Document:

Exhibit 10.61

 

Exhibit 10.61

STATE AUTO FINANCIAL CORPORATION

OUTSIDE DIRECTORS

RESTRICTED SHARE UNIT PLAN

Effective Upon Approval by
Shareholders

May 11, 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 
			Page
			

	
    
    ARTICLE I DEFINITIONS AND GENERAL
    PROVISIONS

    	 	 	1	 
	 	
    
    1.1 Definitions
    

    	 	 	1	 
	 	
    
    1.2 General Provisions
    

    	 	 	3	 
	
    
    ARTICLE II ELIGIBILITY AND
    PARTICIPATION

    	 	 	3	 
	 	
    
    2.1 General Eligibility Conditions
    

    	 	 	3	 
	 	
    
    2.2 Specific Conditions for Active
    Participation
    

    	 	 	4	 
	 	
    
    2.3 Termination of Participation
    

    	 	 	4	 
	
    
    ARTICLE III RESTRICTED SHARE
    UNITS

    	 	 	4	 
	 	
    
    3.1 Annual Awards of Restricted Share Units
    

    	 	 	4	 
	 	
    
    3.2 Record of Account
    

    	 	 	4	 
	 	
    
    3.3 Restricted Share Unit Agreement
    

    	 	 	5	 
	
    
    ARTICLE IV VESTING

    	 	 	5	 
	 	
    
    4.1 Vesting
    

    	 	 	5	 
	
    
    ARTICLE V DISTRIBUTION OF
    BENEFITS

    	 	 	6	 
	 	
    
    5.1 Distribution Timing
    

    	 	 	6	 
	 	
    
    5.2 Distribution upon Termination other than
    for Disability or Death
    

    	 	 	6	 
	 	
    
    5.3 Distribution upon Death
    

    	 	 	6	 
	 	
    
    5.4 Distribution in the Event of Disability
    

    	 	 	7	 
	 	
    
    5.5 Withdrawals for Unforeseeable Emergency
    

    	 	 	7	 
	
    
    ARTICLE VI PLAN
    ADMINISTRATION

    	 	 	7	 
	 	
    
    6.1 Administration
    

    	 	 	7	 
	 	
    
    6.2 Administrative Committee
    

    	 	 	7	 
	 	
    
    6.3 Statement of Participant’s Account
    

    	 	 	8	 
	 	
    
    6.4 Filing Claims
    

    	 	 	8	 
	
    
    ARTICLE VII AMENDMENT AND
    TERMINATION

    	 	 	8	 
	 	
    
    7.1 Amendment
    

    	 	 	8	 
	 	
    
    7.2 Termination
    

    	 	 	8	 
	
    
    ARTICLE VIII MISCELLANEOUS
    PROVISIONS

    	 	 	9	 
	 	
    
    8.1 Facility of Payments
    

    	 	 	9	 
	 	
    
    8.2 Funding
    

    	 	 	9	 
	 	
    
    8.3 Anti-Assignment
    

    	 	 	9	 
	 	
    
    8.4 Unclaimed Interests
    

    	 	 	9	 
	 	
    
    8.5 References to Code, Statutes and
    Regulations
    

    	 	 	10	 
	 	
    
    8.6 Liability
    

    	 	 	10	 
	 	
    
    8.7 Governing Law; Severability
    

    	 	 	10	 
	 	
    
    8.8 Taxes
    

    	 	 	10	 
	 	
    
    8.9 Effective Date
    

    	 	 	10	 

i

 

STATE AUTO FINANCIAL CORPORATION

OUTSIDE DIRECTORS RESTRICTED SHARE UNIT
PLAN

Background Information

     
The directors and shareholders of State Auto
Financial Corporation, an Ohio corporation (the
“Company”), desire to adopt the Company’s Outside
Directors Restricted Share Unit Plan (the “Plan”) in
order to align and strengthen the interests of Outside Directors
with the interests of the Company’s shareholders.

     
The Company intends for the Plan to be an
unfunded, nonqualified deferred compensation arrangement as
provided under the Employee Retirement Income Security Act of
1974, as amended (“ERISA”), and to satisfy the
requirements of a “top hat” plan thereunder and under
Labor Reg. Sec. 2520.104-23.

     
The Plan is intended to comply with the
requirements of The American Jobs Creation Act of 2004 and
Section 409A of the Internal Revenue Code of 1986, as
amended (“Code”), and to constitute a good faith
effort at meeting such requirements pending the issuance of
additional guidance by the Internal Revenue Service
(“IRS”). To the extent inconsistent with Code
Section 409A or regulations issued thereunder, this Plan
shall be amended to conform to such requirements within
applicable time limitations established by the IRS.

 

		
	ARTICLE I. 	
    DEFINITIONS AND GENERAL PROVISIONS

     
1.1 Definitions. For purposes of the
Plan, the following terms shall be defined as set forth below.
Other capitalized terms used in the Plan shall be defined as set
forth in the Plan.

