<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
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 Section240.14a-11(c) or
Section240.14a-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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
NOTICE OF
1999 ANNUAL MEETING
OF SHAREHOLDERS
AND PROXY STATEMENT
[LOGO]
<PAGE>
SAFECO CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 1999
------------------------
Seattle, Washington
March 19, 1999
To Our Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of SAFECO
Corporation (the "Corporation") will be held on May 5, 1999, 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 four nominees to serve as directors for three-year terms to
expire in 2002 and one nominee to serve as a director for a one-year term
to expire in 2000;
2. To approve the SAFECO Long-Term Incentive Plan of 1997 as amended and
restated; and
3. 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 1,
1999, 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 5, 1999
---------------------
This Proxy Statement is furnished in connection with the Annual Meeting of
Shareholders of SAFECO Corporation (the "Corporation") to be held on May 5, 1999
(the "Annual Meeting"). Shareholders of record at the close of business on March
1, 1999, 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 19, 1999.
OUTSTANDING SHARES AND VOTE REQUIRED
On March 1, 1999, there were 136,319,280 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 5, 1999. 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 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 the proposal to amend and restate the SAFECO Long-Term Incentive Plan
of 1997 (Proposal 2). Abstentions from voting will have the effect of voting
against Proposal 2. 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 Proposal 2 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 Proposal 2
unless shareholders direct otherwise 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. Banks and brokers will be
reimbursed for their reasonable expenses in forwarding proxy solicitation
materials to shareholders. 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. At the 1999 Annual Meeting
of Shareholders, four nominees will be elected to serve three-year terms until
the 2002 Annual Meeting of Shareholders and one nominee will be elected to serve
a one-year term until the 2000 Annual Meeting of Shareholders and until their
successors are elected and qualified.
On May 5, 1999, George H. Weyerhaeuser, having reached age 72, will retire as a
director in accordance with the Corporation's retirement policy for directors.
At its February 3, 1999 meeting, the Executive Committee of the SAFECO
Corporation Board of Directors nominated Norman B. Rice, President and Chief
Executive Officer of the Federal Home Loan Bank of Seattle, to fill the one-year
unexpired term of Mr. Weyerhaeuser ending in 2000.
Unless otherwise stated, each individual described below has served for at least
five years in the position indicated. All nominees, other than Mr. Rice, are
presently directors of the Corporation.
NOMINEES FOR DIRECTOR
CLASS I-- TERM EXPIRES AT THE 2002 ANNUAL MEETING OF SHAREHOLDERS
PHYLLIS J. CAMPBELL, 47, is President of U.S. Bank, Washington, a division of
U.S. Bancorp. Ms. Campbell has been a director of the Corporation since 1994.
She is also a director of Puget Sound Energy, Inc.
BOH A. DICKEY, 54, is President and Chief Operating Officer of the Corporation.
Mr. Dickey has been an executive officer of the Corporation since 1982 and a
director of the Corporation since 1993. He is also Chairman of the Board of
Trustees for the 25 SAFECO mutual funds.
WILLIAM P. GERBERDING, 69, 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. He is also a
director of Washington Mutual, Inc. and Washington Mutual Bank.
PAUL W. SKINNER, 51, is President of Skinner Corporation, an investment company.
Mr. Skinner has been a director of the Corporation since 1988.
CLASS II-- TERM EXPIRES AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS
NORMAN B. RICE, 55, is President and Chief Executive Officer of the Federal Home
Loan Bank of Seattle. Mr. Rice joined the Federal Home Loan Bank of Seattle in
March 1998 as its executive vice president. Mr. Rice served two terms as the
Mayor of the City of Seattle from 1990 through 1997 and served three terms as a
member of the City of Seattle Council from 1979 until 1990.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE DIRECTOR
NOMINEES.
CONTINUING DIRECTORS
CLASS II-- TERM EXPIRES AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS
JOSHUA GREEN III, 62, is Chairman and Chief Executive Officer of the Joshua
Green Corporation, 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. He is also a director of U.S. Bancorp.
