<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SAFECO Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
NOTICE OF
1997 ANNUAL MEETING
OF SHAREHOLDERS
AND PROXY STATEMENT
[LOGO]
[LOGO]
<PAGE>
SAFECO CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 7, 1997
------------------------
Seattle, Washington
March 14, 1997
To Our Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of SAFECO
Corporation (the "Corporation") will be held on May 7, 1997, at 11:00 a.m. in
the SAFECO Auditorium, SAFECO Plaza, 4333 Brooklyn Avenue N.E., Seattle,
Washington, for the following purposes, as set forth in the accompanying Proxy
Statement:
1. To elect one nominee to serve as a director for a one-year term to
expire in 1998 and four nominees to serve as directors for three-year
terms to expire in 2000;
2. To consider and act upon a proposal to amend Article V of the
Corporation's Restated Articles of Incorporation regarding directors
elected to fill vacancies on the Board of Directors;
3. To consider and act upon a proposal to amend Article II of the
Corporation's Bylaws regarding directors elected to fill vacancies on the
Board of Directors;
4. To consider and act upon a proposal to amend Article XII of the
Corporation's Bylaws to provide broader indemnification to directors and
officers;
5. To consider and act upon a proposal to adopt the SAFECO Long-Term
Incentive Plan of 1997; and
6. To consider and act upon such other matters as may properly come before
the Annual Meeting.
The Board of Directors has established the close of business on March 3,
1997, as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting and any adjournment or
postponement thereof.
YOU ARE URGED TO REVIEW CAREFULLY THE ACCOMPANYING PROXY STATEMENT AND TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
Your proxy may be revoked by you at any time before it has been voted. You
may substitute a representative other than those named in the enclosed proxy if
you desire. The individuals named in the proxy are the present members of the
Executive Committee of the Board of Directors.
You are cordially invited to attend the Annual Meeting in person if it is
convenient for you to do so.
[SIGNATURE]
Roger H. Eigsti
Chairman and Chief Executive Officer
<PAGE>
SAFECO CORPORATION
SAFECO PLAZA, SEATTLE, WASHINGTON 98185
------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS--MAY 7, 1997
---------------------
This Proxy Statement is furnished in connection with the Annual Meeting of
Shareholders of SAFECO Corporation (the "Corporation") to be held on May 7, 1997
(the "Annual Meeting"). Shareholders of record at the close of business on March
3, 1997, are entitled to vote at the Annual Meeting either in person or by
proxy.
Your proxy in the enclosed form is solicited by the Board of Directors of the
Corporation. The shares represented by the proxies received will be voted at the
meeting in accordance with your directions.
The approximate date of the mailing of this Proxy Statement and the enclosed
form of proxy is March 14, 1997.
OUTSTANDING SHARES AND VOTE REQUIRED
On March 3, 1997, there were 126,311,952 shares of the Common Stock of the
Corporation ("Common Stock") outstanding, all of which will be entitled to vote
at the Annual Meeting to be held on May 7, 1997. Each shareholder is entitled to
one vote for each share of Common Stock held of record in such person's name on
the record date. Under Washington law and the Corporation's Restated Articles of
Incorporation, a quorum consisting of a majority of the shares entitled to vote
must be represented in person or by proxy for the transaction of business at the
Annual Meeting. Directors are elected by a majority of the votes cast by shares
present, in person or by proxy, and entitled to vote at the Annual Meeting.
Votes withheld with respect to the election of directors will not be counted
either in favor of or against the election of the nominees. Under the
Corporation's Restated Articles of Incorporation, the favorable vote of the
holders of 67% of the outstanding shares of the Common Stock will be required to
adopt Proposal 2. Under Washington law, the favorable vote of a majority of the
shares present, in person or by proxy, and entitled to vote at the Annual
Meeting will be required to adopt Proposals 3, 4 and 5. Abstentions from voting
will have the effect of voting against Proposals 2, 3, 4 and 5. Brokers who hold
shares for the account of their clients may vote their clients' proxies in the
brokers' own discretion as to the election of directors and Proposals 2, 3, 4
and 5 if the clients have not furnished voting instructions by 10 days prior to
the Annual Meeting. Proxies solicited by the Board of Directors will be voted in
favor of each of the director nominees and Proposals 2, 3, 4 and 5 unless
shareholders specify a contrary choice in their proxies.
SOLICITATION OF PROXIES
The persons named as proxies were selected by the Board of Directors and are the
present members of the Executive Committee of the Board. Your proxy may be
revoked by you at any time before it has been voted by notifying the Secretary
to the Board of Directors, SAFECO Corporation, SAFECO Plaza, Seattle, Washington
98185, in writing of such revocation. Georgeson & Company Inc., New York, New
York, has been retained to solicit proxies personally or by mail, telephone or
telegram at a cost anticipated to be $6,000 plus reasonable out-of-pocket
expenses, which will be paid by the Corporation. Management does not expect to
solicit proxies except through the mail; however, if proxies are not promptly
received, employees of the Corporation may solicit proxies personally, by
telephone or fax.
1
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Board of Directors is divided into three classes. Since the date of the 1996
Annual Meeting of Shareholders, one of the Corporation's directors, William R.
Wiley, died and the Executive Committee, pursuant to the Bylaws, reduced the
number of directors from 13 to 12. The Corporation's Restated Articles of
Incorporation require the directors to be divided into three classes, with each
class to be as nearly equal in number as possible. To achieve equality in
number, Robert S. Cline has been reclassified from a Class II to a Class III
director and nominated for a one-year term. The four other current Class II
directors are nominated for three-year terms.
Unless otherwise stated, each individual described below has served for at least
five years in the position indicated. All nominees are presently directors of
the Corporation.
NOMINEES FOR DIRECTOR
CLASS III--TERM EXPIRES AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS
ROBERT S. CLINE, 59, is Chairman and Chief Executive Officer of Airborne Freight
Corporation, Seattle, Washington, an air freight carrier. Mr. Cline has been a
director of the Corporation since 1992 and is an advisory director of Seafirst
Corporation and a director of Metricom, Inc.
CLASS II--TERM EXPIRES AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS
JOSHUA GREEN III, 60, is Chairman and Chief Executive Officer of the Joshua
Green Corporation, Seattle, Washington, a family investment firm, and Chairman
of its wholly-owned subsidiary, Sage Manufacturing Corporation. Mr. Green has
been a director of the Corporation since 1981 and is a director of U.S. Bancorp.
WILLIAM G. REED, JR., 58, is the former Chairman of Simpson Investment Company,
Seattle, Washington, a forest products holding company. Mr. Reed has been a
director of the Corporation since 1974 and is a director of Microsoft
Corporation, The Seattle Times, Washington Mutual, Inc. and Washington Mutual
Bank.
JUDITH M. RUNSTAD, 52, is a partner of the Seattle law firm of Foster Pepper &
Shefelman. Mrs. Runstad has been a director of the Corporation since 1990 and is
Chairman of the Board of Directors of the Federal Reserve Bank of San Francisco.
GEORGE H. WEYERHAEUSER, 70, is Chairman of the Board of Weyerhaeuser Company,
Tacoma, Washington, a forest products company, and was its Chief Executive
Officer from 1966 until his retirement in 1991. Mr. Weyerhaeuser has been a
director of the Corporation since 1978 and is a director of The Boeing Company
and Chevron Corporation. Under the terms of the Corporation's retirement policy
for directors, Mr. Weyerhaeuser will retire as a director at the 1999 Annual
Meeting of Shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE DIRECTOR
NOMINEES.
CONTINUING DIRECTORS
CLASS III--TERM EXPIRES AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS
ROGER H. EIGSTI, 54, is Chairman and Chief Executive Officer of the Corporation.
Mr. Eigsti has been an executive officer of the Corporation or its subsidiaries
since 1980 and a director of the Corporation since 1988. Mr. Eigsti is a
director of Washington Mutual, Inc. and Washington Mutual Bank.
JOHN W. ELLIS, 68, is Chairman and Chief Executive Officer of the corporate
general partner of The Baseball Club of Seattle, L.P., the owner of the Seattle
Mariners baseball team. Mr. Ellis is a director of Puget
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Sound Energy, Inc. and was its Chief Executive Officer from 1976 to 1992 and its
Chairman from 1987 to 1993. Mr. Ellis has been a director of the Corporation
since 1981 and is a director of Washington Mutual, Inc. and Washington Mutual
Bank, UTILX Corporation and Associated Electric & Gas Insurance Services, Ltd.
WILLIAM W. KRIPPAEHNE, JR., 46, is President and Chief Executive Officer of
Fisher Companies Inc., Seattle, Washington, whose primary subsidiaries are
engaged in broadcasting, flour milling and real estate ownership and
development. Mr. Krippaehne has been an executive officer of Fisher Companies
since 1982 and a director of the Corporation since 1996.
CLASS I--TERM EXPIRES AT THE 1999 ANNUAL MEETING OF SHAREHOLDERS
PHYLLIS J. CAMPBELL, 45, is President and Chief Executive Officer of U.S. Bank
of Washington, N.A., Seattle, Washington, and has been an executive officer of
the bank since 1989. She is also Executive Vice President of U.S. Bancorp. Ms.
Campbell has been a director of the Corporation since 1994 and is a director of
Puget Sound Energy, Inc.
BOH A. DICKEY, 52, is President of the Corporation and Chairman of the Board of
Trustees for the 23 SAFECO mutual funds. Mr. Dickey has been an executive
officer of the Corporation since 1982 and a director of the Corporation since
1993.
WILLIAM P. GERBERDING, 67, is President Emeritus of the University of
Washington, where he served as President from 1979 until his retirement in 1995.
Dr. Gerberding has been a director of the Corporation since 1981 and is a
director of Washington Mutual, Inc. and Washington Mutual Bank.
PAUL W. SKINNER, 49, is President of Skinner Corporation, Seattle, Washington,
an investment company. Mr. Skinner has been a director of the Corporation since
1988 and is an advisory director of Seafirst Corporation and Seattle-First
National Bank.
OWNERSHIP OF THE CORPORATION'S COMMON STOCK
The following table provides information as of February 6, 1997, with regard to
the ownership of the Common Stock by directors, nominees for director, the
Corporation's chief executive officer and four other most highly compensated
executive officers, and all directors and executive officers as a group. Total
beneficial ownership of the outstanding Common Stock is less than 1% in the case
of each individual listed below except as follows: 2.0% for Mr. Green, 2.4% for
Mr. Krippaehne, and 5.2% for all 17 directors and executive officers as a group
(including shares subject to stock options which may be exercised within 60
days). The holdings shown in the table do not include 4,515,600 shares held by
The SAFECO Employees' Profit Sharing Retirement Plan, as to which the members of
that plan's Investment Committee (Messrs. Cline, Ellis, Gerberding, Krippaehne,
Reed and Skinner) share voting and investment power and certain members of
management may be deemed to share investment power by reason of their positions.
3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED AND NATURE NUMBER OF SHARES
OF BENEFICIAL ACQUIRABLE WITHIN
NAME OWNERSHIP 60 DAYS(1)
- ------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
Phyllis J. Campbell................................... 1,000 --
Robert S. Cline....................................... 4,000 --
Boh A. Dickey......................................... 42,331 65,200
Roger H. Eigsti....................................... 107,202 62,602
John W. Ellis......................................... 12,024 --
William P. Gerberding................................. 2,000 --
Joshua Green III...................................... 2,547,432(2) --
William W. Krippaehne, Jr............................. 3,004,237(3) --
Dan D. McLean......................................... 20,984(4) 23,580
William G. Reed, Jr................................... 280,249(5) --
James W. Ruddy........................................ 3,500 15,500
Judith M. Runstad..................................... 2,500 --
Paul W. Skinner....................................... 278,120(6) --
George H. Weyerhaeuser................................ 55,600(7) --
Richard E. Zunker..................................... 15,738(8) 10,250
All directors and executive officers as a group (17
persons)............................................ 6,582,779 200,232
</TABLE>
- ------------------------
(1) Shares which may be purchased within 60 days pursuant to the SAFECO
Incentive Plan of 1987.
(2) Represents 2,546,832 shares owned by the Joshua Green Corporation in which
Mr. Green has a substantial interest with voting and investment power, and
600 shares owned by his spouse.
(3) Includes 3,002,376 shares owned by two corporations of which Mr. Krippaehne
is an officer and director and for which he thereby has shared voting and
investment power, and 372 shares owned by Mr. Krippaehne's spouse. Mr.
Krippaehne disclaims any beneficial interest in any of the shares referred
to in this footnote, other than such indirect interest he may have as a
stockholder of said corporations.
(4) Includes 7,200 shares owned by Mr. McLean's spouse.
(5) Includes (i) 80,694 shares owned by one trust of which Mr. Reed is a
co-trustee and beneficiary and for which he thereby shares voting and
investment power, (ii) 7,772 shares owned by Mr. Reed's spouse, and (iii)
41,806 shares owned by Mr. Reed's children.
(6) Includes 258,120 shares owned by Skinner Corporation in which Mr. Skinner
has a substantial interest and 16,000 shares owned by trusts of which Mr.
Skinner is a trustee, and for which he thereby in each case shares voting
and investment power. Mr. Skinner disclaims any beneficial interest in the
shares owned by the trusts.
(7) Includes 25,200 shares owned by trusts of which Mr. Weyerhaeuser is
co-trustee and for which he shares voting and investment power.
(8) Includes 800 shares owned by Mr. Zunker's spouse.
