Rule 424(b)(2)
File No. 333-41849
PROSPECTUS
STATE AUTO FINANCIAL CORPORATION
518 EAST BROAD STREET
COLUMBUS, OHIO 43215-3976
(614) 464-5000
MONTHLY STOCK PURCHASE PLAN FOR INDEPENDENT AGENTS
We are offering 350,000 of our common shares to eligible independent
agents of State Auto under the terms of the Monthly Stock Purchase Plan for
Independent Agents of State Auto. This Plan offers a convenient and inexpensive
method for agents to acquire an ownership interest in our company by having a
portion of their commissions automatically deducted and used to purchase our
common shares on the open market at current market prices. In addition, if an
agent is an "Inner Circle Agent," as designated by State Auto, State Auto will
contribute an amount equal to 5% of the commissions deducted by that agent
toward the purchase of additional common shares. Participation in this Plan is
voluntary. Agents may enroll in the Plan or withdraw from the Plan at any time,
subject to the terms of the Plan. We will pay all brokerage commissions, service
charges, and other costs incurred in connection with the purchase of our common
shares under the Plan. We have designated National City Bank as our agent to
administer the Plan.
In order to determine if you meet the definition of an "eligible
independent agent," see "Monthly Stock Purchase Plan for Agents -- Eligibility"
on page 3 of this prospectus.
Our common shares are traded on the Nasdaq National Market system under
the symbol "STFC." On December 21, 2004, the last reported sale price of our
common shares on the Nasdaq National Market system was $26.20 per share.
We will not receive any of the proceeds from the sale of common shares
under the Plan, but we will pay all costs relating to registering the common
shares subject to the Plan under the Securities Act of 1933. These costs are
estimated to be approximately $10,000.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THIS INVESTMENT INVOLVES RISKS. SEE "FORWARD-LOOKING STATEMENTS AND RISK
FACTORS" ON PAGE 1 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This prospectus is dated December 22, 2004.
TABLE OF CONTENTS
Page
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The Company............................................................... 1
Forward-Looking Statements and Risk Factors............................... 2
Monthly Stock Purchase Plan for Agents.................................... 3
Use of Proceeds........................................................... 7
Anti-Takeover Provisions.................................................. 7
Legal Matters............................................................. 7
Experts................................................................... 7
Where You Can Find More Information....................................... 7
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As used in this prospectus:
- "STFC," "we," "us" and "our" refer to State Auto Financial
Corporation;
- "State Auto Mutual" refers to State Automobile Mutual Insurance
Company, which owns approximately 66% of our outstanding common
shares;
- "State Auto" refers to our current and future insurance
subsidiaries, State Auto Mutual, and State Auto Mutual's current and
future insurance subsidiaries and affiliates;
- "You," "agents" and "eligible independent agents" refer to State
Auto's independent insurance agents; and
- The "Plan" refers to the Monthly Stock Purchase Plan for Independent
Agents of State Auto.
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WHEN WE REFER TO THIS PROSPECTUS, WE MEAN NOT ONLY THIS PROSPECTUS BUT
ALSO ANY DOCUMENTS THAT ARE INCORPORATED OR DEEMED INCORPORATED BY REFERENCE.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE
USED WHERE IT IS LEGAL TO SELL THE COMMON SHARES OFFERED BY THIS PROSPECTUS. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE
INTO THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE COVER
OF THIS PROSPECTUS OR THE DATE OF THE DOCUMENT INCORPORATED BY REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES DESCRIBED IN THIS PROSPECTUS TO ANY PERSON
IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
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THE COMPANY
GENERAL
STFC is a regional insurance holding company headquartered in Columbus,
Ohio. Through our insurance subsidiaries, we provide personal and commercial
insurance for the standard insurance market and automobile insurance for the
nonstandard insurance market. Our principal lines of business include standard
personal and commercial automobile, nonstandard personal automobile, homeowners,
commercial multi-peril, fire, general liability and workers' compensation
insurance. As of the date of this prospectus, we market our insurance products
through approximately 22,700 independent agents associated with approximately
3,300 agencies in 26 states. Our products are marketed primarily in the central
and eastern United States, excluding New York, New Jersey, and the New England
states. We are affiliated with State Auto Mutual, which owns approximately 66%
of our outstanding common shares.
