Date, at a rate per annum
equal to 0.20%. Accrued commitment fees shall be payable on each Quarterly Date
and on the earlier of the date the Purchase Commitments are terminated and the
Purchase Commitment Termination Date.

                                   ARTICLE III

                             CONDITIONS TO PURCHASE

         The obligations of the Company to purchase any Class A Preferred Stock
hereunder is subject to the following conditions:

         (a) Purchase Notice. The Company shall have received a Purchase Notice
with respect to such purchase, duly completed and executed.

                                     - 6 -
<PAGE>   10
         (b) Opinion of Counsel to the Company. The Company shall have received
an opinion, dated the Purchase Date, of John Lowther, general counsel of State
Auto Financial, substantially in the form of Exhibit C hereto and covering such
other matters as the Company may reasonably request.

         (c) Certificates. The Company shall have received duly executed stock
certificates, substantially in the form of Exhibit A hereto, evidencing the
aggregate number of shares of Class A Preferred Stock to be purchased by the
Company on such Purchase Date.

         (d) Catastrophic Loss. Any one or more of State Auto Mutual, State Auto
P&C, Milbank Insurance Company, Farmers Casualty Insurance Company, Midwest
Security Insurance Company and State Auto National Insurance Company shall have
incurred liability in excess of $120,000,000 in the aggregate in respect of
catastrophic loss claims and/or loss adjustment expenses resulting from the
occurrence of a single catastrophic event and the Company shall have received a
certificate of a senior financial officer of State Auto Financial to such
effect.

         (e) Officer's Certificate. The Company shall have received a
certificate of a senior financial officer of State Auto Financial to the effect
that, both immediately prior to such purchase and also after giving effect
thereto and to the intended use thereof (i) no Put Event (or an event with
notice or lapse of time or both would become a Put Event) shall have occurred
and be continuing; and (ii) the representations and warranties made by State
Auto Financial in Article IV hereof shall be true and complete on and as of the
date of such purchase with the same force and effect as if made on and as of
such date (or, if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date).

                                   ARTICLE IV

             REPRESENTATIONS AND WARRANTIES OF STATE AUTO FINANCIAL

         State Auto Financial represents and warrants to the Company that:

         4.1 Corporate Existence. Each of State Auto Financial and its
Subsidiaries: (a) is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could (either
individually or in the aggregate) have a Material Adverse Effect.

         4.2 Litigation. There are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of State Auto Financial) threatened against State
Auto Financial or any of its Subsidiaries that, if adversely determined could
(either individually or in the aggregate) have a Material Adverse Effect.

                                     - 7 -
<PAGE>   11
         4.3 No Breach. None of the execution and delivery of this Agreement,
the consummation of the transactions herein and therein contemplated or
compliance with the terms and provisions hereof and thereof (including issuance
of the Class A Preferred Stock) will conflict with or result in a breach of, or
require any consent under, the charter or by-laws (or equivalent documents) of
State Auto Financial, or any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which State Auto Financial or any of its Subsidiaries
is a party or by which any of them or any of their Property is bound or to which
any of them is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien upon any
Property of State Auto Financial or any of its Subsidiaries pursuant to the
terms of any such agreement or instrument.

         4.4 Action. State Auto Financial has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
this Agreement and to issue the Class A Preferred Stock; the execution, delivery
and performance by State Auto Financial of this Agreement (and the issuance of
the Class A Preferred Stock) have been duly authorized by all necessary
corporate action on its part (including, without limitation, any required
shareholder approvals); and this Agreement has been duly and validly executed
and delivered by State Auto Financial and constitutes, its legal, valid and
binding obligation, enforceable against State Auto Financial in accordance with
its terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights and (b) the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

         4.5 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange (other than any authorizations, approvals,
consents, filings and registrations heretofore duly made or obtained and in full
force and effect), are necessary for the execution, delivery or performance by
State Auto Financial of this Agreement (or for the issuance of the Class A
Preferred Stock) or for the legality, validity or enforceability hereof.

         4.6 Capitalization. The authorized capital stock of State Auto
Financial consists, on the date hereof, of an aggregate of 105,000,000 shares
consisting of (a) 100,000,000 shares of common stock, no par value, of which
40,565,812 shares are duly and validly issued and outstanding, each of which
shares is fully paid and nonassessable, (b) 2,500,000 shares of Class A
Preferred Stock, no par value, none of which shares issued and outstanding and
(c) 2,500,000 shares of Class B Preferred Stock, no par value, none of which
shares are issued and outstanding. As of the date hereof, 70% of such issued and
outstanding shares of common stock are owned beneficially and of record by State
Auto Mutual. Upon issuance, each share of Class A Preferred Stock will benefit
from the Terms and Conditions of Class A Preferred Stock attached to form of
Class A Preferred Stock Certificate attached hereto as Exhibit A. As of the date
hereof, (i) except for this Agreement, the Put Agreement and as set forth in
Part A of Schedule I hereto, there are no outstanding Equity Rights with respect
to State Auto Financial and (ii) except as set forth in Part B of Schedule I
hereto, there are no outstanding obligations of State Auto Financial or any of
its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of
capital stock of State Auto Financial nor are there any outstanding obligations
of State Auto Financial or any

                                     - 8 -
<PAGE>   12
of its Subsidiaries to make payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market value or equity value of State Auto Financial or any of its Subsidiaries.
All shares of Class A Preferred Stock purchased by the Company hereunder will,
when so purchased, be duly and validly issued and outstanding, fully paid and
nonassessable.

         4.7 True and Complete Disclosure. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of State
Auto Financial and State Auto Mutual to the Company, the Agent or any Lender in
connection with the negotiation, preparation or delivery of this Agreement and
the other Basic Documents or included herein or therein or delivered pursuant
hereto or thereto, when taken as a whole do not contain any untrue statement of
material fact or omit to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. All written information furnished after the date
hereof by State Auto Mutual and its Subsidiaries to the Company, the Agent and
the Lenders in connection with this Agreement and the other Basic Documents and
the transactions contemplated hereby and thereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or
certified. There is no fact known to State Auto Financial that could have a
Material Adverse Effect that has not been disclosed herein, in the other Basic
Documents or in a report, financial statement, exhibit, schedule, disclosure
letter or other writing furnished to the Agent for use in connection with the
transactions contemplated hereby or thereby.

                                    ARTICLE V

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company represents and warrants to State Auto Financial that:

         5.1 Investment. The Company will purchase the Class A Preferred Stock
only for its own account, for investment purposes and not with a view to resale
or distribution, and not on behalf of any other person or entity.

         5.2 No Agreement to Transfer. Except as set forth in this Agreement,
the Credit Agreement, the Put Agreement and the Company Pledge Agreement, the
Company is not a party to any agreement, arrangement or understanding concerning
the transfer of the Class A Preferred Stock or any interest therein to any other
person or entity.

         5.3 Knowledge and Experience. The Company has (a) adequate knowledge
and experience in financial and business matters to be able to evaluate the
merits and risks of its investment in State Auto Financial and the Class A
Preferred Stock under this Agreement, or (b) the advice or representation of a
person or entity having such knowledge and experience.

         5.4 Access to Information. The Company has access to sufficient
information regarding State Auto Financial, including, without limitation, State
Auto Financial's filings under the Securities Exchange Act of 1934, as amended.
The Company has requested information concerning State Auto Financial and has
been given an opportunity to ask questions and receive

                                     - 9 -
<PAGE>   13
answers concerning State Auto Financial and the terms and conditions of this
Agreement in order to evaluate the merits and risks of its investment in State
Auto Financial and the Class A Preferred Stock under this Agreement.

         5.5 Risk. The Company is able to bear the economic risk of its
investment in State Auto Financial and the Class A Preferred Stock under this
Agreement and to hold the Class A Preferred Stock for purposes of investment.

