-----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, ID/8EheklTZS5VA1Zsgy7lrGiYo3GUojDBFm9CPMxVeR0DpdF7FW3H7snVIg6xOf qrGrw+RtZZtmM+EXy7ra6Q== 0000950152-03-006267.txt : 20030623 0000950152-03-006267.hdr.sgml : 20030623 20030623080111 ACCESSION NUMBER: 0000950152-03-006267 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20030623 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: 03752488 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 l01592asc13dza.txt STATE AUTO FINANCIAL CORPORATION/GREGORY SHEPPARD SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20459 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment NO. 5) 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 23, 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. 5 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 23, 2003, the Filing Person sent a letter (attached as Exhibit 7.10) 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, the Filing Person would commence a tender offer for 8,000,000 of STFC's 10,896,332 public shares (other than the Filing Person's shares as of March 31, 2003) for $30.00 per share. The Filing Person would agree not to tender his shares in the public tender offer and State Auto, and all directors and executive officers of State Auto and STFC, would also agree not to tender any shares. The Filing Person's financing would not involve the incurrence of any debt by State Auto, STFC or their subsidiaries or affiliates. STFC would not cash out its outstanding stock options. A press release (attached as Exhibit 7.11) 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 7.10 and 7.11 hereto, respectively and are incorporated herein by reference. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. 7.10 Letter to Board of Directors of State Automobile Mutual Insurance Company and Board of Directors of STFC. 7.11 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 23, 2003 /s/ Gregory M. Shepard - ------------------------------------- Gregory M. Shepard EXHIBIT INDEX 7.10 Letter to Board of Directors of State Automobile Mutual Insurance Company and Board of Directors of STFC. 7.11 Press Release EX-7.10 3 l01592aexv7w10.txt EX-7.10 LETTER TO BOARD OF DIRECTORS Exhibit 7.10 Gregory M. Shepard Attorney at Law 15 Country Club Place Bloomington, Illinois 61701 Telephone (309) 827-5968 Email gshepard2000@aol.com June 23, 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: I have carefully read your letters of June 4, 2003, June 6, 2003 and June 13, 2003. As the largest non-affiliated public stockholder of State Auto Financial Corporation ("STFC"), with 2 million shares, I am, again, disappointed by your intransigence to enter into a dialogue to enhance STFC shareholder value. In an effort to reach an acceptable proposal, on May 29th, I proposed injecting surplus directly into State Automobile Mutual Insurance Company ("State Auto Mutual"), following a merger with a mutual-in-formation (Mid-West Mutual Insurance Company). State Auto Mutual, as the surviving company of the merger, would then have immediately commenced a tender offer for STFC's 10,896,332 public shares (other than my shares as of March 31, 2003) for $27.50 per share. I would have exchanged my 2,000,000 shares of STFC common stock for $55 million of STFC preferred stock without maturity or cash dividend requirements. STFC would have cashed out its outstanding stock options at $27.50 per share. Your June 4th letter stated that my proposal lacked apparent business benefits because: 1. The proposed merger would be with a yet-to-be formed mutual insurance company; 2. State Auto Mutual would be required to borrow $400 million to complete the transaction; 3. No additional financial strength would have been brought to State Auto Mutual; and 4. The proposed transaction did not expand State Auto Mutual's insurance markets or business opportunities. Your June 4th letter stated that an independent committee of State Auto Mutual had been created, but you have not named them or provided any minutes of their deliberations, despite my requests to receive them. Your June 6th letter states that the Board of STFC met, but again I have not received minutes of that meeting. In this era of enhanced corporate governance, it's a very serious issue when the single largest unaffiliated stockholder cannot see the minutes of meetings of his Board, who are supposed to be the guardians of STFC stockholder value. On June 13th, in an effort to respond to your issues, I revised my proposal to eliminate the mutual merger and the surplus notes, and instead I proposed injecting additional capital through STFC preferred stock. I also increased the price from $27.50 to $29.00 per share. According to "Insurance Mergers and Acquisitions", dated 6/17/03 ("IMA"), my $29.00 per share offer is "fairly rich", and carries a price/book ratio of 234.6%, a