In addition, INVESCO PLC, 11 Devonshire Square, London EC2M 4YR, England,
reported in a Schedule 13G filed with the Securities and Exchange Commission
("SEC") that its subsidiaries had shared voting power and investment discretion
with respect to 12,545,453 shares, or 9.9%, of the Common Stock, at December 31,
1996. The subsidiaries, which are investment advisers, hold the shares on behalf
of their clients, none of which holds more than 5% of the Common Stock. The
Capital Group Companies, Inc., 333
4
<PAGE>
South Hope Street, Los Angeles, California 90071, reported in a Schedule 13G
filed with the SEC that at December 31, 1996, its subsidiaries in the aggregate
had investment discretion with respect to 9,186,100 shares, or a combined total
of 7.3%, of the Common Stock, including 236,800 shares with respect to which
such subsidiaries had sole voting power. The subsidiaries are investment
management companies and hold the shares on behalf of their clients, none of
which holds more than 5% of the Common Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16 of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), directors and officers of the Corporation are required to report their
holdings of and transactions in the Corporation's Common Stock to the SEC. To
the Corporation's knowledge, based solely on a review of the copies of such
reports furnished to the Corporation and written representations that no other
reports were required, during 1996 all persons subject to the Section 16
reporting requirements with respect to the Corporation filed the required
reports on a timely basis.
COMMITTEES OF THE BOARD
The Board of Directors of the Corporation presently has these standing
committees: Executive, Finance, Audit, Compensation and Nominating. Except for
certain fundamental corporate acts reserved to the full Board under Washington
law, the Executive Committee has broad authority, when the Board is not in
session, to exercise all the powers of the Board in management of the business
of the Corporation. The Finance Committee has general supervision over the
investments of and all matters of financing by the Corporation. The Audit
Committee recommends independent auditors for selection by the Board of
Directors, reviews plans for upcoming audits with such auditors, and, after an
audit has been completed, reviews the results of that audit. The Compensation
Committee passes upon all salary increases where the proposed salary is $150,000
per year or more, reviews salary administration policy, administers the
Corporation's stock option program, and approves all material changes in
employee benefit programs. The Nominating Committee reviews qualifications of
candidates for board membership, recommends to the Executive Committee
candidates for membership on the Board and the annual slate of nominees for
director, and recommends to the Board criteria for board membership, composition
of the Board, tenure of directors and fees to be paid to directors.
During 1996 the Board and the Executive, Compensation, and Finance Committees
each held four meetings, the Audit Committee held two meetings, and the
Nominating Committee held one meeting. All current directors attended at least
75% of the Board and committee meetings they were eligible to attend. The
present members of each committee are:
<TABLE>
<CAPTION>
COMMITTEE MEMBERS
<S> <C>
Executive Messrs. Eigsti (Chair), Ellis, Green, Weyerhaeuser and Mrs. Runstad.
Finance Messrs. Cline, Dickey, Eigsti, Ellis (Chair), Gerberding, Krippaehne, Reed
and Skinner.
Compensation Messrs. Cline, Ellis, Reed, Weyerhaeuser (Chair) and Ms. Campbell.
Audit Messrs. Gerberding, Green, Krippaehne, Skinner and Mrs. Runstad (Chair).
Nominating Messrs. Ellis, Green (Chair) and Reed.
</TABLE>
5
<PAGE>
COMPENSATION OF DIRECTORS AND OFFICERS
COMPENSATION OF DIRECTORS
Directors of the Corporation, except those who are also employees, receive fees
for their services as directors. The director fees are: an annual retainer of
$24,000, a $1,500 fee for attendance at any Board meeting, and a $1,000 fee for
attendance at any committee meeting. In addition, the Chair of the Finance
Committee receives an annual retainer of $5,000 and a $1,000 fee for attendance
at any meeting of the Corporation's management investment committee. Directors
may elect to defer their annual retainer and meeting fees under the terms of the
SAFECO Corporation Deferred Compensation Plan for Directors. Amounts deferred
under that plan are credited with interest at the applicable federal long-term
rate in effect at January 1 of each year as determined for purposes of Section
1274 of the Internal Revenue Code of 1986, as amended (the "Code"). Directors
are also reimbursed for reasonable travel expenses.
ANNUAL REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE
Five outside directors of the Corporation, none of whom has been or is an
employee of the Corporation and all of whom qualify as "non-employee directors"
for purposes of administering the Corporation's stock option program under
Section 16 of the Exchange Act, comprise the Compensation Committee of the Board
of Directors (the "Committee"). The Committee is responsible for reviewing the
Corporation's salary administration policy, approving salaries which are
$150,000 or greater, administering the Corporation's stock option program, and
approving changes to the Corporation's employee benefit plans. The members of
the Committee, which met four times during 1996, are George H. Weyerhaeuser,
Chair, Phyllis J. Campbell, Robert S. Cline, John W. Ellis, and William G. Reed,
Jr.
APPROACH TO COMPENSATION
This report discusses the compensation policies applicable to the Corporation's
executive officers, including the chief executive officer and four other most
highly compensated executive officers ("Named Executive Officers"). With the
exception of stock options and restricted stock rights, all major compensation
and retirement plans apply equally to all employees of the Corporation's
property and casualty, life, credit and asset management subsidiaries
("Employees"). The Corporation's compensation policies and plans are intended
to:
1. Attract and retain high-caliber personnel on a long-term basis.
2. Encourage the creation of shareholder value.
3. Link compensation to business results and shareholder returns over time.
4. Maintain an appropriate balance between base salary and short- and
long-term incentive opportunities.
ELEMENTS OF COMPENSATION
The following are the basic elements of compensation for executive officers of
the Corporation:
SALARY: Salaries are administered on an individual, subjective basis for
all Employees, including executive officers. With respect to compensation
paid to executive officers the Committee regularly reviews information
concerning compensation practices and levels of other companies. Salaries of
executive officers are not, however, targeted for any specific level
relative to salaries paid by other companies.
BONUS: A non-discretionary cash bonus plan applies to all Employees with at
least one year of service. An annual bonus pool is established under a fixed
formula based on the Corporation's pre-tax
6
<PAGE>
results. Under the formula, the bonus pool consists of 10% of the sum of the
following pre-tax items: the underwriting results for the property and
casualty subsidiaries; the operating results for the life subsidiaries,
SAFECO Credit Company and the Corporation's asset management subsidiaries;
and 20% of the investment income of the property and casualty subsidiaries.
A cash bonus is paid for each year in which the calculation results in a
bonus pool.
In years for which the bonus pool is large enough to pay the maximum bonus
amounts, Employees with three years or more of service receive a bonus equal
to 10% of base salary. In years when the fixed formula does not provide a
sufficient pool to pay the maximum bonus amounts to all eligible Employees,
bonus payments made to all Employees are reduced proportionately.
The percentage of salary paid as a bonus to all Employees with three years
of service, including the Named Executive Officers, for each of 1996, 1995,
and 1994 was 10%, 10%, and 9.2%, respectively.
STOCK OPTION PROGRAM: A shareholder-approved stock option program has been
an element of executive compensation since the early 1960s. The purpose of
the program is to induce selected, key employees of the Corporation and its
subsidiaries to remain employed with the Corporation, to participate in
ownership of the Corporation, to advance the interests of the Corporation
and to increase the value of the Common Stock.
Under the shareholder-approved SAFECO Incentive Plan of 1987 (the "Current
Plan") the Committee in its sole discretion may grant to selected, key
employees of the Corporation and its subsidiaries stock options, stock
appreciation rights, performance stock rights and restricted stock rights
("RSRs") in amounts and on terms consistent with the Current Plan. During
1996 the Committee made awards of stock options and RSRs.
Grants of stock options and RSRs are made on an individual basis. The
Committee makes a subjective judgment in connection with each grant and
considers the individual's responsibilities, potential for advancement,
current salary, previous grants, the current price of the Common Stock, the
performance of the Common Stock over time and, for all individuals other
than the chief executive officer, the recommendation of the chief executive
officer. Although the Committee does not establish any set value to award
under the Current Plan to any individual, the Committee does consider
previous grants made as well as the different nature of stock options and
RSRs in making awards under the Current Plan.
Stock options are awarded at the closing market price of the Common Stock on
the grant date and typically vest in 25% increments on the first, second,
third and fourth anniversary of the grant date. The Committee has never
rescinded an outstanding option and reissued it at a lower exercise price.
RSRs entitle the holder to receive a specified number of shares of Common
Stock or cash equal to the closing market price of such shares on the
vesting date. RSRs typically vest and are settled in 25% increments on the
first, second, third and fourth anniversary of the grant date. Holders of
RSRs are paid amounts equivalent to the dividends which would have been paid
on the same number of shares of Common Stock.
Under the stock option program, as of December 31, 1996, there were 156
participants; outstanding options to purchase an aggregate of 1,858,443
shares of Common Stock; outstanding RSRs entitling the holders to receive an
aggregate of 102,734 shares of Common Stock; and 1,383,574 shares of Common
Stock available for additional options and RSRs.
RETIREMENT PROGRAM: Three basic tax-qualified plans comprise the
Corporation's retirement program and are available on the same basis to all
Employees: The SAFECO Employees' Savings Plan ("Savings Plan"), The SAFECO
Employees' Profit Sharing Retirement Plan ("Profit-Sharing Plan") and The
SAFECO Employees' Cash Balance Plan ("Cash Balance Plan"). In addition,
there are two supplemental retirement plans to provide for benefits which
cannot be included in the tax-qualified
7
<PAGE>
plans. These plans are described in more detail elsewhere in this Proxy
Statement. Since the Corporation's Common Stock constituted 32% of the
assets of the Profit-Sharing Plan at December 31, 1996, all participants in
that Plan have a significant, indirect ownership in the Corporation and an
additional incentive to advance its interests and to increase the value of
the Common Stock.
OTHER EMPLOYEE BENEFITS: The Corporation offers other benefit plans (E.G.,
vacation; sick leave; and medical, disability, life and accident insurance)
to executive officers on the same basis as offered to all Employees. In
addition, certain benefits (E.G., payment for annual medical exams and club
dues) are provided by the Corporation to some executives, including the
Named Executive Officers.
CONSIDERATIONS IN CONNECTION WITH COMPENSATION LEVELS
CORPORATE PERFORMANCE
The directors regularly review the Corporation's performance and the degree to
which investment returns have been generated for shareholders. This includes
review of customary financial measures with respect to the Corporation, E.G.,
compounded annual return to shareholders, the Common Stock price and the common
stock prices of comparable companies, the combined ratio of the Corporation's
property and casualty subsidiaries and the combined ratios of competitors, the
revenue and premium growth of the Corporation's operating subsidiaries,
financial strength and asset management, and consideration of the ratings
assigned to the Corporation, its subsidiaries or securities by A.M. Best
Insurance Services, Standard & Poor's Ratings Group ("S&P") and Moody's
Investors Service, Inc.
The directors annually review graphs that compare the cumulative total return to
shareholders of the Corporation with the S&P 500 and a self-constructed peer
group comprised of ten companies in the same lines of business as the
Corporation's major operating subsidiaries ("Peer Index"), with their returns
weighted according to the component companies' respective market capitalization.
The ten-year period graph is included as its time period may more adequately
reflect returns for the long-term shareholder and option holder.
8
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG SAFECO, S&P 500 AND PEER INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
SAFECO 100 121 120 118 161 190
S&P 500 100 108 118 120 165 203
Peer Index 100 121 134 123 186 237
</TABLE>
Assumes $100 invested on December 31, 1991 in SAFECO Common Stock, the
S&P 500 and the Peer Index.
- Total return assumes reinvestment of dividends.
- Measurement dates are the last trading day of the calendar year
shown.
- Peer Index: Aetna, Allstate, Chubb, CIGNA, Cincinnati Financial,
Ohio Casualty, Progressive, St. Paul, TIG Holdings and USF&G.
9
<PAGE>
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
AMONG SAFECO, S&P 500 AND PEER INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAFECO 100 107 96 163 143 220 266 263 260 354 417
S&P 500 100 105 123 162 157 204 220 242 245 337 415
Peer Index 100 89 96 131 113 149 181 201 184 279 355
</TABLE>
Assumes $100 invested on December 31, 1986 in SAFECO Common Stock, the
S&P 500 and the Peer Index.
- Total return assumes reinvestment of dividends.
- Measurement dates are the last trading day of the calendar year shown.
- Peer Index: Aetna, Allstate, Chubb, CIGNA, Cincinnati Financial, Ohio
Casualty, Progressive, St. Paul, TIG Holdings and USF&G.
10
<PAGE>
INDIVIDUAL PERFORMANCE
In connection with compensation for individual executive officers, the Committee
consulted with the chief executive officer and exercised its subjective judgment
in evaluating each individual's leadership and managerial abilities, achievement
of business unit and corporate objectives, potential for advancement or
promotion and the relative value of the individual's performance in the overall
achievement of the Corporation's objectives. In addition, in connection with the
award of a stock option or RSR, the Committee considered the amount and terms of
any previous award, the current price of the Common Stock and the performance of
the Common Stock over time.
In connection with the Committee's consideration of compensation for the
Corporation's executive officers, including Mr. Eigsti, the Committee reviewed
information regarding compensation practices and levels of competitors of the
Corporation and its operating subsidiaries (including the companies that
comprise the Peer Index) as well as non-competing companies of a similar size to
the Corporation or its operating subsidiaries. Detailed compensation information
was obtained from the proxy statements of publicly-held companies. In addition,
the Committee reviewed compensation information compiled by two independent
consulting firms as well as that collected by the Corporation's Personnel
Department.
The purpose of this review was to confirm that the Committee's approach to
compensation continues to be appropriate given the Corporation's lines of
business, size and culture and the geographic location of the Corporation's
executive officers. For 1996 the Committee confirmed that its approach to
compensation was suitable to the achievement of the general purposes of the
Corporation's compensation policies and plans. The Committee did not engage in
this review for the purpose of targeting any element of compensation, including
salaries, paid to the Corporation's executive officers at, below or above the
median paid by any other company or group of companies.