         5.6 Restrictions on Transfer.

         (a) The Class A Preferred Stock which the Company will acquire
hereunder (i) will not be registered by reason of an exemption from registration
under Section 3(b) or 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), or Regulation D promulgated thereunder and (ii) is not
publicly traded, no market exists for the Class A Preferred Stock and the
Company must hold the Class A Preferred Stock indefinitely unless a subsequent
transfer or other disposition is registered under the Securities Act or is
exempt from registration at the time of such transfer or other disposition.

         (b) In the absence of an effective registration with respect to any
proposed transfer of the Class A Preferred Stock (other than any transfer
thereof as contemplated by the Company Pledge Agreement or the Put Agreement),
State Auto Financial may require, as a condition to such transfer, a legal
opinion by counsel of its choice, in form and substance as it may determine, or
other documentation satisfactory to its Board of Directors, that an exemption
from registration is available for the proposed transfer, and a restrictive
legend to that effect will be set forth on the stock certificates representing
the Class A Preferred Stock.

                                   ARTICLE VI

                                    COVENANTS

         6.1 Transfer. Except as contemplated by the Company Pledge Agreement
and the Put Agreement, the Company shall not sell, offer for sale or otherwise
transfer or dispose of the Class A Preferred Stock or any interest therein,
unless pursuant to a registration or exemption from registration under the
Securities Act and all applicable state securities laws then in effect.

         6.2 Redemption. State Auto Financial shall redeem the Class A Preferred
Stock at the times, in the amounts, at the prices and on such other terms and
conditions as are described in the stock certificates evidencing such Class A
Preferred Stock.

         6.3 Use of Proceeds. State Auto Financial shall use the proceeds of the
sale of Class A Preferred Stock hereunder solely for the purpose of contributing
such proceeds to State Auto P&C for it to use to pay direct and assumed
catastrophic loss claims and/or loss adjustment expenses resulting from the
catastrophic event to which such sale relates.

                                     - 10 -
<PAGE>   14
                                   ARTICLE VII

                               REGISTRATION RIGHTS

         7.1 Demand Registration.

         (a) Demand Registration. At any time after the occurrence of a Put
Dishonor, upon the written request of the holders of a majority of the
Registrable Securities requesting that State Auto Financial effect the
registration under the Securities Act of all or part of such holders'
Registrable Securities and specifying the number of Registrable Securities to be
registered and the intended method of disposition thereof (a "Registration
Request"), State Auto Financial will promptly, and in no event more than ten
(10) Business Days after receipt of such Registration Request, give written
notice (a "Notice of Demand Registration") of such request to all other holders
of Registrable Securities, and thereupon will use its best efforts to effect the
registration under the Securities Act of:

                  (i) the Registrable Securities which State Auto Financial has
         been so requested to register by such holders of a majority of the
         Registrable Securities; and

                  (ii) all other Registrable Securities the holders of which
         have made written requests to State Auto Financial for registration
         thereof within 20 days after the giving of the Notice of Demand
         Registration (which requests shall specify the intended method of
         disposition thereof),

all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof) of the Registrable Securities so to be registered. If
requested by the holders of a majority of the Registrable Securities requested
to be included in any Demand Registration, the method of disposition of all
Registrable Securities included in such registration shall be an underwritten
offering effected in accordance with Section 7.4(a) hereof. Subject to paragraph
(e) of this Section 7.1, State Auto Financial may include in such registration
other securities for sale for its own account or for the account of any other
Person. If any security holders of State Auto Financial (other than the holders
of Registrable Securities in such capacity) register securities of State Auto
Financial in a Demand Registration in accordance with this Section 7.1, such
holders shall pay the fees and expenses of their counsel and their pro rata
share, on the basis of the respective amounts of the securities included in such
registration on behalf of each such holder, of the Registration Expenses if the
Registration Expenses for such registration are not paid by State Auto Financial
for any reason.

         (b) Limitations on Demand Registrations. Notwithstanding anything
herein to the contrary, State Auto Financial shall not be required to honor a
request for a Demand Registration if:

                  (i) a Put Dishonor shall not have occurred;

                  (ii) in the case of a Long-Form Registration, State Auto
         Financial has previously effected one Effective Long-Form Registration;

                                     - 11 -
<PAGE>   15
                  (iii) in the case of a Short-Form Registration, State Auto
         Financial has previously effected one Effective Short-Form
         Registration; or

                  (iv) such request is received by State Auto Financial less
         than 90 days following the effective date of any previous registration
         statement filed in connection with a Demand Registration, regardless of
         whether any holder of Registrable Securities exercised its rights under
         this Agreement with respect to such registration.

         (c) Registration Statement Form. Demand Registrations shall be on such
appropriate registration form promulgated by the Commission as shall be selected
by State Auto Financial, and shall be reasonably acceptable to the holders of a
majority of the Registrable Securities to which such registration relates, and
shall permit the disposition of such Registrable Securities in accordance with
the intended method or methods specified in their request for such registration;
provided that such registration form is available under the terms of this
Agreement. Notwithstanding the foregoing, if State Auto Financial selects a Form
S-3 and the use of such form is available under the terms of this Agreement and
is permitted by law, the holders of a majority of the Registrable Securities to
which such registration relates may notify State Auto Financial in writing that,
in the judgment of such holders (or, if applicable, the Managing Underwriter),
the inclusion of some or all of the information required in a more detailed form
specified in such notice is of material importance to the success of the Public
Offering of such Registrable Securities, in which case State Auto Financial
shall supplement or amend the Form S-3 to include such information.

         (d) Registration Expenses. State Auto Financial will pay all
Registration Expenses incurred in connection with any Demand Registration.

         (e) Priority in Cutback Registrations. If a Demand Registration becomes
a Cutback Registration, State Auto Financial will include in any such
registration to the extent of the number which the Managing Underwriter advises
State Auto Financial can be sold in such offering (i) first, Registrable
Securities requested to be included in such registration by the Requesting
Holders, pro rata on the basis of the number of Registrable Securities requested
to be included by such holders and (ii) second, other securities of State Auto
Financial proposed to be included in such registration, allocated among the
holders thereof in accordance with the priorities then existing among State Auto
Financial and the holders of such other securities; and any securities so
excluded shall be withdrawn from and shall not be included in such Demand
Registration.

         7.2 Piggyback Registrations.

         (a) Right to Include Registrable Securities. If, at any time after the
occurrence of a Put Dishonor, State Auto Financial at any time proposes after
any shares of Class A Preferred Stock have been purchased hereunder to effect a
Piggyback Registration, it will each such time give prompt written notice (a
"Notice of Piggyback Registration"), at least 30 days prior to the anticipated
filing date, to all holders of Registrable Securities of its intention to do so
and of such holders' rights under this Section 7.2, which Notice of Piggyback
Registration shall include a description of the intended method of disposition
of such securities. Upon the written request of any such holder made within 15
days after receipt of a Notice of Piggyback

                                     - 12 -
<PAGE>   16
Registration (which request shall specify the Registrable Securities intended to
be disposed of by such holder and the intended method of disposition thereof),
State Auto Financial will use its best efforts to include in the registration
statement relating to such Piggyback Registration all Registrable Securities
which State Auto Financial has been so requested to register. Notwithstanding
the foregoing, if, at any time after giving a Notice of Piggyback Registration
and prior to the effective date of the registration statement filed in
connection with such registration, State Auto Financial shall determine for any
reason not to register or to delay registration of such securities, State Auto
Financial may, at its election, give written notice of such determination to
each holder of Registrable Securities and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith),
without prejudice, however, to the rights of any Requesting Holder entitled to
do so to request that such registration be effected as a Demand Registration
under Section 7.1 hereof, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registering such other securities. No
registration effected under this Section 7.2 shall relieve State Auto Financial
of its obligations to effect a Demand Registration under Section 7.1 hereof.

         (b) Registration Expenses. State Auto Financial will pay all
Registration Expenses incurred in connection with each Piggyback Registration.