		
	 	     
    (a) Account. The bookkeeping account
    described in Section 3.2 under which benefits and earnings
    are credited on behalf of a Participant.
    
	 
	 	     
    (b) Administrative Committee. The
    Compensation Committee of the Board or such other committee of
    at least three (3) persons appointed by the Compensation
    Committee to oversee the administration of the Plan.
    
	 
	 	     
    (c) Award. An award of Restricted
    Share Units under the Plan.
    
	 
	 	     
    (d) Beneficiary. The person(s)
    (including a trust) entitled to receive any distribution
    hereunder upon the death of a Participant. The Beneficiary for
    benefits payable under this Plan shall be the beneficiary
    designated by the Participant in accordance with procedures
    established by the Administrative Committee as of the
    Participant’s date of death, or, in the absence of any such
    designation, the Participant’s estate.
    
	 
	 	     
    (e) Board. The Board of Directors of
    the Company.
    
	 
	 	     
    (f) Change of Control. For purposes
    of the Plan, a Change of Control means:
    

		
	 	     
    (i) a change in ownership of the corporation
    occurring on the date that any one person, or more than one
    person acting as a group (as defined below), acquires ownership
    of stock of the corporation that, together with stock held by
    such person or group, constitutes more than 50 percent of
    the total fair market value or total voting power of the stock
    of such corporation. However, if any one person or more than one
    person acting as a
    

 

		
	 	
    group, is considered to own more than
    50 percent of the total fair market value or total voting
    power of the stock of a corporation, the acquisition of
    additional stock by the same person or persons is not considered
    to cause a change in the ownership of the corporation (or to
    cause a change in the effective control of the corporation
    (within the meaning of (ii) below)). An increase in the
    percentage of stock owned by any one person, or persons acting
    as a group, as a result of a transaction in which the
    corporation acquires its stock in exchange for property will be
    treated as an acquisition of stock for purposes of a Change in
    Control. This change in ownership of the corporation applies
    only when there is a transfer of stock of the corporation (or
    issuance of stock of the corporation) and stock in such
    corporation remains outstanding after the transaction; or
    
	 
	 	     
    (ii) a change in the effective control of
    the corporation occurring on the date that either: (A) any
    one person, or more than one person acting as a group (as
    defined below), acquires (or has acquired during the 12-month
    period ending on the date of the most recent acquisition by such
    person or persons) ownership of stock of the corporation
    possessing 35 percent or more of the total voting power of
    the stock of such corporation; or (B) a majority of members
    of the corporation’s board of directors is replaced during
    any 12-month period by directors whose appointment or election
    is not endorsed by a majority of the members of the
    corporation’s board of directors prior to the date of the
    appointment or election, provided that for purposes of this
    subsection (B), the term “corporation” refers solely
    to the “relevant corporation”, as defined below, for
    which no other corporation is a majority shareholder for
    purposes of that definition; or
    
	 
	 	     
    (iii) a change in the ownership of a
    substantial portion of the corporation’s assets occurring
    on the date that any one person, or more than one person acting
    as a group (as defined below) acquires (or has acquired during
    the 12-month period ending on the date of the most recent
    acquisition by such person or persons) assets from the
    corporation that have a total gross fair market value equal to
    more than 40 percent of the total gross fair market value
    of all of the assets of the corporation immediately prior to
    such acquisition or acquisitions. For this purpose, gross fair
    market value means the value of the assets of the corporation,
    or the value of the assets being disposed of, determined without
    regard to any liabilities associated with such assets.
    
	 
	 	     
    Persons acting as a
    group. For purposes of this
    definition, persons will not be considered to be acting as a
    group solely because they purchase or own stock of the same
    corporation at the same time, or as a result of the same public
    offering. However, persons will be considered to be acting as a
    group if they are owners of a corporation that enters into a
    merger, consolidation, purchase or acquisition of stock, or
    similar business transaction with the corporation. If a person,
    including an entity, owns stock in both corporations that enter
    into a merger, consolidation, purchase or acquisition of stock,
    or similar transaction, such shareholder is considered to be
    acting as a group with other shareholders in a corporation only
    with respect to the ownership in that corporation prior to the
    transaction giving rise to the change and not with respect to
    the ownership interest in the other corporation.
    
	 
	 	     
    Identification of the “relevant
    corporation”. To constitute a
    Change in Control as to the Plan Participant, the Change in
    Control must relate to (i) the corporation for whom the
    Participant is performing services at the time of the Change in
    Control, (ii) the corporation
    

2

 

		
	 	
    that is liable for the payment of the deferred
    compensation (or all corporations liable for the payment if more
    than one corporation is liable), or (iii) a corporation
    that is a majority shareholder of a corporation identified in
    (i) or (ii), or any corporation in a chain of corporations
    in which each corporation is a majority shareholder of another
    corporation in the chain, ending in a corporation identified in
    (i) or (ii). For purposes of this paragraph, a majority
    shareholder is a shareholder owning more than 50% of the total
    fair market value and total voting power of such corporation.
    