CONSIDERATIONS IN CONNECTION WITH MR. EIGSTI'S COMPENSATION
The Committee made subjective judgments with respect to an increase in Mr.
Eigsti's salary and awards of stock options and RSRs to Mr. Eigsti. In
connection with those awards, the Committee took into account the cumulative
total return to the Corporation's shareholders and the other financial measures
listed above under "Corporate Performance." Mr. Eigsti's leadership and
managerial abilities, as well as both historical and competitive compensation
levels for his responsibilities, are considered in setting his salary and total
compensation.
The calculations of the annual bonus and the contributions and accruals with
respect to the Corporation's retirement plans are made pursuant to the terms of
those plans, which apply to all Employees. Consequently, the Committee does not
separately determine the amount or the payment of any such bonus, contribution
or accrual for Mr. Eigsti or any other executive officer.
ADDITIONAL INFORMATION
The tables under "Compensation of Named Executive Officers" accompany this
report and reflect the decisions covered by the foregoing discussion.
Under Section 162(m) of the Code, the federal income tax deduction for certain
types of compensation paid to the chief executive officer and four other most
highly-paid officers of publicly-held companies is subject to an annual limit of
$1 million per employee. The Corporation may pay compensation that exceeds this
limit.
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933, as amended ("Securities Act"), or under the Exchange
Act, except to the extent that the Corporation specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
11
<PAGE>
This report is submitted over the names of the members of the Compensation
Committee:
GEORGE H. WEYERHAEUSER, CHAIR
PHYLLIS J. CAMPBELL
ROBERT S. CLINE
JOHN W. ELLIS
WILLIAM G. REED, JR.
COMPENSATION OF NAMED EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The amount of all compensation paid to the Named Executive Officers for services
in all capacities to the Corporation and its subsidiaries during the past three
years is stated in the following table:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------------
SECURITIES
----------------------- RESTRICTED UNDERLYING ALL OTHER
SALARY BONUS (1) STOCK AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (2)($) (#) ($)
- -------------------------------------------------- --------- ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. H. Eigsti 1996 $ 666,667 $ 66,667 $ 414,719 50,000 $ 102,036(4)
Chairman and 1995 650,000 65,000 310,300 50,000 93,265
Chief Executive Officer 1994 550,000 50,743 292,500 35,000 63,918
B. A. Dickey 1996 455,833 45,583 234,406 30,000 69,717(5)
President and 1995 390,000 39,000 192,600 30,000 55,775
Chief Operating Officer (3) 1994 352,500 32,521 187,200 24,000 40,776
D. D. McLean 1996 310,000 31,000 144,250 0 47,363(6)
President of the Corporation's 1995 277,500 27,750 107,000 20,000 39,553
Property & Casualty Subsidiaries 1994 243,750 22,488 117,000 15,000 28,033
R. E. Zunker 1996 272,917 27,292 126,219 15,000 41,679(7)
President of the Corporation's 1995 250,000 25,000 107,000 16,000 35,588
Life Subsidiaries 1994 231,250 21,335 105,300 12,000 26,568
J. W. Ruddy 1996 212,500 21,250 79,338 12,000 32,417(8)
Senior Vice President 1995 195,000 19,500 66,875 0 24,525
and General Counsel 1994 176,667 16,299 64,350 11,000 27,405
</TABLE>
- ------------------------
(1) A cash bonus of up to 10% of annual salary is paid to each employee of the
insurance, credit and asset management operations who has at least three
years of service when the pre-tax results from such operations support such
a bonus. The percentage of salary paid as a bonus for 1996, 1995 and 1994
was 10%, 10%, and 9.2%, respectively.
(2) RSRs are awarded under the Corporation's stock option program and entitle an
employee who remains continuously employed by the Corporation or its
subsidiaries for a stated number of years to receive a specified number of
shares of Common Stock or cash equal to the fair market value of such shares
on the settlement date. Holders of RSRs are entitled to receive an amount
equivalent to the dividends which would have been paid on an equivalent
number of shares of Common Stock. The dollar amounts in this column are
determined by multiplying the number of shares covered by an RSR by the
closing market price of the Common Stock on the grant date.
12
<PAGE>
In 1996 the Corporation awarded RSRs to the Named Executive Officers in the
following amounts: 11,500 for Mr. Eigsti, 6,500 for Mr. Dickey, 4,000 for
Mr. McLean, 3,500 for Mr. Zunker and 2,200 for Mr. Ruddy. Each award was
made on February 7 and, with the exception of Mr. McLean's award, will vest
and be settled in 25% installments on the first, second, third and fourth
anniversary dates of the award. In Mr. McLean's case the entire award vested
and was settled on the first anniversary date of the award.
The following are the total number of RSRs held by the Named Executive
Officers and the total value of such holdings at December 31, 1996: for Mr.
Eigsti, 27,000 RSRs with a value of $1,064,813; for Mr. Dickey, 16,300 RSRs
with a value of $642,831; for Mr. McLean, 8,034 RSRs with a value of
$316,841; for Mr. Zunker, 9,000 RSRs with a value of $354,938; and for Mr.
Ruddy, 5,675 RSRs with a value of $223,808.
(3) Mr. Dickey became President and Chief Operating Officer of the Corporation
on August 7, 1996.
(4) Reflects net contributions to the Profit-Sharing Plan of $14,843, net
contributions to the Savings Plan of $6,000, and allocations to
non-qualified plans of $60,526 with respect to the Profit-Sharing Plan and
$20,667 with respect to the Savings Plan for amounts which may not be
contributed to the qualified plans because of limitations imposed by the
Code ("Non-Qualified Allocations").
(5) Reflects net contributions to the Profit-Sharing Plan of $14,843, net
contributions to the Savings Plan of $6,000, and Non-Qualified Allocations
of $36,641 with respect to the Profit-Sharing Plan and $12,233 with respect
to the Savings Plan.
(6) Reflects net contributions to the Profit-Sharing Plan of $14,843, net
contributions to the Savings Plan of $6,000, and Non-Qualified Allocations
of $20,120 with respect to the Profit-Sharing Plan and $6,400 with respect
to the Savings Plan.
(7) Reflects net contributions to the Profit-Sharing Plan of $14,843, net
contributions to the Savings Plan of $6,000, and Non-Qualified Allocations
of $15,919 with respect to the Profit-Sharing Plan and $4,917 with respect
to the Savings Plan.
(8) Reflects net contributions to the Profit-Sharing Plan of $14,843, net
contributions to the Savings Plan of $6,000, and Non-Qualified Allocations
of $9,074 with respect to the Profit-Sharing Plan and $2,500 with respect to
the Savings Plan.
STOCK OPTION AWARDS
Information concerning grants of stock options to the Named Executive Officers
during 1996 is stated below. Under regulations of the SEC, the assumed rates of
appreciation of 5% and 10% are required to be used. These assumed appreciation
rates are not based on the historic performance of the Common Stock or any other
stock or stock index. Any appreciation in the value of the stated stock options
will occur only if the Common Stock increases in value. Changes in the market
price of the Common Stock are dependent on the future performance of the
Corporation as well as overall stock market performance. There can be no
assurance that the amounts or rates of appreciation stated in the following
table will be achieved.
If the assumed rates of appreciation were applied to the Corporation's Common
Stock for the same ten-year period as required for options in the following
table, market capitalization would increase from $4.1 billion to $6.6 billion at
the 5% rate and to $10.5 billion at the 10% rate. In addition, a shareholder,
unlike an option holder, would receive dividends paid by the Corporation during
that ten-year period.
13
<PAGE>
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE APPRECIATION
UNDERLYING TOTAL OPTIONS FOR OPTION TERM(3)
OPTIONS GRANTED TO EXERCISE --------------------------
GRANTED(1) EMPLOYEES IN PRICE(2) EXPIRATION 5%(4) 10%(5)
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
- ----------------------------------- ----------- --------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
R. H. Eigsti....................... 50,000 13.42% $ 32.125 5/1/06 $ 1,010,162 $ 2,559,949
B. A. Dickey....................... 30,000 8.05% 32.125 5/1/06 606,097 1,535,969
D. D. McLean....................... 0 NA NA NA NA NA
R. E. Zunker....................... 15,000 4.02% 32.125 3/31/04 227,225 543,007
J. W. Ruddy........................ 12,000 3.22% 32.125 5/1/06 242,439 614,388
</TABLE>
- ------------------------
(1) The grant date for each option is May 1, 1996. For each option granted, 25%
of the shares subject to the option become exercisable on the first, second,
third and fourth anniversary dates of the option grant.
(2) The exercise price may be paid to the Corporation in cash, in shares of
Common Stock valued at fair market value on the date of exercise, or part in
cash and part in shares. In addition, optionees may finance the exercise
price of an option through a subsidiary of the Corporation. The interest
rate on such loans is adjusted quarterly and is equal to the most recently
published applicable federal rate determined pursuant to Section 1274(d) of
the Code.
(3) Potential realizable values are based on assumed compound annual
appreciation rates specified by the SEC. These increases in value are based
on speculative assumptions and are not intended to forecast possible future
appreciation, if any, of the price of the Common Stock.
(4) This rate of appreciation produces an ending market price of $52.33 per
share on May 1, 2006, and $47.27 per share on March 31, 2004.
(5) This rate of appreciation produces an ending market price of $83.32 per
share on May 1, 2006, and $68.33 per share on March 31, 2004.
14
<PAGE>
STOCK OPTION EXERCISES
Information concerning exercises of stock options during 1996 by the Named
Executive Officers and the value of their unexercised options at December 31,
1996 is stated below:
AGGREGATED OPTION EXERCISES IN 1996
AND OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT DECEMBER 31, 1996 IN-THE-MONEY OPTIONS AT
SHARES (#) DECEMBER 31, 1996(1) ($)
ACQUIRED ON VALUE -------------------- ------------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------ ----------- --------- -------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
R. H. Eigsti.............................. 16,848 $ 328,352 62,602 148,750 $ 962,517 $ 1,471,250
B. A. Dickey.............................. 10,000 211,875 65,200 93,000 1,183,238 929,250
D. D. McLean.............................. 3,920 36,261 23,580 22,500 259,895 258,594
R. E. Zunker.............................. 6,750 109,688 10,250 47,250 127,563 470,750
J. W. Ruddy............................... 4,700 125,109 16,500 22,500 276,922 213,328
</TABLE>
- --------------------------
(1) Based on $39.4375, the last sale price of the Common Stock on December 31,
1996.
RETIREMENT PROGRAM
The Corporation's retirement program consists of three plans which qualify for
favorable tax treatment under the Code, and two non-qualified supplemental
plans. The three qualified plans are the Cash Balance Plan, the Profit-Sharing
Plan and the Savings Plan. The two non-qualified plans are the SAFECO Employees'
Supplemental Retirement Plan A and the SAFECO Employees' Supplemental Retirement
Plan B ("Supplemental Plan A" and "Supplemental Plan B," respectively). The two
non-qualified plans are designed to allocate to participants amounts not
eligible for contribution under the qualified plans because of limitations
imposed by the Code. All Employees are eligible to participate in the plans.
The Profit-Sharing Plan and the Savings Plan are defined contribution plans
while the Cash Balance Plan is a defined benefit plan. With respect to the Cash
Balance and Profit-Sharing Plans, 5% of the Corporation's net profits, as
defined in those plans, is annually set aside and credited or contributed as
follows: The Cash Balance Plan is credited with an amount equal to 3% of the
annual compensation of participants in the plan plus 5% interest on the
cumulative amount credited for prior years (together, the "Accrued Benefit").
The portion of the Accrued Benefit in excess of limitations imposed under
Section 401(a)(17) of the Code is accrued in Supplemental Plan B.
The estimated annual benefits payable upon normal retirement to the Named
Executive Officers from the Cash Balance Plan and corresponding portion of
Supplemental Plan B are as follows: $37,124 for Mr. Eigsti, $31,344 for Mr.
Dickey, $8,645 for Mr. McLean, $9,942 for Mr. Zunker and $24,276 for Mr. Ruddy.
The balance of the 5% of net profits remaining (after crediting the Cash Balance
Plan with 3% of the participants' annual compensation) is contributed to the
Profit-Sharing Plan, up to a maximum of 12% of the participants' compensation,
and allocated among participants based on their relative compensation for the
year. The portions of the Profit-Sharing Plan contribution in excess of
limitations imposed under Sections 415 and 401(a)(17) of the Code are credited
to participants' accounts in Supplemental Plan A and Supplemental Plan B,
respectively.
15
<PAGE>
The Savings Plan is funded by voluntary employee contributions not to exceed 6%
of compensation and contributions by the Corporation of 66 2/3% of the employee
contributions. The portion of the employer contributions to the Savings Plan in
excess of limitations imposed under Section 401(a)(17) of the Code is credited
to the participants' accounts in Supplemental Plan B.
CHANGE IN CONTROL AGREEMENTS
Messrs. Eigsti, Dickey, Zunker and Ruddy are among several officers of the
Corporation or its subsidiaries who have agreements which provide for payments
to them under certain circumstances following a change in control of the
Corporation (as defined in the agreements). Under the agreements, if the officer
in question is discharged without cause, demoted or given other good reason to
resign following a change in control of the Corporation or, in the case of the
agreements with Messrs. Zunker and Ruddy, decide one year following a change in
control to resign, then the agreements call for a lump-sum cash payment of up to
three times annual salary, continuation of life and health benefits for three
years, payment for accrued vacation and sick leave, payment of amounts allocated
under the Corporation's bonus plan, payment of amounts payable under any
incentive plan, and payment of certain retirement benefits. In addition, the
agreements with Messrs. Zunker and Ruddy provide that vesting of awards under
the Corporation's incentive plans will occur and, should any excise tax be
levied on payments made under the agreements, then an additional payment will be
made so that the net payments received by the officer under the agreement will
equal the amount that would have been paid had the excise tax not been levied.
