-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BkRrB85+qQcO3WJ1K1c/oz6AhHS4TfU+97kTEI852b5outWUjTjSOjbUUTGvNVs+ y/QMpY0BCgOpdTEhV0IQOA== 0000950152-03-006115.txt : 20030613 0000950152-03-006115.hdr.sgml : 20030613 20030613090648 ACCESSION NUMBER: 0000950152-03-006115 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20030613 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: STATE AUTO FINANCIAL CORP CENTRAL INDEX KEY: 0000874977 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 311324304 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-58913 FILM NUMBER: 03742871 BUSINESS ADDRESS: STREET 1: 518 E BROAD ST CITY: COLUMBUS STATE: OH ZIP: 43215-3976 BUSINESS PHONE: 6144645000 MAIL ADDRESS: STREET 1: 518 EAST BROAD STREET CITY: COLUMBUS STATE: OH ZIP: 43215 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SHEPARD GREGORY M CENTRAL INDEX KEY: 0001065833 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 303 E WASHINGTON STREET CITY: BLOOMINGTON STATE: IL ZIP: 61701 BUSINESS PHONE: 3095571210 MAIL ADDRESS: STREET 1: 303 E WASHINGTON STREET CITY: BLOOMINGTON STATE: IL ZIP: 61701 SC 13D/A 1 l01452asc13dza.txt STATE AUTO FINANCIAL CORPORATION AMENDMENT NO. 4 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20459 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment NO. 4) STATE AUTO FINANCIAL CORPORATION (Name of Issuer) COMMON SHARES (Title of Class of Securities) 85570710500 (CUSIP Number of Class of Securities) F. Ronald O'Keefe, Esq. Hahn Loeser & Parks LLP 3300 BP Tower 200 Public Square Cleveland, Ohio 44114-2301 (216) 621-0150 (Name, address and telephone number of persons authorized to receive notices and communications on behalf of person(s) filing statement) JUNE 13, 2003 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-l(b)(3) or (4), check the following box [ ]. CUSIP No. 85570710500 1. NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NOS. OF REPORTING PERSON GREGORY M. SHEPARD 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] 3. SEC USE ONLY 4. SOURCE OF FUNDS 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ x ] 6. CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES OF AMERICA 7. SOLE VOTING POWER NUMBER OF SHARES BENEFICIALLY 2,000,000 OWNED BY EACH REPORTING PERSON 8. SHARED VOTING POWER WITH -0- 9. SOLE DISPOSITIVE POWER 2,000,000 10. SHARED DISPOSITIVE POWER -0- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,000,000 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.11% 14. TYPE OF REPORTING PERSON IN SCHEDULE 13D/ A This Amendment No. 4 to Schedule 13D is filed on behalf of Gregory M. Shepard, an individual, for the purpose of updating Items 4 and 7 hereof with respect to his shares of common stock, no par value ("Shares") of State Auto Financial Corporation ("STFC"). ITEM 4. PURPOSE OF TRANSACTION ITEM 4 IS HEREBY AMENDED TO ADD THE FOLLOWING: On June 13, 2003, the Filing Person sent a letter (attached as Exhibit 7.8) to the Board of Directors of State Automobile Mutual Insurance Company ("State Auto") and the Board of Directors of STFC proposing to negotiate a transaction whereby, subject to the completion of customary due diligence by the Filing Person and his financing sources, the Filing Person would be willing to consider injecting equity into STFC through the purchase of STFC Class A Preferred Stock. Upon the completion of the financing, STFC and a wholly owned to be formed Ohio acquisition corporation would then immediately commence a tender offer for STFC's 10,896,332 public shares (other than the Filing Person's shares as of March 31, 2003) for $29.00 per share (the "Proposed Transaction"). Subject to the negotiation of terms with STFC, the Filing Person would agree not to tender his shares in the public tender offer but instead would exchange his 2,000,000 shares of STFC common stock for $58,000,000 of STFC Class B Preferred Stock with no maturity, redemption or cash dividend requirements. In addition, the Filing Person would require STFC to make every effort to enter into agreements to terminate all of its outstanding stock options at $29.00 per share. A press release (attached as Exhibit 7.9) describing the letter and its contents was issued on the same day. This summary of the letter and the press release does not purport to be complete and is qualified in its entirety by reference to the complete text of the letter and the press release. A copy of the letter and the press release are filed as Exhibit 7.8 and 7.9 hereto, respectively and are incorporated herein by reference. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. 7.8 Letter to Board of Directors of State Automobile Mutual Insurance Company and Board of Directors of STFC. 7.9 Press Release SCHEDULE 13D SIGNATURE PAGE After reasonable inquiry and to the best of his knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. DATED: June 13, 2003 /s/ Gregory M. Shepard - --------------------------------------------- Gregory M. Shepard EXHIBIT INDEX ------------- 7.8 Letter to Board of Directors of State Automobile Mutual Insurance Company and Board of Directors of STFC. 7.9 Press Release EX-7.8 3 l01452aexv7w8.txt EX-7.8 LETTER TO BOARD OF DIRECTORS EXHIBIT 7.8 GREGORY M. SHEPARD ATTORNEY AT LAW 15 COUNTRY CLUB PLACE BLOOMINGTON, ILLINOIS 61701 Telephone: 309 827-5968 E-mail: gshepard2000@aol.com June 13, 2003 VIA TELECOPY AND FEDERAL EXPRESS Board of Directors State Auto Financial Corporation 518 East Broad Street Columbus, OH 43215-3976 Board of Directors State Automobile Mutual Insurance Company 518 East Broad Street Columbus, OH 43215-3976 Attention: Mr. Robert H. Moone, Chairman and CEO Gentlemen: As the largest non-affiliated public stockholder of State Auto Financial Corporation ("STFC"), with 2 million shares, I want our company to enhance - not ignore - value for investors. I have carefully read your letters of June 4, 2003 and June 6, 2003 with great interest and while I am disappointed in your response, I remain hopeful that we can