		
	 	     
    (g) Common Shares. The common shares,
    without par value, of the Company.
    
	 
	 	     
    (h) Disability. Permanent and total
    disability as defined in Code Section 22(e)(3).
    
	 
	 	     
    (i) Distribution Options. An
    immediate single lump sum payment or annual installment payments
    over a period of five (5) or ten (10) years. In the
    absence of an election by the Participant, the default shall be
    an immediate single lump sum.
    
	 
	 	     
    (j) Outside Director. Any
    non-employee member of the Board of Directors of the Company.
    
	 
	 	     
    (k) Parent. Any corporation (other
    than the Company) in an unbroken chain of corporations ending
    with the Company if each of the corporations (other than the
    last corporation in the unbroken chain) owns stock possessing
    50% or more of the total combined voting power of all classes of
    stock in one of the other corporations in such chain.
    
	 
	 	     
    (l) Participant. Any Outside Director
    who meets the eligibility requirements for participation in the
    Plan as set forth in Article II and who receives an Award under
    the Plan.
    
	 
	 	     
    (m) Plan Year. The fiscal year of the
    Plan, which is the twelve (12) consecutive month period
    beginning January 1 and ending December 31; provided, however,
    the first Plan Year shall begin on the Effective Date and end on
    December 31, 2005.
    
	 
	 	     
    (n) Retirement. The retirement from
    the Board of any Outside Director after attaining age 65.
    
	 
	 	     
    (o) Subsidiary. Any corporation
    (other than the Company) in an unbroken chain of corporations
    beginning with the Company if each of the corporations (other
    than the last corporation in the unbroken chain) owns stock
    possessing 50% or more of the total combined voting power of all
    classes of stock in one of the other corporations in such chain.
    

     
1.2 General Provisions. The masculine
wherever used herein shall include the feminine; singular and
plural forms are interchangeable. Certain terms of more limited
application have been defined in the provisions to which they
are principally applicable. The division of the Plan into
Articles and Sections with captions is for convenience only and
is not to be taken as limiting or extending the meaning of any
of its provisions.

 

		
	ARTICLE II. 	
    ELIGIBILITY AND PARTICIPATION

     
2.1 General Eligibility Conditions.
All Outside Directors are eligible to receive Awards under the
Plan. However, in order to receive a benefit under the Plan, a
Participant must meet the requirements of Sections 2.2 and
2.3.

3

 

     
2.2 Specific Conditions for Active
Participation. To participate actively in the Plan, a
Participant must execute or acknowledge a Restricted Share Unit
Agreement as described in Section 3.3 and comply with such
other procedures as may be established by the Administrative
Committee from time to time. A Participant’s Agreement
shall be maintained by or on behalf of the Administrative
Committee and must be executed, acknowledged, and filed as of
the date of grant or at such other time as may be required by
regulations issued under Code Section 409A.

     
2.3 Termination of Participation.
Once an Outside Director becomes a Participant, such individual
shall continue to be a Participant until such individual
(a) ceases to qualify as an Outside Director, and
(b) ceases to have any vested interest in the Plan (as a
result of distributions made to such Participant or his
Beneficiary, if applicable, or otherwise).

 

		
	ARTICLE III. 	
    RESTRICTED SHARE UNITS

     
3.1 Annual Awards of Restricted Share
Units. Promptly following each annual meeting of the
shareholders of the Company on and after the Effective Date,
each Outside Director shall be automatically granted an Award of
1,400 restricted share units (“Restricted Share
Units”), or such greater number as determined by the
Administrative Committee in accordance with Section 6.2.
Except for the elections which may be made by each Participant
as provided in the Plan, the terms of each annual Award of
Restricted Share Units shall be the same with respect to each
Participant. The Company will credit the number of Restricted
Share Units awarded for each Plan Year to the Participant’s
Account. For each Award, each Participant shall select the
Distribution Option applicable to the Award and the form of
payment distribution of the credited Restricted Share Units,
which shall be either in cash or Common Shares. The form of the
payment distribution selected by the Participant shall be set
forth in the Agreement.

     
3.2 Record of Account. Solely for the
purpose of measuring the amount of the Company’s
obligations to each Participant or his beneficiaries under the
Plan, the Company will maintain a separate bookkeeping record,
an “Account,” for each Participant in the Plan that
shall reflect the fair market value of the Account.

     
Subject to the provisions of this
Article III, on the date when the Restricted Share Units to
be credited to the Participant are allocated to his Account, the
Company will credit to a separate sub-account a number of
hypothetical Common Shares (and fractions thereof) having a
Value equal to the Restricted Share Units. For purposes of this
Plan, the “Value” of a Common Share on a particular
day shall mean: (a) the last reported sale price of a
Common Share on the Nasdaq National Market System on the most
recent previous trading day (or if there was no trading in the
Common Shares on that day, then on the next preceding trading
day in which there was trading in the Common Shares), or
(b) the mean between the high and low bid and ask price of
a Common Share as reported by the National Association of
Securities Dealers on the most recent previous trading day, or
(c) the last reported sale price of a Common Share on any
stock exchange on which the Common Shares are listed on the most
recent previous trading day (or if there was no trading in the
Common Shares on that day, then on the next preceding trading
day on which there was trading in the Common Shares).