WILLIAM G. REED, JR., 60, was the Chairman of Simpson Investment Company, a
forest products holding company, until his retirement in 1996. He continues to
serve as a director of Simpson Investment Company. Mr. Reed has been a director
of the Corporation since 1974. He is also a director of Microsoft Corporation,
PACCAR Inc., The Seattle Times, Washington Mutual, Inc. and Washington Mutual
Bank.
2
<PAGE>
JUDITH M. RUNSTAD, 54, is of counsel to the Seattle law firm Foster Pepper &
Shefelman PLLC. Mrs. Runstad has been a director of the Corporation since 1990.
She is also a director of Wells Fargo & Company. She is the immediate past
Chairman of the Board of the Federal Reserve Bank of San Francisco.
CLASS III-- TERM EXPIRES AT THE 2001 ANNUAL MEETING OF SHAREHOLDERS
ROBERT S. CLINE, 61, is Chairman and Chief Executive Officer of Airborne Freight
Corporation, an air freight carrier. Mr. Cline has been a director of the
Corporation since 1992. He is also a director of Metricom, Inc.
ROGER H. EIGSTI, 56, is Chairman and Chief Executive Officer of the Corporation.
Mr. Eigsti has been a director of the Corporation since 1988. He is also a
director of Washington Mutual, Inc. and Washington Mutual Bank.
JOHN W. ELLIS, 70, 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 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. He is also a
director of Washington Mutual, Inc. and Washington Mutual Bank, UTILX
Corporation and Associated Electric & Gas Insurance Services, Ltd.
WILLIAM W. KRIPPAEHNE, JR., 48, is President and Chief Executive Officer of
Fisher Companies Inc., the primary subsidiaries of which 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.
OWNERSHIP OF THE CORPORATION'S COMMON STOCK
The following table provides information as of February 5, 1999, 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: 1.9% for Mr. Green, 2.2% for
Mr. Krippaehne, and 4.6% for all 17 directors, nominees 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....................................... 6,000 --
Boh A. Dickey......................................... 48,944 119,700
Roger H. Eigsti....................................... 115,621 157,388
John W. Ellis......................................... 14,024 --
William P. Gerberding................................. 2,200 --
Joshua Green III...................................... 2,547,432(2) --
William W. Krippaehne, Jr............................. 3,005,462(3) --
William G. Reed, Jr................................... 157,749(4) --
Norman B. Rice........................................ 0 --
James W. Ruddy........................................ 4,500 30,000
Judith M. Runstad..................................... 3,500 --
Paul W. Skinner....................................... 279,120(5) --
W. Randall Stoddard................................... 3,200 13,875
Randall H. Talbot..................................... 13,800 19,250
George H. Weyerhaeuser................................ 55,600(6) --
All directors, nominees and executive officers as a
group (17 persons).................................. 6,264,632 362,688
</TABLE>
- ------------------------
(1) Shares which may be purchased within 60 days by exercise of options granted
under the SAFECO Long-Term Incentive Plan of 1997 and 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 7,772 shares owned by Mr. Reed's spouse.
(5) Includes 258,120 shares owned by Skinner Corporation in which Mr. Skinner
has a substantial interest with voting and investment power and 17,000
shares owned by trusts of which Mr. Skinner is a co-trustee and for which he
thereby has shared voting and investment power. Mr. Skinner disclaims any
beneficial interest in the shares owned by the trusts.
(6) Includes 25,200 shares owned by trusts of which Mr. Weyerhaeuser is
co-trustee and for which he shares voting and investment power.
In addition, AMVESCAP PLC, 11 Devonshire Square, London EC2M 4YR, England,
reported in a Schedule 13G filed with the Securities and Exchange Commission
("SEC") that in the aggregate its subsidiaries had shared voting power and
investment discretion with respect to 10,894,094 shares, or 7.71%, of the Common
Stock, at December 31, 1998. The subsidiaries, which are investment management
companies and advisers, hold the shares on behalf of their clients, none of
which holds more than 5% of the Common Stock.
