Document:

Unassociated Document

    
      
        
          

        

      

       

       

      STOCK
PURCHASE AGREEMENT

       

    

    BETWEEN

     

    HALLMARK
INSURANCE COMPANY

    

    AND

    

    STATE
AUTO FINANCIAL CORPORATION

     

    

     

    DATED AS
OF AUGUST 9, 2010

     

    

     

    FOR THE
ACQUISITION OF

     

    STATE
AUTO NATIONAL INSURANCE COMPANY

     

     

    
      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
OF CONTENTS

     

    Page

     

    
      
        
          	
                  ARTICLE I

                	
                  DEFINITIONS

                	
                  1

                
	
                  SECTION
      1.1.

                	
                  Definitions

                	
                  1

                
	
                  ARTICLE
      II

                	
                  PURCHASE
      OF THE SHARES

                	
                  7

                
	
                  SECTION
      2.1.

                	
                  Purchase
      and Sale

                	
                  7

                
	
                  SECTION
      2.2.

                	
                  Closing
      Date Statutory Capital and Surplus

                	
                  7

                
	
                  SECTION
      2.3.

                	
                  Closing

                	
                  8

                
	
                  SECTION
      2.4.

                	
                  Seller
      Closing Deliveries

                	
                  9

                
	
                  SECTION
      2.5.

                	
                  Buyer's
      Closing Deliveries

                	
                  9

                
	
                  SECTION
      2.6.

                	
                  Earnout

                	
                  9

                
	
                  ARTICLE
      III

                	
                  REPRESENTATIONS
      AND WARRANTIES

                	
                  10

                
	
                  SECTION
      3.1.

                	
                  Representations
      and Warranties of Seller

                	
                  10

                
	
                  SECTION
      3.2.

                	
                  Representations
      and Warranties of Buyer

                	
                  17

                
	
                  ARTICLE
      IV

                	
                  COVENANTS

                	
                  19

                
	
                  SECTION
      4.1.

                	
                  Conduct
      of Business of the Company

                	
                  19

                
	
                  SECTION
      4.2.

                	
                  Information;
      Confidentiality

                	
                  20

                
	
                  SECTION
      4.3.

                	
                  Commercially
      Reasonable Efforts

                	
                  21

                
	
                  SECTION
      4.4.

                	
                  Consents,
      Approvals and Filings

                	
                  21

                
	
                  SECTION
      4.5.

                	
                  Delivery
      of and Access to Books and Records after Closing

                	
                  22

                
	
                  SECTION
      4.6.

                	
                  Public
      Announcements

                	
                  22

                
	
                  SECTION
      4.7.

                	
                  Settlement
      of Accounts with Affiliates; Intercompany Agreements

                	
                  22

                
	
                  SECTION
      4.8.

                	
                  Loss
      Portfolio Transfer Agreement and Quota Share Reinsurance
      Agreement

                	
                  23

                
	
                  SECTION
      4.9.

                	
                  Intellectual
      Property

                	
                  23

                
	
                  SECTION
      4.10.

                	
                  Use
      of Corporate Name

                	
                  24

                
	
                  SECTION
      4.11.

                	
                  Termination
      of Reinsurance Arrangements

                	
                  24

                
	
                  SECTION
      4.12.

                	
                  Access
      to State Auto Agents

                	
                  24

                
	
                  SECTION
      4.13.

                	
                  Further
      Assurances

                	
                  24

                
	
                  ARTICLE
      V

                	
                  RESTRICTIVE
      COVENANTS

                	
                  25

                
	
                  SECTION
      5.1.

                	
                  Noncompetition
      Agreement of Seller

                	
                  25

                
	
                  SECTION
      5.2.

                	
                  Noninterference
      Agreement of Buyer.

                	
                  25

                

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

           

          
            	
                    SECTION
      5.3.

                  	
                    Inspection
      Rights

                  	
                    26

                  
	
                    SECTION
      5.4.

                  	
                    Remedies

                  	
                    26

                  
	
                    ARTICLE
      VI

                  	
                    CONDITIONS
      PRECEDENT

                  	
                    26

                  
	
                    SECTION
      6.1.

                  	
                    Conditions
      to Each Party's Obligations

                  	
                    26

                  
	
                    SECTION
      6.2.

                  	
                    Conditions
      to Obligations of Buyer

                  	
                    26

                  
	
                    SECTION
      6.3.

                  	
                    Conditions
      to Obligations of Seller

                  	
                    27

                  
	
                    ARTICLE
      VII

                  	
                    SURVIVAL
      OF REPRESENTATIONS AND WARRANTIES

                  	
                    27

                  
	
                    SECTION
      7.1.

                  	
                    Survival
      of Representations and Warranties

                  	
                    27

                  
	
                    ARTICLE
      VIII

                  	
                    INDEMNIFICATION

                  	
                    28

                  
	
                    SECTION
      8.1.

                  	
                    Obligation
      to Indemnify

                  	
                    28

                  
	
                    SECTION
      8.2.

                  	
                    Indemnification
      Procedures

                  	
                    28

                  
	
                    ARTICLE
      IX

                  	
                    TAX
      MATTERS

                  	
                    31

                  
	
                    SECTION
      9.1.

                  	
                    Returns
      and Payments

                  	
                    31

                  
	
                    SECTION
      9.2.

                  	
                    Tax
      Benefits

                  	
                    31

                  
	
                    SECTION
      9.3.

                  	
                    Tax
      Refunds

                  	
                    32

                  
	
                    SECTION
      9.4.

                  	
                    Conveyance
      Taxes

                  	
                    32

                  
	
                    SECTION
      9.5.

                  	
                    Miscellaneous

                  	
                    32

                  
	
                    ARTICLE
      X

                  	
                    TERMINATION
      PRIOR TO CLOSING

                  	
                    32

                  
	
                    SECTION
      10.1.

                  	
                    Termination
      of Agreement

                  	
                    32

                  
	
                    SECTION
      10.2.

                  	
                    Survival

                  	
                    33

                  
	
                    ARTICLE
      XI

                  	
                    GENERAL
      PROVISIONS

                  	
                    33

                  
	
                    SECTION
      11.1.

                  	
                    Fees
      and Expenses

                  	
                    33

                  
	
                    SECTION
      11.2.

                  	
                    Notices

                  	
                    33

                  
	
                    SECTION
      11.3.

                  	
                    Interpretation

                  	
                    34

                  
	
                    SECTION
      11.4.

                  	
                    Entire
      Agreement; Third-Party Beneficiaries

                  	
                    35

                  
	
                    SECTION
      11.5.

                  	
                    Governing
      Law

                  	
                    35

                  
	
                    SECTION
      11.6.

                  	
                    Assignment

                  	
                    35

                  
	
                    SECTION
      11.7.

                  	
                    Dispute
      Resolution; Enforcement

                  	
                    35

                  
	
                    SECTION
      11.8.

                  	
                    Severability;
      Amendment and Waiver

                  	
                    36

                  
	
                    SECTION
      11.9.

                  	
                    Certain
      Limitations

                  	
                    36

                  
	
                    SECTION
      11.10.

                  	
                    Counterparts

                  	
                    37

                  
	
                    SECTION
      11.11.

                  	
                    WAIVER
      OF JURY TRIAL

                  	
                    37

                  

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        
          	
                  EXHIBIT
      A

                	
                  Loss
      Portfolio Transfer Agreement

                
	 
      	 
      
	
                  EXHIBIT
      B

                	
                  Quota
      Share Reinsurance
Agreement

                

        

      

    

     

    DISCLOSURE
SCHEDULES

    

    
      
        
          
            
              	
                      Section

                    	
                      Description

                    
	 
      	 
      
	
                      Section
      1.1(a)

                    	
                      Knowledge
      of Seller

                    
	
                      Section
      1.1(b)

                    	
                      Knowledge
      of Buyer

                    
	
                      Section
      1.1(c)

                    	
                      List
      of States for Restricted Territory

                    
	
                      Section
      3.1(e)

                    	
                      Noncontravention;
      Consents

                    
	
                      Section
      3.1(f)

                    	
                      SAP
      Financial Statements

                    
	
                      Section
      3.1(g)

                    	
                      Liabilities

                    
	
                      Section
      3.1(h)

                    	
                      Absence
      of Certain Changes or Events

                    
	
                      Section
      3.1(j)

                    	
                      Taxes

                    
	
                      Section
      3.1(k)

                    	
                      Compliance
      with Applicable Laws

                    
	
                      Section
      3.1(l)

                    	
                      Litigation

                    
	
                      Section
      3.1(m)

                    	
                      Contracts

                    
	
                      Section
      3.1(n)

                    	
                      Insurance
      Regulatory Matters

                    
	
                      Section
      3.1(p)

                    	
                      Reinsurance

                    
	
                      Section
      3.1(s)

                    	
                      Ownership
      of Shares

                    
	
                      Section
      3.1(t)

                    	
                      Affiliate
      Transactions

                    
	
                      Section
      3.1(u)

                    	
                      Company
      Insurance Policies

                    
	
                      Section.
      3.2(c)

                    	
                      Noncontravention;
      Consents

                    
	
                      Section
      4.7

                    	
                      Intercompany
      Agreements

                    

            

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    STOCK
PURCHASE AGREEMENT

     

    This
Stock Purchase Agreement (this "Agreement") is made
as of August 9, 2010, between Hallmark Insurance Company, an Arizona insurance
company ("Buyer"), and State
Auto Financial Corporation, an Ohio corporation ("Seller").

     

    Background
Information

     

    A.           Seller
owns, beneficially and of record, 60,000 shares of voting common stock, par
value of $40.00 per share (the "Shares"), of State
Auto National Insurance Company, an Ohio corporation (the "Company"), which
represent 100% of the issued and outstanding shares of capital stock of the
Company.

     

    B.           Seller
desires to sell all of its shares of capital stock of the Company, and Buyer
desires to purchase all such shares, upon the terms and conditions set forth in
this Agreement.

     

    C.           Subject
to Section 4.8 of this Agreement, it is the intent of Seller and Buyer that
Seller and its Affiliates shall be entitled to the benefits and subject to the
liabilities of any and all insurance policies issued by the Company prior to the
Closing, and that Buyer and its Affiliates (including the Company after the
Closing) shall be entitled to the benefits and subject to the liabilities of any
and all insurance policies issued by the Company after the Closing.

     

    Statement of
Agreement

     

    The
parties to this Agreement hereby acknowledge the accuracy of the foregoing
Background Information and hereby agree as follows:

     

    ARTICLE
I

     

    DEFINITIONS

     

    SECTION 1.1. Definitions.  For
purposes of this Agreement, the following terms shall have the respective
meanings set forth below:

     

    "Acceptance Date" has
the meaning set forth in Section 2.2(f).

     

    "Affiliate" of any
Person means another Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such first person.

     

    "Agreement" has the
meaning set forth in the introductory paragraph of this Agreement.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    "Amended State Auto
Agreements" has the meaning set forth in Section 4.7(b).

     

    "Amended State Auto
Investment Agreement" has the meaning set forth in Section
4.7(b).

     

    "Amended State Auto
Management Agreement" has the meaning set forth in Section
4.7(b).

     

    "Amended State Auto Pooling
Agreement" has the meaning set forth in Section 4.7(b).

     

    "Arbitrator" has the
meaning set forth in Section 2.2(e).

     

    “Books and Records”
has the meaning set forth in Section 3.1(v).

     

    "Business Day" means
any day other than a Saturday, Sunday or other day on which banking institutions
in the City of Columbus, Ohio, are required or authorized by law or executive
order to be closed.

     

    "Buyer" has the
meaning set forth in the introductory paragraph of this Agreement.

     

    "Claim Period" has the
meaning set forth in Section 7.1.

     

    "Closing" has the
meaning set forth in Section 2.3.

     

    "Closing Date" has the
meaning set forth in Section 2.3.

     

    "Closing Payment" has
the meaning set forth in Section 2.1(a).

     

    "Code" means the
Internal Revenue Code of 1986, as amended.

     

    "Columbus Court" has
the meaning set forth in Section 11.7(b).

     

    "Company" has the
meaning set forth in the preamble of this Agreement.

     

    "Company Disputed Tax
Positions" has the meaning set forth in Section 9.1.

     

    "Company Insurance
Policies" has the meaning set forth in Section 3.1(u).

