Document:

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                                  Exhibit 10.03

       Standby Purchase Agreement between State Auto Financial Corporation
              and SAF Funding Corporation dated November 12, 2003.

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                           STANDBY PURCHASE AGREEMENT

                                     between

                        STATE AUTO FINANCIAL CORPORATION

                                       and

                             SAF FUNDING CORPORATION

                          Dated as of November 12, 2003

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                                TABLE OF CONTENTS

<TABLE>
<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........................................................  10

         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
</TABLE>

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<TABLE>
<S>                                                                                              <C>
         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

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>

                           STANDBY PURCHASE AGREEMENT

                  This Standby Purchase Agreement, dated as of November 12,
2003, 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:

                  In order 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"), 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"), State
Auto Financial and the Company are entering this Standby Purchase 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 KeyBank National Association, 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.

                  "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.

<PAGE>

                  "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.

                  "Indemnifying Party" shall mean a party obligated to provide
indemnity in accordance with Section 7.6 hereof.

                                       2

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                  "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 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).

                                       3

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                  "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 $100,000,000.

                  "Purchase Commitment Termination Date" shall mean November 10,
2004; 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 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

                                       4

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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 by the terms thereof ordinary
voting power to elect a majority of the board of directors or other

                                       5

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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 $100,000,000. 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 $100,000,000 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 two-tenths of one percent (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

         Each obligation 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>

                  (b)      Opinion of Counsel to the Company. The Company shall
have received an opinion, dated the Purchase Date, of the 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, State Auto Insurance Company
of Ohio, Farmers Casualty Insurance Company, State Auto Insurance Company of
Wisconsin, State Auto National Insurance Company, Meridian Security Insurance
Company, Meridian Citizens Security Insurance Company and Meridian Citizens
Mutual 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 (but
excluding catastrophic loss claims and/or adjustment expenses under war-risk,
terrorism, hijacking, governmental confiscation or expropriation insurance
coverage) 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 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
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.

                                       7

<PAGE>

                  4.2      Litigation. Except as set forth in Schedule IV to the
Put Agreement, 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.

                  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 (as of October 20, 2003) 39,344,009 shares were 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, 67% of such issued and outstanding shares of common stock are owned
beneficially and of record by State Auto Mutual. Upon

                                       8

<PAGE>

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 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.

                                       9

<PAGE>

                  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 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 such 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.

                                       10

<PAGE>

                  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.

                                  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 shall 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 shall 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,

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<PAGE>

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;

                           (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 shall 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 shall 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

                                       12

<PAGE>

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 and after any shares of Class A
Preferred Stock have been purchased hereunder, State Auto Financial at any time
proposes to effect a Piggyback Registration, it shall 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 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 shall 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 shall 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 shall 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

                                       13

<PAGE>

         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;

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 shall 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 shall
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 shall 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;

                                       14

<PAGE>

                  (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

                           (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;

                                       15

<PAGE>

                  (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
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

                                       16

<PAGE>

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 shall, 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

                  (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.

                                       17

<PAGE>

                  (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 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 shall, 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

                                       18

<PAGE>

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 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,

                                       19

<PAGE>

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 shall 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 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

                                       20

<PAGE>

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 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

                                       21

<PAGE>

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.

                  (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 shall
file reports in compliance with the Exchange Act, shall 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 shall, 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

                                       22

<PAGE>

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.

                  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).

                                       23

<PAGE>

                  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 Ohio. 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 Ohio and of the common pleas and appellate courts of the
State of Ohio sitting in Cuyahoga County, and of any other appellate court in
the State of Ohio, 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 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
shall 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.

                                       24

<PAGE>

                  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]

                                       25

<PAGE>

                  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/ Robert H. Moone
                             -------------------
                         Title: Chairman, President, and Chief Executive Officer

                         Address for Notices:

                         State Auto Financial Corporation
                         518 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/ Jill A. Gordon
                             ------------------
                         Title: Vice President

                         Address for Notices:

                         SAF Funding Corporation
                         c/o Lord Securities Corporation
                         48 Wall Street, 27th Floor
                         New York, New York 10005
                         Attention: Jill A. Gordon, Vice President
                         Telecopier No.: (212) 346-9000
                         Telephone No.: (212) 346-9012

                                       26

<PAGE>

          LIST OF SCHEDULES AND EXHIBITS TO STANDBY PURCHASE AGREEMENT

         The following is a list of the schedules and exhibits to the foregoing
Standby Purchase Agreement which have not been filed with this Form 8-K:

SCHEDULES

Schedule I -- listing of any outstanding Equity Rights with respect to State
Auto Financial and of any 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.