4
<PAGE>
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 1998 all persons subject to the Section 16
reporting requirements with respect to the Corporation filed the required
reports on a timely basis with two exceptions. Dr. Gerberding's Form 4 for the
month of July, which reported one transaction, and Mrs. Runstad's Form 4 for the
month of July, which reported two transactions, were filed late.
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 the independent auditors,
reviews the results of completed audits, and regularly reviews the Corporation's
approach to business ethics and compliance with the law. 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-based incentive plan, 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, fees to be paid to directors, and stock
option grants to directors.
During 1998 the Board and the Audit, Compensation and Executive Committees each
held four meetings, the Finance Committee held five 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>
Audit Messrs. Gerberding, Green, Krippaehne, Skinner and Mrs. Runstad (Chair).
Compensation Messrs. Cline (Chair), Ellis, Reed, Weyerhaeuser and Ms. Campbell.
Executive Messrs. Eigsti (Chair), Cline, Ellis, Green, and Mrs. Runstad.
Finance Messrs. Cline, Dickey, Eigsti, Ellis (Chair), Gerberding, Krippaehne, Reed
and Skinner.
Nominating Messrs. Ellis, Green (Chair), Reed and Ms. Campbell.
</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 current director fees are an annual
retainer of $30,000 and fees of $1,500 for attendance at any Board meeting and
$1,000 for attendance at any committee meeting. The Chair of the Finance
Committee receives an annual retainer of $4,000 and a $1,000 fee for attendance
at any meeting of the Corporation's management investment committee. The other
committee chairs receive an annual retainer, as follows: Chair of the
Compensation Committee--$4,000; Chair of the Audit Committee--$3,000; and Chair
of the Nominating Committee--$1,000. Directors are also reimbursed for
reasonable travel expenses.
At their November 4, 1998 meeting, the directors approved a proposal to amend
the SAFECO Long-Term Incentive Plan of 1997 to permit participation by
non-employee directors and to submit the plan as proposed to be amended to the
shareholders at the Annual Meeting. The proposal is described more fully below.
The directors also approved a program to annually award non-qualified stock
options for 2,000 shares to each non-employee director. If the proposal is
approved by the shareholders, the first stock option grants to non-employee
directors will be awarded following the Annual Meeting. The exercise price for
each option will be the fair market value of the Common Stock on the date of
grant. The options will have a term of ten years and will vest and become fully
exercisable on the date of the first annual meeting of shareholders after the
grant.
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 earnings tied to the
performance of designated measurement funds.
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 ("Committee"). The Committee is responsible for reviewing the
Corporation's salary administration policy, approving salaries of $150,000 or
greater, administering the Corporation's stock-based incentive plan, and
approving changes to the Corporation's employee benefit plans. The members of
the Committee, which met four times during 1998, are Robert S. Cline (Chair),
Phyllis J. Campbell, John W. Ellis, William G. Reed, Jr. and George H.
Weyerhaeuser.
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 executives ("Named Executive Officers"). All employees of the
Corporation's property and casualty, life, credit and asset management
subsidiaries, other than a few employees covered by special incentive plans and
employees of the American States insurance subsidiaries (collectively,
"Non-Participating Employees") participate in the same compensation and
retirement plans. 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.
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<PAGE>
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: The Corporation's executive officers participate in a
non-discretionary cash bonus plan which applies to all employees with at
least one year of service (other than Non-Participating Employees). An
annual bonus pool is established under a fixed formula based on weighted
elements of the pre-tax results of the Corporation's major business lines
and the investment income of the property and casualty subsidiaries. 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, was 6.2% for 1998 and 10%
for both 1997 and 1996.
STOCK-BASED INCENTIVE PROGRAM: A shareholder-approved stock-based incentive
program has been an element of compensation since the early 1960s. The
purpose of the program is to encourage 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's shareholders and to increase the value of the Common Stock.
Under the shareholder-approved SAFECO Long-Term Incentive Plan of 1997
("Plan"), the Committee in its sole discretion may grant to selected, key
employees of the Corporation and its subsidiaries stock options, restricted
stock rights ("RSRs") and performance stock rights ("PSRs") in amounts and
on terms consistent with the Plan.