     

    "Company Material Adverse
Effect" means the occurrence of an event or the existence of a
circumstance that has a material adverse effect on the assets. liabilities,
results of operations, cash flows, financial condition, business, operations or
relationships of the Company, including the occurrence of any event or the
existence of any circumstance that could cause such an effect in the future, but
shall exclude any adverse effect resulting from, arising out of or relating to:
(i) changes in general economic or market conditions (including changes in
interest rates); (ii) any occurrence or condition generally affecting the
nonstandard automobile insurance market; (iii) the occurrence of acts of
hostility or terrorism or a proposed change in SAP, laws or regulations; and
(iv)  the negotiation, execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated by this Agreement
or the public announcement of this Agreement or such transactions (including any
occurrence or condition arising out of the identity of or facts relating to
Buyer).  For purposes of clarification, Company Material Adverse
Effect shall not include any downgrade or potential downgrade of the financial
strength, claims paying ability, insurance or other ratings of the Company that
occurs following the Closing Date.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    "Confidentiality
Agreement" means the confidentiality agreement dated as of February 10,
2010, between Hallmark Financial Services, Inc. and Seller.

     

    "Contracts" has the
meaning set forth in Section 3.1(m).

     

    "Descriptive
Materials" has the meaning set forth in Section 11.9.

     

    "Disclosure Schedule"
means the Disclosure Schedule delivered in connection with, and constituting a
part of, this Agreement.

     

    "Earnout" has the
meaning set forth in Section 2.6.

     

    "Earnout Period" has
the meaning set forth in Section 2.6.

     

    "ERISA" means the
Employee Retirement Income Security Act of 1974, as amended.

     

    "Extraordinary
Dividend" has the meaning set forth in Section 2.2(b).

     

    "Final Closing Date Balance
Sheet" has the meaning set forth in Section 2.2(d).

     

    "Governmental Entity"
means any federal, state, local, tribal, foreign or other governmental agency,
department, branch, commission, board, bureau, court, instrumentality or
body.

     

    "Hallmark/State Auto
Agent" means an insurance agent or agency that (i) is a party to an
agency agreement with one or more of the State Auto Insurers as of the Closing
Date, and (ii) enters into an agency agreement with one or more of the Hallmark
Insurers at any time after the date of this Agreement.  For the
avoidance of doubt, a “Hallmark/State Auto Agent” does not include any insurance
agent or agency that is a party to an agency agreement with one or more of the
Hallmark Insurers as of the Closing Date.

     

    "Hallmark Insurers"
means any current or future insurance companies (including the Company after the
Closing) who are part of the insurance holding company system in which Hallmark
Financial Services, Inc. is the ultimate controlling person.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    "Indemnification
Basket" has the meaning set forth in Section 8.1(a).

     

    "Indemnification Cap"
has the meaning set forth in Section 8.1(a).

     

    "Indemnified Party"
has the meaning set forth in Section 8.2(a).

     

    "Indemnifying Party"
has the meaning set forth in Section 8.2(a).

     

    "Initial Closing Date Balance
Sheet" has the meaning set forth in Section 2.2(c).

     

    "Intellectual
Property" means any patents, trademarks, service marks, trade names,
Internet domain names, copyrights (including any registrations or applications
to any of the foregoing), computer programs, trade secrets, patentable
inventions or other material intellectual property and proprietary rights,
whether or not subject to statutory registration or protection.

     

    "Knowledge" means the
actual knowledge, after due inquiry, of (a) with respect to Seller, those
persons listed in Section 1.1(a) of the Disclosure Schedule, and (b) with
respect to Buyer, those persons listed in Section 1.1(b) of the Disclosure
Schedule.

     

    "Liens" has the
meaning set forth in Section 3.1(s).

     

    "Losses" means any and
all liabilities, claims, expenses (including reasonable attorneys' fees and
expenses) and damages, but excluding lost profits or any punitive, exemplary,
consequential or similar damages (other than lost profits or any punitive,
exemplary, consequential or similar damages actually paid to a third party in a
Third Party Claim).

     

    "Loss Portfolio Transfer
Agreement" means the Loss Portfolio Transfer Agreement attached hereto as
Exhibit A.

     

    "LPT Losses" has the
meaning set forth in Section 4.8 (a).

     

    "Ohio Insurance
Regulator" means the Ohio Department of Insurance.

     

    "Permits" has the
meaning set forth in Section 3.1(k).

     

    "Person" means an
individual, corporation, partnership, joint venture, limited liability company,
association, trust, unincorporated organization or other entity.

     

    "Preliminary Closing Date
Balance Sheet" has the meaning set forth in Section 2.2(a).

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    "Policy In-Force"
means an insurance policy that is currently providing insurance coverage, as of
the evaluation date, regardless of the number of vehicles insured by that
insurance policy.

     

    "Purchase Price" has
the meaning set forth in Section 2.1.

     

    "Quota Share Reinsurance
Agreement" means the Quota Share Reinsurance Agreement attached hereto as
Exhibit B.

     

    "QS Losses" has the
meaning set forth in Section 4.8 (b).

     

    "Restricted Territory"
means those states listed in Section 1.1(c) of the Disclosure
Schedule.

     

    "Restricted Period"
means the period beginning in each case on the applicable Transition Date and
ending on the earlier of (a) the third anniversary thereof or (b) the date when
the maximum Earnout has been earned under Section 2.6, both dates
inclusive.

     

    "SAP" has the meaning
set forth in Section 3.1(f).

     

    "SAP 2009 Financial
Statements" has the meaning set forth in Section 3.1(f).

     

    "SAP 2010 Interim Financial
Statements" has the meaning set forth in Section 3.1(f).

     

    "SAP Financial
Statements" has the meaning set forth in Section 3.1(f).

     

    "Seller" has the
meaning set forth in the introductory paragraph of this Agreement.

     

    “Seller Closing
Documents” means the documents and instruments to be delivered by Seller
at closing pursuant to Section 2.4 and all other documents and instruments
executed or delivered by Seller or the Company pursuant to or in furtherance of
this Agreement.

     

    "Seller's Book" has
the meaning set forth in Section 5.1(a).

     

    "Shares" has the
meaning set forth in the Background Information of this Agreement.

     

    "SMICP Equivalents"
has the meaning set forth in Section 5.1(a)(i).

     

    “State Auto Agents”
has the meaning set forth in Section 4.12.

     

    "State Auto Insurers"
means any current or future insurance companies (including the Company prior to
the Closing) who are part of the insurance holding company system in which State
Automobile Mutual Insurance Company is the ultimate controlling
person.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    "State Auto Management
Agreement" means the Management and Operations Agreement, Amended and
Restated as of January 1, 2005, as thereafter amended by the first and second
amendment thereto, by and among the Company, State Automobile Mutual Insurance
Company, and various Affiliates of State Automobile Mutual Insurance
Company.

     

    "State Auto Investment
Agreement" means the Investment Management Agreement between the Company
and Stateco Financial Services, Inc., effective as of April 1,
1993.

     

    "State Auto Pooling
Agreement" means the Reinsurance Pooling Agreement, Amended and Restated
effective as of January 1, 2010, entered into as of February 10, 2010, by and
among the Company, State Automobile Mutual Insurance Company and various
Affiliates of State Automobile Mutual Insurance Company.

     

    "State Minimum Insurance
Coverage Policy" means an insurance policy which satisfies only the
minimum amount of automobile liability insurance coverage required by state law
to be carried or maintained by the owner of a private passenger
automobile.

     

    "Statutory Capital and
Surplus" means the amount that would be set forth on Line 39, Surplus as
Regards Policyholders, on the Statement of Income page for an annual or
quarterly report filed by the Company with the Ohio Insurance
Regulatory.

     

    "Subsidiary" of any
Person means another Person 50% or more of the total combined voting power of
all classes of capital stock or other voting interests of which, or 50% or more
of the equity securities of which, is owned directly or indirectly by such first
Person.

     

    "Taxes" means all
federal, state, local and foreign taxes of any kind, including those on or
measured by or referred to as income, gross receipts, sales, use, ad valorem,
franchise, profits, license, value added, property or windfall profits taxes,
customs, duties or similar fees, assessments or charges of any kind whatsoever
(whether payable directly or by withholding and whether or not requiring the
filing of a Tax Return), together with any interest and any penalties, additions
to tax or additional amounts, imposed by any Taxing Authority, domestic or
foreign.

     

    "Taxing Authority"
means any Governmental Entity primarily responsible for having jurisdiction over
the administration of Taxes.

     

    "Tax Return" means any
return, report or statement filed or required to be filed with respect to any
Tax with a Taxing Authority.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    "Third Party Claim"
has the meaning set forth in Section 8.2(a).

     

    "Transition Date"
shall mean the date six months following the Closing Date; provided, however,
that with the agreement of Buyer and Seller the Transition Date may be
accelerated for a particular state.

     

    
      ARTICLE
II

       

      PURCHASE
OF THE SHARES

       

      SECTION 2.1. Purchase and
Sale.  Upon the terms and subject to the conditions set forth
in this Agreement, at the Closing, Seller shall sell the Shares to Buyer, and
Buyer shall purchase the Shares from Seller, for a purchase price (the "Purchase Price")
equal to $14,000,000.00 (the "Closing Payment")
plus the Earnout, as determined in accordance with Section 2.6.

       

      SECTION 2.2. Closing Date Statutory
Capital and Surplus.

       

      (a)           Seller
shall prepare a balance sheet of the Company dated as of three Business Days
prior to the Closing Date (the "Preliminary Closing Date
Balance Sheet").  The Preliminary Closing Date Balance Sheet
shall be prepared in accordance with SAP.  The Preliminary Closing
Date Balance Sheet shall reflect $10,000,000.00 of Statutory Capital and Surplus
after taking into consideration the payment of the Extraordinary Dividend (as
defined below) at the Closing.  Seller shall deliver the Preliminary
Closing Date Balance Sheet to Buyer at the Closing.

       

      (b)           On
the Closing Date, Seller shall cause the Company to reduce its Statutory Capital
and Surplus to $10,000,000.00 by making an extraordinary dividend of cash and
marketable securities of the Company in excess of such amount to Seller (the
"Extraordinary
Dividend").  The parties shall obtain all necessary consents
and approvals from all Governmental Entities for the distribution of the
Extraordinary Dividend to be made on the Closing Date.

       

      (c)           Within
thirty Business Days after the Closing Date, Seller shall prepare and deliver to
Buyer a second balance sheet of the Company which shall be dated as of the
Closing Date (the "Initial Closing Date Balance
Sheet").  The Initial Closing Date Balance Sheet shall be
prepared in accordance with SAP and otherwise in the same manner as the
Preliminary Closing Date Balance Sheet.  All assets and liabilities
set forth on the Preliminary Closing Date Balance Sheet will be included on the
Initial Closing Date Balance Sheet, and such assets and liabilities shall be the
only assets and liabilities set forth on the Initial Closing Date Balance Sheet,
adjusted for the Extraordinary Dividend and any other changes in cash and the
value of the marketable securities determined as of the close of business on the
day prior to the Closing Date.

       

      (d)           Buyer
shall have thirty Business Days following the receipt of the Initial Closing
Date Balance Sheet to make any objections thereto to Seller in
writing.  If no objections are received by Seller from Buyer within
such objection period, or if Buyer notifies Seller in writing that Buyer accepts
the Closing Date Balance Sheet as presented, then the Initial Closing Date
Balance Sheet shall be deemed final (the "Final Closing Date Balance
Sheet"), and the amount of the Statutory Capital and
Surplus set forth in the Final Closing Date Balance Sheet will be final and the
payment procedures of Section 2.2(f) shall be followed.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      (e)           In
the event Buyer objects to any items or amounts set forth in the Initial Closing
Date Balance Sheet and gives written notice thereof to Seller within the
objection period, Buyer and Seller shall use their reasonable efforts to reach
agreement on any disputed items or amounts.  If Buyer and Seller are
unable to reach an agreement within twenty Business Days after Buyer's delivery
of written objection, either Buyer or Seller may require that an independent
accounting firm of recognized national standing, as may be mutually selected by
Buyer and Seller, or if the parties are unable to agree, a "Big 4" accounting
firm having no relationship with Buyer or Seller during the past three years
(the "Arbitrator") shall
determine the Final Closing Date Balance Sheet.  In that case, Buyer
and Seller shall each submit a version of the Initial Closing Date Balance
Sheet.  In making its determination of the Final Closing Date Balance
Sheet, the Arbitrator shall be limited to selecting the Initial Closing Date
Balance Sheet submitted by either Buyer or Seller.  The Arbitrator
shall make its determination and select the Final Closing Date Balance Sheet
within 60 days after the dispute has been submitted to the Arbitrator for
resolution, and thereafter the Arbitrator shall give prompt written notice of
its selection to Buyer and Seller.  The fees and expenses of the
Arbitrator shall be borne by the party whose version of the Initial Closing Date
Balance Sheet was not selected by the Arbitrator.  The determination
of the Arbitrator as to the Final Closing Date Balance Sheet shall be final,
conclusive and binding on the parties.