In addition, the stock options awarded to the Named Executive Officers as well
as other key employees under the SAFECO Incentive Plan of 1987 provide that
following a change in control of the Corporation, there will be 100% vesting of
options and stock appreciation rights which have been held for at least one
year.
CERTAIN TRANSACTIONS
In the ordinary course of business, the Corporation and its subsidiaries enter
into transactions with other business entities of which certain of the
Corporation's directors and nominees for director are executive officers,
partners or shareholders. The terms of all such transactions were as fair to the
Corporation and its subsidiaries as could have been obtained from third parties.
Mrs. Runstad, a director of the Corporation, is a partner of the Seattle law
firm of Foster Pepper & Shefelman, which received fees for legal services
provided to the Corporation and its subsidiaries during 1996.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1996 were George H.
Weyerhaeuser, Chair, Phyllis J. Campbell, Robert S. Cline, John W. Ellis, and
William G. Reed, Jr.
PROPOSAL TO AMEND ARTICLE V OF THE CORPORATION'S
RESTATED ARTICLES OF INCORPORATION
REGARDING DIRECTORS ELECTED TO FILL VACANCIES ON THE BOARD OF DIRECTORS
(PROPOSAL 2)
The Board of Directors of the Corporation has determined that an amendment to
Article V of the Corporation's Restated Articles of Incorporation is advisable
and has voted to recommend it to the Corporation's shareholders for adoption.
The amendment, if adopted, will establish the authority of the Board of
Directors to fill vacancies on the Board of Directors and delete provisions
regarding the term of a director elected to fill a vacancy in order to bring
Article V into conformity with current Washington state law.
16
<PAGE>
The text of the proposed amendment to the Corporation's Restated Articles of
Incorporation is attached as Appendix A.
PROVISIONS GOVERNING DIRECTORS ELECTED TO FILL VACANCIES ON THE BOARD OF
DIRECTORS
Article V, Section 1 of the Corporation's Restated Articles of Incorporation
provides in part that the Board of Directors is divided into three classes
consisting, as nearly as possible, of one-third of the total number of
directors. Directors in each class are elected for three-year terms. Section 1
of Article V provides that if the number of directors in a class is increased,
any additional director elected to fill a vacancy resulting from the increase
shall hold office for a term that coincides with the remaining term of that
class. Article V, Section 2 of the Corporation's Restated Articles of
Incorporation provides that any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same remaining term
as the director's predecessor.
Under the Washington Business Corporation Act, the term of a director elected to
fill a vacancy on the Board of Directors expires at the next shareholders'
meeting at which directors are elected. Thus, both of the above provisions are
inconsistent with current Washington state law governing the term of office of a
director elected to fill a vacancy on the Board of Directors.
As proposed, Article V, Sections 1 and 2 of the Corporation's Restated Articles
of Incorporation would each be amended to delete the provision governing the
term of office of a director elected to fill a vacancy on the Board of
Directors. Following the deletion of that provision, the term of any director
elected to fill a vacancy on the Corporation's Board of Directors would expire
at the next annual meeting of shareholders, regardless of the reason for the
vacancy.
Article V, Section 2 of the Corporation's Restated Articles of Incorporation in
its current form states that any vacancy on the Board of Directors resulting
from an increase in the number of directors may be filled by a majority of the
directors then in office, and any other vacancy on the Board of Directors may be
filled by a majority of the directors then in office although less than a
quorum. Under the Washington Business Corporation Act, unless the articles of
incorporation provide otherwise, vacancies on a corporation's board of directors
may be filled by either the shareholders or the board of directors. The proposed
amendment states that vacancies on the Board of Directors, however arising,
shall be filled by the Board of Directors (or if the directors in office
constitute fewer than a quorum, then by majority vote of all directors then in
office).
If the proposed amendment is approved, it will be effective upon the filing of
Articles of Amendment with the Washington Secretary of State, which will be done
as soon as practicable after approval of the proposal by the shareholders.
EFFECT OF PROPOSED AMENDMENT
The proposed amendment to Article V of the Restated Articles of Incorporation
will delete the provision that permits a director elected to fill a vacancy to
have an initial term extending beyond the next annual meeting of shareholders.
Following the amendment, a director elected to fill a vacancy, whatever the
cause, could not serve for more than one year without standing for reelection at
the next shareholders' meeting at which directors are elected, as required by
current Washington state law. In addition, the proposed amendment will provide
that the Board of Directors has sole authority to fill vacancies on the Board of
Directors, whether from an increase in the number of directors or the
resignation or other termination of a director.
The Corporation is not aware of any effort to obtain control of the Corporation
by a tender offer, proxy contest or otherwise, and the Corporation has no
present intention to use the directors' right to fill vacancies on the Board of
Directors for antitakeover purposes.
17
<PAGE>
VOTE REQUIRED
In accordance with Article V, Section 4 of the Corporation's Restated Articles
of Incorporation, the above-described amendment to the Corporation's Restated
Articles of Incorporation requires the approval of 67% of the outstanding shares
of the Corporation. See "Outstanding Shares and Vote Required."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE
RESTATED ARTICLES OF INCORPORATION.
PROPOSAL TO AMEND ARTICLE II
OF THE CORPORATION'S BYLAWS
REGARDING DIRECTORS ELECTED TO FILL VACANCIES ON THE BOARD OF DIRECTORS
(PROPOSAL 3)
The Board of Directors of the Corporation has determined that an amendment to
Article II, Sections 2 and 3 of the Corporation's Bylaws is advisable and has
voted to recommend it to the Corporation's shareholders for adoption. The
amendment, if adopted, will establish the authority of the Board of Directors to
fill vacancies on the Board of Directors and delete provisions regarding the
term of a director elected to fill a vacancy in order to bring Article II into
conformity with current Washington state law.
The text of the proposed amendment to Article II, Sections 2 and 3 of the
Corporation's Bylaws is attached as Appendix B.
BYLAW PROVISIONS GOVERNING DIRECTORS ELECTED TO FILL VACANCIES ON THE BOARD OF
DIRECTORS
Article II, Sections 2 and 3 of the Corporation's Bylaws contain provisions
concerning the filling of vacancies on the Board of Directors and the term of a
director elected to fill a vacancy which are identical to the provisions in
Article V, Sections 1 and 2 of the Corporation's Restated Articles of
Incorporation. The proposed amendment to Article II, Sections 2 and 3 of the
Corporation's Bylaws would have the same effect as the proposed amendment to the
Corporation's Restated Articles of Incorporation. See "Provisions Governing
Directors Elected to Fill Vacancies on the Board of Directors" and "Effect of
Proposed Amendment" under Proposal 2 above.
VOTE REQUIRED
Although bylaw amendments, in general, do not require shareholder approval,
Article XV, Section 2 of the Corporation's Bylaws requires shareholder approval
of the proposed amendment to Article II, Sections 2 and 3 of the Corporation's
Bylaws because the amendment affects the term of office of the directors by
limiting the initial term of any director elected to fill a vacancy. See
"Outstanding Shares and Vote Required."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND ARTICLE II
OF THE CORPORATION'S BYLAWS.
18
<PAGE>
PROPOSAL TO AMEND ARTICLE XII
OF THE CORPORATION'S BYLAWS
TO PROVIDE BROADER INDEMNIFICATION
TO DIRECTORS AND OFFICERS
(PROPOSAL 4)
The Board of Directors of the Corporation has determined that an amendment to
Article XII of the Corporation's Bylaws (the "Indemnification Amendment") is
advisable and has voted to recommend it to the Corporation's shareholders for
adoption. The Indemnification Amendment, if adopted, will provide directors and
officers broader indemnification rights.
Adoption of the proposed Indemnification Amendment is intended to provide the
Corporation's present and future directors and officers with the maximum
indemnification protection under Washington law, both as a matter of fairness
and to enhance the Corporation's ability to continue to attract and retain
qualified persons to serve as members of the Board of Directors and as officers.
As discussed below, the Board of Directors believes that the best interests of
the Corporation and its shareholders will be served by approval of the proposed
Indemnification Amendment. The following discussion is qualified by and should
be read in conjunction with the complete text of the proposed Indemnification
Amendment, which is attached as Appendix C.
INDEMNIFICATION OF DIRECTORS AND OFFICERS UNDER WASHINGTON LAW
The Corporation is subject to the Washington Business Corporation Act, which
provides a detailed statutory framework covering indemnification for any
director, officer, employee or other agent of a corporation. Under the statute,
a Washington corporation may indemnify its directors and officers in actions
brought by third parties for judgments, penalties, fines, settlements and
reasonable expenses if the Board of Directors, the shareholders or special legal
counsel makes a determination that the director or officer acted in good faith
and in a manner that was in the corporation's best interests or not opposed to
such interests, or upon a judicial determination that the director or officer
was successful in the defense of an action brought by or in the right of the
corporation (a "derivative action") or is otherwise entitled to indemnification
(referred to collectively as "Statutory Indemnification"). As part of Statutory
Indemnification, corporations may advance expenses for the defense of litigation
if the director or officer certifies that the standards of conduct described
above have been met and undertakes to repay the advance if it is ultimately
determined that the standards of conduct were not met. The Corporation's current
indemnification provision, set forth in Article XII of the Bylaws, provides that
Statutory Indemnification is mandatory.
The proposed Indemnification Amendment is intended to implement another
provision of the Washington Business Corporation Act that permits shareholders
to authorize indemnification and advancement of expenses regardless of the
limitations on indemnification contained in other sections of the statute,
subject to specified limitations ("Shareholder-Approved Indemnification"). If
authorized by its articles of incorporation or a shareholder-approved bylaw, a
Washington corporation can provide full indemnification and advancement of
expenses for third-party actions and derivative actions, except that
indemnification cannot be provided for: (i) acts or omissions finally adjudged
to involve intentional misconduct or a knowing violation of the law; (ii)
conduct finally adjudged to be an unlawful distribution; or (iii) any
transaction finally adjudged to involve receipt of an improper personal benefit.
EFFECT OF PROPOSED AMENDMENT TO ARTICLE XII
The proposed Indemnification Amendment will provide a right to indemnification
for all judgments, penalties, fines, settlements and reasonable expenses
actually incurred by a director or officer in connection with any actual or
threatened proceeding (including any derivative action) by reason of the
person's service as a director or officer of the Corporation or, at the request
of the Corporation, as a director,
19
<PAGE>
officer, partner, trustee, employee or agent of another corporation or other
entity. However, the Indemnification Amendment will prohibit indemnification for
any act or omission finally adjudged to involve intentional misconduct, a
knowing violation of the law, an unlawful distribution or the receipt of an
improper benefit, or any act for which indemnification is otherwise prohibited
by law. The Indemnification Amendment will require the Corporation to pay in
advance the reasonable expenses of defense, provided the director or officer
undertakes to repay the advance if it is ultimately determined by final judicial
decision that the director or officer is not entitled to indemnification.
The proposed Indemnification Amendment sets forth certain procedural and
evidentiary standards applicable to the enforcement of a claim under the
Indemnification Amendment and specifies that such procedures are in lieu of the
procedures required for Statutory Indemnification.
The Corporation has not received notice of any proceeding to which the
Indemnification Amendment might apply. In addition, the Indemnification
Amendment is not being proposed in response to any specific resignation, threat
of resignation or refusal to serve by any director, officer or potential
director or officer of the Corporation.
The Corporation has included undertakings in various registration statements
filed with the SEC that in the event a claim for indemnification is asserted by
a director or officer relating to liabilities under the Securities Act, the
Corporation will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether indemnification would be against public policy and will
be governed by any final adjudication of such issue.
VOTE REQUIRED
Although bylaw amendments, in general, do not require shareholder approval, the
Washington Business Corporation Act requires approval by a majority of the
shares present, in person or by proxy, and entitled to vote at the meeting to
implement the Indemnification Amendment. See "Outstanding Shares and Vote
Required."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND ARTICLE XII
OF THE CORPORATION'S BYLAWS.
PROPOSAL TO ADOPT
THE SAFECO LONG-TERM INCENTIVE PLAN OF 1997
(PROPOSAL 5)
For 36 years the Corporation has had incentive plans to provide Common Stock to
key employees through several types of awards, including stock options, RSRs and
performance stock rights ("PSRs"). In 1961 the first stock option plan was
approved by the shareholders. Subsequently, shareholders approved incentive
plans in 1970, 1977 and 1987. These plans reflect the Board of Directors'
continuing belief that ownership of Common Stock by key employees serves to
provide those employees with a personal financial interest in the Corporation's
success and enhances the Corporation's ability to attract, retain and motivate
the Corporation's key employees. Since the authority to grant awards under the
Current Plan will expire on May 5, 1997, the Compensation Committee of the Board
of Directors recommended, and at its February 1997 meeting the Board of
Directors adopted, subject to shareholder approval, the SAFECO Long-Term
Incentive Plan of 1997 ("LTIP").
The LTIP authorizes issuance of up to 6,000,000 shares of Common Stock (about
4.8% of the number of shares of the Corporation's Common Stock currently
outstanding). As of February 6, 1997, 1,315,374 shares remained available for
new grants under the Current Plan. While the LTIP is largely the same as the
Current Plan, it has been updated to comply with applicable law, to give the
committee that administers it flexibility and to address interpretation issues
that have arisen in connection with the Current Plan.
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SUMMARY OF THE LONG-TERM INCENTIVE PLAN
The following summary of the LTIP is qualified in its entirety by reference to
the complete text of the LTIP, which is attached as Appendix D.