EXHIBITS

Exhibit A -- Form of stock certificate of Class A Preferred Stock.
Exhibit B -- Form of Purchase Notice.
Exhibit C -- Form of opinion of the general counsel of State Auto Financial.exv10w71

 

EXHIBIT 10.71

CONSENT AND SIXTH AMENDMENT

TO LOAN AND SECURITY AGREEMENT

     This CONSENT AND SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
“Agreement”) is entered into as of this 23rd day of September, 2003, by and
among ACTION PERFORMANCE COMPANIES, INC., (the “Company”); each of RACING
COLLECTABLES CLUB OF AMERICA, INC. (“Racing Club”), ACTION RACING COLLECTABLES,
INC. (“Action Racing”), ACTION SPORTS IMAGE, L.L.C., (“Action Sports”), JEFF
HAMILTON COLLECTION, INC. (“JH”), MCARTHUR TOWEL AND SPORTS, INC. (“McArthur”),
TREVCO TRADING CORP. (“Trevco”) and FUNLINE MERCHANDISE COMPANY., INC.
(“Funline”) (each of Racing Club, Action Racing, Action Sports, JH, McArthur,
Trevco and Funline being referred to herein individually as a “Borrower” and
collectively as “Borrowers”); the Subsidiary Guarantors signatory hereto
(together with the Company and Borrowers, each an “Obligor” and together
“Obligors”); and BANK ONE, NA (in its individual capacity, “Bank One”), for
itself as a Lender and as Agent for any other Lender. Unless otherwise
specified herein, capitalized terms used in this Agreement shall have the
meanings ascribed to them in the Loan Agreement (as hereinafter defined).

RECITALS

     A.     Bank One, as Agent and sole Lender, and Obligors (excluding Funline)
are parties to that certain Loan and Security Agreement dated as of September
29, 2000 (as heretofore amended, the “Loan Agreement”).

     B.     Pursuant to a Stock Purchase Agreement dated as of September 22, 2003
(the “Funline Acquisition Agreement” and, together with all other agreements
and documents executed and delivered pursuant thereto, the “Funline Acquisition
Documents”) by and among the Company, Funline and the stockholders of Funline
(the “Funline Sellers”), the Company will acquire on the date hereof all of the
capital stock of Funline.

     C.     The Obligors have requested that Bank One, as sole Lender, consent to
the Funline Acquisition, and Bank One, as sole Lender, is willing to grant such
consent.

     D.     The parties have agreed to cause Funline to be joined to the Loan
Agreement as a Borrower and to amend certain provisions of the Loan Agreement,
upon the terms and subject to the conditions set forth herein.

     NOW, THEREFORE, in consideration of the foregoing, the covenants and
conditions contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

     SECTION 1. Consent to Funline Acquisition.

     (a)     Subject to the terms and upon the conditions set forth herein, Lender
hereby consents to the consummation of the Funline Acquisition on the date
hereof upon the terms set forth in the Funline Acquisition Documents.

 

 

     (b)     Borrowers hereby represent and warrant to Bank One, as Agent and sole
Lender, that true and correct copies of all material Funline Acquisition
Documents have been provided to Agent and that, except as set forth on Schedule
A hereto, all of the conditions set forth in subsection 8.3(b) of the Loan
Agreement to the consummation of the Funline Acquisition will be satisfied on
or prior to the date hereof.

     SECTION 2. Joinder of Funline as Borrower.

     Funline hereby joins in the execution of the Loan Agreement and (i) hereby
agrees that it is a Borrower and an Obligor thereunder and agrees to be bound
by all of the terms and provisions thereof and (ii) without limiting the
generality of the foregoing, hereby grants, assigns, conveys, mortgages,
pledges, hypothecates and transfers to Agent, for itself and the benefit of
Lenders, a Lien upon all of its right, title and interest in, to and under the
Collateral, and grants to Agent a right of setoff against the property of such
Grantor held by or in transit to Agent or any Lender, in each case to secure
the prompt and complete payment, performance and observance of all of the
Liabilities, as provided in Section 5 of the Loan Agreement. Funline hereby
represents and warrants that the representations and warranties set forth in
Section 6 of the Loan Agreement are, with respect to such Person, true and
correct as of the date hereof.

     SECTION 3. Amendments to Loan Agreement.

     (a)     Subsection 1.1 of the Loan Agreement is hereby amended by inserting
the following new definition in its proper alphabetical order:

		
	 	     “Funline” shall mean Funline Merchandise Co., Inc., a California corporation.
	 