An insurance pooling arrangement, which we refer to as the "State Auto
Pool," exists among certain of the State Auto insurers. Under the State Auto
Pool, premiums, losses, and underwriting expenses are shared among the pool
participants. Our insurance subsidiary-participants receive 80% in the aggregate
of this underwriting pool, while State Auto Mutual and certain of its
subsidiaries receive 20% in the aggregate of this underwriting pool.
Our insurance operations are based upon a commitment to sound underwriting
practices, responsible cost-based pricing, and a conservative investment
strategy. Combined with our focus on providing outstanding customer service to
policyholders and agents, we believe that we have earned the reputation as one
of the strongest and best managed regional insurance groups in the industry. The
State Auto Pool consistently has received A.M. Best Company's A+ (Superior)
rating.
ADDITIONAL INFORMATION ABOUT OUR COMPANY
State Auto Financial Corporation is an Ohio corporation. Our principal
executive offices are located at 518 East Broad Street, Columbus, Ohio 43215.
The telephone number of our executive offices is (614) 464-5000.
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FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Statements contained in this prospectus (including those incorporated by
reference) that express the beliefs of management or that are not historical
facts are known as forward-looking statements. Although we believe that the
expectations reflected in forward-looking statements have a reasonable basis, we
can give no assurance that these expectations will prove to have been correct.
Forward-looking statements are subject to risks and uncertainties that could
cause actual events or results to differ materially from those expressed in or
implied by the statements. Factors that could cause actual results to differ
materially from our expectations include the following:
- the adequacy of loss reserves;
- negative changes to our financial strength ratings;
- legislative and regulatory developments;
- elimination or restrictions on the use of credit scores in
underwriting;
- the inability to attract and retain customers and agents;
- realization of growth and business retention estimates;
- the competitive pricing environment, initiatives by competitors, and
other changes in competition;
- interpretation of insurance policy provisions by courts, court
decisions regarding coverage and theories of liability, trends in
litigation, and changes in claims settlement practices;
- weather conditions, including the severity and frequency of storms,
hurricanes, snowfalls, hail, and winter conditions, and the
occurrence of significant natural disasters, including earthquakes;
- the occurrence of significant acts of terrorism;
- the availability of, pricing of, and ability to collect reinsurance;
- changes in the mix of our property and casualty book of business;
- fluctuations in interest rates, performance of financial markets,
and inflationary pressures on economic sectors that increase the
severity of claims;
- general economic and market conditions; and
- the outcome of any future litigation against us.
The foregoing factors and other important factors that could cause actual
results to differ materially from our expectations are more fully described in
our Annual Report on Form 10-K for the year ended December 31, 2003, in the
section entitled "Forward-Looking Statements; Certain Factors Affecting Future
Results" found in Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations. Those risk factors are incorporated by
reference into this prospectus. See "Where You Can Find More Information." All
subsequent written and oral forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their entirety by the
cautionary statements.
We assume no obligation to update any forward-looking information
contained in this prospectus, as well as any statements incorporated by
reference in this prospectus, which speak as of the respective dates thereof,
except as otherwise required by law.
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MONTHLY STOCK PURCHASE PLAN FOR AGENTS
INTRODUCTION TO THE PLAN
The Plan provides agents with a convenient and inexpensive method to
acquire ownership in STFC by offering them an opportunity to purchase STFC's
common shares through automatic deductions from their commissions. We will pay
all costs and service charges incurred in connection with the purchase of STFC's
common shares through the Plan. Participation is voluntary. Agents who elect to
participate may enroll in the Plan or withdraw from the Plan at any time,
subject to the terms of the Plan. We have designated National City Bank to serve
as our agent to administer the Plan.
A unique feature of the Plan relates to "Inner Circle Agents." For Inner
Circle Agents, State Auto will add an amount equal to 5% of the commissions
deducted by such agents (the "Bonus Commission"). The Bonus Commission will then
be used to purchase additional common shares pursuant to the Plan for such
agents.