     
If any Organic Change shall occur, then the
Participant’s Account shall be adjusted so as to contain a
Value equivalent to such shares of stock, securities or assets
(including cash) as would have been issued or payable with
respect to or in exchange for the number of Common Shares
credited thereto immediately before such Organic Change, if such
Common Shares had been outstanding. An

4

 

“Organic Change” includes the
recapitalization, reorganization, reclassification,
consolidation, or merger of the Company, or any sale of all or
substantially all of the Company’s assets to another person
or entity, or any other transaction which is effected in such a
way that holders of Common Shares are entitled to receive
(either directly or upon subsequent liquidation) other stock,
securities, or assets with respect to or in exchange for Common
Shares.

     
The Account of a Participant (as of the Dividend
Payment Date), shall be credited with such earnings (or losses)
consisting solely of dividend equivalent credits pursuant to
this paragraph. Whenever a dividend or other distribution is
made with respect to the Common Shares, then the Account of a
Participant (as of the Dividend Payment Date) shall be credited,
on the payment date for such dividend or other distribution (the
“Dividend Payment Date”), with a number of additional
Common Shares having a Value, as of the Dividend Payment Date,
based upon the number of Common Shares deemed to be held in the
Participant’s Account as of the record date for such
dividend or other distribution (the “Dividend Record
Date”), if such Common Shares were outstanding. If such
dividend or other distribution is in the form of cash, the
number of Common Shares so credited shall be a number of Common
Shares (and fractions thereof) having a Value, as of the
Dividend Payment Date, equal to the amount of cash that would
have been distributed with respect to the Common Shares deemed
to be held in the Participant’s Account as of the Dividend
Record Date, if such Common Shares were outstanding. If such
dividend or other distribution is in the form of Common Shares,
the number of Common Shares so credited shall equal the number
of such Common Shares (and fractions thereof) that would have
been distributed with respect to the Common Shares deemed to be
held in the Participant’s Account as of the Dividend Record
Date, if such Common Shares were outstanding. If such dividend
or other distribution is in the form of property other than cash
or Common Shares, the number of Common Shares so credited shall
be a number of Common Shares (and fractions thereof) having a
Value, as of the Dividend Payment Date, equal to the value of
the property that would have been distributed with respect to
the Common Shares deemed to be held in the Participant’s
Account as of the Dividend Record Date, if such Common Shares
were outstanding. The value of such property shall be its fair
market value as of the Dividend Payment Date, determined by the
Board based upon market trading if available and otherwise based
upon such factors as the Board deems appropriate.

     
3.3 Restricted Share Unit Agreement.
Each Restricted Share Unit Award granted under the Plan shall be
evidenced by a Restricted Share Unit Agreement
(“Agreement”). The Agreement shall be dated as of the
date of the Award, shall be signed by an officer of the Company
authorized by the Board, and shall be signed by the Participant.
The Agreement shall describe the Restricted Share Unit Award and
state that such Restricted Share Units are subject to all the
terms and provisions of the Plan. At the time the Restricted
Share Units are awarded, the Board may determine that such
Restricted Share Units shall be restricted as to transferability
as specified in the Agreement. The prospective Participant of an
Award shall not have any rights with respect to such Award,
unless and until such Participant has executed an agreement
evidencing the Award and has delivered a fully executed copy
thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such Award.

 

		
	ARTICLE IV. 	
    VESTING

     
4.1 Vesting. A Participant always
will be one hundred percent (100%) vested in amounts credited to
such Participant’s Account.

5

 

 

		
	ARTICLE V. 	
    DISTRIBUTION OF BENEFITS

     
5.1 Distribution Timing. A
Participant shall receive payment of the amounts credited to his
Account upon his termination from Board membership due to
Retirement, death, Disability or any other reason. The
Participant will begin to receive the amount credited to his
Account in the form designated by the Participant in his
Agreement as of the first regular payment processing date to
occur at least six (6) months after the date of the
Participant’s termination of Board membership, Retirement,
death or Disability. The Administrative Committee may establish
regular payment processing dates and change the same from time
to time in its discretion, provided there are at least two such
dates each Plan Year. If payment is to be made in an immediate
lump sum, it shall occur on the first regular payment processing
date as described above. If payment is to be made in annual
installments, it shall commence on such first regular payment
processing date with subsequent annual installments to occur on
the same date each year thereafter until the Participant’s
Account is distributed in full.