	 	     “Sixth Amendment Date” shall mean September 23, 2003.

     (b)     The definition of “Borrowers” contained in subsection 1.1 of the Loan
Agreement is hereby amended to read as follows:

		
	 	     “Borrower” shall mean each of Racing Club, Action Racing, Action Sports,
Trevco, McArthur, JH and Funline, and “Borrowers” shall mean such Persons,
collectively.

     (c)     Subsection 8.3(b)(ii) of the Credit Agreement is hereby amended to
read as follows:

		
	 	     (ii)     The sum of all amounts paid or payable by Obligors in connection with
such acquisitions (including without limitation, purchase price amounts,
non-compete payments and transaction costs) shall not exceed (1)
$5,000,000 for any such single acquisition or series of related
acquisitions and (2) $25,000,000 in the aggregate for all such
acquisitions during the period following the Sixth Amendment Date;

     (d)     Subsection 8.18.1 of the Loan Agreement is hereby amended to read as
follow:

2

 

		
	 	     8.18.1     Capital Expenditures. Not expend or be committed to expend for Capital
Expenditures (including, without limitation, for the acquisition of fixed
assets) on a non-cumulative basis in the aggregate more than $35,000,000
during any Fiscal Year.

     SECTION 4. Representations and Warranties of Obligors. To induce Bank One
to execute and deliver this Agreement, Obligors jointly and severally represent
and warrant that:

     (a)     The execution, delivery and performance by each Obligor of this
Agreement have been duly authorized and this Agreement and the Loan Agreement
and all other Financing Agreements are legal, valid and binding obligations of
each Obligor, enforceable against each Obligor in accordance with their
respective terms, except as the enforcement thereof may be subject to (i) the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors’ rights generally and (ii) general principles
of equity (regardless of whether such enforcement is sought in a proceeding in
equity or at law); and

     (b)     No Unmatured Default or Default has occurred and is continuing and
each of the representations and warranties contained in the Loan Agreement and
the other Financing Agreements is true and correct in all material respects on
and as of the date hereof as if made on the date hereof.

     SECTION 5. Reference to and Effect Upon the Loan Agreement.

     (a)     Except as expressly set forth herein, all terms, conditions,
covenants, representations and warranties contained in the Loan Agreement or
any other Financing Agreement, and all rights of Agent and Lenders and all
Liabilities of Obligors thereunder, shall remain in full force and effect.
Obligors hereby confirm that the Loan Agreement and the other Financing
Agreements are in full force and effect and that no Obligor has any defense,
setoff or counterclaim to the Liabilities under the Loan Agreement or any other
Financing Agreement.

     (b)     Except as expressly set forth herein, the execution, delivery and
effectiveness of this Agreement and any waivers set forth herein shall not
directly or indirectly (i) constitute a waiver of any past, present or future
violations of any provisions of the Loan Agreement or any other Financing
Agreement, (ii) amend, modify or operate as a waiver of any provision of the
Loan Agreement or any other Financing Agreement or any right, power or remedy
of Agent or any Lender thereunder, or (iii) constitute a course of dealing or
other basis for altering any Liabilities of any Obligor under the Financing
Agreements or any other contract or instrument.

     (c)     This Agreement shall constitute a Financing Agreement.

     SECTION 6. Costs and Expenses. Obligors jointly and severally agree to
promptly reimburse Bank One on demand for all fees, costs and expenses
(including the fees, costs and expenses of counsel retained by Bank One) in
connection with the negotiation, preparation and consummation of this Agreement
and the transactions contemplated hereby and thereby.

3

 

     SECTION 7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ARIZONA.

     SECTION 8. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purposes.

     SECTION 9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original, but
all such counterparts shall constitute one and the same instrument, and all
signatures need not appear on any one counterpart. Any party hereto may
execute and deliver a counterpart of this Agreement by delivering by facsimile
transmission a signature page of this Agreement signed by such party, and any
such facsimile signature shall be treated in all respects as having the same
effect as an original signature. Any party delivering by facsimile
transmission a counterpart executed by it shall promptly thereafter also
deliver a manually signed counterpart of this Agreement.

     SECTION 10. Effectiveness. This Agreement shall become effective at the time Agent shall have
received sufficient copies of the following documents, all in form and
substance satisfactory to Agent:

     (a)     Agreement. Executed signature pages to this Agreement signed by
Obligors.

     (b)     Funline Acquisition Documents. Executed or conformed copies of all
material Funline Acquisition Documents.