         (c) Priority in Cutback Registrations. If a Piggyback Registration
becomes a Cutback Registration, State Auto Financial will include in such
registration to the extent of the amount of the securities which the Managing
Underwriter advises State Auto Financial can be sold in such offering:

                  (i) if such registration as initially proposed by State Auto
         Financial was solely a primary registration of its securities, (x)
         first, the securities proposed by State Auto Financial to be sold for
         its own account, and (y) second any Registrable Securities requested to
         be included in such registration by Requesting Holders, pro rata on the
         basis of the number of Registrable Securities requested to be included
         by such holders, and (z) third, any other securities of State Auto
         Financial proposed to be included in such registration, allocated among
         the holders thereof in accordance with the priorities then existing
         among State Auto Financial and such holders; and

                  (ii) if such registration as initially proposed by State Auto
         Financial was in whole or in part requested by holders of securities of
         State Auto Financial, other than holders of Registrable Securities in
         their capacities as such, pursuant to demand registration rights, (x)
         first, such securities held by the holders initiating such registration
         and, if applicable, any securities proposed by State Auto Financial to
         be sold for its own account, allocated in accordance with the
         priorities then existing among State Auto Financial and such holders,
         and (y) second any Registrable Securities requested to be included in
         such registration by Requesting Holders, pro rata on the basis of the
         number of Registrable Securities requested to be included by such
         holders, and (z) third, any other securities of State Auto Financial
         proposed to be included in such registration, allocated among the
         holders thereof in accordance with the priorities then existing among
         State Auto Financial and the holders of such other securities;

                                     - 13 -
<PAGE>   17
and any securities so excluded shall be withdrawn from and shall not be included
in such Piggyback Registration.

         7.3 Registration Procedures. If and whenever State Auto Financial is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to Section 7.1 or 7.2 hereof, State
Auto Financial will use its best efforts to effect the registration and sale of
such Registrable Securities in accordance with the intended methods of
disposition thereof specified by the Requesting Holders. Without limiting the
foregoing, State Auto Financial in each such case will, as expeditiously as
possible:

         (a) prepare and file with the Commission the requisite registration
statement to effect such registration and use its best efforts to cause such
registration statement to become effective as soon as practicable, provided that
as far in advance as practical before filing such registration statement or any
amendment or supplement thereto, State Auto Financial will furnish to the
Requesting Holders copies of reasonably complete drafts of all such documents
proposed to be filed (including exhibits), and any such holder shall have the
opportunity to object to any information pertaining solely to such holder that
is contained therein and State Auto Financial will make the corrections
reasonably requested by such holder with respect to such information prior to
filing any such registration statement or amendment;

         (b) prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (i) such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement and (ii) 180 days after such
registration statement becomes effective;

         (c) promptly notify each Requesting Holder and the underwriter or
underwriters, if any

                  (i) when such registration statement or any prospectus used in
         connection therewith, or any amendment or supplement thereto, has been
         filed and, with respect to such registration statement or any
         post-effective amendment thereto, when the same has become effective;

                  (ii) of any written request by the Commission for amendments
         or supplements to such registration statement or prospectus;

                  (iii) of the notification to State Auto Financial by the
         Commission of its initiation of any proceeding with respect to the
         issuance by the Commission of, or of the issuance by the Commission of,
         any stop order suspending the effectiveness of such registration
         statement (and State Auto Financial shall promptly attempt to have such
         order withdrawn); and

                                     - 14 -
<PAGE>   18
                  (iv) of the receipt by State Auto Financial of any
         notification with respect to the suspension of the qualification of any
         Registrable Securities for sale under the applicable securities or blue
         sky laws of any jurisdiction;

         (d) furnish to each seller of Registrable Securities covered by such
registration statement such number of conformed copies of such registration
statement and of each amendment and supplement thereto (in each case including
all exhibits and documents incorporated by reference), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
holder's Registrable Securities, and such other documents, as such seller may
reasonably request to facilitate the disposition of its Registrable Securities;

         (e) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each holder thereof shall reasonably
request, to keep such registration or qualification in effect for so long as
such registration statement remains in effect, and take any other action which
may be reasonably necessary or advisable to enable such holder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
holder, except that State Auto Financial shall not for any such purpose be
required (i) to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this paragraph (e)
be obligated to be so qualified, (ii) to subject itself to taxation in any such
jurisdiction or (iii) to consent to general service of process in any
jurisdiction;

         (f) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable each holder
thereof to consummate the disposition of such Registrable Securities;

         (g) furnish to each Requesting Holder a signed counterpart, addressed
to such holder (and the underwriters, if any), of

                  (i) an opinion of counsel for State Auto Financial, dated the
         effective date of such registration statement (or, if such registration
         includes an underwritten Public Offering, dated the date of any closing
         under the underwriting agreement), reasonably satisfactory in form and
         substance to such holder, and

                  (ii) a "comfort" letter, dated the effective date of such
         registration statement (and, if such registration includes an
         underwritten Public Offering, dated the date of any closing under the
         underwriting agreement), signed by the independent public accountants
         who have certified State Auto Financial's financial statements included
         in such registration statement,

in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
the accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to the underwriters in underwritten Public

                                     - 15 -
<PAGE>   19
Offerings of securities and, in the case of the accountants' letter, such other
financial matters, as such holder (or the underwriters, if any) may reasonably
request;

         (h) notify each holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such holder promptly prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;

         (i) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve (12) months, but not more than eighteen (18) months, beginning with
the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 promulgated thereunder;

         (j) make available for inspection by any Requesting Holder, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of State Auto Financial
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause State Auto Financial's
officers, directors and employees to supply all information reasonably requested
by any such Inspector in connection with such registration statement, and permit
the Inspectors to participate in the preparation of such registration statement
and any prospectus contained therein and any amendment or supplement thereto.
Records which State Auto Financial determines, in good faith, to be confidential
and which it notifies the Inspectors are confidential shall not be disclosed by
the Inspectors unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in the registration statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction or (iii) the information in such Records has
been made generally available to the public. The seller of Registrable
Securities agrees by acquisition of such Registrable Securities that it will,
upon learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to State Auto Financial and allow State Auto
Financial, at State Auto Financial's expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;

         (k) provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the effective
date of such registration statement; and

                                     - 16 -
<PAGE>   20
         (l) use its best efforts to cause all Registrable Securities covered by
such registration statement to be listed, upon official notice of issuance, on
any securities exchange on which any of the securities of the same class as the
Registrable Securities are then listed.

         State Auto Financial may require each holder of Registrable Securities
as to which any registration is being effected to, and each such holder, as a
condition to including Registrable Securities in such registration, shall,
furnish State Auto Financial with such information and affidavits regarding such
holder and the distribution of such securities as State Auto Financial may from
time to time reasonably request in writing in connection with such registration.

         Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from State Auto Financial
of the happening of any event of the kind described in paragraph (h) of this
Section 7.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such paragraph (h) and, if so
directed by State Auto Financial, will deliver to State Auto Financial (at State
Auto Financial's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice. In the event State
Auto Financial shall give any such notice, the period referred to in paragraph
(b) of this Section 7.3 shall be extended by a number of days equal to the
number of days during the period from and including the giving of notice
pursuant to paragraph (h) of this Section 7.3 and to and including the date when
each holder of any Registrable Securities covered by such registration statement
shall receive the copies of the supplemented or amended prospectus contemplated
by such paragraph (h).