       

      (f)           If
the Statutory Capital and Surplus set forth in the Final Closing Date Balance
Sheet is less than $10,000,000.00, then, within three Business Days after the
Acceptance Date, Seller shall pay to Buyer the difference between the Statutory
Capital and Surplus reflected in the Final Closing Date Balance Sheet and
$10,000,000.00.  If the Statutory Capital and Surplus reflected in the
Final Closing Date Balance Sheet is greater than $10,000,000.00, then, within
three Business Days after the Acceptance Date, Buyer shall pay to Seller the
difference between the Statutory Capital and Surplus reflected in the Final
Closing Date Balance Sheet and $10,000,000.00.  For purposes hereof,
the "Acceptance
Date" shall mean the Business Day immediately following the (i)
expiration date of the objection period, (ii) the date Buyer gives written
notice to Seller of its acceptance of the Initial Closing Date Balance Sheet, or
(iii)  the date the Arbitrator gives written notice to Buyer and
Seller of its selection of the Final Closing Date Balance Sheet, whichever is
applicable.

       

      SECTION 2.3. Closing.  Unless
this Agreement shall have been terminated pursuant to Section 10.1 and subject
to the satisfaction or waiver of each of the conditions set forth in Article VI,
the closing of the purchase and sale of the Shares (the "Closing") shall take
place on the date that is the first day of the month following the date on which
the last to be fulfilled or waived of the conditions set forth in Section 6.1
shall be fulfilled or waived in accordance with this Agreement, other than any
conditions to be performed on the Closing Date (as defined below), at the
offices of Baker & Hostetler LLP, 65 East State Street, Suite 2100,
Columbus, Ohio, unless another date, time or place is agreed to in writing by
the parties hereto.  The actual date and time of the Closing are
herein referred to as the "Closing
Date."

       

      
        
          
          

        

        
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      SECTION 2.4. Seller Closing
Deliveries.  At the Closing, Seller shall deliver to
Buyer:

       

      (a)           certificates
representing the Shares, duly endorsed in blank or with stock powers duly
endorsed in blank, in proper form for transfer;

       

      (b)           the
Loss Portfolio Transfer Agreement, duly executed by the parties thereto;

       

      (c)           the
Quota Share Reinsurance Agreement, duly executed by the parties
thereto;

       

      (d)           the
Amended State Auto Agreements, duly executed by the parties thereto;
and

       

      (e)           certificates
from the Company and Seller certifying as to such Person's compliance with the
conditions set forth in Section 6.2 and certifying as to the incumbency and
resolutions of such Person and its officers.

       

      SECTION 2.5. Buyer's Closing
Deliveries.  At the Closing, Buyer shall deliver to
Seller:

       

      (a)           the
Closing Payment by wire transfer of immediately available funds to the account
specified by Seller; and

       

      (b)           a
certificate duly executed by an authorized officer of Buyer, dated as of the
Closing Date, certifying as to Buyer's compliance with the conditions set forth
in Section 6.3 and certifying as to the incumbency and resolutions of Buyer and
its officers.

       

      SECTION 2.6. Earnout.  So
long as Seller and its Affiliates remain in compliance with Section 5.1(a), and
for the period commencing on the Transition Date (understanding that in one or
more states the Transition Date may be accelerated by agreement of the Parties,
and each such accelerated Transition Date shall apply only to the particular
state(s) involved for purposes of this Section 2.6) and ending on the third
anniversary thereof, both dates inclusive (the "Earnout Period"),
Buyer shall pay to Seller an earnout (the "Earnout") equal to 2%
of the gross collected premiums during the Earnout Period with respect to new or
renewal personal lines insurance policies issued by the Company or any of the
other Hallmark Insurers on or after the Transition Date utilizing the Seller's,
the Company's, or Buyer's insurance policy issuance system to issue a policy
submitted by any Hallmark/State Auto Agent.  The Earnout payable by
Buyer to Seller over the Earnout Period shall be subject to an aggregate maximum
of $2,000,000.00.

       

      The
Earnout shall be payable quarterly, within 20 Business Days after the completion
of each calendar quarter following the Closing Date, to the extent any Earnout
is payable for such period.

       

      For
purposes of verifying the amount of the Earnout paid or payable to Seller, Buyer
agrees to make the books and records of the Hallmark Insurers reasonably
available to designated representatives of Seller during regular business hours
for inspection and copying, at the sole expense of Seller.

       

      
        
          
          

        

        
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      ARTICLE
III

       

      REPRESENTATIONS
AND WARRANTIES

       

      SECTION 3.1. Representations and
Warranties of Seller.  Except as set forth in the Disclosure
Schedule, Seller represents and warrants to Buyer as follows (it being
understood and agreed that each item in a particular section of the Disclosure
Schedule applies to such section and any other section to which its relevance
would be reasonably apparent):

       

      (a)           Organization.

       

      (i)           The
Company is duly incorporated, validly existing and in good standing under the
laws of the State of Ohio and has the requisite corporate power and authority to
carry on its business as currently conducted.  The Company is duly
qualified to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification necessary, other than in such jurisdictions where the failure
to be so qualified (individually or in the aggregate) would not have a Company
Material Adverse Effect.

       

      (ii)           Seller
is duly incorporated, validly existing and in good standing under the laws of
the State of Ohio and has the requisite corporate power and authority to carry
on its business as currently conducted.

       

       

      (b)           Capital
Structure.  The authorized capital stock of the Company
consists of 100,000 shares of voting common stock, par value of $40.00 per
share, of which 60,000 shares are issued and outstanding.  Except as
set forth in the preceding sentence, no shares of capital stock of the Company
are issued, reserved for issuance or outstanding.  The Shares have
been duly authorized and validly issued and are fully paid and non-assessable
and not subject to preemptive rights.  There are no Company treasury
shares, outstanding options, warrants, subscriptions, conversion rights or other
rights, commitments or agreements of any kind (other than this Agreement) for
the purchase or acquisition from, or the sale or issuance by, the Company of any
shares of capital stock of the Company, and no authorization therefor has been
given.  

       

      (c)           No
Subsidiaries.  The Company does not, directly or indirectly,
own any Subsidiaries.  The Company does not, directly or indirectly,
own any stock of, or any other equity interest in, any Person, except that the
Company may own interests held for investment purposes not exceeding 10% of the
voting securities of any such single Person.

       

      
        
          
          

        

        
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      (d)           Authority.  

       

                                      (i)           Seller
has the requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated by this Agreement.  The
execution and delivery of this Agreement by Seller and the consummation by
Seller of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Seller.  No action by the
stockholders of Seller is necessary to authorize the execution and delivery by
Seller of this Agreement or the Seller Closing Documents and the consummation by
Seller of the transactions contemplated hereby and thereby.  This
Agreement has been duly executed and delivered by Seller and, assuming this
Agreement constitutes the valid and binding agreement of the other parties
hereto, constitutes a valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (A) such enforcement
may be subject to applicable bankruptcy, insolvency or other similar laws, now
or hereafter in effect, affecting creditors' rights generally, and (B) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.

       

      (ii)           Each
of the parties to the Seller Closing Documents (other than Buyer, if applicable)
has the requisite corporate power and authority to enter into the Seller Closing
Documents and to consummate the transactions contemplated
thereby.  Each of the Seller Closing Documents will, at the time of
delivery, be duly authorized, executed and delivered by all parties thereto
(other than Buyer, if applicable) and will constitute the valid and binding
obligation of each party thereto (other than Buyer, if applicable), enforceable
against such parties in accordance with its terms, except that (A) such
enforcement may be subject to applicable bankruptcy, insolvency or other similar
laws, now or hereafter in effect, affecting creditors' rights generally, and (B)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.

       

      (e)           Noncontravention;
Consents.  The execution and delivery of this Agreement does
not, and the Seller Closing Documents and consummation of the transactions
contemplated by this Agreement and the Seller Closing Documents will not, (i)
conflict with any of the provisions of the articles of incorporation or code of
regulations of Seller, the Company or any other party thereto (other than Buyer,
if applicable), (ii) subject to obtaining the approvals as set forth in Section
3.1(e) of the Disclosure Schedule, conflict with, or result in a breach or
default under, any law, Permit or order of any Governmental Entity to which the
Seller, the Company or any other party thereto (other than Buyer, if applicable)
is a party or by which any of their respective properties or assets are bound or
affected, which, in the case of clause (ii), would have a material adverse
effect on the ability of Seller to effectuate the transactions hereunder or a
Company Material Adverse Effect.  No consent, approval or
authorization of, or declaration or filing with, or notice to, a Governmental
Entity, is required (i) by or with respect to Seller in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, or (ii) by or with respect to Seller, the Company or any
other party (other than Buyer, if applicable) in connection with the execution
and delivery of the Seller Closing Documents or the consummation of the
transactions contemplated thereby, except, with respect to both clauses (i) and
(ii), for (A) the approvals, filings and notices required under the insurance
laws of the jurisdictions set forth in Section 3.1(e) of the Disclosure
Schedule, (B) such other consents, approvals, authorizations, declarations,
filings or notices as are set forth in Section 3.1(e) of the Disclosure
Schedule, and (C) such other consents, approvals, authorizations, declarations,
filings or notices the failure of which to be obtained or made would not have a
material adverse effect on the ability of Seller to effectuate the transactions
hereunder or a Company Material Adverse Effect.  Seller has no reason
to believe that it and its Affiliates (including the Company) will not be able
to obtain as promptly as practicable all necessary approvals, authorizations and
consents of Governmental Entities required to be obtained to consummate the
transactions contemplated by this Agreement.

       

      
        
          
          

        

        
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      (f)           SAP Financial
Statements.  The (i) Statement of Admitted Assets, Liabilities,
Capital and Surplus of the Company as of December 31, 2009 and the related
statements of income, changes in capital and surplus, and cash flows for the
year then ended (the "SAP 2009 Financial
Statements") and (ii) Statement of Admitted Assets, Liabilities, Capital
and Surplus of the Company as of June 30, 2010 and the related statements of
income and cash flow for the six-month period then ended (the "SAP 2010 Interim Financial
Statements" and collectively with the SAP 2009 Financial Statements, the
"SAP Financial
Statements"), in each case as filed with the Ohio Insurance Regulator,
were prepared in conformity with statutory accounting practices prescribed or
permitted by the Ohio Insurance Regulator applied on a consistent basis ("SAP") and present
fairly, to the extent required by and in conformity with SAP, except as set
forth in the notes, exhibits or schedules thereto, in all material respects the
statutory financial condition of the Company at their respective dates and the
statutory results of operations and cash flows of the Company for each of the
periods then ended (subject, in the case of the SAP 2010 Interim Financial
Statements, to normal year-end adjustments), in each case, except as set forth
in Section 3.1(f) of the Disclosure Schedule.

       

      (g)           No Undisclosed
Liabilities.  To the Knowledge of Seller, there are no
liabilities of the Company of any kind that would be required to be reflected on
a balance sheet (or in the notes thereto) prepared in accordance with SAP, other
than (i) liabilities provided for or reflected in the SAP Financial Statements
or in the notes thereto, (ii) liabilities disclosed in this Agreement (including
Section 3.1(g) of the Disclosure Schedule), (iii) liabilities for losses,
loss adjustment expenses and unearned premiums arising under policies or
contracts of insurance or reinsurance written or assumed by the Company, and
(iv) liabilities incurred in the ordinary course of business since June 30,
2010.

       

      (h)           Absence of Certain Changes
or Events.  Except as disclosed in Section 3.1(h) of the
Disclosure Schedule, since December 31, 2009, the Company has conducted its
business in the ordinary course, and there has not occurred (i) any event or
change having a Company Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of the Company's outstanding capital
stock or (iii) any change in accounting methods, principles or practices by the
Company materially affecting its assets or liabilities, except insofar as may
have been required by law or required or permitted by a change in applicable
accounting principles.

       

      
        
          
          

        

        
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      (i)           Employee
Matters

       

      (i)           No
Employees.  The Company does not have, and never has had, any
employees.  The Company has no obligation to pay any compensation or
benefits to, and has no existing or contingent liability with respect to, any
employees except for intercompany liabilities for expenses of employees assumed
under the Amended State Auto Management Agreement or the Amended State Auto
Pooling Agreement, which will be fully paid and settled prior to the Closing
Date.

       

      (ii)           Benefit
Plans.  The Company does not have, and never has had, any
written or oral employment or consulting agreements; severance pay, pension,
retirement or profit sharing plans; employee relations policies, practices or
arrangements; agreements with respect to leased or temporary employees;
executive compensation plans, incentive compensation plans or similar
arrangements; vacation pay plans or arrangements; sick pay plans; deferred
compensation or bonus plans; incentive stock option, stock ownership or stock
purchase plans; or any other employee benefit plans, programs, arrangements,
agreements or understandings, including without limitation any “employee benefit
plan" as defined in Section 3(3) of ERISA, to which the Company contributes or
is a party or is bound or under which it may have any liability.