Grants of stock options, RSRs and PSRs 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
Plan to any individual, the Committee does consider previous grants as well
as the different nature of stock options, PSRs and RSRs in making awards
under the 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 anniversaries of the grant date. The Committee has never
rescinded an outstanding option and reissued it at a lower exercise price.
PSRs entitle the holder to receive a specific number of shares of Common
Stock, or cash equal to the closing market price of such shares on the
settlement date, if specified performance goals for a three-year performance
period have been met. In May 1997 and February 1998, PSRs were awarded to
the Named Executive Officers. These PSRs provide for annual payouts of a
portion of the total award based on achievement of performance goals over
each of the one-, two-, and three-year performance cycles within each
three-year performance period. The performance goals are customized for each
Named Executive Officer and weighted equally. Performance goals include, as
appropriate, the return
7
<PAGE>
on equity for the Corporation, its property and casualty or life and health
operations; the change in the Common Stock price compared to the average
change in the price of the common stock of the companies that comprise the
peer index ("Stock Price Comparison"); the increase in the Corporation's
operating earnings per share; the combined ratio, the net personal lines
expense ratio and the annual growth in premiums for the property and
casualty operations; and the increase in pretax operating income for the
life and health operations. For Mr. Eigsti the three performance goals for
the 1997 and 1998 grants are the Corporation's return on equity, increase in
operating earnings per share and the Stock Price Comparison. For the
two-year performance cycle ended December 31, 1998 under the 1997 grant and
the one-year performance cycle ended December 31, 1998 under the 1998 grant,
the Committee concluded that no payouts were earned based on the degree of
achievement of the specified goals for any Named Executive Officer.
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 anniversaries of the grant date. Holders of
RSRs are paid amounts equivalent to the dividends that would be paid on the
same number of shares of Common Stock.
RETIREMENT PROGRAM: Three basic tax-qualified plans, including a
profit-sharing plan, comprise the Corporation's retirement program and are
available on the same basis to all employees. In addition, the Corporation
has three supplemental plans to restore benefits which cannot be included in
the tax-qualified retirement plans. Since Common Stock constituted 29% of
the assets of the profit-sharing plan at December 31, 1998, all participants
in that plan, including the Named Executive Officers, have a significant,
indirect ownership in the Corporation and an additional incentive to advance
its interests and to increase the value of its Common Stock.
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 (i) customary financial measures with respect to the Corporation
(E.G., the compounded annual return to shareholders, the Common Stock price and
the common stock prices of comparable companies); (ii) the combined ratio of the
Corporation's property and casualty subsidiaries and the combined ratios of
competitors; (iii) the revenue and premium growth of the Corporation's operating
subsidiaries; (iv) the Corporation's financial strength and asset management;
and (v) the ratings assigned to the Corporation, its subsidiaries or securities
by A.M. Best Insurance Services, Standard & Poor's Ratings Group ("S&P"),
Moody's Investors Service, Inc., and Duff & Phelps Credit Ratings Company.
The directors annually review graphs that compare the cumulative total return to
shareholders of the Corporation with the S&P 500. As stated in the Corporation's
1998 proxy statement, for 1997 the directors also reviewed graphs that compared
the cumulative total return to shareholders of the Corporation with the returns
of a self-constructed peer group comprised of companies that were in the same
lines of business as the Corporation's major operating subsidiaries ("Former
Peer Index"), with their returns weighted according to the component companies'
respective market capitalization, on a five- and ten-year basis.
During 1998 USF&G Corporation ("USF&G") was acquired by The St. Paul Companies,
Inc. CIGNA Corporation ("CIGNA") has entered into an agreement to sell its
property and casualty business to ACE Limited during 1999. TIG Holdings, Inc.
("TIG Holdings") has entered into an agreement to be acquired by Fairfax
Financial Holdings Limited during 1999. And, previously, Aetna Inc. ("Aetna")
sold its property and casualty operations to an affiliate of The Travelers
Insurance Group Inc. Given these circumstances the Compensation Committee
decided to revise its peer index by excluding Aetna, CIGNA, TIG Holdings
8
<PAGE>
and USF&G and including, in addition to the remaining companies in the Former
Peer Index, CNA Financial Corporation and Travelers Property and Casualty
Corporation ("New Peer Index").