         7.4 Underwritten Offerings.

         (a) Underwritten Demand Offerings. In the case of any underwritten
Public Offering being effected pursuant to a Demand Registration, the Managing
Underwriter and any other underwriter or underwriters with respect to such
offering shall be selected, after consultation with State Auto Financial, by the
holders of a majority of the Registrable Securities to be included in such
underwritten offering with the consent of State Auto Financial, which consent
shall not be unreasonably withheld. State Auto Financial shall enter into an
underwriting agreement in customary form with such underwriter or underwriters,
which shall include, among other provisions, indemnities to the effect and to
the extent provided in Section 7.6 hereof and shall take all such other actions
as are reasonably requested by the Managing Underwriter in order to expedite or
facilitate the registration and disposition of the Registrable Securities. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to such underwriting agreement and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, State Auto Financial to and for the benefit of such underwriters
also be made to and for their benefit and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement also be conditions precedent to their obligations. No holder of
Registrable Securities shall be required to make any representations or
warranties to or agreements with State Auto Financial or the underwriters other
than representations, warranties

                                     - 17 -
<PAGE>   21
or agreements regarding such holder and its ownership of the securities being
registered on its behalf and such holder's intended method of distribution and
any other representation required by law. No Requesting Holder may participate
in such underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting agreement. If
any Requesting Holder disapproves of the terms of an underwriting, such holder
may elect to withdraw therefrom and from such registration by notice to State
Auto Financial and the Managing Underwriter, and each of the remaining
Requesting Holders shall be entitled to increase the number of Registrable
Securities being registered to the extent of the Registrable Securities so
withdrawn in the proportion which the number of Registrable Securities being
registered by such remaining Requesting Holder bears to the total number of
Registrable Securities being registered by all such remaining Requesting
Holders.

         (b) Underwritten Piggyback Offerings. If State Auto Financial at any
time proposes to register any of its securities in a Piggyback Registration and
such securities are to be distributed by or through one or more underwriters,
State Auto Financial will, subject to the provisions of Section 7.2(c) hereof,
use its best efforts, if requested by any holder of Registrable Securities, to
arrange for such underwriters to include the Registrable Securities to be
offered and sold by such holder among the securities to be distributed by such
underwriters, and such holders shall be obligated to sell their Registrable
Securities in such Piggyback Registration through such underwriters on the same
terms and conditions as apply to the other Company securities to be sold by such
underwriters in connection with such Piggyback Registration. The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between State Auto Financial and such underwriter
or underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of,
State Auto Financial to and for the benefit of such underwriters also be made to
and for their benefit and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement also be
conditions precedent to their obligations. No holder of Registrable Securities
shall be required to make any representations or warranties to or agreements
with State Auto Financial or the underwriters other than representations,
warranties or agreements regarding such holder and its ownership of the
securities being registered on its behalf and such holder's intended method of
distribution and any other representation required by law. No Requesting Holder
may participate in such underwritten offering unless such holder agrees to sell
its Registrable Securities on the basis provided in such underwriting agreement
and completes and executes all questionnaires, powers of attorney, indemnities
and other documents reasonably required under the terms of such underwriting
agreement. If any Requesting Holder disapproves of the terms of an underwriting,
such holder may elect to withdraw therefrom and from such registration by notice
to State Auto Financial and the Managing Underwriter, and each of the remaining
Requesting Holders shall be entitled to increase the number of Registrable
Securities being registered to the extent of the Registrable Securities so
withdrawn in the proportion which the number of Registrable Securities being
registered by such remaining Requesting Holder bears to the total number of
Registrable Securities being registered by all such remaining Requesting
Holders.

         7.5 Holdback Agreements By State Auto Financial and Other
Securityholders. Unless the Managing Underwriter otherwise agrees, State Auto
Financial and each holder of - 18 -
<PAGE>   22
Registrable Securities agrees not to effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to and the 180 days
after the effective date of the registration statement filed in connection with
an underwritten offering made pursuant to a Demand Registration (or for such
shorter period of time as is sufficient and appropriate, in the opinion of the
Managing Underwriter, in order to complete the sale and distribution of the
securities included in such registration), except as part of such underwritten
registration and except pursuant to registrations on Form S-4 or Form S-8
promulgated by the Commission or any successor or similar forms thereto. State
Auto Financial also agrees, unless the Managing Underwriter otherwise agrees, to
cause each holder of its equity securities which is a party to a registration
rights agreement with State Auto Financial entered into on or after the date
hereof, and each holder of its equity securities, or of any securities
convertible into or exchangeable or exercisable for such securities, in each
case purchased from State Auto Financial, at any time after the date of this
Agreement (other than in a Public Offering), to agree, to the extent permitted
by law, not to effect any such public sale or distribution of such securities
(including a sale under Rule 144), during such period, except as part of such
underwritten registration.

         7.6 Indemnification.

         (a) Indemnification by State Auto Financial. State Auto Financial
shall, to the full extent permitted by law, indemnify and hold harmless each
seller of Registrable Securities included in any registration statement filed in
connection with a Demand Registration or a Piggyback Registration, its directors
and officers, and each other Person, if any, who controls any such seller within
the meaning of the Securities Act, against any losses, claims, damages, expenses
or liabilities, joint or several (together, "Losses"), to which such seller or
any such director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, and State Auto Financial will reimburse
such seller and each such director, officer and controlling Person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such Loss (or action or proceeding in respect
thereof); provided that State Auto Financial shall not be liable in any such
case to the extent that any such Loss (or action or proceeding in respect
thereof) arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to State Auto Financial through an instrument duly
executed by such seller specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any such
director, officer or controlling Person, and shall survive the transfer of such
securities by such seller. State Auto Financial shall also indemnify each other
Person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors and each other Person, if
any, who controls

                                     - 19 -
<PAGE>   23
any such participating Person within the meaning of the Securities Act to the
same extent as provided above with respect to sellers of Registrable Securities.

         (b) Indemnification by the Sellers. Each holder of Registrable
Securities which are included or are to be included in any registration
statement filed in connection with a Demand Registration or a Piggyback
Registration, as a condition to including Registrable Securities in such
registration statement, shall, to the full extent permitted by law, indemnify
and hold harmless State Auto Financial, its directors and officers, and each
other Person, if any, who controls State Auto Financial within the meaning of
the Securities Act, against any Losses to which State Auto Financial or any such
director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, if such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to State Auto Financial through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided however, that
the obligation to provide indemnification pursuant to this Section 7.6(b) shall
be several, and not joint and several, among such Indemnifying Parties on the
basis of the number of Registrable Securities included in such registration
statement and the aggregate amount which may be recovered from any holder of
Registrable Securities pursuant to the indemnification provided for in this
Section 7.6(b) in connection with any registration and sale of Registrable
Securities shall be limited to the total proceeds received by such holder from
the sale of such Registrable Securities. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of State
Auto Financial or any such director, officer or controlling Person and shall
survive the transfer of such securities by such seller. Such holders shall also
indemnify each other Person who participates (including as an underwriter) in
the offering or sale of Registrable Securities, their officers and directors and
each other Person, if any, who controls any such participating Person within the
meaning of the Securities Act to the same extent as provided above with respect
to State Auto Financial.

         (c) Notices of Claims, etc. Promptly after receipt by an Indemnified
Party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding paragraph (a) or (b) of this Section 7.6,
such Indemnified Party will, if a claim in respect thereof is to be made against
an Indemnifying Party pursuant to such paragraphs, give written notice to the
latter of the commencement of such action, provided that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under the preceding paragraphs of this
Section 7.6, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, the Indemnifying Party shall be entitled to
participate in and, unless, in the reasonable judgment of any Indemnified Party,
a conflict of interest between such Indemnified Party and any Indemnifying Party
exists with respect to such claim, to assume

                                     - 20 -
<PAGE>   24
the defense thereof, jointly with any other Indemnifying Party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; provided that the
Indemnified Party may participate in such defense at the Indemnified Party's
expense; and provided further that the Indemnified Party or Indemnified Parties
shall have the right to employ one counsel to represent it or them if, in the
reasonable judgment of the Indemnified Party or Indemnified Parties, it is
advisable for it or them to be represented by separate counsel by reason of
having legal defenses which are different from or in addition to those available
to the Indemnifying Party, and in that event the reasonable fees and expenses of
such one counsel shall be paid by the Indemnifying Party. If the Indemnifying
Party is not entitled to, or elects not to, assume the defense of a claim, it
will not be obligated to pay the fees and expenses of more than one counsel for
the Indemnified Parties with respect to such claim, unless in the reasonable
judgment of any Indemnified Party a conflict of interest may exist between such
Indemnified Party and any other Indemnified Parties with respect to such claim,
in which event the Indemnifying Party shall be obligated to pay the fees and
expenses of such additional counsel for the Indemnified Parties or counsels. No
Indemnifying Party shall consent to entry of any judgment or enter into any
settlement without the consent of the Indemnified Party. No Indemnifying Party
shall be subject to any liability for any settlement made without its consent,
which consent shall not be unreasonably withheld.