     
5.2 Distribution upon Termination other
than for Disability or Death. A Participant may elect the
Distribution Option to be applicable to each Award payable upon
a termination of Board membership, including by Retirement. The
Participant may change his election of a Distribution Option
with respect to a particular Award; provided, however, that such
change is made at least twelve (12) months prior to the
date that payment would have otherwise begun under such Award
and provided that a Participant may not change a Distribution
Option to one that would complete the distribution of the
Participant’s Account more quickly than the election in
effect at the date of the new election. If a Distribution Option
election is made or changed and distribution is triggered before
twelve (12) months have elapsed, the distribution will be
made in accordance with the Distribution Option election in
effect prior to the change or, if none, in accordance with the
default Distribution Option.

     
If an annual installment payment method is the
selected Distribution Option, the amount of the annual benefit
shall equal the amount necessary to fully distribute the
Participant’s Account as an annual benefit over the
installment period, consistent with the following methodology:
the amount payable as the annual installment shall equal the
value of the Participant’s Account as of the most recent
Account valuation date, multiplied by a fraction, the numerator
of which is one (1) and the denominator of which is the
number of annual installments remaining in the installment
period elected by the Participant. For example, assuming a ten
(10) year installment payment period applies, the amount
distributed at each of the distribution dates would represent
the value of the Participant’s Account as of the most
recent valuation date preceding the actual distribution date
times the following factors: Year 1 — 10% (
1/10), Year 2 — 11.11% ( 1/9),
Year 3 — 12.5% ( 1/8), Year 4 —
14.29% ( 1/7), Year 5 — 16.66% ( 1/6),
Year 6 — 20% ( 1/5), Year 7 — 25%
( 1/4), Year 8 — 33.33% ( 1/3),
Year 9 — 50% ( 1/2), Year 10 —
100% ( 1/1).

     
The Participant must provide the Company advance
notice of his intention to retire and receive benefits hereunder
in accordance with uniform procedures established by the
Administrative Committee.

     
5.3 Distribution upon Death. In the
event of the death of the Participant while receiving benefit
payments under the Plan, the Beneficiary or Beneficiaries
designated by the Participant shall be paid the remaining
payments due under the Plan in accordance with the method of
distribution in effect at the date of death. In the event of the
death of the Participant prior to the commencement of

6

 

the distribution of benefits under the Plan, such
benefits shall be paid to the Beneficiary or Beneficiaries
designated by the Participant, beginning as soon as practicable
after the Participant’s death. Such benefits shall be paid
in the default Distribution Option unless another Distribution
Option was timely elected by the Participant at least twelve
(12) months prior to his death.

     
5.4 Distribution in the Event of
Disability. Upon the Participant’s Disability, the
Participant shall be eligible to receive payment of the amounts
credited to his Account in the default Distribution Option
commencing as soon as practicable after the Administrative
Committee is satisfied of the determination of the existence of
a Disability with respect to such Participant. The
Participant’s Account may also be payable in one of the
other Distribution Options provided such other Distribution
Option was timely elected by the Participant at least twelve
(12) months prior to his Disability.

     
5.5 Withdrawals for Unforeseeable
Emergency. Upon the occurrence of an unforeseeable
emergency, the Participant shall be eligible to receive payment
of the amount necessary to satisfy such emergency plus amounts
necessary to pay taxes reasonably anticipated as a result of the
distribution, after taking into account the extent to which such
hardship is or may be relieved through reimbursement or
compensation by insurance or otherwise or by liquidation of the
Participant’s assets (to the extent such liquidation would
not itself cause severe financial hardship). The amount
determined to be properly distributable under this section and
applicable regulations under Code Section 409A shall be
payable in a single lump sum only. For the purposes of this
section, the term “unforeseeable emergency” means a
severe financial hardship to the Participant resulting from an
illness or accident of the Participant, the Participant’s
spouse, or a dependent of the Participant (as defined in Code
Section 152(a)); loss of the Participant’s property
due to casualty; or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond
the control of the Participant. It shall be the responsibility
of the Participant seeking to make a withdrawal under this
section to demonstrate to the Administrative Committee that an
unforeseeable emergency has occurred and to document the amount
properly distributable hereunder.

 

		
	ARTICLE VI. 	
    PLAN ADMINISTRATION

     
6.1 Administration. The Plan shall be
administered by the Administrative Committee as an unfunded
deferred compensation plan that is not intended to meet the
qualification requirements of Code Section 401.

     
6.2 Administrative Committee. The
Administrative Committee will operate and administer the Plan
and shall have all powers necessary to accomplish that purpose,
including, but not limited to, the discretionary authority to
interpret the Plan, the discretionary authority to determine all
questions relating to the rights and status of Participants, and
the discretionary authority to make such rules and regulations
for the administration of the Plan as are not inconsistent with
the terms and provisions hereof or applicable law, as well as
such other authority and powers relating to the administration
of the Plan, except such as are reserved by the Plan to the
Board. All decisions made by the Administrative Committee shall
be final.