Set forth below are graphs that compare the cumulative total return to
shareholders of the Corporation with the S&P 500, the Former Peer Index and the
New Peer Index, with the returns of the companies in the Former Peer Index and
the New Peer Index each weighted according to the component companies'
respective market capitalization. The ten-year period graph is also included as
its time period may more adequately reflect returns for the long-term
shareholder and option holder.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG SAFECO, S&P 500, FORMER PEER INDEX AND NEW PEER INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SAFECO S&P 500 FORMER PEER INDEX NEW PEER INDEX
<S> <C> <C> <C> <C>
1993 $100 $100 $100 $100
1994 $99 $102 $92 $91
1995 $134 $140 $139 $139
1996 $159 $172 $177 $170
1997 $202 $229 $250 $254
1998 $183 $294 $248 $225
</TABLE>
Assumes $100 invested on December 31, 1993 in SAFECO Common
Stock, the S&P 500, the Former Peer Index and the New Peer
Index.
- Total return assumes reinvestment of dividends.
- Measurement dates are the last trading day of the calendar
year shown.
- Former Peer Index: Aetna, Allstate, Chubb, CIGNA,
Cincinnati Financial, Ohio Casualty, Progressive, St. Paul,
TIG Holdings and USF&G.
- New Peer Index: Allstate, Chubb, Cincinnati Financial, CNA, Ohio
Casualty, Progressive, St. Paul and Travelers.
9
<PAGE>
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
AMONG SAFECO, S&P 500, FORMER PEER INDEX AND NEW PEER INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SAFECO S&P 500 FORMER PEER INDEX NEW PEER INDEX
<S> <C> <C> <C> <C>
1988 $100 $100 $100 $100
1989 $169 $132 $136 $158
1990 $149 $128 $118 $154
1991 $229 $166 $155 $207
1992 $277 $179 $188 $247
1993 $274 $197 $208 $237
1994 $271 $200 $191 $215
1995 $368 $275 $290 $330
1996 $435 $338 $369 $404
1997 $553 $451 $521 $603
1998 $501 $580 $516 $535
</TABLE>
Assumes $100 invested on December 31, 1988 in SAFECO Common Stock, the
S&P 500, the Former Peer Index and the New Peer Index.
- Total return assumes reinvestment of dividends.
- Measurement dates are the last trading day of the calendar year shown.
- Former Peer Index: Aetna, Allstate, Chubb, CIGNA, Cincinnati
Financial, Ohio Casualty, Progressive, St. Paul, TIG Holdings and
USF&G.
- New Peer Index: Allstate, Chubb, Cincinnati Financial, CNA, Ohio
Casualty, Progressive,
St. Paul and Travelers.
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 each stock option, PSR or RSR, the Committee considered the amount and
terms of any previous awards, 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 both the Former and New Peer Indices) 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 Human Resources 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 1998 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 compensation and awards of stock options, RSRs and PSRs. 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, strategic thinking 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 or 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 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 Internal Revenue Code of 1986, as amended (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 $1 million per
employee. The Corporation may pay compensation that exceeds this limit and did
so with respect to Mr. Eigsti in 1998.
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference the proxy statement into any filing under
the Securities Act of 1933 or the Securities Exchange
11
<PAGE>
Act of 1934, except to the extent that the Corporation specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
these Acts.
This report is submitted over the names of the members of the Compensation
Committee:
ROBERT S. CLINE, CHAIR
PHYLLIS J. CAMPBELL
JOHN W. ELLIS
WILLIAM G. REED, JR.