       

      (j)           Taxes.  Except
as disclosed in Section 3.1(j) of the Disclosure Schedule:  (i) all
material Tax Returns required to be filed for any period ending on or before the
Closing Date by the Company have been or will be timely filed (given effect to
any extensions of time); (ii) all Taxes required to be shown on such Tax Returns
or Taxes for which the Company may be liable under Treasury Regulation Section
1.1502-6 (or analogous state or foreign law) due to being a member in an
affiliated group or other group filing on a combined basis, in respect of
periods ending on or before the Closing Date have been paid or is an obligation
that will be assumed or paid by Seller; (iii) no deficiencies for any material
amount of Taxes have been proposed, asserted or assessed in writing against the
Company; (v) no requests for waivers of the time to assess any such Taxes have
been granted or are pending; (vi) no Federal, state, local or foreign audit or
other administrative proceeding or court proceeding exists, has been initiated
or has been threatened in writing with regard to Taxes or Tax Returns of the
Company; and (vii) the Company (A) does not have any application pending with
any Taxing Authority requesting permission for any changes in its accounting
methods, or (B) is not subject to any private letter ruling of the IRS or
comparable rulings of any Taxing Authority, but with respect to clauses (A) and (B) above, only to
the extent such application or ruling will have continuing effect after the
Closing Date, (viii) the Company has not participated, within the meaning of
Treasury Regulation Section 1.6011-4(c), in a "listed transaction," and no
Liens for Taxes (other than liens for Taxes not yet due and payable) exist with
respect to any of the assets or properties of the
Company.  

       

      
        
          
          

        

        
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      (k)           Compliance with Applicable
Laws.  Except as disclosed in Section 3.1(k) of the Disclosure
Schedule, the Company has in full force and effect with all Governmental
Entities all approvals, authorizations, consents, franchises, licenses, permits
and rights (collectively, "Permits") necessary
for it to own, lease or operate its properties and assets and to carry on its
business as now conducted, except for failures of Permits to be in full force
and effect which would not have a Company Material Adverse
Effect.  Section 3.1(k) of the Disclosure Schedule contains a complete
and correct list, as of the date hereof, of all such Permits.  Except
as disclosed in Section 3.1(k) of the Disclosure Schedule, (i) the Company has
not received any notice from any Governmental Entity or other Person asserting
that the Company has violated any statute, law, rule, regulation or order of any
Governmental Entity or the terms and conditions of any Permit; and (ii) the
Company is in compliance with all applicable statutes, laws, rules, regulations
and orders of any Governmental Entity, and the terms and conditions of all
Permits, except for such noncompliance which would not have a Company Material
Adverse Effect.

       

      (l)           Litigation.  Except
as disclosed in Section 3.1(l) of the Disclosure Schedule, there is no suit,
action, proceeding or arbitration (excluding those relating to policies or
contracts of insurance or reinsurance written or assumed by the Company and
covered by the Loss Portfolio Transfer Agreement or the Quota Share Reinsurance
Agreement) pending or, to the Knowledge of Seller, threatened against or
affecting the Company, nor is there any judgment, decree, injunction or order of
any Governmental Entity or arbitrator outstanding against the
Company.  Except as disclosed in Section 3.1(l) of the Disclosure
Schedule, there is no suit, action, proceeding or arbitration pending or, to the
Knowledge of Seller, threatened against or affecting the Company that seeks to
restrain or enjoin the consummation of any of the transactions contemplated by
this Agreement.

       

      (m)           Contracts.  Section
3.1(m) of the Disclosure Schedule contains a complete and correct list, as of
the date hereof, of all Contracts.  The term "Contracts" means all
of the following types of contracts, arrangements and agreements that are
material to the Company taken as a whole and to which the Company is a party
(excluding any policy or contract of insurance or reinsurance written, assumed
or ceded and excluding agreements set forth in any other Section of the
Disclosure Schedule) or by which any of its assets are bound:

       

      (i)           contracts,
arrangements and agreements containing any provision or covenant limiting the
ability of the Company to engage in any line of business, to compete with any
Person or to do business with any Person or in any location or geographic
area;

       

      (ii)           mortgages,
indentures, loan or credit agreements, security agreements and other agreements
and instruments relating to the borrowing of money or extension of credit by the
Company or the direct or indirect guarantee by the Company of any obligation of
any Person for borrowed money or any other liability of the Company in respect
of indebtedness for borrowed money;

       

      (iii)           contracts,
arrangements and agreements under which products or services are provided by or
to the Company and under which the fees in respect thereof exceed $10,000 during
any twelve period during the remaining term thereof;

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      (iv)           stock
purchase agreements, asset purchase agreements and other acquisition or
divestiture agreements relating to the acquisition, lease or disposition of
material assets or properties used in conducting the business of the Company or
any capital stock or other equity interest of the Company or under which the
Company has any executory indemnification or other continuing obligations;
and

       

      (v)           any
other contract, arrangement or agreement involving aggregate payments reasonably
expected to be in excess of $10,000 during any twelve period during the
remaining term thereof.

       

      There
exists no breach or event of default, or any event which with notice or the
lapse of time would constitute a material breach or event of default, on the
part of the Company or, to the Knowledge of Seller, any other party with respect
to any Contract which breach or event of default would have a Company Material
Adverse Effect.  Assuming no default by any party other than the
Company, each such Contract is in full force and effect as to the Company and
each party thereto except for such failures to be in full force and effect as
would not, individually or in the aggregate, have a Company Material Adverse
Effect.

       

      (n)           Insurance Regulatory
Matters.  Seller has caused the Company to make available to
Buyer copies of all financial examination reports of state insurance departments
with respect to the Company which have been completed since January 1,
2005.  Except as set forth in Section 3.1(n) of the Disclosure
Schedule, since January 1, 2005, no violation material to the financial
condition of the Company has been asserted by the Ohio Insurance Regulator or
any other Governmental Entity, other than any violation which has been cured or
otherwise resolved to the satisfaction of the Ohio Insurance Regulator or such
other Governmental Entity or which is no longer being pursued by the Ohio
Insurance Regulator or such other Governmental Entity following a response by
the Company.

       

      (o)           No Intellectual
Property.  The Company does not own any Intellectual
Property.

       

      (p)           Reinsurance.  Section
3.1(p) of the Disclosure Schedule sets forth a list of all third-party
reinsurance treaties and agreements, including retrocessional agreements, to
which the Company is a party as of the date hereof.  Assuming no
default by any party other than the Company, all such treaties and agreements
set forth in Section 3.1(p) of the Disclosure Schedule, other than those which
have been voided or commuted, are in full force and effect to the respective
dates noted thereon.  Neither the Company nor, to the Knowledge of
Seller, any other party thereto is in default in any significant respect as to
any provision thereof.

       

      (q)           No Real
Property.  The Company does not own or lease any real
property.

       

      (r)           Brokers.  No
broker, investment banker, financial advisor or other person, other than Willis
Securities, Inc., the fees and expenses of which will be paid by Seller, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Seller or its Affiliates
(including the Company).

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      (s)           Ownership of
Shares.  Seller owns, beneficially and of record, all of the
Shares, free and clear of all of all pledges, claims, liens, charges,
encumbrances, judgments, restrictive covenants, and security interests of any
kind (collectively, "Liens") except as
otherwise disclosed.  Except as set forth in Section 3.1(s) of the
Disclosure Schedule, Seller is not a party to any voting agreement, voting
trust, proxy, or other agreement, contract or understanding with respect to the
voting of any capital stock or equity interest of the Company.

       

      (t)           Affiliate
Transactions.  Section 3.1(t) of the Disclosure Schedule lists
all agreements in effect as of the date hereof between the Company on the one
hand, and Seller or any of its Affiliates (other than the Company) on the other.

       

      (u)           Company
Insurance.  Section 3.1(u) of the Disclosure Schedule lists, as
of the date hereof, all insurance policies which insure the business of the
Company or any of the assets of any Company against loss (collectively, the
“Company Insurance
Policies”), including each insurer’s name, coverage deductible and limit,
expiration date and current premium.  Each Company Insurance Policy is
in full force and effect, all premiums with respect thereto have been paid to
the extent due, and no notice of cancellation or termination has been received
with respect to any such policy, other than any policy that will be replaced or
is intended to be replaced prior to the expiration thereof by policies providing
substantially the same coverage from an insurer that is financially sound and
reputable.  The coverage provided by the Company Insurance Policies
will not in any way be affected by, or terminate or lapse by reason of, the
consummation of the transactions contemplated by this Agreement.

       

      (v)           Books and
Records.  The Company has made available to Buyer its articles
of incorporation, code of regulations, stock records, shareholder meeting
minutes director and committee meeting minutes, financial records and all other
material documents, books, records, contracts, commitments, and information
concerning the Company and its operations (“Books and Records”),
other than Books and Records that are subject to an attorney-client or other
legal privilege which might be impaired by such disclosure or the delivery of
which would breach an obligation of confidentiality pertaining to the Company,
all of which Books and Records are true, correct and complete and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. 

       

      (w)           No Sensitive
Payments.  The Company has not made or maintained (i) any
contributions, payments or gifts of its funds or property to any governmental
official, employee or agent where either the payment or the purpose of such
contribution, payment or gift was or is illegal under the laws of the United
States or any state thereof, or any other jurisdiction (foreign or domestic); or
(ii) any contribution, or reimbursement of any political gift or contribution
made by any other person, to candidates for public office, whether federal,
state, local or foreign, where such contributions by the Company were or would
be a violation of applicable law. 

       

      
        
          
          

        

        
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      (x)           Seller Full
Disclosure.  No representation or warranty of Seller made in
this Agreement, nor any written statement furnished to Buyer by Seller or its
Affiliates (including the Company) pursuant hereto or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary to
make the statements or facts contained herein or therein not
misleading.

       

      SECTION 3.2. Representations and
Warranties of Buyer.  Buyer represents and warrants to Seller
as follows (it being understood and agreed that each item in a particular
section of the Disclosure Schedule applies to such section and any other section
to which its relevance would be reasonably apparent):

       

      (a)           Organization.  Buyer
is an insurance company duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is organized and has the
requisite corporate power and authority to carry on its business as currently
conducted.  Buyer is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary, other
than in such jurisdictions where the failure to be so qualified (individually or
in the aggregate) would not reasonably be expected to have a material adverse
effect on the ability of Buyer to consummate any of the transactions
contemplated by this Agreement.

       

      (b)           Authority.  Buyer
has the requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated by this Agreement.  The
execution and delivery of this Agreement by Buyer and the consummation by Buyer
of the transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Buyer.  No action by the
stockholders of Buyer is necessary to authorize the execution and delivery by
Buyer of this Agreement and the consummation by Buyer of the transactions
contemplated hereby.  This Agreement has been duly executed and
delivered by Buyer and, assuming this Agreement constitutes the valid and
binding agreement of the other parties hereto, constitutes a valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency or other similar laws, now or hereafter in effect, affecting
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.

       

      (c)           Noncontravention;
Consents.  The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated by this Agreement will not
(i) conflict with any of the provisions of the certificate of incorporation or
by-laws of the Buyer (or the comparable organizational document), (ii) subject
to obtaining the approvals as set forth in Section 3.2(c) of the Disclosure
Schedule, conflict with, result in a breach or default under any law or order of
any Governmental Entity to which the Buyer is a party or by which any of its
properties or assets are bound or affected, which, in the case of clause (ii),
would materially impair the ability of Buyer to consummate any of the
transactions contemplated hereby.  No consent, approval or
authorization of, or declaration or filing with, or notice to, any Governmental
Entity is required by or with respect to the Company in connection with the
execution and delivery of this Agreement by Buyer or the consummation by Buyer
of the transactions contemplated hereby, except for (A) the approvals, filings
and notices required under the insurance laws of the jurisdictions set forth in
Section 3.2(c) of the Disclosure Schedule, (B) such other consents,
approvals, authorizations, declarations, filings or notices as are set forth in
Section 3.2(c) of the Disclosure Schedule, and (C) such other consents,
approvals, authorizations, declarations, filings or notices the failure of which
to be obtained or made, in the aggregate, would not materially impair the
ability of Buyer to consummate any of the transactions contemplated
hereby.

       

      
        
          
          

        

        
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      (d)           Purchase Not for
Distribution.  The Shares to be acquired under the terms of
this Agreement will be acquired by Buyer for its own account and not with a view
to distribution.  Buyer will not resell, transfer, assign or
distribute the Shares, except in compliance with the registration requirements
of the Securities Act of 1933, as amended, or pursuant to an available exemption
therefrom.