     
Without limiting the powers set forth herein, the
Administrative Committee shall have the power (a) to change
or waive any requirements of the Plan to conform with the law or
to meet special circumstances not anticipated or covered in the
Plan; (b) to determine the times and places for holding
meetings of the Administrative Committee and the notice to be
given of such meetings; (c) to

7

 

employ such agents and assistants, such counsel
(who may be counsel to the Company), and such clerical and other
services as the Administrative Committee may require in carrying
out the provisions of the Plan; and (d) to authorize one or
more of their number or any agent to execute or deliver any
instrument on behalf of the Administrative Committee. The
Administrative Committee shall also have the power to increase
the number of Restricted Share Units to be awarded to Plan
Participants as annual Awards described in Section 3.1
without further shareholder approval if, within the
Administrative Committee’s discretion, such an increase is
warranted to maintain director compensation at a competitive
level; provided that no annual Award described in
Section 3.1 shall be greater than 5,000 Restricted
Share Units.

     
The members of the Administrative Committee and
the Company and its officers and directors, shall be entitled to
rely upon all valuations, certificates and reports furnished by
any funding agent or service provider, upon all certificates and
reports made by an accountant, and upon all opinions given by
any legal counsel selected or approved by the Administrative
Committee, and the members of the Administrative Committee and
the Company and its officers and directors shall, except as
otherwise provided by law, be fully protected in respect of any
action taken or suffered by them in good faith in reliance upon
any such valuations, certificates, reports, opinions or other
advice of a funding agent, service provider, accountant or
counsel.

     
6.3 Statement of Participant’s
Account. The Administrative Committee shall, as soon as
practicable after the end of each Plan Year, provide to each
Participant a statement setting forth the Account of such
Participant under Section 3.2 as of the end of such Plan
Year. Such statement shall be deemed to have been accepted as
correct unless written notice to the contrary is received by the
Administrative Committee within thirty (30) days after
providing such statement to the Participant. Account statements
may be provided more often than annually in the discretion of
the Administrative Committee.

     
6.4 Filing Claims. Any Participant,
Beneficiary or other individual (hereinafter a
“Claimant”) entitled to benefits under the Plan, or
otherwise eligible to participate herein, shall be required to
make a claim with the Administrative Committee (or its designee)
requesting payment or distribution of such Plan benefits (or
written confirmation of Plan eligibility, as the case may be),
on such form or in such manner as the Administrative Committee
shall prescribe. Unless and until a Claimant makes proper
application for benefits in accordance with the rules and
procedures established by the Administrative Committee, such
Claimant shall have no right to receive any distribution from or
under the Plan.

ARTICLE VII. AMENDMENT AND
TERMINATION

     
7.1 Amendment. The Board reserves the
right, in its sole discretion, to amend, modify or alter any or
all of the provisions of the Plan at any time and from time to
time without the consent of any Participants; provided, however,
that no amendment shall operate retroactively so as to affect
adversely any rights to which a Participant may be entitled
under the provisions of the Plan as in effect prior to such
action. Furthermore, no such amendments, modifications or
alterations shall be made without the approval of the
Company’s shareholders to the extent such approval is
required by applicable law, regulation or Nasdaq or stock
exchange rule.

     
7.2 Termination. The Company
reserves, in its sole discretion, the right to suspend,
discontinue or terminate the Plan at any time in whole or in
part; provided, however, that a suspension,

8

 

discontinuance or termination of the Plan shall
not (a) accelerate the obligation to make payments to any
person not otherwise currently entitled to payments under the
Plan, unless otherwise specifically so determined by the Company
and permitted by applicable law, (b) relieve the Company of
its obligations to make payments to any person then entitled to
payments under the Plan, or (c) reduce any existing Account
balance.

ARTICLE VIII. MISCELLANEOUS
PROVISIONS

     
8.1 Facility of Payments. Whenever,
in the opinion of the Administrative Committee, a person
entitled to receive any payment, or installment thereof, is
under a legal disability or is unable to manage his financial
affairs, the Administrative Committee shall have the
discretionary authority to direct payments to such person’s
legal representative or to a relative or friend of such person
for his benefit; alternatively, the Administrative Committee may
in its discretion apply the payment for the benefit of such
person in such manner as the Administrative Committee deems
advisable. Any such payment or application of benefits made in
good faith in accordance with the provisions of this Section
shall be a complete discharge of any liability of the
Administrative Committee with respect to such payment or
application of benefits.

     
8.2 Funding. All benefits under the
Plan are unfunded and the Company shall not be required to
establish any special or separate fund or to make any other
segregation of assets in order to assure the payment of any
amounts under the Plan; provided, however, that in order to
provide a source of payment for its obligations under the Plan,
the Company may establish a trust fund. The right of a
Participant or his Beneficiary to receive a distribution
hereunder shall be an unsecured claim against the general assets
of the Company, and neither the Participant nor his Beneficiary
shall have any rights in or against any amounts credited under
the Plan or any other specific assets of the Company. All
amounts credited under the Plan to the benefit of a Participant
shall constitute general assets of the Company and may be
disposed of by the Company at such time and for such purposes as
it may deem appropriate.