Each participating agent, referred to as a "Participant," should
understand that the relationship between the Participant and National City Bank
is that of client and broker/agent. Neither us, State Auto Mutual, nor any of
our respective affiliates assume any responsibility for this relationship or
serve in any capacity in this relationship. In seeking the benefits of ownership
of STFC's common shares, each Participant must also accept all of the risks
associated with an investment in the common shares. The market value of STFC's
common shares is subject to fluctuations caused by any number of factors, both
internal and external. Consequently, you may lose money under the Plan. See
"Forward-Looking Statements and Risk Factors."
ELIGIBILITY
All principals of active agencies who are entitled to receive
commissions from State Auto are eligible to participate in the Plan.
HOW THE PLAN WORKS
Opening of Account. National City Bank will open and maintain an account
in the name of each agent who elects to participate in the Plan.
Purchase of Common Shares. Participants may purchase STFC's common shares
by having commissions deducted (including Bonus Commissions for Inner Circle
Agents) and by making additional voluntary cash payments of up to $10,000 per
month. All voluntary cash payments must be made by a check or money order made
payable to "National City Bank." Commission deductions and cash payments from
all Participants will be commingled and used by National City Bank to purchase
STFC's common shares on the 10th day of each month, or the next business day if
the 10th day is not a business day for National City Bank or if the Nasdaq stock
market is not open for trading. (Participants should keep this in mind when
making cash payments, because no interest will be paid on cash in a
Participant's account.) National City Bank will credit all common shares
purchased under the Plan, including fractional common shares carried to three
decimal places, to each Participant's account. All purchases of STFC's common
shares will be made at current market prices.
Sale of Common Shares. Participants may sell common shares purchased under
the Plan in either of two ways. The Participant may ask National City Bank for a
certificate for the common shares, which will allow the Participant to sell the
common shares through a broker or dealer. Such a request must be
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submitted in writing and sent to National City Bank by mail or facsimile.
Alternatively, the Participant may ask National City Bank to arrange the sale of
the common shares. National City Bank will provide the Participant with a form
to provide instructions to National City Bank regarding the sale of common
shares. All sales of common shares will be made at the then-current market
prices and will be made on the next Friday, if the next Friday is a day on which
National City Bank and the Nasdaq stock market are open for business and
trading.
Brokerage Commissions And Other Expenses. We will pay all brokerage
commissions, service charges, and other costs and expenses related to the
purchase of our common shares under the Plan. However, regardless of the method
of sale, the Participant must pay all brokerage commissions, service charges,
and other costs and expenses associated with the sale of our common shares.
Statement Of Account. Each time common shares are purchased for a
Participant's account, National City Bank will send the Participant a detailed
statement of his or her account. The statement will show the amount of funds
invested from commission deductions (including Bonus Commissions for Inner
Circle Agents) and direct cash payments, the number of common shares purchased,
the price per common share, and the total number of common shares held in the
Participant's account. The statement will include a detachable form to be used
to give National City Bank notice of a change of address, instructions for the
sale or withdrawal of common shares, or to deposit cash payments.
Custody Of Common Shares. National City Bank will hold all common shares
in safekeeping until a Participant terminates his or her participation in the
Plan. This convenience provides protection against any loss, theft, or
destruction of share certificates. However, upon a Participant's written
request, the Participant may obtain a certificate for any full common shares in
his or her Account.
Voting And Receipt Of Reports From STFC. Each Participant in the Plan will
direct the voting of all full and fractional common shares in his or her account
and will receive all literature sent to STFC's shareholders.
Additional Terms and Conditions. In addition to the foregoing matters,
National City Bank will have the sole discretion to determine the following:
(i) the price per share of the STFC common shares it buys or sells on
behalf of a Participant;
(ii) where purchases or sales may be made, whether on any securities
exchange where the shares of STFC are traded, in the
over-the-counter market, or in negotiated transactions;
(iii) the terms of purchase or sale, including the timing thereof and the
method of delivery; and
(iv) the selection of the stock broker or other agent from, to or through
which purchases and sales are made.
Shares to be sold will be commingled with STFC shares of other
Participants requesting sales in the same week. Reinvested dividends and other
funds to be invested may be commingled with those of other Participants.