       

      (e)           Solvency.  Assuming
the representations and warranties concerning the Company in this Agreement are
true and correct as of the Closing Date, and that each of the representations
and warranties in this Section 3.2(e) would be true and correct immediately
before giving effect to the transactions contemplated by this Agreement, then
immediately after giving effect to the transactions contemplated by this
Agreement (including the payment of the Purchase Price and any financings to be
undertaken in connection therewith), (i) the Company will not have incurred
debts beyond its ability to pay such debts as they mature or become due,
(ii) the assets of the Company, in each case at a fair valuation, will
exceed the amount that will be required to pay its probable liabilities
(including the probable amount of all contingent liabilities) and its debts as
they become absolute and matured, and (iii) the Company will not have
unreasonably small capital to carry on its business as presently conducted or as
proposed to be conducted.  No transfer of property is being made and
no obligation is being incurred in connection with the transactions contemplated
by this Agreement at the direction or otherwise on behalf of Buyer with the
intent to hinder, delay or defraud any present or future creditors of the
Company.

       

      (f)           Litigation.  There
is no suit, action, proceeding or arbitration pending or, to the Knowledge of
Buyer, threatened against or affecting Buyer or any Affiliate of Buyer that (i)
seeks to restrain or enjoin the consummation of any of the transactions
contemplated by this Agreement, or (ii) could reasonably be expected to
materially impair the ability of Buyer to consummate any of the transactions
contemplated by this Agreement.  Neither Buyer nor any of its
Affiliates nor, to the Knowledge of Buyer, any officer, director or employee of
Buyer or any of its Affiliates has been permanently or temporarily enjoined or
barred by any order, judgment or decree of any Governmental Entity from engaging
in or continuing any conduct or practice in connection with the business
conducted by the Company that could reasonably be expected to have a material
adverse effect on the ability of Buyer to consummate any of the transactions
contemplated by this Agreement.

       

      
        
          
          

        

        
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      (g)           Approvals and
Permits.  Buyer has no reason to believe that it and its
Affiliates will not be able to obtain as promptly as practicable all necessary
approvals, authorizations and consents of Governmental Entities required to be
obtained to consummate the transactions contemplated by this
Agreement.

       

      (h)           Brokers.  No
broker, investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Buyer or any Affiliate.

       

      (i)           Financing.  Buyer
has sufficient funds available to purchase the Shares on the terms and
conditions contemplated by this Agreement, to consummate the other transactions
contemplated by this Agreement and to pay all associated costs and expenses
required to be paid by Buyer.

       

      (j)           Independent
Investigation.  Buyer acknowledges that: (i) in making its
decision to enter into this Agreement, it has relied solely upon independent
investigations made by it or its representatives and advisors, and not on any
representations furnished by or on behalf of Seller or the Company, other than
the representations and warranties contained in this Agreement; (ii) Buyer has
conducted extensive due diligence of the Company, including a review of the
documents contained in a data room prepared by the Company; (iii) the Company
has made available to Buyer all Books and Records pertaining to the Company that
Buyer and its representatives and advisors have requested; (iv) Buyer and such
representatives and advisors have been given the opportunity to ask questions
of, and to receive answers from, management of the Company; and (v) all such
questions have been answered to the satisfaction of Buyer.

       

      (k)           Buyer Full
Disclosure.  No representation or warranty of Buyer made in
this Agreement, nor any written statement furnished to Seller by Buyer or its
Affiliates pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements or
facts contained herein or therein not misleading.

       

      ARTICLE
IV

       

      COVENANTS

       

      SECTION 4.1. Conduct of Business of the
Company.  Except as contemplated or permitted by this Agreement
or as required by applicable law, from the date of this Agreement to the Closing
Date, Seller shall cause the Company to carry on its business only in the
ordinary course of business and, to the extent consistent therewith, use
commercially reasonable efforts to preserve intact its current
business.  Without limiting the generality of the foregoing, from the
date of this Agreement to the Closing Date, except as expressly contemplated by
this Agreement, Seller shall not permit the Company to, other than in the
ordinary course of business, consistent with past practice, or with the prior
consent of Buyer, which consent shall not be unreasonably withheld:

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      (i)           (A)  declare,
set aside or pay any dividends on, or make any other distributions (whether in
cash, stock or property) in respect of, any of the Company's outstanding capital
stock, other than the Extraordinary Dividend, (B) split, combine or reclassify
any of its outstanding capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock or (C) purchase, redeem or otherwise acquire any
shares of its outstanding capital stock or any rights, warrants or options to
acquire any such shares;

       

      (ii)           issue,
sell, grant, pledge or otherwise encumber any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities;

       

      (iii)           sell,
lease, license or otherwise dispose of (including by way of reinsurance) any of
its material assets (other than investments), except in the ordinary course of
business;

       

      (iv)           amend
its articles of incorporation or code of regulations;

       

      (v)           acquire
any corporation, partnership, joint venture, association or other business
organization or division thereof, or substantially all of the assets of any of
the foregoing;

       

      (vi)           (A)
incur any material indebtedness for borrowed money or guarantee or otherwise
become responsible for any such indebtedness of another person, or (B) make any
material loans, advances or capital contributions to, or investments in, any
other Person, other than loans and advances to agents in the ordinary course of
business and other than as to such matters related to the investment portfolio
of the Company in the ordinary course of business;

       

      (vii)           make
any Tax election or settle or compromise any income tax liability that would
have a Company Material Adverse Effect;

       

      (viii)           make
any change in accounting methods, principles or practices materially affecting
its assets or liabilities, except insofar as may be required by law or by a
change in applicable accounting principles;

       

      (ix)           make
any capital expenditures in excess of $1,000 individually or $2,500 in the
aggregate (not including those made in the ordinary course of business);
or

       

      (x)           agree
to take any of the foregoing actions.

       

      SECTION 4.2. Information;
Confidentiality.  From the date hereof through the Closing
Date, Seller shall cause the Company to furnish to Buyer copies of the Company's
Books and Records as Buyer may from time to time reasonably request, other than
Books and Records that are subject to an attorney-client or other legal
privilege which might be impaired by such disclosure or the delivery of which
would breach an obligation of confidentiality pertaining to the
Company.  Notwithstanding the foregoing, any information provided to
Buyer pursuant to this Section 4.2 may be redacted, at Seller's sole discretion,
to remove Seller's confidential information which is not applicable to the
Company.  All requests for information pursuant to this Section 4.2
shall be directed to such Person or Persons as Seller shall
designate.  Without limiting the terms thereof, the Confidentiality
Agreement shall govern the obligations of Buyer and its Affiliates and
representatives with respect to all information of any type furnished or made
available to them pursuant to this Section 4.2.

       

      
        
          
          

        

        
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      SECTION 4.3. Commercially Reasonable
Efforts.  Upon the terms and subject to the conditions and
other agreements set forth in this Agreement, each of the parties agrees to use
its commercially reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement.

       

      SECTION 4.4. Consents, Approvals and
Filings.  

       

      (a)           Each
of the parties shall each use their commercially reasonable efforts, and shall
cooperate fully with each other (i) to comply as promptly as practicable with
all governmental requirements applicable to the transactions contemplated by
this Agreement and (ii) to obtain as promptly as practicable all necessary
permits, orders or other consents, approvals or authorizations of Governmental
Entities and consents or waivers of all third parties necessary in connection
with the consummation of the transactions contemplated by this
Agreement.  In connection therewith, each of the parties shall make
and cause their respective Affiliates to make all legally required filings as
promptly as practicable in order to facilitate prompt consummation of the
transactions contemplated by this Agreement, and shall provide and shall cause
their respective Affiliates to provide such information and communications to
Governmental Entities as such Governmental Entities may request.  Each
of the parties shall provide to the other party copies of all applications or
other communications to Governmental Entities in connection with this Agreement
concurrently with the filing or submission thereof.  To the extent
that the rights of the Company under any license or other contract (including
services, agreements, software licenses and hardware leases) may not be
transferred or made available to Buyer without obtaining the consent of a third
party, Seller shall be responsible for the costs (including any license or other
fees and expenses) associated with obtaining the consents from such third party
to obtain such rights or replacement of such rights.

       

      (b)           Without
limiting the generality of the foregoing, within 30 calendar days after the date
hereof, Buyer shall file with the Ohio Insurance Regulator a request for the
approval of the transactions contemplated by this Agreement, including a
complete Form A filing, which request shall include all required
exhibits.  A reasonable time prior to furnishing any written materials
to the Ohio Insurance Regulator or any other Governmental Entities in connection
with the transactions contemplated by this Agreement, Buyer shall furnish Seller
with a copy thereof, and Seller shall have a reasonable opportunity to provide
comments thereon.  Buyer shall give Seller prompt written notice if it
receives any notice or other communication from the Ohio Insurance Regulator or
any other Governmental Entities in connection with the transactions contemplated
by this Agreement, and, in the case of any such notice or communication which is
in writing, shall promptly furnish Seller with a copy thereof.  If the
Ohio Insurance Regulator requires that a hearing be held in connection with any
such approval, Buyer shall use its best efforts to arrange for such hearing to
be held promptly after the notice that such hearing is required has been
received by Buyer.  Buyer shall give Seller reasonable prior written
notice of the time and place when any meetings or other conferences may be held
by it with the Ohio Insurance Regulator in connection with the transactions
contemplated by this Agreement, and Seller shall have the right to have a
representative or representatives attend or otherwise participate in any such
meeting or conference.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      SECTION 4.5. Delivery of and Access to
Books and Records after Closing.  Immediately following the
Closing, Seller shall deliver to Buyer the originals or copies of the Books and
Records of the Company.  Notwithstanding the foregoing, the minutes of
meetings of the Company’s board of directors and committees thereof for the
preceding seven calendar years may initially be redacted, at Seller's sole
discretion, to remove Seller's confidential information which is not applicable
to the Company.  Such redacted minutes shall be accompanied by a
certificate of Seller certifying that none of the redacted information is
pertinent to the Company.  Following the Closing Date, Seller shall
afford to Buyer and its counsel and accountants, during normal business hours,
reasonable access (subject to applicable law, any applicable legal privilege and
any contractual limitations on Seller) to inspect and take copies of the
unredacted Books and Records of the Company to the extent that such access may
be reasonably required by Buyer in order to respond to a regulatory inquiry,
subpoena, or other legal process.  On each anniversary of the Closing
Date, Seller shall provide to Buyer unredacted originals or copies of the
minutes from the Company’s board of directors and committees thereof which are
not then within the preceding seven calendar years until all such unredacted
minutes have been delivered to Buyer.

       

      SECTION 4.6. Public
Announcements.  Buyer and Seller shall consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other public statement with respect to the
transactions contemplated by this Agreement and shall not issue any such press
release or make any such public statement without the advance approval of the
other party following such consultation (such approval not to be unreasonably
withheld or delayed), except as may be required by applicable law, court process
or by the requirements of any securities exchange.

       

      SECTION 4.7. Settlement of Accounts with
Affiliates; Intercompany Agreements.  Except as set forth in
Section 4.7 of the Disclosure Schedule, concurrently with the
Closing:

       

      (a)           The
Company shall (i) pay in full all payables and other amounts due
or otherwise owed to Seller or any of its Affiliates, and (ii) collect any
amounts due it or otherwise owed to it by Seller or any of its Affiliates;
and

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      (b)           All
intercompany agreements between the Company, on the one hand, and Seller or any
of its Affiliates (other than the Company), on the other hand, shall either be
terminated or amended to remove the Company as a party thereto, including
without limitation the following:  (i) an amendment to remove the
Company as a party to the State Auto Pooling Agreement, in form and content
reasonably satisfactory to Buyer (the "Amended State Auto Pooling
Agreement"); (ii) an amendment to remove the Company as a party to the
State Auto Management Agreement, in form and content reasonably satisfactory to
Buyer (the "Amended
State Auto Management Agreement"); and an amendment to remove the Company
as a party to the State Auto Investment Agreement, in form and content
reasonably satisfactory to Buyer (the "Amended State Auto
Investment Agreement") (collectively, the "Amended State Auto
Agreements").   The parties thereto shall obtain all
necessary consents and approvals from all Governmental Entities for the Amended
State Auto Agreements to become effective concurrently with the
Closing.

       

      SECTION 4.8. Loss Portfolio Transfer
Agreement and Quota Share Reinsurance Agreement.

       

      (a)           On
or prior to the Closing, Seller shall cause all (100%) of the liabilities
related to losses incurred by the Company having an incurred loss date prior to
the Closing Date (the "LPT Losses") to be
transferred to State Auto Property and Casualty Insurance Company, as described
in, and subject to the terms and conditions contained in, the Loss Portfolio
Transfer Agreement.