     
8.3 Anti-Assignment. No right or
benefit under the Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance or charge; and
any attempt to anticipate, alienate, sell, assign, pledge,
encumber or charge the same shall be void. No right or benefit
shall be liable for or subject to the debts, contracts,
liabilities, or torts of the person entitled to such benefits.
If a Participant, a Participant’s spouse, or any
Beneficiary should become bankrupt or attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge any right to
benefits under the Plan, then those rights, in the discretion of
the Administrative Committee, shall cease. In this case, the
Administrative Committee may hold or apply the benefits at issue
or any part thereof for the benefit of the Participant, the
Participant’s spouse, or Beneficiary in such manner as the
Administrative Committee may deem proper.

     
8.4 Unclaimed Interests. If the
Administrative Committee shall at any time be unable to make
distribution or payment of benefits hereunder to a Participant
or any Beneficiary of a Participant by reason of the fact that
his whereabouts is unknown, the Administrative Committee shall
so certify, and thereafter the Administrative Committee shall
make a reasonable attempt to locate such missing person. If such
person continues missing for a period of three (3) years
following such certification, the interest of such Participant
in the Plan shall, in the discretion of the Administrative
Committee, be distributed to the Beneficiary of such missing
person.

9

 

     
8.5 References to Code, Statutes and
Regulations. Any and all references in the Plan to any
provision of the Code, ERISA, or any other statute, law,
regulation, ruling or order shall be deemed to refer also to any
successor statute, law, regulation, ruling or order.

     
8.6 Liability. The Company, and its
directors, officers and employees, shall be free from liability,
joint or several, for personal acts, omissions, and conduct, and
for the acts, omissions and conduct of duly constituted agents,
in the administration of the Plan.

     
8.7 Governing Law; Severability. The
Plan shall be construed according to the laws of the State of
Ohio, including choice of law provisions, and all provisions
hereof shall be administered according to the laws of that
State, except to the extent preempted by federal law. A final
judgment in any action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in
any other manner provided by law. In the event that any one or
more of the provisions of the Plan shall for any reason be held
to be invalid, illegal, or unenforceable, such invalidity,
illegality or unenforceability shall not affect any other
provision of the Plan, but the Plan shall be construed as if
such invalid, illegal, or unenforceable provisions had never
been contained herein, and there shall be deemed substituted
such other provision as will most nearly accomplish the intent
of the parties to the extent permitted by applicable law.

     
8.8 Taxes. The Company shall be
entitled to withhold any taxes from any distribution hereunder
or from other compensation then payable, as it believes
necessary, appropriate, or required under relevant law.

     
8.9 Effective Date. This Plan shall
be effective upon approval by the shareholders of the Company
(the “Effective Date”). This Plan shall be submitted
to the shareholders of the Company for approval at the
Company’s 2005 annual meeting of shareholders, anticipated
to be held May 11, 2005.

10Exhibit 10.62

 

Exhibit 10.62

Form of Non-Qualified Stock Option Agreement

NON-QUALIFIED STOCK OPTION AGREEMENT

     This Agreement (the “Agreement”) is made as of the [___] day of [___20___], between
State Auto Financial Corporation, an Ohio corporation (the “Company”), and ___(the
“Grantee”). The Company hereby grants to the Grantee an option (the “Option”) to purchase [___]
shares (“Option Shares”), for a purchase price per share (the “Option Price”) of $[___] per
share. The fair market value of each of the Option Shares on the date of grant is $[___] per
share. The Option has been granted pursuant to the State Auto Financial Corporation Amended and
Restated Equity Incentive Compensation Plan, as amended from time to time (the “Plan”), attached
hereto as Exhibit A, and it shall include and be subject to all provisions of the Plan, which are
incorporated herein by reference, and it shall be subject to the following provisions of this
Agreement:

	 	1.	 	Vesting Dates & Term. The Option shall be exercisable as follows:

	 	(i)	 	[                                        ] [(___)] Option

Shares may be purchased on or after [                    ].
	 
	 	(ii)	 	[                                        ] [(___)] Option 

Shares may be purchased on or after [                    ].
	 
	 	(iii)	 	[                                        ] [(___)] Option

Shares may be purchased on or after [                    ].

     The Option shall not be exercisable for any Option Shares after [ten years minus one day from
grant date], at which date it shall expire.

     2. Method of Exercise. The Option shall be exercisable by written notice (in
substantially the form attached as Exhibit B), delivered in person or by certified mail to the
Secretary of the Company, which shall:

	 	(a)	 	state that the Option is thereby being exercised, the number of Option Shares
with respect to which the Option is being exercised, each person in whose name any
certificates for the Option Shares should be registered and his or her address and
social security number;
	 
	 	(b)	 	be signed by the person or persons entitled to exercise the Option and, if the
Option is being exercised by anyone other than the Grantee, be accompanied by proof
satisfactory to counsel for the Company of the right of such person or persons to
exercise the Option under the Plan and all applicable laws and regulations;
	 
	 	(c)	 	be accompanied by such representations, warranties or agreements with respect
to the investment intent of such person or persons exercising the Option as the Company
may reasonably request in form and substance satisfactory to counsel for the Company;
and

 

 

	 	(d)	 	be accompanied by tender to the Company of payment in full for the Option
Shares being purchased as set forth in paragraph 3 hereof.