         (d) Contribution. If the indemnity and reimbursement obligation
provided for in any paragraph of this Section 7.6 is unavailable or insufficient
to hold harmless an Indemnified Party in respect of any Losses (or actions or
proceedings in respect thereof) referred to therein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other hand in connection
with statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The parties
hereto agree that it would not be just and equitable if contributions pursuant
to this paragraph were to be determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the first sentence of this paragraph. The amount paid by an
Indemnified Party as a result of the Losses referred to in the first sentence of
this paragraph shall be deemed to include any legal and other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any Loss which is the subject of this paragraph.

         No Indemnified Party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.

                                     - 21 -
<PAGE>   25
         (e) Other Indemnification. Indemnification similar to that specified in
the preceding paragraphs of this Section 7.6 (with appropriate modifications)
shall be given by State Auto Financial and each seller of Registrable Securities
with respect to any required registration or other qualification of securities
under any federal or state law or regulation of any governmental authority other
than the Securities Act. The provisions of this Section 7.6 shall be in addition
to any other rights to indemnification or contribution which an Indemnified
Party may have pursuant to law, equity, contract or otherwise.

         (f) Indemnification Payments. The indemnification required by this
Section 7.6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or Losses
are incurred.

         7.7 Covenants Relating to Rule 144. The Company will file reports in
compliance with the Exchange Act, will comply with all rules and regulations of
the Commission applicable in connection with the use of Rule 144 and take such
other actions and furnish such holder with such other information as such holder
may request in order to avail itself of such rule or any other rule or
regulation of the Commission allowing such holder to sell any Registrable
Securities without registration and will, at its expense, forthwith upon the
request of any holder of Registrable Securities, deliver to such holder a
certificate, signed by State Auto Financial's principal financial officer,
stating (a) State Auto Financial's name, address and telephone number (including
area code), (b) State Auto Financial's Internal Revenue Service identification
number, (c) State Auto Financial's Commission file number, (d) the number of
shares of each class of Stock outstanding as shown by the most recent report or
statement published by State Auto Financial, and (e) whether State Auto
Financial has filed the reports required to be filed under the Exchange Act for
a period of at least 90 days prior to the date of such certificate and in
addition has filed the most recent annual report required to be filed
thereunder.

         7.8 References to holders of Registrable Securities. For purposes of
this Agreement, references to holders of the Registrable Securities or holders
of a majority of the Registrable Securities shall be deemed to refer to the
pledgee of the Registered Securities under the Pledge and Security Agreement
dated as of even date herewith between the Company and the Agent (as modified
and supplemented and in effect from time to time, the "Pledge Agreement") for so
long as the Pledge Agreement shall remain in effect.

                                  ARTICLE VIII

                                  MISCELLANEOUS

         8.1 Waiver. No failure on the part of the either party hereto to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.

                                     - 22 -
<PAGE>   26
         8.2 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party at
its address or facsimile number set forth on the signature pages hereof at such
other address or facsimile number as such party may hereafter specify for the
purpose by notice to the Agent and the Borrower in accordance with the
provisions of this Section 8.2. Each such notice, request or other communication
shall be effective (a) if given by facsimile transmission, when transmitted to
the facsimile number specified in this Section and confirmation of receipt is
received, (b) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid, or (c) if
given by any other means, when delivered (or, in the case of electronic
transmission, received) at the address specified in this Section.

         8.3 Amendments, Etc. Except as otherwise expressly provided in this
Agreement and subject to the Credit Agreement and the Put Agreement, any
provision of this Agreement may be modified or supplemented only by an
instrument in writing signed by each of State Auto Financial and the Company
(with the consent of the Agent and the Lenders as specified in the Credit
Agreement), and any provision of this Agreement may be waived by the Company
(with the consent of the Agent and the Lenders as specified in the Credit
Agreement).

         8.4 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, provided, that State Auto Financial may not assign any of its
rights or obligations hereunder without the prior consent of the Company (with
the consent of the Agent and all of the Lenders).

         8.5 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.

         8.6 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.

         8.7 Governing Law; Submission to Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the law of the State of Illinois.
Each of State Auto Financial and the Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Northern District of
Illinois and of the Supreme Court of the State of Illinois sitting in Cook
County (including its Appellate Division), and of any other appellate court in
the State of Illinois, for the purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. Each of
State Auto Financial and the Company hereby irrevocably waives, to the fullest
extent permitted by applicable law, any objection that it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.

         8.8 Waiver of Jury Trial. EACH OF STATE AUTO FINANCIAL AND THE COMPANY
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY

                                     - 23 -
<PAGE>   27
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

         8.9 Further Assurances. State Auto Financial agrees that, from time to
time upon the written request of the Agent, State Auto Financial will execute
and deliver such further documents and do such other acts and things as the
Company, the Agent or any Lender (through the Agent) may reasonably request in
order fully to effect the purposes of this Agreement.

         8.10 Payments by State Auto Financial. The Company hereby instructs
State Auto Financial to make any payments required to be made by State Auto
Financial hereunder or otherwise in respect of the Class A Preferred Stock
(including, without limitation, any amounts payable upon any redemption of the
Class A Preferred Stock, any dividends payable on the Class A Preferred Stock
and the commitment fee payable under Section 2.3 hereof) directly to the Agent,
for the benefit of the Lenders. Each such payment shall be made by State Auto
Financial in accordance with the provisions of the Credit Agreement.

         8.11 Payments Received by the Company under Basic Documents. Any
amounts paid to the Company under any of the Basic Documents (other than the
proceeds of the Loans made under the Credit Agreement) shall be applied as
directed by State Auto Financial.

         8.12 Third-Party Beneficiaries. Each of State Auto Financial and the
Company agrees that the Agent and each Lender shall be third-party beneficiaries
of this Agreement and shall be entitled to enforce its respective rights
hereunder as fully as if it were a party hereto.

         8.13 Severability. If any provision hereof is invalid and unenforceable
in any jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction in
order to carry out the intentions of the parties hereto as nearly as may be
possible and (b) the invalidity or unenforceability of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of such
provision in any other jurisdiction.

                            [signature page follows]

                                     - 24 -
<PAGE>   28
         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.

                                      STATE AUTO FINANCIAL CORPORATION

                                      By /s/ Steven J. Johnston
                                        ---------------------------------------
                                      Title: Senior Vice President
                                            -----------------------------------

                                      Address for Notices:

                                      State Auto Financial Corporation
                                      5 18 East Broad Street
                                      Columbus, Ohio 43215

                                      Attention: John Lowther, Esq.