The purpose of the LTIP is to enhance the long-term profitability and
shareholder value of the Corporation by offering incentives and rewards to
selected eligible employees of the Corporation and its subsidiaries who are key
to the Corporation's growth and success as an inducement to them to remain in
the service of the Corporation and to acquire and maintain stock ownership in
the Corporation.
The LTIP provides that a committee appointed by the Board of Directors (the
"LTIP Committee") will be responsible for administering the LTIP and will have
authority to approve grants of stock options, stock appreciation rights
("SARs"), RSRs and PSRs. The maximum number of shares of Common Stock with
respect to which awards may be granted under the LTIP is 6,000,000, and of
these, no more than 3,000,000 shares may be issued in connection with RSRs and
PSRs. Each of these share limitations is subject to adjustment to reflect
changes in the Corporation's capital structure. Any shares of stock covered by
an award under the LTIP which subsequently cease to be subject to the award
(other than because of exercise or settlement of the award in stock) will again
be available for issuance in connection with future grants of awards under the
LTIP.
The LTIP Committee will consist of not less than two members of the Board, each
of whom is an "outside director" as defined in regulations promulgated under
Section 162(m) of the Code. In addition, if the LTIP Committee does not also
consist solely of "non-employee directors" as defined in Rule 16b-3 under the
Exchange Act, the LTIP will be administered by a subcommittee to be appointed by
the Board of Directors consisting of at least two such non-employee directors.
The LTIP Committee will have the authority to determine, in its sole discretion,
all matters relating to awards under the LTIP, including the selection of
individuals to be granted awards, the type of awards, the number of shares of
Common Stock subject to an award, all terms, restrictions and limitations, if
any, of an award, and the terms of any instrument that evidences an award. The
LTIP Committee, in its sole discretion, may accelerate the exercisability of or
waive any or all of the restrictions and conditions applicable to any award and
may, with the consent of the holder, modify any agreement governing an award.
The LTIP Committee may permit or require the deferral of any award payment,
subject to such rules and procedures as it may establish, which may include
provisions for the payment or crediting of interest or dividend equivalents. The
LTIP Committee has the exclusive authority to interpret the LTIP and may adopt,
amend and rescind rules and procedures relating to the LTIP. The LTIP Committee
may delegate administrative duties to such of the Corporation's officers as it
so determines, except that decisions concerning the terms and conditions of an
award and the selection of recipients of awards may not be so delegated.
Awards under the LTIP may be granted only to salaried key management employees
of the Corporation or its subsidiaries (including employees who are also
directors) who, in the judgment of the LTIP Committee, will perform services of
special importance in the management, operation and development of the business
of the Corporation or the businesses of one or more of its subsidiaries. Options
and PSRs cannot be granted during or after the calendar year in which the
employee reaches age 65. Approximately 160 of the 7,500 employees of the
Corporation and its subsidiaries hold awards granted under the Current Plan. It
is not anticipated that every eligible employee will receive all the different
types of awards available under the LTIP.
Under the LTIP, the exercise price of stock options and SARs may not be less
than 100% of the fair market value of the underlying shares of Common Stock on
the date of grant. On February 6, 1997, the last sale price of the Corporation's
Common Stock, as reported on the Nasdaq National Market, was $38.50 per share.
Stock options may be either incentive stock options or nonqualified stock
options. The LTIP Committee has broad discretion as to the terms and conditions
upon which options are exercisable, but under no circumstances may an option
have a term exceeding ten years from the date it is granted. The option price
may be paid in cash, in shares of Common Stock at their fair market value on the
date of
21
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exercise, in a combination of cash and shares, or in such other form of
consideration as the LTIP Committee in its discretion may permit. The maximum
number of shares with respect to which stock options may be granted under the
LTIP to any individual in any calendar year is 300,000 subject to adjustment to
reflect changes in the Corporation's capital structure. Subject to applicable
statutes and regulations, the Corporation and its subsidiaries may extend
credit, arrange credit, guarantee obligations, and otherwise aid optionees to
obtain financing of their purchases of Common Stock pursuant to options.
SARs may be granted in tandem with stock options. Upon the exercise of a tandem
SAR, the holder is entitled to receive the difference between the aggregate
option price of the shares that would have been received upon exercise of the
related option and the fair market value of those shares on the date of
exercise. The LTIP Committee has the discretion to pay the value of the SAR in
cash, shares of Common Stock or a combination of cash and shares. In all other
respects, a SAR will have the same terms as the related option.
RSRs entitle the holder to receive a stated number of shares of Common Stock if
the holder remains continuously employed by the Corporation or one of its
subsidiaries for a stated period of time or, following retirement, serves on the
Board of Directors of the Corporation or in another capacity approved by the
LTIP Committee. A holder of an RSR will not be entitled to any of the rights of
a shareholder prior to settlement of the RSR at the end of the restricted
period. During the restricted period, however, the Corporation will pay to the
holder, as additional compensation, an amount in cash equal to the dividends
that would have been payable during such period on the number of shares
underlying the RSR.
PSRs entitle the holder to receive a stated number of shares of Common Stock if
specified performance goals are met within a specified performance period. The
LTIP Committee has discretion to determine the number of shares for each
performance period and the duration of each performance period and to establish
performance goals based on one or more of the following criteria with respect to
the Corporation, a subsidiary, or an operating group, division, or unit of the
Corporation or a subsidiary: net income, earnings per share, return on equity,
return on assets, stock price appreciation, total shareholder return, cash flow,
revenues, item count, market share, assets, assets under management, any
profit-related ratio or calculation, or any growth, concentration-of-business or
market-share ratio or calculation. Performance goals may be measured on an
absolute basis or relative to a group of peer companies selected by the LTIP
Committee, relative to internal goals, or relative to levels attained in prior
years. In the case of executive officers covered by Section 162(m) of the Code,
the maximum number of shares payable under any PSR for the entire performance
period covered by the PSR is 300,000, subject to adjustment to reflect changes
in the Corporation's capital structure.
The LTIP Committee has authority to adjust performance goals during any
performance period as it deems equitable in recognition of unusual or
nonrecurring events affecting the Corporation, changes in applicable tax laws or
accounting principles, or such other factors as the LTIP Committee may
determine; provided, however, that the LTIP Committee may not adjust performance
goals for any participant who is a covered employee for purposes of Section
162(m) of the Code for the year in which a PSR is settled if the adjustment
would increase the amount of compensation otherwise payable to the covered
employee. As soon as practical after the end of a performance period, the LTIP
Committee will determine the extent to which a PSR has been earned. To the
extent the performance goals of a PSR are satisfied, the Corporation will settle
the earned portion of the PSR by the issuance and delivery of unrestricted
shares equal to the number of earned shares, by the payment of cash equal to the
then fair market value of the earned shares, or by a combination of cash and
shares, as requested by the holder of the PSR.
If the employment of a holder of a stock option or SAR is terminated, then,
unless otherwise provided in the award agreement, the option or SAR may be
exercised, to the extent exercisable at the date of termination, at any time
within three months following the termination, subject to the following
exceptions: First, if the termination is on account of retirement, then the
option or SAR, to the extent exercisable at the date of termination, may be
exercised at any time prior to the expiration of the award's stated term, but
22
<PAGE>
in no event later than the fifth anniversary of the termination date. Second, if
the termination is on account of disability, then the option or SAR, to the
extent exercisable at the termination date, may be exercised at any time within
one year after the termination date. Third, if the termination is caused by the
employee's death, then the option or SAR may be exercised at any time prior to
the expiration of the term stated in the award agreement by the person(s) to
whom the employee's rights pass by will or operation of law without regard to
any continued employment or installment vesting requirements. Fourth, if the
holder of an award dies following termination of employment and during the
period in which the option or SAR is exercisable under either the first or
second exception stated above, then, to the extent the option or SAR was vested
at the date of the holder's termination, the option or SAR may be exercised at
any time prior to expiration of the term stated in the award agreement by the
person(s) to whom the holder's rights pass by will or operation of law.
If a holder of an RSR fails to satisfy the employment or service requirements of
the RSR, the holder loses the right to receive stock or cash under the RSR,
except that in the event a holder of an RSR is unable to satisfy such
requirements because of death or disability, then as soon as practical following
the date of death or the date of determination of disability (the "Disability
Determination Date"), the holder or the personal representative of the holder's
estate will be issued shares of Common Stock equal in number to the total number
of unissued shares covered by the RSR or, in lieu thereof, at the request of the
holder or personal representative, receive a cash payment equal to the fair
market value of such shares (or any portion thereof) at the date of death or the
Disability Determination Date, as the case may be.
If a PSR holder's employment terminates for any reason prior to the expiration
of the performance period specified in the PSR, then, except to the extent the
LTIP Committee may decide otherwise in select situations, the holder will lose
all rights to thereafter receive any stock or payment under the PSR.
In the LTIP Committee's discretion, the grant of any award under the LTIP may be
conditioned on the holder's agreement to forfeit unexercised awards and pay the
value of exercised or settled awards to the Corporation in the event the holder
engages in any activity in competition with the Corporation or which is
otherwise contrary to the Corporation's interests while employed by the
Corporation or one of its subsidiaries or within a specified period of time
following termination of employment or the exercise or settlement of an award.
The awards authorized under the LTIP are subject to applicable tax withholding
requirements and may not be assigned or transferred, except by the laws of
descent and distribution, and are exercisable during the holder's lifetime only
by the holder, except that the LTIP Committee in its discretion may permit
certain awards to be transferred for estate planning purposes.
In the event the Corporation's outstanding shares of Common Stock are increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Corporation or of another corporation by
reason of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split, spin-off, combination of shares, dividend payable
in shares, rights offering, change in the Corporation's corporate structure or
otherwise, the LTIP Committee will make proportional adjustments to the maximum
number and class of shares subject to the LTIP and to the maximum number and
class of shares for which awards may be granted to any participant, as set forth
in the LTIP. In addition, the LTIP Committee will make an appropriate adjustment
to the number and class of shares as to which outstanding awards are exercisable
and the per-share price of such shares in order to maintain the participant's
proportionate interest, without any change in the total price applicable to the
unexercised portion of any award.
If, while any award granted under the LTIP remains outstanding, a change in
control (as defined in the LTIP) of the Corporation occurs, then:
- All stock options and SARs outstanding at the time of the change in
control will become exercisable in full immediately prior to the change in
control.
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- All restrictions with respect to RSRs will lapse and all outstanding RSRs
will be settled by a payment in cash to each holder of an RSR.
- All outstanding PSRs, to the extent deemed earned, will become immediately
payable in cash, with the remainder of each PSR canceled for no value.
- All other restrictions on outstanding awards not described above will
lapse, and such awards will be fully vested and nonforfeitable.
The LTIP may be amended or terminated at any time by the Board of Directors,
provided that any amendment that would increase the number of shares which may
be issued under the LTIP or materially modify the requirements as to eligibility
for participation in the LTIP must receive the approval of the Corporation's
shareholders at the next annual or special meeting of shareholders after
adoption of the amendment by the Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. When an optionee exercises an incentive stock option
while employed by the Corporation or one of its subsidiaries or within the
three-month (one year for disability) period after termination of employment, no
ordinary income will be recognized by the optionee at that time. The excess (if
any) of the fair market value of the shares acquired upon such exercise over the
option price (the "Spread") will be an adjustment to the taxable income of the
optionee for alternative minimum tax purposes. If the shares acquired upon
exercise are not disposed of prior to the expiration of one year after the date
of transfer and two years after the date of grant of the option, the excess (if
any) of the sales proceeds over the aggregate option price of such shares will
be long-term capital gain, and the Corporation will not be entitled to any tax
deduction with respect to such gain. If the shares are disposed of prior to the
expiration of such periods (a "disqualifying disposition"), the Spread (up to
the amount of the gain on the disposition) will be ordinary income at the time
of such disqualifying disposition, and the Corporation will be entitled to a tax
deduction in a like amount. If an incentive stock option is exercised by the
optionee more than three months (one year for disability) after termination of
employment, the tax consequences are the same as described below for
nonqualified stock options.
NONQUALIFIED STOCK OPTIONS. When an optionee exercises a nonqualified stock
option, the difference between the option price and any higher fair market value
of the shares on the date of exercise will be ordinary income to the optionee
and will be allowed as a deduction to the Corporation for federal income tax
purposes. When an optionee disposes of shares acquired by exercise of the
option, any amount received in excess of the market value of the shares on the
date of exercise will be treated as long-term or short-term capital gain,
depending upon the holding period of the shares. If the amount received is less
than the market value of the shares on the date of exercise, the loss will be
treated as long-term or short-term capital loss, depending upon the holding
period of the shares.
STOCK-FOR-STOCK EXCHANGES. Additional special rules apply if the exercise price
for an option is paid for in shares previously owned by the optionee rather than
in cash.
RESTRICTED STOCK RIGHTS, STOCK APPRECIATION RIGHTS AND PERFORMANCE STOCK
RIGHTS. Generally, when a participant exercises a SAR or receives payment with
respect to RSRs or PSRs, the amount of cash and the fair market value of the
shares received will be ordinary income to the participant and will be allowed
as a deduction for federal income tax purposes to the Corporation.
The above discussion summarizes the federal income tax consequences of the LTIP
based on current provisions of the Code, which are subject to change. The
summary does not cover any state or local tax consequences of participation in
the LTIP.
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NEW PLAN BENEFITS
Since new awards under the LTIP will be discretionary, the Corporation cannot
currently determine the number of awards which will be made pursuant to the LTIP
during 1997. For purposes of comparison, the following table contains
information about awards made during 1996 under the Current Plan to the Named
Executive Officers and the groups indicated. Approximately 81 persons received
awards under the Current Plan in 1996; it is not anticipated that the total
number of persons receiving awards in 1997 under the LTIP and the Current Plan
would be substantially greater. No non-officer nominee for election as a
director or non-officer director of the Corporation received awards under the
Current Plan in 1996 or 1997.