       

      (b)           On
or prior to the Closing, Seller shall cause all (100%) of the liabilities
related to losses incurred by the Company having an incurred loss date on or
after the Closing Date (i) arising under Policies In-Force issued by the Company
prior to the Closing Date or (ii) arising under policies issued by the Company
utilizing the Seller's insurance policy issuance system on or after the Closing
Date but prior to the Transition Date (both, collectively, the "QS Losses") to be
transferred to State Auto Property and Casualty Insurance Company, as described
in, and subject to the terms and conditions contained in, the Quota Share
Reinsurance Agreement.  

       

      (c)           Other
than the liabilities assumed by State Auto Property and Casualty Insurance
Company under Sections 4.8 (a) and (b) above, the State Auto Insurers shall have
no responsibility or liability whatsoever for any of the insurance policy losses
of the Company and/or the Buyer. 

       

      SECTION 4.9. Intellectual
Property.  Except as otherwise provided in this Agreement,
after the Closing, the Company shall have no right to use any Intellectual
Property owned by Seller or its Affiliates, including without limitation the
name "State Auto" or any derivative thereof.

       

      
        
          
          

        

        
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      SECTION 4.10. Use of Corporate
Name.  Effective as of the Transition Date, Buyer shall cause
the Company's name to be changed to a name that does not include the words
"State Auto" and is not otherwise similar to the corporate name of any State
Auto Insurer. From the Closing until the Transition Date, the Company may retain
and use the words "State Auto" in its corporate name, but only for the limited
purpose of enabling the Company to issue new and renewal insurance policies that
are subject to the Quota Share Reinsurance Agreement and for no other purpose
whatsoever. At all times from and after the Closing, the Buyer, Company and its
and their Affiliates may not use the corporate name or words "State Auto" except
as expressly authorized in this Section 4.11 without the prior written consent
of Seller.

       

      SECTION 4.11. Termination of Reinsurance
Arrangements.  Concurrently with the Closing, Seller shall
cause the Company to, and the Company shall, terminate or amend any or all
existing reinsurance arrangements of the Company (other than the Quota Share
Reinsurance Agreement) on terms and conditions acceptable to Buyer.

       

      SECTION 4.12. Access to State Auto
Agents.  Buyer and Seller shall develop a communication plan
mutually acceptable to both parties pursuant to which Buyer shall be introduced
by Seller to Persons who have entered into agency agreements with one or more of
the State Auto Insurers ("State Auto Agents")
for the purpose of meeting such State Auto Agents and having the opportunity to
negotiate and enter into agency agreements between the Company and such State
Auto Agents to be effective as of the Transition Date. 

       

      SECTION 4.13. Further
Assurances.  Each of the parties hereto agrees to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable in order to consummate
or implement expeditiously the transactions contemplated by this
Agreement.

       

      SECTION
4.14.  Supplements to Disclosure
Schedule.  If, between the date hereof and the Closing Date,
Seller becomes aware that any of its representations and warranties in this
Agreement or the Disclosure Schedule was inaccurate when made or if during such
period any event occurs or condition changes that causes any of such
representations and warranties to be inaccurate, then Seller shall notify Buyer
thereof in writing and supplement the Disclosure Schedule to account for any
such inaccuracy, event or change.

       

      SECTION
4.15.  Standstill.  Until
the earlier to occur of the Closing or the termination of this Agreement
pursuant to Article X, the Company and Seller shall not, nor shall Seller permit
the Company or any of their respective directors, officers, employees or agent
to, (a) directly or indirectly encourage, solicit, initiate or participate in
discussions or negotiations with, or provide any information or assistance to,
any Person (other than Buyer) concerning any merger, sale of securities, sale of
substantial assets, investment proposals or similar transaction involving solely
the sale of the Company and not any other subsidiary of Seller, (b) entertain or
discuss any acquisition or investment proposals whatsoever involving solely the
Company and not any other subsidiary of Seller, or (c) except as required by law
after not less than five days notice to Buyer, disclose to any third party any
non-published information concerning the Company, the business of the Company or
the Company’s financial condition.  The Company or Seller shall
promptly notify Buyer if it receives any such proposal or offer or any inquiry
or contact with respect thereto.  Buyer acknowledges that Seller is a
pubic company and as such this Section 4.15 is subject to the fiduciary duties
of the Company and Seller and their respective directors, officers, employees,
and agents.  Notwithstanding anything to the contrary in this Section
4.15, Seller shall be permitted to exercise all standard fiduciary duties of the
Company or its parent without violating this provision.

       

      
        
          
          

        

        
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      ARTICLE
V

       

      RESTRICTIVE
COVENANTS

       

      SECTION 5.1. Noncompetition Agreement of
Seller.  

       

      (a)           The
parties acknowledge that the private passenger automobile Policies In-Force of
Seller and its Affiliates (other than the Company) within the Restricted
Territory ("Seller's
Book") are substantially comprised of policies that are not either
State Minimum Insurance Coverage Policies or policies that provide coverage
that is materially similar to State Minimum Insurance Coverage Policies
("SMICP
Equivalents").  However, Seller represents and warrants, and
Buyer acknowledges, that Seller's Book currently contains not more than 10,500
State Minimum Insurance Coverage Policies or SMICP Equivalents in the Restricted
Territory.  

       

      (b)           Seller
covenants and agrees that, during the Restricted Period and within the
Restricted Territory, Seller will not permit the number of State Minimum
Insurance Coverage Policies and SMICP Equivalents in Seller's Book to be more
than 11,500 Policies In-Force at any time.

      

      (c)           In
the event that, during the Restricted Period, Seller or one of its Affiliates
acquires an insurance company, and such acquired insurance company issues State
Minimum Insurance Coverage Policies and/or SMICP Equivalents within the
Restricted Territory, the State Minimum Insurance Coverage Policies and/or SMICP
Equivalents issued by such acquired insurance company shall not be included in
determining whether Section 5.1(b) has been violated for a period of six months
following the closing of the acquisition of such acquired insurance
company.

       

      SECTION 5.2. Noninterference Agreement of
Buyer. 

       

      (a)           The
parties acknowledge that, as a result of this Agreement and the transactions
contemplated hereby, Buyer will be introduced to State Auto Agents with whom
Buyer had no previous relationship with the intent that such agents become
Hallmark/State Auto Agents.  The parties further acknowledge that
Seller and its Affiliates intend to maintain their agency relationships with
such Hallmark/State Auto Agents after Closing, except as such agency
relationships pertain to State Minimum Insurance Coverage Policies and/or SMICP
Equivalents.

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

       

      (b)           Buyer
covenants and agrees that, during the Restricted Period and within the
Restricted Territory, Buyer and its Affiliates (including the Company) will not
(i) induce any Hallmark/State Auto Agent to terminate its agency relationship
with Seller and its Affiliates except as such agency relationship pertains to
State Minimum Insurance Coverage Policies and/or SMICP Equivalents; or (ii)
market, sell or issue private passenger automobile insurance policies other than
State Minimum Insurance Coverage Policies or SMICP Equivalents through any
Hallmark/State Auto Agents.

       

      SECTION 5.3. Inspection
Rights.  Each Party agrees to make available its books and
records for inspection by designated representatives of the other Party solely
for the purpose of, and to the limited extent reasonably necessary to, confirm
compliance with the provisions of Sections 5.1 and 5.2 above.  Any
such inspection shall be upon reasonable notice, during regular business hours
and at the sole expense of the reviewing Party.

       

      SECTION 5.4. Remedies.  Each
Party acknowledges and agrees that the other Party's remedies at law for any
violation or attempted violation of Section 5.1 or Section 5.2 would be
inadequate and that, in the event of any such violation or attempted violation,
the other Party shall be entitled to a temporary restraining order, temporary
and permanent injunctions, and other equitable relief, without the necessity of
posting any bond or proving any actual damage, in addition to all other rights
and remedies which may be available to the other Party from time to
time.

       

      ARTICLE
VI

       

      CONDITIONS
PRECEDENT

       

      SECTION 6.1. Conditions to Each Party's
Obligations.  The respective obligations of each party to
effectuate the purchase and sale of the Shares and the other actions to be taken
at the Closing are subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:

       

      (a)           Governmental
Consents.  All filings required to be made prior to the Closing
Date with, and all consents, approvals, permits and authorizations required to
be obtained prior thereto from, Governmental Entities, including those set forth
in Sections 3.1(e) and 3.2(c) of the Disclosure Schedule, in connection with the
consummation of the transactions contemplated hereby by Seller and Buyer shall
have been made or obtained.

       

      (b)           No Injunctions or
Restraints.  No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction and no statute, rule or regulation of any Governmental Entity
preventing the consummation of the purchase and sale of the Shares or any of the
other transactions contemplated hereby shall be in effect; provided, however, that the
party invoking this condition shall have used all reasonable efforts to have any
such order or injunction vacated.

       

      
        
          
          

        

        
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      SECTION 6.2. Conditions to Obligations of
Buyer.  The obligations of Buyer to effect the purchase and
sale of the Shares and the other actions to be taken at the Closing are further
subject to the satisfaction or waiver by Buyer on or prior to the Closing Date
of the following conditions:

       

      (a)           Representations and
Warranties.  The representations and warranties of Seller in
this Agreement shall be true and correct (without regard to any qualifications
or references to Company Material Adverse Effect, "material", or any other
materiality qualifications or references contained in any specific
representation or warranty), in each case as of the date of this Agreement and
as of the Closing Date as though made on and as of the Closing Date, except (i)
to the extent any such representation and warranty speaks as of an earlier date,
in which event such representation and warranty shall be true and correct as of
such date, and (ii) where any failure of the representations or warranties
in the aggregate to be true and correct would not reasonably be expected to have
a material adverse effect on the ability of Seller to consummate any of the
transactions contemplated by this Agreement or a Company Material Adverse
Effect.  

       

      (b)           Performance of Obligations
of Seller.  Seller shall have performed in all material
respects all obligations required to be performed by it under this Agreement on
or prior to the Closing Date.

       

      SECTION 6.3. Conditions to Obligations of
Seller.  The obligations of Seller to effect the purchase and
sale of the Shares and the other actions to be taken at the Closing are further
subject to the satisfaction or waiver by Seller on or prior to the Closing Date
of the following conditions:

       

      (a)           Representations and
Warranties.  The representations and warranties of Buyer set
forth in this Agreement (without regard to any qualifications or references to
"material adverse effect", "material", or any other materiality qualifications
or references contained in any specific representation or warranty), in each
case as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except (i) to the extent any such representation
and warranty speaks as of an earlier date, in which event such representation
and warranty shall be true and correct as of such date, and (ii) where any
failure of the representations or warranties in the aggregate to be true and
correct would not reasonably be expected to have a material adverse effect on
the ability of Buyer to consummate any of the transactions contemplated by this
Agreement.  

       

      (b)           Performance of Obligations
of Buyer.  Buyer shall have performed in all material respects
all obligations required to be performed by it under this Agreement on or prior
to the Closing Date.

       

      ARTICLE
VII

       

      SURVIVAL
OF REPRESENTATIONS AND WARRANTIES

       

      SECTION 7.1. Survival of Representations
and Warranties.  All representations and warranties contained
in this Agreement shall survive the Closing solely for purposes of Sections
8.1(a) and 8.1(b) and shall terminate and expire at the close of the Earnout
Period (the “Claim
Period”).  All covenants and agreements contained in this
Agreement, to the extent that the foregoing is to have effect or be performed
after the Closing, shall survive the Closing in accordance with their
terms.

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

      ARTICLE
VIII

       

      INDEMNIFICATION

       

      SECTION 8.1. Obligation to
Indemnify.

       

      (a)           Following
the Closing, and subject to the limitations set forth in Article VII and this
Article VIII, Seller shall indemnify and hold harmless Buyer from and against
all Losses to the extent arising from or related to (i) any breach of the
representations and warranties of Seller contained in this Agreement, (ii) any
breach of any of the covenants and agreements of Seller contained in this
Agreement which survive the Closing, and (iii) any of the matters disclosed in
Section 3.1(j), Section 3.1(l) or 3.1(n) of the Disclosure Schedule; provided, however, that, except
with respect to the matters disclosed in Section 3.1(j), Section 3.1(l) and
3.1(n) of the Disclosure Schedule (which shall be fully indemnified hereunder),
Seller shall not have any liability unless the aggregate of all Losses for which
Seller would, but for this proviso, be liable, exceeds on a cumulative basis an
amount equal to $100,000 (the "Indemnification
Basket"), and then only to the extent of any such excess; and provided, further, however, that Seller
shall not have any liability under this Section 8.1(a) for any breach of a
representation, warranty, covenant or agreement if, on or prior to the Closing
Date, Buyer had Knowledge of the facts, matters, failures or circumstances that
resulted in such breach.  In any event, the maximum amount for which
all Seller shall collectively be liable under Section 8.1(a) shall not exceed
the sum of $4,000,000 plus the amount of any Earnout otherwise paid or payable
to Seller (the "Indemnification
Cap").