                                      Telecopier No.: 614-464-4911

                                      Telephone No.: 614-464-5052

                                      SAF FUNDING CORPORATION

                                      By /s/ Richard L. Taiano
                                        ---------------------------------------
                                      Title: Vice President
                                            -----------------------------------

                                      Address for Notices:

                                      SAF Funding Corporation
                                      2 Wall Street
                                      New York, New York 10005

                                      Attention: Richard Taiano

                                      Telecopier No.: 212-346-9012

                                      Telephone No.: 212-346-9006

                                       S-1
                         [TO STANDBY PURCHASE AGREEMENT]

<PAGE>   29
                           Standby Purchase Agreement

                                   Schedule I

                                     Part A

                                  Equity Rights

As of November 1, 1999, State Auto Financial has granted 2,481,469 stock options
to members of management under State Auto Financial's 1991 Stock Option Plan of
which 2,355,811 are outstanding. As of November 1, 1999, State Auto Financial
has granted 174,000 stock options to "outside" directors on the boards of
directors of State Auto Financial and State Auto Mutual pursuant to the terms of
the 1991 Directors' Stock Option Plan. State Auto Financial also has registered
2,400,000 shares to be issued pursuant to an Employee Stock Purchase Plan (the
"ESPP") of which 1,473,805 shares have been purchased pursuant to the ESPP as of
November 1, 1999.

State Auto Financial intends to register 400,000 shares as part of an agents'
stock option plan. Options for 16,538 option shares have been issued under this
plan but are not exercisable at this time.

<PAGE>   30

                           Standby Purchase Agreement
                                   Schedule I
                                     Part B

In August 1999, Strategic Insurance Software, Inc. ("S.I.S.") completed the
repurchase of all shares of S.I.S. from holders other than State Auto Financial
except for 60,000 shares, which the holders thereof (two individuals) are
contractually obligated to sell no later than January 4, 2000.

<PAGE>   31
                                                                EXHIBIT A to the
                                                      Standby Purchase Agreement

                   [Form Class A Preferred Stock Certificate]

<PAGE>   32
                 [Front of Class A Preferred Stock Certificate]

CERTIFICATE
NUMBER                                                                    SHARES
------                                                                    ------

----------------                                                ----------------

                        STATE AUTO FINANCIAL CORPORATION
                           Incorporated under the laws
                              of the State of Ohio

                                                                CUSIP __________

                      SEE REVERSE SIDE FOR CERTAIN TRANSFER
                  RESTRICTIONS AND OTHER IMPORTANT INFORMATION

     This is to Certify that ______________________________ is the owner of

     ______________________________________________________________________

                     FULLY PAID AND NON-ASSESSABLE SHARES OF
                     CLASS A PREFERRED STOCK NO PAR VALUE OF
                        State Auto Financial Corporation

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.

         WITNESS the seal of the Corporation and the signatures of its duly
authorized officers.

--------------------------                        ------------------------------
Secretary                                            Chief Executive Officer

                                                  ------------------------------
                                                         President

<PAGE>   33
                [Reverse of Class A Preferred Stock Certificate]

                        STATE AUTO FINANCIAL CORPORATION

         The Corporation will furnish upon request and without charge to each
shareholder the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock series within a class of
stock of the Corporation, as well as the qualifications, limitations and
restrictions relating to those preferences and/or rights.

         THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED AND SOLD ONLY IF
REGISTERED PURSUANT TO THE PROVISIONS OF SAID SECURITIES ACT OR IF AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.

In addition, the shares evidenced by this certificate are subject to the
restrictions on transfer set forth in the Terms and Conditions attached hereto.

<PAGE>   34
                              TERMS AND CONDITIONS

                                       of

                             CLASS A PREFERRED STOCK

                                       of

                        STATE AUTO FINANCIAL CORPORATION

--------------------------------------------------------------------------------

                       Pursuant to Section 1701.14 of the
                          Ohio General Corporation Law

--------------------------------------------------------------------------------

         Section 1. General.

         The certificate to which these Terms and Conditions are attached
represents one or more shares of Class A Preferred Stock, no par value (the
"Class A Preferred Stock"), of State Auto Financial Corporation, an Ohio
corporation (the "Corporation"). The stated value and liquidation preference per
share of the Class A Preferred Stock shall be equal to $1,000,000 (the
"Redemption Value").

         Section 2. Definitions.

         Capitalized terms used herein shall have the meanings set forth in this
Section 2:

         "Applicable Redemption Dates" means, with respect to any shares of
Class A Preferred Stock, each of the 2nd, 4th, 6th, 8th, 10th, 12th, 14th, l6th,
18th, 20th, 22nd and 24th Quarterly Dates immediately following the date of
issuance of such shares of Class A Preferred Stock.

         "Bank One" means Bank One, NA and any successor entity.

         "Board of Directors" means the Board of Directors of the Corporation.

         "Business Day" shall mean any day on which (a) commercial banks are not
authorized or required to close in New York City or Chicago and (b) (prior to
the Rate Conversion Date) dealings in Dollar deposits are carried out in the
London interbank market.

         "By-Laws" means the Code of Regulations of the Corporation, as amended
or restated from time to time.

         "Certificate of Incorporation" means the Articles of Incorporation of
the Corporation as amended or restated from time to time.

         "Class A Preferred Stock" has the meaning assigned to such term in
Section 1 hereof.

<PAGE>   35
         "Class B Preferred Stock" means all Class B Preferred Stock, no par
value, issued by the Corporation.

         "Common Stock" means all common stock, of any series and of any par
value or no par value issued by the Corporation.

         "Corporation" means State Auto Financial Corporation, an Ohio
corporation.

         "Credit Agreement" means the Credit Agreement dated as of November 19,
1999, between SAF Funding, the Lenders party thereto and Bank One, as Agent, as
modified and supplemented and in effect from time to time, a copy of which is
maintained on file in the Principal Corporate Office.

         "Dividend Rate" means, for each Eurodollar Rate Period relating to any
Class A Preferred Stock, the Eurodollar Rate for such Eurodollar Rate Period
plus 1% per annum; provided, however, that if, as of the last day of any fiscal
quarter of State Auto Mutual, the Statutory Surplus of State Auto Mutual, as
reflected in the most recent annual or quarterly financial statements of State
Auto Mutual delivered pursuant to Section 4.1(a) or (b) of the Put Agreement
(the "Financials"), is less than $575,000,000, then the "Dividend Rate" shall be
the Eurodollar Rate for such Eurodollar Rate Period plus 1.25% per annum until
such time as the Lenders receive Financials from State Auto Mutual indicating
that the Statutory Surplus of State Auto Mutual as reflected therein is
$575,000,000 or more; provided, further, that from and after the Rate Conversion
Date, the "Dividend Rate" means a rate per annum equal to 8%. Adjustments, if
any, to the Dividend Rate shall be effective five Business Days after the
Lenders have received the applicable Financials.

         "Dollars" and "$" mean lawful money of the United States of America.

         "Eurodollar Base Rate" means, with respect to any shares of Class A
Preferred Stock for the relevant Eurodollar Rate Period, the applicable British
Bankers' Association Interest Settlement Rate for deposits in U.S. dollars
appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period, and having a maturity equal
to such Eurodollar Rate Period, provided that, (a) if Reuters Screen FRBD is not
available to Bank One for any reason, the applicable Eurodollar Base Rate for
the relevant Eurodollar Rate Period shall instead be the applicable British
Bankers' Association Interest Settlement Rate for deposits in U.S. dollars as
reported by any other generally recognized financial information service as of
11:00 a.m. (London time) two Business Days prior to the first day of such
Eurodollar Rate Period, and having a maturity equal to such Eurodollar Rate
Period, and (b) if no such British Bankers' Association Interest Settlement Rate
is available to Bank One, the applicable Eurodollar Base Rate for the relevant
Eurodollar Rate Period shall instead be the rate determined by Bank One to be
the rate at which Bank One or one of its Affiliate banks offers to place
deposits in U.S. dollars with first-class banks in the London interbank market
at approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Eurodollar Rate Period, in the approximate amount of the aggregate
Redemption Value of such shares of Class A Preferred Stock and having a maturity
equal to such Interest Period.

<PAGE>   36
         "Eurodollar Rate" means, for any shares of Class A Preferred Stock for
any Eurodollar Rate Period, the sum of (a) the quotient of (i) the Eurodollar
Base Rate applicable to such Eurodollar Rate Period, divided by (ii) one minus
the Reserve Requirement (expressed as a decimal) applicable to such Eurodollar
Period.