National City Bank will have no responsibility as to the market value of
the common shares acquired for any Participant's account. National City Bank
will have no liability in connection with its ability to purchase or sell STFC
common shares for reasons beyond its control. No interest is due or payable to
any Participant on funds held by National City Bank pending investment or
refund.
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Any share dividends, share splits or proceeds of sale of stock purchase
rights on STFC common shares held for Participants in their Plan accounts will
be credited to the Plan accounts.
National City Bank may deduct any service fees or brokerage commissions
from sale proceeds for any STFC common shares sold under the Plan.
Any fractional interest in a full common share will be paid in cash upon
sale of STFC common shares or termination of participation. Certificates for
fractional shares will not be issued.
HOW TO PARTICIPATE
To participate in the Plan, an agent must:
1. Complete and sign a (1) Commission Deduction Authorization and (2)
Purchase Order. To obtain these forms, call STFC's Manager, Investor
Relations, at (800) 444-9950.
2. Return the completed and signed forms to:
Manager, Investor Relations
State Auto Financial Corporation
518 East Broad Street
Columbus, Ohio 43215-3976
After we receive the Commission Deduction Authorization and the Purchase
Order, we will send both forms to National City Bank. National City Bank will
then open the Participant's account.
Each Participant must specify on the Commission Deduction Authorization
form the amount to be withheld from his or her commission disbursements.
Participants must deduct a minimum of $50 per month. The amount deducted will
remain in effect until it is revised or terminated. To change the amount of the
deduction or terminate the deduction, Participants must submit a written request
to STFC on a form that we will provide upon request. The request must be made
using STFC's form. All requests to enroll in the Plan or to terminate deductions
will become effective as soon as practicable after we receive the request.
For Inner Circle Agent Participants, State Auto will automatically cause
the Bonus Commission (5% of the amount of the commission that the Inner Circle
Agent Participant has authorized to be deducted) to be added to the amount
forwarded to National City Bank on behalf of the Inner Circle Agent. The Bonus
Commission will continue for the period of time the Participant remains an Inner
Circle Agent and the Plan remains in effect.
All amounts deducted from commission disbursements pursuant to the
Commission Deduction Authorization will be commingled and forwarded monthly by
State Auto to National City Bank together with a list of the amounts deducted
for each Participant's Account. We have reserved the right to terminate the Plan
and to discontinue the use of its commission deduction facilities for this
purpose at any time.
DIVIDEND DISBURSEMENTS
Dividends earned on common shares in the Participant's account, as they
become payable by STFC, will be automatically reinvested by National City Bank
for the benefit of each Participant pursuant to the provisions of STFC's
dividend reinvestment plan. A Participant may elect to have dividends paid
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by check by notifying National City Bank in writing. Contact National City Bank
for a Payment Election Form. If so requested, dividend checks will be mailed on
or before each dividend payment date.
TAX INFORMATION
Bonus Commissions are taxable to the Inner Circle Agents as having been
received in cash even though they are used to purchase common shares under the
Plan. In addition, the Internal Revenue Service has ruled that the amount of
brokerage commissions paid by us for common shares purchased on a Participant's
behalf must be treated as a distribution to the Participant subject to income
tax in the same manner as dividends and reported on tax form 1099-DIV. Proceeds
for shares sold under the Plan will be reported on tax form 1099-B for the year
in which the payment was made.
TERMINATION OF PLAN PARTICIPATION
A Participant may terminate his or her participation in the Plan at any
time by sending written notice to National City Bank at the following address:
National City Bank
Reinvestment Services
P.O. Box 92301
Cleveland, Ohio 44101-4946
Facsimiles notices may be sent to 1-216-257-8367
Participants should also send copy of the termination notice to STFC at
the following address:
Manager, Investor Relations
State Auto Financial Corporation
518 East Broad Street
Columbus, Ohio 43215-3976
PLAN INFORMATION
Any questions or correspondence about the Plan should be addressed to:
National City Bank
Reinvestment Services
P.O. Box 92301
Cleveland, Ohio 44101-4946
Participants may also call National City Bank at 1-800-622-6757 or e-mail
National City Bank at http://www.shareholder.inquiries@nationalcity.com.