       

      (b)           Subject
to the limitations set forth in Article VII, Buyer shall indemnify and hold
harmless Seller from and against all Losses to the extent arising from or
related to (i) any breach of the representations and warranties of Buyer
contained in this Agreement, and (ii) any breach of any of the covenants and
agreements of Buyer contained in this Agreement which survive the
Closing.

       

      (c)           All
claims for indemnification for breaches of representations or warranties made
but not resolved prior to the expiration of the Claim Period will survive until
such claim is fully and finally resolved under this Article VIII.  No
claims for indemnity for breaches of representations or warranties hereunder may
be made by any party after the Claim Period.

       

      SECTION 8.2. Indemnification
Procedures.

       

      (a)           In
order for a party (the "Indemnified Party")
to be entitled to any indemnification provided for under this Agreement in
respect of, arising out of or involving a claim or demand made by, or an action,
proceeding or investigation instituted by, any Person not a party to this
Agreement (a "Third
Party Claim"), such Indemnified Party must notify the other party (the
"Indemnifying
Party") in writing, and in reasonable detail, including the estimate of
the amount of the claim and the specific sections of the Agreement which form
the basis of the claim, promptly, and in any event within 15 calendar days,
after such Indemnified Party learns of the Third Party Claim; provided, however, that failure
to give such notification shall not affect the indemnification provided
hereunder unless the Indemnifying Party shall have been prejudiced as a result
of such failure (except that the Indemnifying Party shall not be liable for any
expenses incurred during the period in which the Indemnified Party failed to
give such notice).  Thereafter, the Indemnified Party shall deliver to
the Indemnifying Party, within five calendar days after the Indemnified Party's
receipt thereof, copies of all notices and documents (including court papers)
received by the Indemnified Party relating to the Third Party
Claim.

       

      
        
          
          

        

        
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      (b)           If
a Third Party Claim is made against an Indemnified Party, the Indemnifying Party
will be entitled to participate in the defense thereof and, if it so chooses, to
assume the defense thereof with counsel selected by the Indemnifying
Party.  Should the Indemnifying Party so elect to assume the defense
of a Third Party Claim, the Indemnifying Party will not as long as it conducts
such defense be liable to the Indemnified Party for legal expenses subsequently
incurred by the Indemnified Party in connection with the defense
thereof.  If the Indemnifying Party assumes such defense, the
Indemnified Party shall have the right to participate in the defense thereof and
to employ counsel, at its own expense, separate from the counsel employed by the
Indemnifying Party, it being understood that the Indemnifying Party shall
control such defense.  If the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, all of the parties hereto shall cooperate in
the defense or prosecution thereof.  Such cooperation shall include
the retention and (upon the Indemnifying Party's request) the provision to the
Indemnifying Party of records and information which are relevant to such Third
Party Claim, and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder.  Whether or not the Indemnifying Party shall have assumed
the defense of a Third Party Claim, the Indemnified Party shall not admit any
liability with respect to, or settle, compromise or discharge, such Third Party
Claim without the Indemnifying Party's prior written consent.

       

      (c)           The
indemnities provided in this Agreement shall survive the Closing; provided, however, that the
indemnities provided under Sections 8.1(a)(i) and 8.1(b)(i) shall terminate upon
the expiration of the Claim Period, except as to any item as to which the Person
to be indemnified shall have, before the expiration of the Claim Period,
previously made a claim by delivering a notice (stating in reasonable detail the
basis of such claim) to the Indemnifying Party.  After the Closing,
the indemnities provided in Sections 8.1(a) and 8.1(b) shall be the sole and
exclusive remedy at law or in equity for any breach of representation, warranty,
covenant or agreement (other than those covenants and agreements which survive
the Closing, including those in Article IX) or other claim arising out of this
Agreement or the transactions contemplated hereby by any party
hereto.

       

      (d)           The
amount of any Losses for which indemnification is provided under this Agreement
shall be (i) net of any amounts recovered by the Indemnified Party from insurers
or other third parties with respect to such Losses, (ii) net of any amounts
reserved, accrued or expensed on the balance sheet included in the SAP 2010
Interim Financial Statements with respect to the facts, circumstances or matters
giving rise to such Losses, (iii) increased to take account of any Tax cost
incurred (grossed up for such increase) by the Indemnified Party arising from
the receipt of indemnity payments hereunder, provided that such
Tax cost shall be computed taking into account the receipt of any such indemnity
payments, and (iv) reduced to take account of any actual Tax benefit realized by
the Indemnified Party arising from the incurrence or payment of any such Losses,
provided that
such Tax benefit shall calculated in accordance with the principles set forth in
Section 9.2.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

       

      (e)           Notwithstanding
anything contained herein to the contrary, (i) no Indemnifying Party shall be
liable for lost profits or any punitive, exemplary, consequential or similar
damages, except for lost profits or punitive, exemplary, consequential or
similar damages actually paid to a third party in a Third Party Claim by an
Indemnified Party, (ii) no Indemnified Party shall be entitled to
indemnification under Section 8.1 with respect to any matter of which such
Indemnified Party had Knowledge at or prior to the Closing and (iii) no
establishment or increase of or other adverse development in liabilities (or
impairment of assets) for or in respect of losses or loss adjustment expenses
under any policies or contracts of insurance written or assumed (or to be
written or assumed) by the Company shall be the basis for any claim by Buyer or
any of its Affiliates that any representation or warranty in this Agreement has
been breached.

       

      (f)           The
Indemnifying Party shall take, and shall cause its Affiliates to take, all
commercially reasonable steps to mitigate any Losses upon and after becoming
aware of any facts, matters, failures or circumstances that would reasonably be
expected to result in any Losses that are indemnifiable hereunder.  In
the event the Indemnifying Party shall fail to take such commercially reasonable
steps, then notwithstanding anything in this Agreement to the contrary, the
Indemnifying Party shall not be required to indemnify the Indemnified Party for
that portion of Losses that could reasonably have been expected to have been
avoided if the Indemnified Party had taken such steps.

       

      (g)           In
the event of payment by or on behalf of any Indemnifying Party to any
Indemnified Party (including pursuant to this Article VIII) in connection with
any claim or demand by any Person other than the parties hereto or their
respective Affiliates, such Indemnifying Party shall be subrogated to and shall
stand in the place of such Indemnified Party as to any events or circumstances
in respect of which such Indemnified Party may have any right, defense or claim
relating to such claim or demand against any claimant or plaintiff asserting
such claim or demand.  Such Indemnified Party shall cooperate with
such Indemnifying Party in a reasonable manner, and at the cost of such
Indemnifying Party, in presenting any subrogated right, defense or claim.

       

      (h)           The
Indemnified Party shall have the right to offset any amounts for which it is
entitled to indemnification under this Article VIII against
any amounts otherwise payable by the Indemnified Party to the Indemnifying Party
under this Agreement.

       

      
        
          
          

        

        
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      ARTICLE
IX

       

      TAX
MATTERS

       

      SECTION 9.1. Returns and
Payments.  Seller shall, in a timely manner, prepare and file
with the appropriate Taxing Authority, or cause the Company to prepare and file
with the appropriate Taxing Authority, all Tax Returns required to be filed by
the Company on or before the Closing Date, and Seller shall cause the Company to
pay all Taxes reported as due on such Tax Returns.  Seller shall pay
all Taxes for which the Company may be liable under Treasury Regulation Section
1.1502-6 (or analogous state or foreign law) due to being a member in an
affiliated group or other group filing on a combined basis, in respect of
periods ending on or before the Closing Date.

       

      With
respect to any Tax Return required to be filed by the Company after the Closing
Date and as to which an amount of Tax may be indemnifiable by Seller pursuant to
Section 8.1(a), Seller and Buyer shall jointly prepare and file such Tax Return
with the appropriate Taxing Authority, or jointly cause the Company to prepare
and file such Tax Return with the appropriate Taxing
Authority.  Seller and Buyer shall reasonably cooperate with each
other in the preparation of any such Tax Return.  If Seller and Buyer
cannot agree as to the appropriate treatment of any item on such Tax Return, the
issue in dispute shall be reviewed by a nationally recognized accounting firm
mutually agreeable to the parties and such accounting firm shall (after taking
into account the positions advocated by each party) determine in accordance with
the terms of this paragraph the appropriate treatment thereof.  The
findings of such accounting firm shall be binding on all parties except to the
extent there is a "determination" made to the contrary as such term is defined
in Section 1313(a) of the Code, and the Tax Return shall be completed and filed
in a manner consistent with such findings; provided, however, that if any
such decision has not been rendered and made available by the date that is two
Business Days prior to the date when such Tax Return is required to be filed,
Buyer shall cause the Company to file such Tax Return as of the date required by
applicable law reflecting the positions of the Buyer with respect to all
disputed items (the "Company Disputed Tax
Positions").

       

      SECTION 9.2. Tax
Benefits.  Any indemnifiable Losses payable by an Indemnifying
Party under Article VIII of this Agreement shall be reduced by the amount of any
Tax benefit that the Indemnified Party expects to realize as a result of
claiming or being entitled to claim any deductions, credits or losses for Tax
purposes relating to such claim for indemnity, which for this purpose shall mean
an amount equal to the present value to the Indemnified Party of any refund,
deduction, credit, allowance, set-off or other reduction in otherwise required
Tax payments, including any interest payable thereon, of the Indemnified Party,
or any Affiliate thereof, resulting from or otherwise attributable to the
indemnified Losses, including any Tax savings attributable to the deductibility
of the Indemnified Party's or its Affiliate's payment of any Losses for which it
receives an indemnification payment.  Such present value shall be
computed as of the first date on which the right to the refund, credit or other
Tax reduction arises or otherwise becomes available to be utilized (i) using the
maximum marginal rate of the relevant Tax payable by the Indemnified Party for
any Tax year in which such savings or refund were or will be available after
first reflecting all other items of income, gain, deduction, loss or credit for
such period, and (ii) using the applicable short term federal rate (as such term
is defined in Section 1274(d) of the Code) as of the relevant determination
date.  To the extent that the parties cannot agree whether any Tax
savings exists (or will be realized) or on the appropriate treatment of any Tax
savings, the issue in dispute shall be reviewed by a nationally recognized
accounting firm mutually agreeable to the parties and such accounting firm shall
(after taking into account the positions advocated by each party) determine in
accordance with the terms of this paragraph the appropriate treatment
thereof.  The findings of such accounting firm shall be binding on all
parties.

       

      
        
          
          

        

        
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      SECTION 9.3. Tax
Refunds.  Any Tax refund (including any interest with respect
thereto) relating to the Company for Taxes paid for any Taxable period prior to
the Closing Date shall be the property of Seller, and if received by Buyer or
the Company shall be paid over promptly to Seller.  Notwithstanding
any provision in this Agreement to the contrary, neither the Company nor Buyer
shall take any position or action (including the filing of any amended Tax
returns or the carryback of any Tax items to Tax periods ending on or prior to
the Closing Date) that could adversely affect Seller or any Affiliate of Seller,
without first obtaining Seller's written consent and any refunds of Taxes or
other reductions or savings in Taxes received as a result of a breach of this
covenant will be for Seller's account.

       

      SECTION 9.4. Conveyance
Taxes.  Buyer shall be liable for and shall hold Seller
harmless against any real property transfer or gains, sales, use, transfer,
value added, stock transfer, and stamp taxes, any transfer, recording,
registration, and other fees, and any similar Taxes which become payable in
connection with the transactions contemplated by this Agreement, and shall file
such applications and documents as shall permit any such Tax to be assessed and
paid on or prior to the Closing Date in accordance with any available pre-sale
filing procedure.  Buyer or Seller, as appropriate, shall execute and
deliver all instruments and certificates necessary to enable the other to comply
with any filing requirements relating to any such Taxes.

       

      SECTION 9.5. Miscellaneous.  Seller
and Buyer agree to treat all indemnity payments made by either of them to or for
the benefit of the other under this Agreement as adjustments to the Purchase
Price or as capital contributions for Tax purposes and that such treatment shall
govern for purposes hereof except to the extent that the laws of a particular
jurisdiction provide otherwise.