         "Eurodollar Rate Period" means, with respect to any shares of Class A
Preferred Stock, each period commencing on the date such Class A Preferred Stock
is issued or (in the case of a continuation of one Eurodollar Rate Period to the
next) the last day of the next preceding Eurodollar Rate Period for such Class A
Preferred Stock and ending on the numerically corresponding day in the third
calendar month thereafter, except that each Eurodollar Rate Period that
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (a) no Eurodollar Rate Period may commence
before and end after any Applicable Redemption Date unless, after giving effect
thereto, the aggregate Redemption Value of shares of Class A Preferred Stock
having Eurodollar Rate Periods that end after such Applicable Redemption Date
shall be equal to or less than the aggregate Redemption Value of shares of Class
A Preferred Stock scheduled to be outstanding after giving effect to the
redemption payments required to be made on such Applicable Redemption Date; and
(b) each Eurodollar Rate Period that would otherwise end on a day that is not a
Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day); and (c) notwithstanding clause (a) above, no Eurodollar
Rate Period shall have a duration of less than three months.

         "Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by Bank One from three Federal
funds brokers of recognized standing selected by Bank One in its sole
discretion.

         "Holder" means SAF Funding or any subsequent holder of shares of Class
A Preferred Stock.

         "Loans" means the Loans made to SAF Funding under the Credit Agreement.

         "Person" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust, a limited liability company or other entity.

         "Principal Corporate Office" means the principal corporate office of
the Corporation located at 518 East Broad Street, Columbus, Ohio 43215.

         "Quarterly Dates" means the last Business Day of March, June, September
and December in each year, the first of which shall be the last Business Day of
December, 1999.

<PAGE>   37
         "Rate Conversion Date" shall mean the first date upon which the Holder
is a person or entity other than any of SAF Funding, State Automobile Mutual
Insurance Company, an Ohio mutual insurance company, any Lender party to the
Credit Agreement or the Agent under the Credit Agreement.

         "Redemption Value" has the meaning assigned to such term in Section 1
hereof.

         "Reserve Requirement" has the meaning assigned to such term in the
Credit Agreement.

         "SAF Funding" means SAF Funding Corporation, a Delaware corporation.

         "Secretary" means the Secretary of the Corporation.

         "Trigger Event" means the occurrence of (a) any "Event of Default"
described in the Credit Agreement (other than those events described in Section
7.5 or 7.6 thereof) and the acceleration of the Loans thereunder; or (b) an
"Event of Default" described in Section 7.5 or 7.6 of the Credit Agreement.

         Section 3. Dividends and Distributions.

         (a) The Holder, in preference to the holders of shares of Class B
Preferred Stock and the holders of shares of Common Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds of the
Corporation legally available for the payment of dividends, dividends at the
Dividend Rate on the Redemption Value of each share, payable in arrears in cash.
Accrued dividends on the Class A Preferred Stock shall be payable on the last
day of each Eurodollar Rate Period for the applicable Class A Preferred Stock
and upon the redemption of any Class A Preferred Stock (but only on the
aggregate Redemption Value of the Class A Preferred Stock so redeemed), provided
that after the Rate Conversion Date, said dividends shall be payable quarterly
on the last Business Day of March, June, September and December of each year.

         (b) Dividends payable with respect to any share of Class A Preferred
Stock shall begin to accrue at the Dividend Rate and be cumulative from the date
of issuance of such Class A Preferred Stock (whether or not such dividends have
been declared and whether or not there shall be net profits or net assets of the
Corporation legally available for the payment of such dividends). Dividends paid
on the shares of Class A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of Holder entitled to receive payment of a dividend declared thereon, which
record date shall be no more than thirty (30) days prior to the date fixed for
the payment thereof.

         (c) The Holder shall not be entitled to receive any dividends or other
distributions except as provided in these Terms and Conditions.

         (d) Whenever (i) any dividend payable pursuant to paragraph (a) of this
Section 3 has not been paid when due, thereafter and until all accrued and
unpaid dividends

<PAGE>   38
payable pursuant to paragraph (a) of this Section 3 have been paid in full or
(ii) the Corporation shall not have redeemed shares of Class A Preferred Stock
on the date such redemption is required pursuant to Section 5 hereof, thereafter
and until such redemption payment shall have been made the Corporation shall not
(A) declare or pay dividends on any shares of Class B Preferred Stock or Common
Stock or make any other distributions on any shares of Class B Preferred Stock
or Common Stock, whether upon liquidation, redemption or otherwise; or (B)
redeem or purchase or otherwise acquire for consideration any shares of Class B
Preferred Stock or Common Stock, whether upon liquidation, redemption, or
otherwise.

         Section 4. Voting Rights.

         Except as provided in the Certificate of Incorporation, and except for
any voting rights provided by law, the Holder shall have no voting rights and
its consent shall not be required for the taking of any corporate action.

         Section 5. Redemption.

         (a) On each of the first eleven Applicable Redemption Dates for any
shares of Class A Preferred Stock the Corporation shall redeem, without prior
notice to the Holder, out of funds legally available therefor, one-twelfth of
the number of shares of Class A Preferred Stock issued on the date of issuance
of such shares of Class A Preferred Stock, by paying to the Holder the aggregate
Redemption Value for such Class A Preferred Stock so redeemed plus any accrued
but unpaid dividends thereon. On the twelfth Applicable Redemption Date for such
shares of Class A Preferred Stock the Corporation shall redeem, without prior
notice to the Holder, out of funds legally available therefor, the balance of
the number of shares of Class A Preferred Stock issued on such date of issuance,
by paying to the Holder the aggregate Redemption Value for such Class A
Preferred Stock so redeemed plus any accrued but unpaid dividends thereon.

         (b) Upon the occurrence and during the continuance of any Trigger
Event, the Holder may require the Corporation to redeem out of funds of the
Corporation legally available therefor, all or any portion of the Class A
Preferred Stock for a redemption price equal to the aggregate Redemption Value
for the Class A Preferred Stock so redeemed plus any accrued but unpaid
dividends thereon. Upon written notice delivered by the Holder to the President
of the Corporation, such Redemption Value plus such dividends shall be
immediately due and payable.

         (c) The Corporation may, by delivering written notice that is received
by the Holder not later than 10:00 a.m. New York time on the third Business Day
prior to the date of the relevant redemption, redeem out of funds of the
Corporation legally available therefor, all or any portion of the Class A
Preferred Stock for a redemption price equal to the aggregate Redemption Value
for the Class A Preferred Stock so redeemed plus any accrued but unpaid
dividends thereon.

         (d) From and after the date of a redemption, unless default shall be
made by the Corporation in providing for the payment of the aggregate Redemption
Value for the Class A Preferred Stock so redeemed plus accrued but unpaid
dividends thereon, all dividends on the Class A Preferred Stock so redeemed
shall cease to accrue, and from and after the date of redemption so specified,
unless default shall be made by the Corporation as aforesaid, all rights

<PAGE>   39
of the Holder with respect to such shares, except the right to receive such
Redemption Value and dividends, shall cease and terminate.

         Section 6. Reacquired Shares.

         Any shares of Class A Preferred Stock redeemed, purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof and shall be restored to the
status of authorized but unissued shares of Class A Preferred Stock of the
Corporation and may thereafter be issued. Upon any redemption pursuant to
Section 5 hereof of a fractional number of shares of Class A Preferred Stock,
the Corporation shall reissue to the Holder Class A Preferred Stock having an
aggregate Redemption Value equal to the $1,000,000 multiplied by the sum of 1
minus such fractional number.

         Section 7. Liquidation, Dissolution or Winding Up.