     3. Payment of Price. Upon exercise of the Option, the Company shall deliver a
certificate or certificates for such of the Option Shares being purchased to the specified person
or persons at the specified time upon receipt of the full purchase price for such Option Shares:
(i) by certified or bank cashier’s or teller’s check, or (ii) by actual or constructive delivery of
eligible Shares with a fair market value at the time of exercise equal to the total Option Price of
the Option Shares being purchased, or (iii) by any other method of payment or combination thereof
authorized by the Plan.

     4.  Transferability. Pursuant to authority granted to the Committee by the Plan, the
Non-qualified Options that are the subject of this Agreement may be gifted by the Grantee from time
to time to the Grantee’s spouse or to one or more of the Grantee’s parent(s), spouse, children,
grandchildren, nieces, or nephews or to the Trustee of a trust for the principal benefit of one or
more of such persons or to a partnership whose only partners are one or more of such persons. If
any such Option is gifted, the Option shall continue to be subject to the terms of the Plan, as
amended, and this Option Agreement prior to its transfer including, without limitation, vesting
requirements, restrictions on transferability and limitations on exercise following termination of
employment or death or disability provided the person receiving the gift of the Option shall have
the same right to exercise as the Grantee who gifted the Option. If the exemption provided by Rule
16b-3 promulgated under the Securities Exchange Act of 1934 is amended to eliminate the right of
assignment, this Agreement shall be deemed to be amended to conform to the Rule 16b-3 as respects
any options not assigned as of the date the law would change as to the assignability of options.
Except as set forth above, the Option shall not be transferable by the Grantee other than by will,
by the laws of descent and distribution and during the lifetime of the Grantee, the Option shall be
exercisable (subject to any other applicable restrictions on exercise) only by the Grantee for his
or her own account. Upon the death of the Grantee, the Option shall be exercisable (subject to any
other applicable restrictions on exercise) only by the Grantee’s estate (acting through its
fiduciary) or by a person(s) who acquired the right to the Option by gift, as described above, or
by bequest or inheritance.

     5. Termination of Employment. Except as set forth below, if the Grantee’s employment
with the Company and its Parent and Subsidiary Corporations terminates or is terminated for any
reason other than retirement (as defined in the Sate Auto Insurance Companies Employee Retirement
Plan), permanent and total disability (as defined in the Plan) or death, the Grantee (or the
Grantee’s estate, should the Grantee decease following such employment termination) may exercise
the Option to the extent then exercisable within ninety days (90) after such termination (but in no
event after expiration of the original term of the Option). If the Grantee’s employment with the
Company and its Parent and Subsidiary Corporations terminates or is terminated by reason of
retirement, permanent and total disability (as defined in the Plan), or death, the Option may be
exercised at any time from the date of such termination of employment (notwithstanding the Vesting
Date) until the expiration of the original term of the Option; provided that if the Grantee dies
with less than ninety (90) days remaining prior to the expiration of the original term, the estate
or successors in interest of such Grantee shall have a period of one hundred eighty (180) days from
the date of death to exercise the Option, regardless of the original expiration date. If following
the termination of the Grantee’s employment with the Company and its Parent and Subsidiary
Corporations due to retirement or permanent and total disability the Grantee dies, the Grantee’s
estate or successor(s) in interest shall have until the expiration of the original term of the
Option, as set forth in paragraph 1

 

 

hereof, to exercise said Option. If the Grantee’s employment with the Company is terminated due to
illegal conduct engaged in by the Grantee, all Options granted and not exercised prior to Grantee’s
receiving notice of such employment termination shall terminate.

     6. Restrictions on Exercise. The Option is subject to all restrictions in this
Agreement and in the Plan. As a condition of any exercise of the Option, the Company may require
the Grantee or the Grantee’s successor to make any representation and warranty to comply with any
applicable law or regulation or to confirm any factual matters reasonably requested by counsel for
the Company.

     7. Definitions. Unless otherwise defined in this Agreement, capitalized terms will
have the same meanings given them in the Plan.

	 	 	 
	 

	 	STATE AUTO FINANCIAL CORPORATION
	 
	 	 
	Date of Grant:                     , 20___

	 	By                                                             

ACCEPTANCE OF AGREEMENT

     The Grantee hereby: (a) acknowledges receiving a copy of the Plan, as amended, which is
attached to this Agreement as Exhibit A, and represents that Grantee is familiar with all
provisions of the Plan; (b) accepts this Agreement and the Option granted under this Agreement
subject to all provisions of the Plan and this Agreement; and agrees to accept as binding,
conclusive and final all decisions or interpretations of the Committee.

	 	 	 
	 

	 	                                                                                

Grantee
	 
	 	 
	 

	 	Date                                                            , 20___

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