     (c)     Articles of Incorporation and By-Laws. Certified copies of the
Articles of Incorporation and By-Laws of Funline, in each case as in effect on
the date hereof.

     (d)     Good Standing Certificates. A certificate of good standing for
Funline from such Obligor’s jurisdiction of incorporation or formation.

     (e)     Resolutions. Copies, certified by the Secretary or Assistant
Secretary of each Obligor, of resolutions of its Board of Directors (or other
governing body of such Obligor, if applicable) authorizing the execution of
this Agreement and the other Financing Agreements (if any) delivered herewith
by such Obligor.

     (f)     Joinder to Company Pledge Agreement. A Joinder to Company Pledge
Agreement pledging to Agent, for the benefit of Lenders, all of the capital
stock of Funline, together with certificates evidencing such shares of capital
stock and stock powers duly executed in blank by Borrower.

     (g)     Replacement Revolving Note. A replacement Revolving Note from
Borrowers payable to the order of Bank One.

     (h)     UCC Financing Statements. UCC-1 financing statements filed in favor
of Agent against Funline with the Secretary of State of the State of
California.

4

 

     (i)     Patent and Trademark Security Agreements. Patent and Trademark
Security Agreements executed by Funline.

     (j)     Addenda to Schedules to Loan Agreement. Addenda to Schedules 6.1
(Jurisdictions of Organization and Qualification), 6.8 (Corporate or Fictitious
Names), 6.12 (Subsidiaries), 6.20 (Capitalization), 6.22 (Bank Accounts) and
6.25 (Insurance) to the Loan Agreement reflecting information for Funline,
certified by Borrower Representative.

     (k)     Insurance Policies. Certificates of insurance summarizing all
insurance coverages maintained by Funline, together with lenders’ loss payable
endorsements in favor of Agent and endorsements to all liability polices naming
Agent and Lenders as additional insureds.

     (l)     Payoff of Existing Indebtedness. Written evidence satisfactory to
Agent that the Business Loan Agreement dated as of December 16, 2002 between
Funline and East West Bank has been terminated and that all Indebtedness and
other liabilities thereunder have been paid in full and all Liens securing such
Indebtedness have been terminated.

     (m)     Other Information. Such other information and documents as Agent
shall request.

[confirm whether we will request landlord waivers from landlord of properties leased by Funline.]

5

 

             IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
and year first above written.

	 	 	 	 	 
	 	 	ACTION PERFORMANCE COMPANIES, INC.,

as Borrower Representative and an Obligor
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	RACING COLLECTABLES CLUB OF AMERICA, INC.,

as a Borrower
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	ACTION RACING COLLECTABLES, INC., as a

Borrower
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	ACTION SPORTS IMAGE, L.L.C., as a Borrower
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	JH ACQUISITION, INC., as a Borrower
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	MCARTHUR TOWEL AND SPORTS, INC., as a
Borrower
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

S-1

 

	 	 	 	 	 
	 	 	TREVCO TRADING CORP., as a Borrower
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	FUNLINE MERCHANDISE COMPANY, INC., as a

Borrower
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	AW ACQUISITION CORP., as a Subsidiary 

Guarantor
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	GORACING.COM, INC., as a Subsidiary

Guarantor
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	THE FAN CLUB COMPANY, L.L.C., as a

Subsidiary Guarantor
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	GORACING INTERACTIVE SERVICES, INC., as a

Subsidiary Guarantor
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

S-2

 

	 	 	 	 	 
	 	 	ACTION CORPORATE SERVICES, INC., as a

Subsidiary Guarantor
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	RYP, INC., as a Subsidiary Guarantor
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	CREATIVE MARKETING & PROMOTIONS, INC., as a

Subsidiary Guarantor
	 	 	 	 	 
	 	 	
By:
	 	/s/ R. David Martin
	 	 	 	 	

	 	 	
Title:
	 	Chief Financial Officer

	 	 	 	 	 
	 	 	BANK ONE, NA, as Agent and Lender
	 	 	 	 	 
	 	 	
By:
	 	/s/ Steven J. Krakoski
	 	 	 	 	

	 	 	
Title:
	 	First Vice President

S-3

 

Schedule A

Exceptions to Section (b) Conditions

Trevco Acquisition

The aggregate consideration paid in connection with the Funline Acquisition
exceeds the threshold set forth in subsection 8.3(b)(ii).

The Additional Consideration (as defined in the Funline Acquisition Agreement)
constitutes “earn-out or similar payment obligations” prohibited under
subsection 8.3(b)(i).

S-1

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