Shepard Raises Offer for 8 Million Shares of State Auto Financial

June 24, 2003

Investor Greg Shepard, who owns about 5 percent of Columbus, Ohio-based State Auto Financial Corp., offered to commence a tender offer for 8 million of State Auto’s 10.9 million public shares at $30 each.

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.

Topics Auto Funding

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