         In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the Holder shall be entitled to
receive out of the assets of the Corporation available for distribution to its
stockholders an amount equal to the Redemption Value per share plus all accrued
and unpaid dividends thereon to the date of such payment, and no distribution
shall be made to the holders of shares of Common Stock, the Class B Preferred
Stock or any other capital stock of the Corporation unless prior thereto the
Holder shall have received an amount equal to the Redemption Value per share
plus all accrued and unpaid dividends thereon, to the date of such payment.

         Section 8. Rank.

         The Class A Preferred Stock shall rank as to dividends and distribution
of assets prior to the Class B Preferred Stock, the Common Stock and all other
shares of stock of the Corporation.

         Section 9. Payments.

         Except to the extent otherwise provided herein, all payments to be made
by the Corporation in respect of the Class A Preferred Stock shall be made in
Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Holder at an account designated by the Holder, not later
than 12:00 p.m. New York time on the date on which such payment shall become due
(each such payment made after such time on such due date to be deemed to have
been made on the next succeeding Business Day). If the due date of any payment
hereunder would otherwise fall on a day that is not a Business Day, such date
shall be extended to the next succeeding Business Day, and dividends shall be
payable on the aggregate Redemption Value of any shares of Class A Preferred
Stock for the period of such extension.

         Section 10. Fiscal Year.

         The Corporation will not change the last day of its fiscal year from
December 31 of each year.

<PAGE>   40
                                                                EXHIBIT B to the
                                                      Standby Purchase Agreement

                            [Form of Purchase Notice]

                                     [Date]

SAF Funding Corporation

-----------------------------

-----------------------------

-----------------------------

         Re:      Standby Purchase Agreement dated as of November 19, 1999,
                  among State Auto Financial Corporation and SAF Funding
                  Corporation (as modified and supplemented and in effect from
                  time to time, the "Standby Purchase Agreement").

Ladies and Gentlemen:

         Reference is made to the Standby Purchase Agreement referred to above.
Capitalized terms used but not defined herein shall have the respective meanings
assigned to such terms in the Standby Purchase Agreement.

         Pursuant to Section 2.2 of the Standby Purchase Agreement, State Auto
Financial hereby notifies you that it intends to sell to you ________ shares of
Class A Preferred Stock with an aggregate Redemption Value of
$____________________(1) on _____________, 199__(2).

                        STATE AUTO FINANCIAL CORPORATION

                                   By
                                     -------------------------------------------
                                      Title:
                                            ------------------------------------

----------

(1)      Insert an amount at least equal to $10,000,000 or a larger multiple of
         $1,000,000.

(2)      Insert a date falling on or after the fourth Business Day following the
         date of this Purchase Notice.

<PAGE>   41
                                                                EXHIBIT C to the
                                                      Standby Purchase Agreement

          [Form of Opinion of General Counsel of State Auto Financial)

                                                        ------------------, ----

SAF Funding Corporation (the "Company")

To Bank One, NA,
as Agent (the "Agent") under, and
each of the Lenders party to, the
Credit Agreement dated as of
November 19, 1999, among the Company,
the Agent and such Lenders

Ladies and Gentlemen:

         I am the general counsel of State Auto Financial Corporation ("State
Auto Financial") and have acted as counsel to State Auto Financial in connection
with the Standby Purchase Agreement dated as of November 19, 1999 (the "Standby
Purchase Agreement") between State Auto Financial and the Company, pursuant to
which the Company has agreed to purchase, from time to time, a certain number of
shares of State Auto Financial's Class A Redeemable Preferred Stock, no par
value per share (the "Class A Preferred Stock"). This opinion letter is
delivered to you pursuant to Section 3(b) of the Standby Purchase Agreement in
connection with the proposed issuance and sale by State Auto Financial, and the
purchase by the Company, on the date hereof, of ____ shares of the Class A
Preferred Stock (the "Purchased Stock").

         In rendering the opinions expressed below, I have examined the
following agreements, instruments and other documents:

         (a)      the Standby Purchase Agreement;

         (b)      certificates evidencing the Purchased Stock (the "Purchased
                  Stock Certificates"); and

         (c)      such records of State Auto Financial and such other documents
                  as I have deemed necessary as a basis for the opinions
                  expressed below.

         In my examination, I have assumed the genuineness of all signatures,
the authenticity of all documents submitted to me as originals and the
conformity with authentic original documents of all documents submitted to me as
copies. When relevant facts were not independently established, I have relied
upon certificates of governmental officials and appropriate representatives of
State Auto Financial and upon representations made in or pursuant to the Standby
Purchase Agreement.

<PAGE>   42
         Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:

                  1. State Auto Financial is a corporation duly organized,
         validly existing and in good standing under the laws of the State of
         Ohio.

                  2. State Auto Financial has all requisite corporate power and
         authority to issue and sell the Purchased Stock and execute and deliver
         the Purchased Stock Certificates.

                  3. The issuance and sale of the Purchased Stock to the Company
         and execution and delivery by State Auto Financial of the Purchased
         Stock Certificates have been duly authorized by all necessary corporate
         action on the part of State Auto Financial.

                  4. The Purchased Stock Certificates have been duly executed
         and delivered by State Auto Financial.

                  5. No authorization, approval or consent of, and no filing or
         registration with, any governmental or regulatory authority or agency
         of the United States of America or the State of Ohio (other than any
         authorizations, approvals, consents, filings and registrations
         heretofore duly made or obtained and in full force and effect) is
         required on the part of State Auto Financial for issuance and sale of
         the Purchased Stock to the Company and the execution and delivery of
         the Purchased Stock Certificates.

                  6. The issuance and sale of the Purchased Stock to the Company
         and the execution and delivery of the Purchased Stock do not and will
         not (a) violate any provision of the Articles of Incorporation or Code
         of Regulations of State Auto Financial, (b) violate any applicable law,
         rule or regulation of the United States of America or the State of
         Ohio, (c) violate any order, writ, injunction or decree of any court or
         governmental authority or agency or any arbitral award applicable to
         State Auto Financial of which I have knowledge (after due inquiry) or
         (d) result in a breach of, constitute a default under, require any
         consent under, or result in the acceleration or required prepayment of
         any indebtedness pursuant to the terms of, any agreement or instrument
         of which I have knowledge (after due inquiry) to which such State Auto
         Financial or any of its Subsidiaries is a party or by which any of them
         is bound or to which any of them is subject, or result in the creation
         or imposition of any Lien upon any Property of State Auto Financial or
         any of its Subsidiaries pursuant to the terms of any such agreement or
         instrument.

                  7. The Purchased Shares are validly issued and outstanding,
         are fully paid and non-assessable and have, and entitle the holders
         thereof to, the relative rights and preferences set forth with respect
         to the Class A Preferred Stock in the Purchased Stock Certificates.

                  8. I have no knowledge (after due inquiry) of any legal or
         arbitral proceedings, or any proceedings by or before any governmental
         or regulatory authority or

<PAGE>   43
         agency, now pending or threatened against or affecting State Auto
         Financial or any of its Property that, if adversely determined, could
         have a Material Adverse Effect (excluding any Material Adverse Effect
         resulting from the catastrophic loss claims and/or loss adjustment
         expenses to which the issuance of the Purchased Stock relates).

         The foregoing opinions are limited to matters involving the Federal
laws of the United States of America and the law of the State of Ohio, and I do
not express any opinion as to the laws of any other jurisdiction. The opinions
contained in this letter are rendered only as of the date hereof and I undertake
no obligation to update this letter or the opinions contained herein after the
date hereof. The opinions contained in this letter only constitute my
professional judgment as to the consequences of and the applicability of certain
laws to the documents and agreements referred to and the parties thereto and
should not be considered to be a guarantee of any particular result.

         At the request of my clients, this opinion letter is provided to you by
me in my capacity as counsel to State Auto Financial, and this opinion letter
may not be relied upon by any Person for any purpose other than in connection
with the transactions contemplated by the Basic Documents without, in each
instance, my prior written consent.

                                          Very truly yours,

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