NEW PLAN BENEFITS TABLE
BENEFITS UNDER CURRENT PLAN IN 1996
<TABLE>
<CAPTION>
AVERAGE NUMBER OF
NUMBER OF SHARES OF EXERCISE PRICE RESTRICTED
COMMON STOCK OF OPTIONS STOCK RIGHTS NUMBER OF PERFORMANCE
NAME UNDERLYING OPTIONS GRANTED($) GRANTED STOCK RIGHTS GRANTED
- --------------------------------------- ------------------- --------------- --------------- -----------------------
<S> <C> <C> <C> <C>
R. H. Eigsti........................... 50,000 $ 32.125 11,500 0
B. A. Dickey........................... 30,000 32.125 6,500 0
D. D. McLean........................... 0 NA 4,000 0
R. E. Zunker........................... 15,000 32.125 3,500 0
J. W. Ruddy............................ 12,000 32.125 2,200 0
All executive officers as a group...... 122,000 32.125 30,500 0
All other employees (including officers
who are not executive officers) as a
group................................ 250,700 34.31 14,000 0
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT THE SAFECO
LONG-TERM INCENTIVE PLAN OF 1997.
AUDITING
Ernst & Young LLP, the Corporation's independent auditors since 1987, has been
selected by the Audit Committee to be the auditors for the current year, subject
to the approval of the Board of Directors at its meeting on May 7, 1997. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting and will have the opportunity to make a statement if he desires to do so
and to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
The Corporation's 1998 Annual Meeting of Shareholders will be held on May 6,
1998. Under the federal proxy solicitation rules, in connection with the
preparation of proxy materials for the 1998 Annual Meeting of Shareholders, any
proposal submitted by a shareholder for such meeting must be received by the
Corporation by November 14, 1997.
NOTICE REQUIREMENTS FOR SHAREHOLDERS TO BRING BUSINESS
AT AN ANNUAL MEETING
The Corporation's Bylaws provide that shareholders may nominate persons for
election to the Board of Directors only if a written notice of intention to
nominate has been received by the secretary to the Board of Directors at SAFECO
Plaza, Seattle, Washington 98185, not less than 60 days nor more than 90 days
before the scheduled date of the Annual Meeting of Shareholders. The notice must
contain the name, address, telephone number, and number of shares of Common
Stock owned by the nominating shareholder and the information relating to each
nominee required with respect to nominees for director under the federal proxy
solicitation rules. The notice of nomination must be accompanied by each
nominee's written consent to being a nominee and statement of intention to serve
as a director if elected.
25
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The Corporation's Bylaws further provide that for a shareholder to bring other
business before an Annual Meeting of Shareholders, the shareholder must file a
written notice of intention to bring such business with the Secretary of the
Corporation at SAFECO Plaza, Seattle, Washington 98185, within the time frame
described above. The notice must contain the name, address, telephone number and
number of shares of Common Stock owned by the shareholder intending to bring
such business before the meeting, a description of the business and reasons for
conducting it at the meeting, and any material interest of the shareholder in
such business.
OTHER MATTERS
THE CORPORATION FILES AN ANNUAL REPORT ON FORM 10-K WITH THE SEC. A COPY OF THE
CORPORATION'S MOST RECENT FORM 10-K REPORT WILL BE FURNISHED WITHOUT CHARGE TO
ANY SHAREHOLDER WHO MAKES WRITTEN REQUEST TO ROD A. PIERSON, SENIOR VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER, SAFECO CORPORATION, SAFECO PLAZA,
SEATTLE, WASHINGTON 98185.
The Board is not aware of any other matters to be presented for action at the
Annual Meeting. If any other matters come before the Annual Meeting, the persons
named in the enclosed proxy will vote all proxies in accordance with their best
judgment.
All shares represented by the enclosed proxy, if returned prior to the Annual
Meeting, will be voted in the manner specified by the shareholder. If neither a
specific instruction is given nor authority withheld, the proxy will be voted
for each of the director nominees and for Proposals 2 through 5.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY AND THAT YOUR SHARES BE
REPRESENTED. SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND PROMPTLY RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
[SIGNATURE]
Seattle, Washington Roger H. Eigsti
March 14, 1997 Chairman and Chief Executive Officer
26
<PAGE>
APPENDIX A
TEXT OF PROPOSED AMENDMENT TO
THE CORPORATION'S RESTATED ARTICLES OF INCORPORATION
REGARDING DIRECTORS ELECTED TO FILL VACANCIES ON THE BOARD OF DIRECTORS
Article V, Sections 1 and 2 of the Corporation's Restated Articles of
Incorporation, if amended, would provide as follows:
1. The number of directors constituting the Board of Directors of the
corporation shall be fixed in the manner provided in the bylaws. A director
need not be a shareholder. The directors shall be divided into three
classes, designated Class 1, Class 2 and Class 3. Each class shall consist,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At the 1986 annual meeting of
shareholders, Class 1 directors shall be elected for a one-year term, Class
2 directors for a two-year term and Class 3 directors for a three-year term.
At each succeeding annual meeting of shareholders, successors to the class
of directors whose term expires at that annual meeting shall be elected for
a three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number
of directors in each class as nearly equal as possible, but in no case will
a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year
in which the director's term expires and until the director's successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
2. Any vacancy on the Board of Directors shall be filled by the Board
of Directors or, if the directors in office constitute fewer than a quorum
of the Board of Directors, then by the affirmative vote of the majority of
all directors in office.
A-1
<PAGE>
APPENDIX B
TEXT OF THE PROPOSED AMENDMENT
TO ARTICLE II OF THE CORPORATION'S BYLAWS
REGARDING DIRECTORS ELECTED TO FILL VACANCIES ON THE BOARD OF DIRECTORS
Article II, Sections 2 and 3 of the Corporation's Bylaws, if amended, would
provide as follows:
2. ELECTION--TERM OF OFFICE. The directors shall be divided into three
classes, designated Class 1, Class 2, and Class 3. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At each annual meeting of
stockholders successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, but in no case will a decrease in the number of directors shorten
the term of any incumbent director. A director shall hold office until the
annual meeting for the year in which the director's term expires and until the
director's successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
In the event of a failure to hold an election of directors at any annual
stockholders' meeting, an election of directors may be held at a special meeting
of the stockholders called for that purpose, provided that notice thereof be
given all stockholders entitled to vote at such meeting at least 30 days prior
to the date set for such special meeting.
3. VACANCIES. Any vacancy on the Board of Directors shall be filled by the
Board of Directors or, if the directors in office constitute fewer than a quorum
of the Board of Directors, then by the affirmative vote of the majority of all
directors in office.
B-1
<PAGE>
APPENDIX C
TEXT OF THE PROPOSED AMENDMENT
TO ARTICLE XII OF THE CORPORATION'S BYLAWS
REGARDING INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XII of the Corporation's Bylaws, if amended, would provide as follows:
ARTICLE XII
INDEMNIFICATION
1. DIRECTORS. (a) Each person who was or is a party to any proceeding (whether
brought by or in the right of the corporation or otherwise) by reason of the
fact that he or she is or was a director of the corporation, or, while a
director of the corporation, is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust, other enterprise, or
employee benefit plan (an "Indemnitee"), whether the basis of a proceeding is an
alleged action in an official capacity as such a director, officer, partner,
trustee, employee, or agent or in any other capacity while serving as such a
director, officer, partner, trustee, employee, or agent, shall be indemnified
and held harmless by the corporation against all judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by the Indemnitee in
connection with such proceeding. Except as provided in paragraph (d) of this
Section 1 with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any Indemnitee only if the
proceeding (or part thereof) was authorized or ratified by the Board of
Directors.
(b) No indemnification shall be provided to any Indemnitee for acts or
omissions of the Indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the Indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was finally adjudged that such
Indemnitee personally received a benefit in money, property or services to which
the Indemnitee was not legally entitled or if the corporation is otherwise
prohibited by applicable law from paying such indemnification, except that if
Section 23B.08.560 or any successor provision is hereafter amended, the
restrictions on indemnification set forth in this paragraph (b) shall be as set
forth in such amended statutory provision.
(c) The right to indemnification conferred under this Article XII shall
include the right to be paid by the corporation the expenses incurred in
defending any proceeding in advance of its final disposition. An advancement of
expenses shall be made upon delivery to the corporation of an undertaking, by or
on behalf of an Indemnitee, to repay all amounts so advanced if it is ultimately
determined by final judicial decision from which there is no right to appeal
that such Indemnitee is not entitled to be indemnified for such expenses under
this Article XII.
(d) If a claim under this Section 1 is not paid in full by the corporation
within 60 days after a written claim has been received by the corporation,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be 20 days, the Indemnitee may at any time thereafter
bring suit against the corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. An Indemnitee shall be presumed to be
entitled to indemnification under this Article XII upon submission of a written
claim (and, in an action brought to enforce a claim for an advancement of
expenses, where the required undertaking has been tendered to the corporation),
and the corporation shall have the burden of proof to overcome the presumption
that the Indemnitee is so entitled.
2. OFFICERS. The corporation shall extend rights to indemnification and
advancement of expenses in the same manner and to the same extent provided to
directors under Section 1 of this Article to any
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person, not a director of the corporation, who is or was an officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, partner, trustee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan.
3. OTHER EMPLOYEES AND AGENTS. The corporation may, by action of the Board of
Directors, grant rights to indemnification and advancement of expenses to
employees and agents or any class or group of employees and agents of the
corporation (i) with the same scope and effect as the provisions of this Article
with respect to the indemnification and advancement of expenses of directors;
(ii) pursuant to rights provided by the Washington Business Corporation Act; or
(iii) as are otherwise consistent with law.
4. DEFINITIONS. For purposes of this Article XII, the terms "director,"
"corporation," "expenses," "party" and "proceeding" have those meanings assigned
to them in Section 23B.08.500 of the Washington Business Corporation Act.
5. SERVICE AT THE REQUEST OF THE CORPORATION. Any person who, while a
director, officer or employee of the corporation, is or was serving (a) as a
director or officer of another corporation of which a majority of the shares
entitled to vote is held by the corporation or (b) as a partner, trustee or
otherwise in a management capacity in a partnership, joint venture, trust or
other enterprise of which the corporation or a wholly-owned subsidiary of the
corporation is a general partner or has a majority ownership shall be deemed to
be so serving at the request of the corporation.
6. PROCEDURES EXCLUSIVE. Pursuant to Section 23B.08.560(2) or any successor
provision of the Washington Business Corporation Act, the procedures for
indemnification and advancement of expenses set forth in this Article are in
lieu of the procedures required by Section 23B.08.550 or any successor provision
of the Washington Business Corporation Act.
7. NOT EXCLUSIVE--CONTINUING RIGHT. The indemnification provided by this
Article shall not be deemed exclusive of other rights to which the director,
officer, employee or agent may be entitled as a matter of law or by contract,
and shall continue as to a person who has ceased to be a director, officer,
partner, trustee, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
8. INSURANCE. The corporation may maintain insurance at its expense to protect
itself and any director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act.
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APPENDIX D
SAFECO LONG-TERM INCENTIVE PLAN OF 1997
1. PURPOSE
The purpose of the SAFECO Long-Term Incentive Plan of 1997 (the "Plan") is to
enhance the long-term profitability and shareholder value of SAFECO Corporation
(the "Company") by offering incentives and rewards to selected eligible
employees of the Company and its Subsidiaries (as defined in Section 2) who are
key to the Company's growth and success as an inducement to them to remain in
the service of the Company and to acquire and maintain stock ownership in the
Company.
2. DEFINITIONS
(a) "AFFILIATE" means a person controlling, controlled by or under common
control with the Company.
(b) "AWARD" shall mean any award or grant made pursuant to the Plan,
including, without limitation, awards or grants of stock options, stock
appreciation rights, restricted stock rights, performance stock rights or
any combination of the foregoing. Awards may be granted singly, in
combination, or in tandem so that the settlement or payment of one
automatically reduces or cancels the other.
(c) "AWARD AGREEMENT" means a written agreement between the Company and a
Plan participant evidencing an Award.
(d) "BENEFICIAL OWNER" has the meaning set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(e) "CHANGE IN CONTROL" shall be deemed to have occurred if the event set
forth in any one of the following paragraphs has occurred:
(i) Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its Affiliates) representing 25% or
more of the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial Owner
in connection with a transaction described in clause (x) of
paragraph (iii) of this Section 2(e); or
(ii) The following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who,
on the date the Plan is adopted by the Company's shareholders,
constitute the Board of Directors of the Company and any new
director (other than a director whose initial assumption of office
is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to
the election of directors of the Company) whose appointment or
election by the Board of Directors or nomination for election by
the Company's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or recommended;
or
(iii) There is consummated a merger or consolidation of the Company or
any Subsidiary with any other corporation, OTHER THAN (x) a merger
or consolidation which would result in the voting securities of the
Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the
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Company or any Subsidiary at least 75% of the combined voting power
of the securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or
consolidation, or (y) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not including
in the securities beneficially owned by such Person any securities
acquired directly from the Company or its Affiliates other than in
connection with the acquisition by the Company or its Affiliates of
a business) representing 25% or more of the combined voting power
of the Company's then outstanding securities; or
(iv) The shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated
an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 75% of the combined voting
power of the voting securities of which are owned by shareholders
of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed
to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record
holders of the Company's common stock immediately prior to such
transaction or series of transactions continue to have substantially the
same proportionate ownership in an entity which owns all or substantially
all of the Company's assets immediately following such transaction or
series of transactions.
(f) "COMMITTEE" shall mean the committee or sub-committee described in
Section 3 selected by the Company's Board of Directors to administer the
Plan.