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USE OF PROCEEDS
We will not receive any of the proceeds from the offer and sale of the
common shares under the Plan.
ANTI-TAKEOVER PROVISIONS
Our Code of Regulations contains certain provisions that could have an
anti-takeover effect. Pursuant to the Code of Regulations, our Board of
Directors is divided into three classes each with a term of three years, with
the term of one class expiring each year. As part of such provisions, the Code
of Regulations provides that (1) directors may not be removed from office by the
shareholders without cause except by the affirmative vote of holders of common
shares entitling them to exercise at least two-thirds of the voting power on
such proposal, (2) any vacancy on the Board may be filled by the remaining
directors then in office even though less than a quorum, and (3) a vote of
holders of common shares entitling them to exercise at least two-thirds of the
voting power on such proposal is required to alter, amend, or repeal the
foregoing provisions or the corresponding and implementing provisions of the
Code of Regulations or to adopt any inconsistent provision.
Our Board of Directors, without shareholder approval, could issue
preferred shares with voting and conversion rights that could adversely affect
the voting power of the holders of common shares and the issuance of which could
be used by our Board of Directors in defense of a hostile takeover.
In addition, certain provisions of our management agreement with State
Auto Mutual, which permits State Auto Mutual to terminate such agreement upon a
change in control or potential change in control of STFC, could have an
anti-takeover effect.
LEGAL MATTERS
Certain legal matters regarding the common shares to be issued under the
Plan have been passed upon for us by Baker & Hostetler LLP, Columbus, Ohio.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K
for the year ended December 31, 2003, as set forth in their report, which is
incorporated by reference into this prospectus and elsewhere in the registration
statement. Our financial statements and schedules are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and
other information with the United States Securities and Exchange Commission
("SEC"). You may read and copy such materials at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain copies of such material by mail from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference rooms. You can
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also find our SEC reports at the SEC website (http://www.sec.gov). Such reports,
proxy statements, and other documents and information concerning us are also
available for inspection at the offices of NASDAQ, 1735 K Street, N.W.,
Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we may disclose important information to you by
referring to those documents. The information incorporated by reference is
considered to be part of this prospectus. The information that we later file
with the SEC will automatically update and supercede the information contained
in this prospectus and the information incorporated by reference into this
prospectus. We incorporate by reference the documents listed below and any
additional documents filed by us with the SEC under Section 13(a), 13(c), 14, or
15(d) of the Securities Exchange Act of 1934, as amended, hereinafter referred
to as the "Exchange Act," to the extent that such documents are deemed "filed"
with the SEC for purposes of the Exchange Act:
- Our Annual Report on Form 10-K for the year ended December 31, 2003;
- Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2004, June 30, 2004 and September 30, 2004;
- Our Current Reports on Form 8-K filed on May 13, 2004, September
23, 2004, October 28, 2004 and November 12, 2004;
- Our definitive Proxy Statement on Schedule 14A filed for our Annual
Meeting of Shareholders held on May 28, 2004; and
- The description of our common shares which is contained in STFC's
Registration Statement on Form 8-A filed pursuant to Section 12 of
the Exchange Act.
You may obtain copies of any documents incorporated by reference in this
prospectus from us without charge, excluding exhibits to those documents unless
we have specifically incorporated by reference such exhibits in this prospectus,
by making a request to us by telephone or in writing. Requests should be
directed to Manager, Investor Relations, State Auto Financial Corporation, 518
East Broad Street, Columbus, Ohio 43215, telephone number (614) 464-5000. You
can also find any of the documents incorporated by reference into this
prospectus, along with any of our other SEC reports, on our website
(http://www.stfc.com).
We have filed a Registration Statement on Form S-3 with the SEC under the
Securities Act of 1933, as amended, with respect to the securities offered
hereby. This prospectus, which constitutes a part of the Registration Statement
on Form S-3, does not contain all the information set forth in that Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. We are referring you to that Registration Statement and
to the exhibits for further information with respect to us and the securities
offered hereby. The statements contained in this prospectus concerning the
provisions of any document are not necessarily complete, and, in each instance,
we refer you to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the SEC. Each such statement is
qualified in its entirety by such reference.
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