price/earnings ratio of 25.7x, and a price/operating earnings ratio of 29.3x. According to IMA, based on announced offers involving auto insurance since 2000, the average price/book was 93.1%, the average price/earnings was 8.3x, and the average price/operating earnings was 8.6x. I trust the special committees of both State Auto Mutual and State Auto Financial Corporation very carefully considered my proposed offer from the standpoint of value to the STFC shareholders. Your June 13th letter back to me stated that in your view my plan continues to "use State Auto's own assets" to accomplish my tender offer. I have tried to explain to you how under the Ohio Insurance Code my proposed financing would have been booked as surplus, not debt. In a further effort to address your issues, I now propose that State Auto Mutual, STFC and myself negotiate a transaction whereby, subject to completion of customary due diligence, I would commence a tender offer for 8,000,000 of STFC's 10,896,332 public shares (other than my shares as of March 31, 2003) for $30.00 per share. I would agree not to tender my shares in the public tender offer, and State Auto Mutual, and all directors and executive officers of State Auto Mutual and STFC, would also agree not to tender any shares. Our financing would not involve the incurrence of any debt by State Auto Mutual, STFC or their subsidiaries or affiliates. STFC would not cash out its outstanding stock options. 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. The many business benefits of this proposal are obvious and are responsive to the points raised in your June 4th letter. Not only is the current State Auto Mutual/STFC structure preserved, but State Auto Mutual's 26.3 million STFC common shares could be expected to rise in value significantly above their March 31, 2003 close of $16.90; perhaps increasing State Auto Mutual's financial strength by more than $200 million. My proposal provides those STFC stockholders who now desire to sell their shares an extraordinary opportunity to do so. The remaining shareholders can rest assured that I am committed to enhancing - not ignoring - value for investors. I would like your boards to tell me and the other STFC shareholders in detail if you think this proposal is unfair from a financial point of view. If you do not think it's fair, I insist on meeting with the boards of State Auto Mutual and STFC and their respective financial representatives to find out why on earth you believe that to be the case. I hope for your sake you are being properly advised and that you are not merely entrenching yourselves in management positions, as that would be legally actionable. I repeat my demand for all minutes of the Boards of Directors of State Auto Mutual and STFC and their special independent committees that deliberated my proposals since May 29, 2003. I repeat my demand to know the identities of the special independent committees of both Boards, as well as their independent financial advisors. Please contact me so we may begin negotiations before June 30, 2003. Very truly yours, /s/ Gregory M. Shepard Gregory M. Shepard EX-7.11 4 l01592aexv7w11.txt EX-7.11 PRESS RELEASE EXHIBIT 7.11 SHEPARD RAISES OFFER TO $30.00 FOR 8,000,000 SHARES OF STATE AUTO FINANCIAL CORPORATION Bloomington, Illinois, June 23, 2003 - Investor Greg Shepard, who owns approximately 5% of State Auto Financial Corporation (NASDAQ "STFC"), by letter today offered to commence a tender offer for 8,000,000 of STFC's 10,896,332 public shares for $30.00 per share. Mr. Shepard stated that he would not tender his shares in the public tender offer, and that State Auto Mutual, and all directors and executive officers of State Auto Mutual and STFC would have to agree not to tender any of their shares. He also stated that his proposal would not involve the incurrence of any debt by State Auto Mutual, STFC or their subsidiaries or affiliates. STFC would not cash out its outstanding stock options. Any transaction Shepard might negotiate would be subject to customary due diligence, and be 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: "The many business benefits of this proposal are obvious. Not only is the current State Auto Mutual/STFC structure preserved, but State Auto Mutual's 26.3 million STFC common shares could be expected to rise in value significantly above their March 31, 2003 close of $16.90; perhaps increasing State Auto Mutual's financial strength by more than $200 million. My proposal provides those stockholders who now desire to sell their shares an extraordinary opportunity to do so. The remaining shareholders can rest assured that I am committed to enhancing - not ignoring - value for investors." Shepard asked for a response to his proposal before June 30, 2003 so that negotiations could begin. 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-----