(g) "FAIR MARKET VALUE" shall mean, with respect to the Company's common
stock, the price at which the last trade of the Company's common stock
was made prior to 1:00 p.m. West Coast time on the Nasdaq National Market
on the date in question.
(h) "PERSON" for purposes of Section 2(e) means any person (as defined in
Section 2(a)(9) of the Exchange Act, as such term is modified in Section
13(d) and 14(d) of the Exchange Act) OTHER THAN (i) any employee plan
established by the Company, (ii) the Company or any of its affiliates (as
defined in Rule 12b-2 promulgated under the Exchange Act), (iii) an
underwriter temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or indirectly, by
shareholders of the Company in substantially the same proportions as
their ownership of the Company.
(i) "RETIREMENT" shall mean a termination of employment with the Company or
a Subsidiary occurring on or after an individual attains age 65, or such
other termination of employment as the Committee may approve as a
retirement from time to time for purposes of the Plan.
(j) "SUBSIDIARY" shall mean any corporation of which more than 50% of the
total combined voting power of all classes of stock entitled to vote is
directly or indirectly owned by the Company.
3. ADMINISTRATION
(a) The Plan shall be administered by a Committee to be appointed from time
to time by the Company's Board of Directors and shall consist of at least
two members of the Board, each of whom is an "outside director" as
defined in regulations promulgated under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). In addition, if the
Committee does not also consist solely of "non-employee directors" as
defined in Rule 16b-3 under the Exchange Act, the Plan shall be
administered with respect to individuals subject to Section 16 of the
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Exchange Act by a sub-committee of the Committee to be appointed from
time to time by the Company's Board of Directors and consisting of at
least two members of the Board, each of whom is a "non-employee
director."
(b) Except for the terms and conditions explicitly set forth in the Plan,
the Committee shall have the exclusive authority to determine, in its
sole discretion, all matters relating to Awards under the Plan, including
the selection of individuals to be granted Awards; the type of Awards;
the number of shares of common stock subject to an Award; all terms,
conditions, restrictions and limitations, if any, of an Award; and the
terms of any instrument that evidences the Award. The Committee may, in
its discretion, accelerate the exercisability of or waive any or all of
the restrictions and conditions applicable to any Award and may, with the
consent of the holder, modify any agreement governing an Award. The
Committee may permit or require the deferral of any Award payment,
subject to such rules and procedures as it may establish, which may
include provisions for the payment or crediting of interest or dividend
equivalents on the deferred payment. Any deferred payment may require the
payment to be forfeited under certain circumstances in accordance with
Section 15. The Committee shall also have exclusive authority to
interpret the Plan and may adopt, amend and rescind rules and procedures
relating to the Plan. The Committee may delegate administrative duties to
such of the Company's officers as it so determines; provided, however,
that decisions concerning the terms and conditions of an Award and the
selection of recipients of Awards shall not be delegated.
(c) The Board of Directors shall designate one member of the Committee as
its Chair, and the Committee shall hold its meetings at such times and
places as it shall deem advisable. At least one-half of its members shall
constitute a quorum for the conduct of business, and any decision or
determination approved by a majority of members present at any meeting in
which a quorum exists shall be deemed to have been made by the Committee.
In addition, any decision or determination reduced to writing and signed
by all of the members shall be deemed to have been made by the Committee.
The Committee may appoint a secretary, shall keep minutes of its
meetings, and may make such rules and regulations for the conduct of its
business and for the carrying out of the Plan as it deems appropriate.
(d) The interpretation and construction by the Committee of any provisions
of the Plan and of Awards thereunder and all actions taken and
determinations made by the Committee pursuant to the Plan shall be final
and conclusive on all persons having any interest therein.
(e) Notwithstanding anything in the Plan to the contrary, the Committee, in
its absolute discretion, may bifurcate the Plan so as to restrict, limit
or condition the use of any provision of the Plan to participants who are
subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other participants in
the Plan.
4. SHARES SUBJECT TO PLAN
(a) Subject to the provisions of Section 21 (relating to adjustments due to
changes in capital structure), a maximum of 6,000,000 shares of the
Company's common stock shall be available for issuance pursuant to Awards
under the Plan. No more than 3,000,000 shares may be issued in connection
with restricted stock rights and performance stock rights granted under
the provisions of Sections 12 and 13.
(b) Any shares of the Company's common stock that have been made subject to
an Award and that subsequently cease to be subject to the Award (other
than by reason of exercise or payment of the Award to the extent it is
exercised for or settled in shares of common stock) shall again be
available for issuance in connection with future grants of Awards under
the Plan; provided, however, that for purposes of Section 4(c), any such
shares shall be counted in accordance with the requirements of Section
162(m) of the Code.
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(c) Subject to the provisions of Section 21 (relating to adjustments due to
changes in capital structure), the maximum number of shares with respect
to which options may be granted under the Plan to any individual during
any calendar year is 300,000, and the maximum number of shares payable
under a performance stock right for any Performance Cycle (as defined in
Section 13(a)) is 300,000 shares, or in the event the performance stock
right is paid in cash, the equivalent cash value on the date the
performance stock right would otherwise be settled in shares, such
limitations to be applied in a manner consistent with the requirements
of, and only to the extent required for compliance with, the exclusion
from the limitation on deductibility of compensation under Section 162(m)
of the Code.
5. ELIGIBILITY
Awards may be granted only to salaried key management employees of the Company
or a Subsidiary (including salaried employees who are also directors) who, in
the judgment of the Committee, will perform services of special importance in
the management, operation and development of the business of the Company or the
businesses of one or more of its Subsidiaries, provided the grant date for
options and performance stock rights for an employee shall not occur during or
after the calendar year in which the employee reaches the age of 65.
6. PRICE AND TERM OF OPTIONS
(a) The exercise price for shares purchased under each option will be
determined by the Committee but shall not be less than 100% of the Fair
Market Value of the shares of stock covered by the option on the date of
grant of the option.
(b) The term of each option shall be as determined by the Committee, but not
in excess of ten years from the date it is granted. An option granted for
an initial term of less than ten years may be extended by amendment for a
period of up to ten years from the date of the initial grant, provided
that no such amendment of an incentive stock option shall be made without
the prior consent of the optionee.
7. LIMITATIONS ON EXERCISE OF OPTIONS
(a) Any minimum period during which an optionee must be continuously
employed prior to an option becoming exercisable and the increments in
which an option will become exercisable shall be set forth in the Award
Agreement evidencing the option. Such provisions may be waived or
modified by the Committee at any time. Absence on leave shall not be
deemed an interruption of employment for purposes of the Plan, except
that with respect to incentive stock options a leave of absence shall be
subject to any requirements of Section 422 of the Code.
(b) With respect to incentive stock options granted to an employee under the
Plan, to the extent the aggregate Fair Market Value (determined at the
time the options are granted) of the stock with respect to which
incentive stock options are exercisable for the first time by such
employee during any calendar year (under the Plan and all other stock
option plans of the Company and its Subsidiaries) exceeds $100,000, such
portion in excess of $100,000 shall be treated as a nonqualified stock
option.
8. METHOD OF EXERCISE
Each exercise of an option granted hereunder, whether in whole or in part, shall
be by written notice to the Chief Executive Officer of the Company designating
the number of shares as to which the option is exercised, and shall be
accompanied by payment in full for the number of shares so designated. Stock to
be purchased under an option may be paid for in cash, in shares of the Company's
common stock (either through physical delivery or by attestation) at their Fair
Market Value on the date of exercise, or in a combination thereof, or in such
other consideration as the Committee in its discretion may permit.
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Fractional shares may not be purchased under an option, and fractional shares
may not be delivered to the Company for payment of the option price.
9. FORM OF OPTION AGREEMENT
Each Award Agreement evidencing an option shall contain the essential terms of
the option and such other provisions as the Committee shall from time to time
determine, but such Award Agreements need not be identical. If the option is an
incentive stock option, the Award Agreement shall contain such terms and
provisions relating to exercise and otherwise as may be necessary to render it
an incentive stock option under the applicable provisions of the Code (presently
Section 422 thereof), and the regulations thereunder.
10. FINANCING OF OPTIONS
The Company declares its belief that the purposes of the Plan can be fully
achieved only if those employees to whom options are granted hereunder are able
financially to purchase the stock covered by their options should they wish to
do so. Thus, within the limits of and in compliance with applicable statutes and
regulations, the Company and its Subsidiaries may extend credit, arrange credit,
guarantee obligations, and otherwise aid such employees in needed financing of
their purchases of stock pursuant to options.
11. STOCK APPRECIATION RIGHTS
(a) In connection with the grant of any stock option, the Committee may
grant a stock appreciation right ("SAR") pursuant to which the optionee
shall have the right to surrender all or part of such stock option and to
exercise the SAR and thereby obtain payment of an amount equal to the
difference between the aggregate option price of the shares so
surrendered and the Fair Market Value of such shares on the date of
surrender. In all other respects, a SAR will have the same terms and
provisions as the related option.
(b) The exercise of a SAR shall be by written notice to the chief executive
officer of the Company designating the number of shares as to which the
SAR is exercised and shall be subject to such limitations as the
Committee may deem appropriate. Payment to the holder upon the call of a
SAR may be made in shares of the Company's common stock (at their Fair
Market Value on the date of exercise), in cash, or partly in shares and
partly in cash, at the discretion of the Committee.
12. RESTRICTED STOCK RIGHTS
(a) The Committee may grant any eligible employee restricted stock rights
("RSRs") which entitle such employee to receive a stated number of shares
of the Company's common stock if the employee for a stated period remains
continuously employed by the Company or a Subsidiary or, following the
employee's Retirement, serves on the Board of Directors of the Company or
in another capacity approved by the Committee (the "Restricted Period").
At the time an RSR is issued, the Committee shall designate the length of
the Restricted Period and the service that will qualify under the
Restricted Period; provided, however, in no event may the Restricted
Period extend beyond the fifth anniversary date of the employee's
termination of employment. The Committee shall also have full and final
authority to select the employees who receive RSRs, to specify the number
of shares of stock subject to each RSR, and to establish the other terms,
conditions and definitions that govern RSRs.
(b) The Company shall pay to each holder of an unexpired RSR during the
Restricted Period, as additional compensation, an amount of cash equal to
the dividends that would have been payable to the holder of the RSR
during the Restricted Period if the holder had owned the stock subject to
the RSR. Such amount shall be paid as near in time as reasonably
practical to the applicable dividend payment dates.
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(c) At the expiration of each Restricted Period and provided all conditions
relating to an RSR have been met, the Company shall issue to the holder
the shares of stock which relate to such Restricted Period or, at the
request of the holder, make a payment of an amount equal to the Fair
Market Value of such shares (or any portion thereof) determined as of the
settlement date or, alternatively, over such period as may be established
by the Committee at the time of grant.
(d) Upon grant of an RSR, the Company shall deliver to the recipient an
Award Agreement which sets forth the terms and conditions of the RSR.
13. PERFORMANCE STOCK RIGHTS
(a) The Committee may grant to an eligible employee performance stock rights
("PSRs") which entitle such employee to receive a stated number of shares
of the Company's common stock if the employee attains certain specified
performance goals ("Performance Goals") within a stated performance
period (a "Performance Cycle"). The Committee shall have full and final
authority to select the employees who receive PSRs, to specify the number
of shares of stock subject to each such right, to establish the
Performance Goals, to establish the Performance Cycle and to establish
the terms, conditions and definitions that govern such rights.
(b) The Committee shall establish Performance Goals for each Performance
Cycle on the basis of such criteria and to accomplish such objectives as
the Committee may from time to time select. Performance Goals selected by
the Committee may include performance criteria for the Company, a
Subsidiary, or an operating group, division, or unit of the Company or a
Subsidiary. During any Performance Cycle, the Committee may adjust the
Performance Goals for such Performance Cycle as it deems equitable in
recognition of unusual or nonrecurring events affecting the Company,
changes in applicable tax laws or accounting principles, or such other
factors as the Committee may determine; provided, however, that the
Committee may not adjust Performance Goals for any participant who is a
covered employee for purposes of Section 162(m) of the Code for the year
in which such Performance Award is settled in such a manner as would
increase the amount of compensation otherwise payable to such covered
employee.
(c) As soon as practical after the end of a Performance Cycle, the Committee
shall determine the extent to which a PSR has been earned on the basis of
performance in relation to the established Performance Goals. To the
extent that the Performance Goals of a PSR are satisfied, the Company
shall settle the earned portion of the PSR by the issuance and delivery
of unrestricted shares equal to the number of earned shares, by the
payment of cash equal to the Fair Market Value of the earned shares on
the date the PSR would otherwise be settled in shares, or by a
combination of cash and shares, as requested by the holder. If the
Performance Goals are not met by the expiration of the Performance Cycle,
the PSR shall expire and the holder thereof shall have no further rights
thereunder.
(d) Upon granting a PSR, the Company shall issue to the recipient an Award
Agreement which sets forth the terms and conditions of the PSR.
(e) The Performance Goals shall be any one or a combination of net income,
earnings per share, return on equity, return on assets, stock price
appreciation, total shareholder return, cash flow, revenues, item count,
market share, assets, assets under management, any profit-related ratio
or calculation, or any growth, concentration-of-business or market-share
ratio or calculation. Such Performance Goals may be measured on an
absolute basis or relative to a group of peer companies selected by the
Committee, relative to internal goals, or relative to levels attained in
prior years. The Committee will establish specific Performance Goals for
each PSR not later than 90 days after the beginning of the Performance
Cycle for the Award.
(f) The Company shall not make dividend equivalent payments with respect to
shares subject to PSRs.