bridge the differences. State Automobile Mutual Insurance Company, being an Ohio mutual property and casualty insurance company, is subject to the Ohio Insurance Code (the "Code"). The Code only provides one means for infusing policyholders surplus to a mutual and that is through the issuance of surplus notes. Code Section & 3901.72 - Money advanced to insurance company or health insuring corporation. It states "any person may advance to a domestic insurance company any sum of money necessary for the purpose of the insurance company's business or as a cash guarantee fund. Such money, and interest agreed upon, not exceeding ten per cent per annum, shall not be a liability or claim against the insurance company and shall be repaid only out of the surplus earnings of such insurance company. Except as ordered by the superintendent of insurance, no part of the principal or interest thereof shall be repaid until the surplus of the insurance company remaining after such repayment is equal in amount to the principal of the money so advanced." In your letter of June 4th you mentioned that my proposed merger would be a "debt-laden transaction." State Auto Mutual would not be borrowing the $310-$320 million needed to fund the transaction but rather would be issuing surplus notes which according to statutory accounting would be recorded on page 3 line 31 of State Auto Mutual's quarterly and annual statements as surplus as regards policyholders. If the National Association of Insurance Commissioners and the Code have defined surplus notes as surplus, and given that surplus notes or surplus advances are the only known ways of injecting surplus into a mutual, why are you then characterizing the surplus notes as debt? I'm looking to enter into discussions with you that might result in a transaction that results in value for all shareholders. In an effort to reach an acceptable proposal, I propose that we leave State Auto Mutual intact (no merger with Mid- West), and that State Auto Mutual, STFC and myself negotiate a transaction. In particular, subject to completion of customary due diligence, I would be willing to consider injecting equity into STFC through the purchase of STFC Class A Preferred Stock, although I would prefer to finance the transaction with surplus notes. Upon completion of the financing, STFC and a wholly owned to-be-formed Ohio acquisition corporation would then immediately commence a tender offer for STFC's 10,896,332 public shares (other than my shares as of March 31, 2003) for $29.00 per share. I would agree not to tender my shares in the public tender offer and instead would exchange my 2,000,000 shares of STFC common stock for $58,000,000 of STFC Class B Preferred Stock without maturity, redemption or cash dividend requirements. In addition, STFC would make every effort to cash out all of its outstanding stock options at $29.00 per share. Any transaction we might negotiate would be conditioned on my nominees representing a majority of the boards of directors of STFC, State Auto Mutual and its insurance subsidiaries and affiliates. By the way, I noticed in your letter dated June 6th that you believe that further action by STFC is not "necessary or appropriate." Presumably, the State Auto Mutual Special Committee of independent directors, which you promised would meet to evaluate my proposal, did not meet. If it did meet, I request a copy of the minutes of that meeting. I also request the minutes from the board meeting of STFC, which your June 6, 2003 letter mentioned had met to evaluate my proposal. I would be happy to meet with the Boards to explain my proposals, should you so desire. Please respond to me before June 18, 2003. Very truly yours, /s/ Gregory M. Shepard Gregory M. Shepard EX-7.9 4 l01452aexv7w9.txt EX-7.9 PRESS RELEASE EXHIBIT 7.9 SHEPARD OFFERS $29.00 FOR STATE AUTO FINANCIAL CORPORATION Bloomington, Illinois, June 13, 2003 - Investor Greg Shepard, who owns approximately 5% of State Auto Financial Corporation (NASDAQ "STFC"), by letter today offered $29.00 for STFC's 10,896,332 public shares (other than Mr. Shepard's shares as of March 31, 2003). Mr. Shepard stated that he would not tender his shares in the public tender offer, but instead would exchange his 2,000,000 shares in STFC common stock for $58,000,000 of STFC Class B Preferred Stock, without maturity, redemption or cash dividend requirements. He also stated that his proposal was conditioned on his nominees representing a majority of the boards of directors of STFC, State Auto Mutual, and its insurance subsidiaries and affiliates. In his letter, Shepard stated: "As the largest non-affiliated public stockholder of STFC, with 2,000,000 shares, I want our company to enhance - not ignore - value for the investors. I have carefully read your letters of June 4, 2003 and June 6, 2003 with great interest and while I am disappointed in your response, I remain hopeful that we can bridge the differences." Shepard went on to say that his new proposal would leave State Auto Mutual intact (requiring no merger with Mid-West Mutual), and that he would be willing to consider injecting equity into STFC via the purchase of STFC Class A Preferred Stock. Mr. Shepard, responding to Mr. Moone's assertion that Mr. Shepard's proposal was a "debt-laden transaction", pointed out in his letter to Mr. Moone that his previous proposal, which involved issuing surplus notes, is defined as surplus and not debt under the Ohio Insurance Code. Shepard asked for a response to his proposal before June 18, 2003. Shepard also said he would be happy to meet with the Boards to explain his proposals, should they so desire. ADDITIONAL INFORMATION RELATING TO MR. SHEPARD'S PROPOSAL IS CONTAINED IN THE SCHEDULE 13D FILED BY GREGORY M. SHEPARD WITH RESPECT TO STATE AUTO FINANCIAL CORPORATION. THAT SCHEDULE 13D IS CURRENTLY AVAILABLE AT NO CHARGE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT http://www.sec.gov. -----END PRIVACY-ENHANCED MESSAGE-----