       

      ARTICLE
X

       

      TERMINATION
PRIOR TO CLOSING

       

      SECTION 10.1. Termination of
Agreement.  This Agreement may be terminated at any time prior
to the Closing:

       

      (a)           by
Seller or Buyer in writing, if there shall be any order, injunction or decree of
any Governmental Entity which prohibits or restrains any party from consummating
the transactions contemplated hereby, and such order, injunction or decree shall
have become final and nonappealable;

       

      
        
          
          

        

        
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      (b)           by
Seller or Buyer in writing, if the Closing has not occurred on or prior to
December 31, 2010, unless due to the failure of the party seeking to terminate
this Agreement to materially perform each of its obligations under this
Agreement required to be performed by it on or prior to the Closing Date;
and

       

      (c)           at
any time on or prior to the Closing Date, by mutual written consent of Seller
and Buyer.

       

      SECTION 10.2. Survival.  If
this Agreement is terminated and the transactions contemplated hereby are not
consummated as described above, this Agreement shall become null and void and of
no further force and effect, except for (a) the provisions of Section 4.2,
Section 4.6, this Section 10.2 and Article XI and (b) rights and obligations
arising from any breach of this Agreement prior to such
termination.

       

      ARTICLE
XI

       

      GENERAL
PROVISIONS

       

      SECTION 11.1. Fees and
Expenses.  Whether or not the purchase and sale of the Shares
is consummated, each party hereto shall pay its own fees and expenses incident
to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.

       

      SECTION 11.2. Notices.  All
notices, requests, claims, demands and other communications under this Agreement
shall be in writing and shall be deemed given if delivered personally, by
facsimile (which is confirmed as provided below) or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses (or at
such other address for a party as shall be specified by like
notice):

       

      if to
Buyer, to

       

      Hallmark
Insurance Company

      c/o
Hallmark Financial Services, Inc.

      777 Main
Street

      Suite
1000

      Fort
Worth, Texas  76102

      Attention:  Chief
Executive Officer

      Fax
Number:  (817) 348-1815

       

      with a
copy to:

       

      McGuire,
Craddock & Strother, P.C.

      2501 N.
Harwood

      Suite
1800

      Dallas,
Texas  75201

      Attention:  Steven
D. Davidson, Esq.

      Fax
Number:  (214) 954-6868

       

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

       

      if to
Seller, to

       

      State
Auto Financial Corporation

      518 East
Broad Street

      Columbus,
Ohio  43215

      Attention:  Chief
Executive Officer

      Fax
Number:  (614) 464-4911

       

      with
copies to:

       

      State
Auto Insurance Companies

      518 East
Broad Street

      Columbus,
Ohio  43215

      Attention:  General
Counsel

      Fax
Number:  (614) 887-1763

       

      and

       

      Baker
& Hostetler LLP

      65 East
State Street, Suite 2100

      Columbus,
Ohio  43215

      Attention:  Joseph
P. Boeckman, Esq.

      Fax
Number:  (614) 462-2616

       

      Notice
given by personal delivery or overnight courier shall be effective upon actual
receipt.  Notice given by facsimile shall be confirmed by appropriate
answer back and shall be effective upon actual receipt if received during the
recipient's normal business hours, or at the beginning of the recipient's next
Business Day if not received during the recipient's normal business
hours.  All notices by facsimile shall be confirmed promptly after
transmission in writing by personal delivery or overnight courier.

       

      SECTION 11.3. Interpretation.  When
a reference is made in this Agreement to a Section, Exhibit or Schedule, such
reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement
unless otherwise indicated.  Any fact or item disclosed in any section
of the Disclosure Schedule shall be deemed disclosed in all other sections of
the Disclosure Schedule to which such fact or item may
apply.  Disclosure of any item in the Disclosure Schedule shall not be
deemed an admission that such item represents a material item, fact, exception
of fact, event or circumstance or that occurrence or non-occurrence of any
change or effect related to such item would result in a Company Material Adverse
Effect or a material adverse effect on the ability of Seller or Buyer to
consummate any of the transactions contemplated hereby.  The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.  Whenever the words "include," "includes" or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation."  Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.

       

      
        
          
          

        

        
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      SECTION 11.4. Entire Agreement;
Third-Party Beneficiaries.  This Agreement (including all
exhibits and schedules hereto) and the Confidentiality Agreement constitute the
entire agreement, and supersede all prior agreements, understandings,
representations and warranties, both written and oral, among the parties with
respect to the subject matter of this Agreement.  Buyer has sufficient
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of its purchase of the Shares and the other
transactions contemplated hereby and is capable of bearing the economic risks
thereof.  Except as otherwise expressly set forth in this Agreement,
this Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies.

       

      SECTION 11.5. Governing
Law.  This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Ohio, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.

       

      SECTION 11.6. Assignment.  Neither
this Agreement nor any of the rights, interests or obligations under this
Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties without the prior written consent of the other
parties, and any such assignment that is not consented to shall be null and
void.  Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.

       

      SECTION 11.7. Dispute Resolution;
Enforcement.  

       

      (a)           In
the event of any dispute arising under this Agreement, prior to the commencement
of litigation, a senior officer of Buyer and a senior officer of Seller shall
attempt in good faith to resolve the dispute consistent with the terms of this
Agreement.  If they are unable to resolve the dispute in this manner
within a reasonable period of time, the parties may pursue judicial remedies
with respect to such dispute.

       

      (b)           Each
of the parties hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of any court of the United States or any state court,
which in either case is located in the City of Columbus (each, a "Columbus Court") for
purposes of enforcing this Agreement.  In any such action, suit or
other proceeding, each of the parties irrevocably and unconditionally waives and
agrees not to assert by way of motion, as a defense or otherwise any claim that
it is not subject to the jurisdiction of any such Columbus Court, that such
action, suit or other proceeding is not subject to the jurisdiction of any such
Columbus Court, that such action, suit or other proceeding is brought in an
inconvenient forum or that the venue of such action, suit or other proceeding is
improper; provided, however, that nothing
set forth in this sentence shall prohibit any of the parties from removing any
matter from one Columbus Court to another Columbus Court.  Each of the
parties also agrees that any final and unappealable judgment against a party
hereto in connection with any action, suit or other proceeding shall be
conclusive and binding on such party and that such award or judgment may be
enforced in any court of competent jurisdiction, either within or outside of the
United States.  A certified or exemplified copy of such award or
judgment shall be conclusive evidence of the fact and amount of such award or
judgment.  Each of the parties agree that any process or other paper
to be served in connection with any action or proceeding under this Agreement
shall, if delivered, sent or mailed in accordance with Section 11.2, constitute
good, proper and sufficient service thereof.

       

      
        
          
          

        

        
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      SECTION 11.8. Severability; Amendment and
Waiver.  

       

      (a)           Whenever
possible, each provision or portion of any provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision or portion of any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision or portion of any
provision had never been contained herein.

       

      (b)           This
Agreement may be amended, and the terms hereof may be waived, only by a written
instrument signed by each of the parties or, in the case of a waiver, by the
party waiving compliance.

       

      (c)           No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any right, power or privilege, nor any single or partial exercise
of any such right, power or privilege, preclude any further exercise thereof or
the exercise of any other such right, power or privilege.

       

      SECTION 11.9. Certain
Limitations.  Buyer acknowledges and agrees that none of Seller
or any of its Affiliates, or any employee, officer, director, agent,
representative or advisor of any of them, makes or has made, and Buyer has not
relied on, any representation or warranty to Buyer, oral or written, express or
implied, other than as set forth in Section 3.1.  Without limiting the
generality of the foregoing, no such Person has made any representation or
warranty to Buyer with respect to:  (i) the Confidential Information
Memorandum, as amended or supplemented from time to time or any other evaluation
materials regarding the business of the Company provided by or on behalf of
Seller to Buyer (collectively, the "Descriptive
Materials"); (ii) any information set forth in any actuarial valuation or
appraisal provided to Buyer by or on behalf of Seller in connection with the
transactions contemplated hereby; or (iii) any financial projection or forecast
relating to the regarding the business of the Company.  With respect
to the Descriptive Materials and any such valuation, appraisal, projection or
forecast delivered by or on behalf of Seller to Buyer, Buyer acknowledges
that:  (A) there are uncertainties inherent in attempting to make such
valuations, appraisals, projections and forecasts; (B) it is familiar with such
uncertainties; (C) it is not acting and has not acted in reliance on the
Descriptive Materials or on any such valuation, appraisal, projection or
forecast so furnished to it; and (D) it shall have no claim against any such
Person with respect to the Descriptive Materials or any such valuation,
appraisal, projection or forecast.  Buyer further acknowledges and
agrees that, notwithstanding anything to the contrary in this Agreement or any
other agreement, document or instrument delivered or to be delivered in
connection with the transactions contemplated hereby, neither the Company nor
any Seller makes any representation or warranty with respect to, and nothing
contained in this Agreement or in any other agreement, document or instrument
delivered or to be delivered in connection with the transactions contemplated
hereby is intended or shall be construed to be, a representation or warranty
(express or implied) of the Company or any of the Seller with respect to, the
calculation, establishment, adequacy or sufficiency of reserves on any line
item, asset, liability or equity amount on the SAP Financial Statements or any
other financial document.  Buyer further acknowledges and agrees that
no fact, condition, development or issue relating to reserves (including the
adequacy or sufficiency thereof), other than as expressly set forth in this
Agreement, may be used, directly or indirectly, to demonstrate or support the
breach of any representation or warranty contained in this Agreement or any
other agreement, document or instrument to be delivered in connection with the
transactions contemplated hereby or thereby.  Buyer further
acknowledges and agrees that it shall be precluded from asserting that a
condition set forth in Article VI has not been satisfied by reason of a fact,
matter, failure or circumstance of which Buyer had Knowledge on or before the
date hereof.

       

      
        
          
          

        

        
          36

          
            

          

        

        
          
          

        

      

       

      SECTION 11.10.
Counterparts.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original and all of which shall together constitute one and the same
instrument.

       

      SECTION 11.11.
WAIVER OF JURY
TRIAL.  EACH OF THE PARTIES HEREBY WAIVES TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

       

      

      [Signatures
on next page.  Remainder of page intentionally blank.]

       

      
        
          
          

        

        
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        Signature
Page to Stock Purchase Agreement

      

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              	
                                                      BUYER

                                                       

                                                      HALLMARK  INSURANCE
      COMPANY

                                                    	 	
                                                      SELLER

                                                       

                                                      STATE
      AUTO FINANCIAL CORPORATION

                                                    
	 	 	 
	 	 	 
	By 	 	 	By 	 
	
                                                      Name

                                                    	 	 	Name	 
	Its	 	 	Its 	 

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

       

      
        
          
          

        

        
          Signature
PageEXHIBIT
10.1

    

    EXTENSION
AND AMENDMENT OF MASTER SERVICES AGREEMENT

    dated
September 29, 2008 by and between

    DANCING BEAR INVESTMENTS,
INC. and THEGLOBE.COM, INC.

    

    WHEREAS, on September 29, 2008, Dancing
Bear Investments, Inc. (the “Provider”) and theglobe.com, inc. (the “Company”)
entered into a Master Services Agreement (the “Agreement”) for a term of one (1)
year.  The Provider and the Company are individually referred to herein as
a “Party” and collectively as the “Parties.”

    

    WHEREAS, the Parties wish to confirm
the extension of the Agreement beyond its original expiration date of September
28, 2009 and amend the Agreement to provide for automatic renewals in the
future.

    

    NOW, THEREFORE, in consideration of the
foregoing, the Parties mutually covenant and agree as follows:

    

    
      	
               
      

            	
              1.

            	
              Confirmation of
      Extension.  The Parties acknowledge and confirm that they have
      extended and renewed the Agreement for a successive one (1) year period
      beginning on September 29, 2009 and expiring on September 28,
      2010.

            

    

    

    
      	
               
      

            	
              2.

            	
              Amendment.  After
      September 28, 2010, the Agreement shall automatically extend and renew for
      successive and additional one (1) year terms, unless either Party provides
      written notice of non-renewal to the other Party at least 60 days prior to
      the expiration date of the then applicable
term.

            

    

    

    IN
WITNESS WHEREOF, each of the Parties has executed and delivered this Agreement
on the 9th day of
August, 2010.

    

    
      
        
          
            	
                    Dancing
      Bear Investments, Inc.

                  	 
      	
                    theglobe.com,
      inc.

                  
	 
      	 
      	 
      	 
      	 
      
	
                    By:

                  	
                    /s/ Michael S.
      Egan

                  	 
      	
                    By:

                  	
                    /s/ Robin S.
      Lebowitz

                  
	
                    Name:

                  	
                    Michael
      S. Egan

                  	 
      	
                    Name:

                  	
                    Robin
      S. Lebowitz

                  
	
                    Title:

                  	
                    Chief
      Executive Officer

                  	 
      	
                    Title:

                  	
                    Vice
      President -
Finance

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