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14. TERMINATION OF EMPLOYMENT, RETIREMENT, DISABILITY AND DEATH
(a) In the event the employment of a Plan participant by the Company or a
Subsidiary terminates, then unless otherwise provided in the Award
Agreement, any unexercised option or SAR granted to such participant may
be exercised, BUT ONLY TO THE EXTENT EXERCISABLE ON THE DATE OF
TERMINATION OF EMPLOYMENT, at any time within three months following such
termination of employment, EXCEPT THAT:
(i) If the participant's termination of employment is on account of
RETIREMENT, then the option or SAR, to the extent exercisable at the
date of termination of employment, may be exercised at any time
prior to the expiration of its stated term, but in no event later
than the fifth anniversary date of the participant's termination of
employment.
(ii) If the participant's termination of employment is on account of a
permanent and total DISABILITY within the meaning of Section
22(e)(3) of the Code, then the option or SAR, to the extent
exercisable at the date of termination of employment, may be
exercised at any time within one year after the date of
termination.
(iii) If the participant's termination of employment is caused by the
DEATH of the participant, then the option or SAR may be exercised
at any time prior to the expiration of the term stated in the Award
Agreement by the person(s) to whom the participant's rights pass by
will or by operation of law without regard to any requirements
related to continued employment or installment vesting.
(iv) If the participant DIES FOLLOWING TERMINATION of employment and
during the period in which the option or SAR is exercisable under
paragraph (i) or (ii) of this Section 14(a), then, to the extent
the option or SAR was vested at the date of the participant's
termination of employment, the option or SAR may be exercised at
any time prior to the expiration of the term stated in the Award
Agreement by the person(s) to whom the participant's rights pass by
will or by operation of law.
(b) Any portion of an option or SAR that is not exercisable on the date of
termination of the participant's employment shall terminate on such date,
unless the Committee determines otherwise.
(c) To the extent that the option or SAR of any deceased or disabled
participant or of any participant whose employment has terminated shall
not have been exercised within the time periods provided above, all
further rights to exercise such option or SAR shall terminate at the
expiration of the applicable period.
(d) In the event a holder of an RSR issued under the provisions of Section
12 fails to satisfy the employment or service requirements of the RSR,
such holder shall lose the right to receive stock or cash under the
provisions of the RSR, EXCEPT THAT in the event a holder of an RSR is
unable to satisfy such requirements because of death or disability within
the meaning of Section 22(e)(3) of the Code, then as soon as practical
following the date of death or the date of determination of disability
(the "Disability Determination Date"), the holder or the personal
representative of the holder's estate, as the case may be, shall be
issued shares of the Company's common stock equal in number to the total
number of unissued shares covered by such RSR or, in lieu thereof, at the
request of such holder or personal representative, receive a cash payment
equal to the Fair Market Value of such shares (or any portion thereof) at
the date of death or the Disability Determination Date, as the case may
be. Such shares shall be issued or payment made without regard to any
employment or other service requirement stated in the RSR.
(e) Except as provided in Section 22, in the event the employment of an
employee who holds a PSR granted under the provisions of Section 13
terminates for any reason prior to the expiration of
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the Performance Cycle specified in the PSR, then, except to the extent
the Committee may decide otherwise in select situations, such employee
shall lose all rights to thereafter receive any stock or payment under
such PSR.
(f) If a corporation ceases to be a Subsidiary of the Company, then, except
to the extent the Committee determines otherwise, employees of such
corporation shall be deemed to have terminated their employment with the
Company or a Subsidiary of the Company for purposes of this Section 14 as
of the date such corporation's status as a Subsidiary terminates.
15. FORFEITURE
Subject to the Committee's discretion, the grant of any Award under the Plan may
be conditioned on the participant's agreement to forfeit unexercised Awards and
pay the value of previously exercised or settled Awards to the Company in the
event that the participant engages in any activity in competition with the
Company or otherwise contrary to the Company's interests while employed by the
Company or a Subsidiary or within a specified period following termination of
employment or exercise or settlement of an Award.
16. TRANSFERABILITY
Except as otherwise provided in this Section 16, Awards shall not be
transferable other than by will or the laws of descent and distribution and
shall be exercisable during the lifetime of a participant only by the
participant or, in the event the participant becomes legally incompetent, by the
participant's guardian or legal representative. Notwithstanding the foregoing,
and to the extent permitted by Section 422 of the Code, the Committee, in its
discretion, may provide in any Award Agreement or otherwise that the Award is
transferable, without payment of consideration, (i) to immediate family members
(including grandchildren) of the participant or (ii) to a trust or trusts for
the benefit of such family members or (iii) to a partnership or similar
organization composed of such family members ("Permitted Family Transferees").
Any Award assigned or transferred to Permitted Family Transferees shall be
subject to all the same terms and conditions contained in the Award Agreement,
and the events of termination of employment stated in Section 14 shall continue
to be applied with respect to the original Award recipient, following which
termination the Award shall be exercisable by the transferee only to the extent
and for the periods specified in Section 14.
17. WITHHOLDING
The Company may require the holder of an Award to pay to the Company the amount
of any taxes that the Company is required to withhold with respect to the grant,
exercise, payment or settlement of an Award. The Company shall have the right to
withhold from any Award or any shares of stock issuable pursuant to an Award an
amount equal to such taxes.
18. RIGHTS AS SHAREHOLDER
Neither a person to whom an Award is granted, nor such person's legal
representative, heir, legatee, distributee or Permitted Family Transferee shall
be deemed to be the holder of, or to have any rights of a holder with respect
to, any shares subject to such Award until after the shares are issued.
19. AMENDMENTS TO THE PLAN
The Company's Board of Directors may from time to time make such amendments to
the Plan as it may deem proper and in the best interests of the Company or a
Subsidiary, provided that:
(a) No amendment shall be made which would impair, without the consent of
the applicable participant, any Award previously granted under the Plan
or deprive any participant of any shares
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of stock of the Company which the participant may have acquired through
or as a result of the Plan.
(b) Any such amendment which would (i) increase the number of securities
which may be issued under the Plan or (ii) materially modify the
requirements as to eligibility for participation in the Plan shall be
submitted to the shareholders of the Company for their approval at the
next annual or special meeting after adoption by the Board of Directors,
and if such shareholder approval is not obtained, the amendment, together
with any actions taken under the Plan on the necessary authority of such
amendment, shall be null and void.
20. TERMINATION OF THE PLAN
The Plan shall remain in effect until Awards have been granted covering all the
shares of the Company's common stock authorized under Section 4(a) or until the
Plan is otherwise terminated by the Company's Board of Directors; provided,
however, that no incentive stock option shall be granted more than ten years
after the date on which the Plan is approved by the shareholders of the Company,
I.E., the effective date of the Plan. Termination of the Plan shall not affect
outstanding Awards.
21. CHANGES IN CAPITAL STRUCTURE
Except as otherwise provided in Section 22, in the event the outstanding shares
of common stock of the Company are hereafter increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split,
spin-off, combination of shares, dividend payable in shares, rights offering,
change in the corporate structure of the Company, or otherwise, then the
Committee shall make proportional adjustments to the maximum number and class of
shares subject to the Plan and to the maximum number and class of shares with
respect to which Awards may be granted or paid to any individual participant as
set forth in Sections 4(a) and (c). In addition, the Committee shall make an
appropriate adjustment to the number and class of shares as to which outstanding
Awards, or portions thereof then unexercised, shall be exercisable or settled
and the per share price of such shares, to the end that the participant's
proportionate interest shall be maintained as before the occurrence of such
event, without any change in the total price applicable to the unexercised
portion of any Award. Any such adjustment made by the Committee shall be
conclusive.
22. CHANGE IN CONTROL
(a) Notwithstanding any other provision of the Plan to the contrary, if,
while any Awards remain outstanding under the Plan, a Change in Control
of the Company shall occur, then:
(i) All options and SARs granted under the Plan that are outstanding at
the time of such Change in Control shall become exercisable in full
immediately prior to the Change in Control;
(ii) To the extent deemed earned, each outstanding PSR shall become
immediately payable in cash, and the remainder of each outstanding
PSR shall be canceled for no value. All outstanding PSRs shall be
deemed to have been earned to the extent of the greater of:
(1) The number of shares of the Company's common stock determined by
the Committee based on the extent to which the Performance Goals
specified in the Award Agreement have been achieved during the
portion of the Performance Cycle ending on the last day of the
last fiscal quarter of the Company ending on or before the date
of the Change in Control; or
(2) The number of shares of the Company's common stock equal to the
product of the target shares identified in the Award Agreement
multiplied by a fraction with a
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<PAGE>
numerator equal to the whole number of calendar months beginning
with the month in which the Award was granted and ending on the
date of the Change in Control and a denominator equal to the
whole number of calendar months in the entire Performance Cycle
specified in the Award Agreement.
(iii) All restrictions with respect to RSRs shall lapse and all
outstanding RSRs shall be settled by a payment in cash to each
holder of such Award; and
(iv) All other restrictions with respect to outstanding Awards not
described in paragraphs (i) through (iii) of this Section 22(a)
shall lapse, and such Awards shall be fully vested and
nonforfeitable.
(b) For purposes of this Section 22, with respect to determining the cash
equivalent value of an RSR or PSR or the spread payable upon exercise of
a SAR, the Fair Market Value of a share of the Company's stock shall be
deemed to equal the greater of (i) the Fair Market Value of a share of
stock as of the date on which a Change in Control occurs and (ii) the
price of a share of stock which is paid or offered to be paid, by any
Person or entity, in connection with any transaction which constitutes a
Change in Control.
(c) The phrase "immediately prior to the Change in Control" shall be
understood to mean sufficiently in advance of a Change in Control to
permit the holder of an Award to take all steps reasonably necessary to
exercise all options and SARs and take any actions with respect to the
shares of stock underlying Awards of any nature so that such shares may
be treated in the same manner as the shares of stock of other
shareholders in connection with the Change in Control.
23. APPROVALS
The obligations of the Company under the Plan shall be subject to the approval
of such state or federal authorities or agencies, if any, as may have
jurisdiction in the matter. Shares shall not be issued with respect to an Award
unless the exercise and the issuance and delivery of the shares comply with all
relevant provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
Code, the respective rules and regulations promulgated thereunder, and the
requirements of any stock exchange or market on which the shares may then be
listed or traded, and shall be further subject to the approval of counsel for
the Company with respect to such compliance. Inability of the Company to obtain
from any regulatory body having jurisdiction the authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any shares
hereunder shall relieve the Company of any liability for the nonissuance or sale
of such shares. The Board of Directors may require any action or agreement by a
holder of an Award as may from time to time be necessary to comply with the
federal and state securities laws. The Company shall not be obliged to register
stock issued under the Plan or options or any other rights to acquire stock
granted under the Plan.
24. EMPLOYMENT RIGHTS
Nothing in this Plan or any Award granted pursuant hereto shall confer upon any
employee any right to be continued in the employment of the Company or any
Subsidiary of the Company or to interfere in any way with the right of the
Company, in its sole discretion, to terminate such employee's employment at any
time.
25. EFFECTIVE DATE OF THE PLAN
The effective date of this Plan is May 7, 1997.
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<PAGE>
SAFECO CORPORATION
Proxy Solicited on Behalf of the Board of Directors of the Corporation
for the Annual Meeting of Shareholders
May 7, 1997
PROXY
The undersigned hereby appoints Roger H. Eigsti, John W. Ellis, Joshua Green
III, Judith M. Runstad and George H. Weyerhaeuser, each with full power of
substitution, as the true and lawful attorneys, agents and proxies for the
undersigned, to represent and vote the undersigned's shares at the Annual
Meeting of Shareholders of SAFECO Corporation to be held at the SAFECO
Auditorium, SAFECO Plaza, Seattle, Washington, at 11:00 a.m. on May 7, 1997, or
any adjournment or postponement thereof, and to represent and vote all of the
shares the undersigned would be entitled to vote if personally present in the
transaction of such business as may properly come before the meeting.
CHANGE OF ADDRESS
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(If you have written in the above space, please mark the
corresponding box on the reverse side of this card.)
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The proxies named above cannot
vote your shares unless you sign and return this card.
SEE REVERSE
SIDE
<PAGE>
/X/ Please mark your votes as in this example.
(The Board of Directors recommends a vote "FOR" Items 1 through 5.)
FOR WITHHELD Nominees:
1. Election of Directors / / / / Robert S. Cline
Joshua Green III
William G. Reed, Jr.
Judith M. Runstad
George H. Weyerhaeuser
For, except vote withheld from the following nominee(s):
--------------------------------------------------------
2. To approve an Amendment to Article V of the Corporation's Restated Articles
of Incorporation regarding the filling of vacancies on the Board of
Directors.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve an Amendment to Article II of the Corporation's Bylaws
regarding the filling of vacancies on the Board of Directors.
FOR AGAINST ABSTAIN
/ / / / / /
4. To approve an Amendment to Article XII of the Corporation's Bylaws to
provide broader indemnification to directors and officers.
FOR AGAINST ABSTAIN
/ / / / / /
5. To approve the SAFECO Long-Term Incentive Plan of 1997.
FOR AGAINST ABSTAIN
/ / / / / /
/ / Change of Address
on Reverse Side
This proxy when properly executed will be voted in the manner directed herein.
IN THE EVENT THAT NO DESIGNATION (I.E., "FOR," "WITHHELD," "AGAINST," "ABSTAIN")
IS MADE, THE PROXIES NAMED ON THE REVERSE SIDE INTEND TO VOTE THE SHARES TO
WHICH THIS PROXY RELATES "FOR" ITEMS 1 THROUGH 5. The proxies will vote in
their discretion on any other matters properly coming before the meeting. The
signer hereby revokes all prior proxies given by the signer to vote at the
meeting or any adjournment or postponement thereof.
SIGNATURE(S)
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DATE
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NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