GEORGE H. WEYERHAEUSER
COMPENSATION OF NAMED EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The amount of all compensation paid to the Named Executive Officers for services
in all capacities to the Corporation and its subsidiaries during the past three
years is stated below. Annual compensation includes amounts deferred at the
officer's election.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
---------------------- RESTRICTED OPTIONS/ ALL OTHER
SALARY BONUS (3) STOCK AWARDS SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (4)($) (#) ($)
- ------------------------------------------------- --------- ---------- ---------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
R.H. Eigsti 1998 830,000 52,163 513,750 50,000 82,348(5)
Chairman and 1997 763,333 138,497 475,000 50,000 103,186
Chief Executive Officer 1996 666,667 66,667 414,719 50,000 102,036
B.A. Dickey 1998 575,000 36,137 354,488 30,000 57,048(6)
President and 1997 512,500 92,710 300,200 30,000 69,279
Chief Operating Officer 1996 455,833 45,583 234,406 30,000 69,717
W.R. Stoddard (1) 1998 300,000 18,854 128,438 15,000 29,764(7)
President of the Corporation's 1997 241,667 56,071 76,000 6,500 32,669
Property & Casualty Subsidiaries
R.H. Talbot (2) 1998 299,431 18,854 103,672 15,000 29,741(8)
President of the Corporation's
Life Subsidiaries
J.W. Ruddy 1998 280,000 17,597 118,163 12,000 27,780(9)
Senior Vice President 1997 240,417 42,691 91,200 7,000 32,500
and General Counsel 1996 212,500 21,250 79,338 12,000 32,417
</TABLE>
- ------------------------
(1) Mr. Stoddard became President of the Corporation's property and casualty
subsidiaries on July 1, 1997.
(2) Mr. Talbot became President of the Corporation's life subsidiaries on
February 7, 1998.
(3) The dollar amounts in this column include (i) a cash bonus and (ii) in the
case of 1997, payments in settlement of PSRs awarded in 1997 for the
one-year performance cycle ended December 31, 1997. 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
12
<PAGE>
operations support such a bonus. The percent of salary paid as a bonus was
6.2% for 1998 and 10% for both 1997 and 1996.
PSRs are three-year grants pursuant to which annual payments of a portion of
the total award may be made based on achievement of specified performance
goals over the elapsed portion of the performance period. Performance goals
are established at the time of grant. With respect to the PSRs awarded in
1998, none of the Named Executive Officers received payments for the
one-year performance cycle ended December 31, 1998.
(4) RSRs 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 be 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.
In 1998 the Corporation awarded RSRs to the following Named Executive
Officers in these amounts: 10,000 shares for Mr. Eigsti; 6,900 for Mr.
Dickey; 2,500 for Mr. Stoddard; 2,500 shares for Mr. Talbot; and 2,300 for
Mr. Ruddy. Each award will vest and be settled in 25% installments on the
first Wednesday in February 1999, 2000, 2001 and 2002, respectively.
The following are the total number of RSRs held by the Named Executive
Officers and the total value of such holding at December 31, 1998: for Mr.
Eigsti, 28,025 RSRs with a value of $1,203,323; for Mr. Dickey, 17,875 RSRs
with a value of $767,508; for Mr. Stoddard, 5,050 RSRs with a value of
$216,834; for Mr. Talbot, 2,500 RSRs with a value of $107,344 and for Mr.
Ruddy, 5,825 RSRs with a value of $250,111.
(5) Includes net contributions to the Corporation's profit-sharing plan of
$8,415, net contributions to the Corporation's after-tax savings plan of
$6,400, and allocations to non-qualified plans of $40,733 with respect to
the profit-sharing plan and $26,800 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").
(6) Includes net contributions of $8,415 to the profit-sharing plan and $6,400
to the savings plan and Non-Qualified Allocations of $25,633 with respect to
the profit-sharing plan and $16,600 with respect to the savings plan.
(7) Includes net contributions of $8,415 to the profit-sharing plan and $6,400
to the savings plan and Non-Qualified Allocations of $9,349 with respect to
the profit-sharing plan and $5,600 with respect to the savings plan.
(8) Includes net contributions of $8,415 to the profit-sharing plan and $6,400
to the savings plan and Non-Qualified Allocations of $9,349 with respect to
the profit-sharing plan and $5,577 with respect to the savings plan.
(9) Includes net contributions of $8,415 to the profit-sharing plan and $6,400
to the savings plan and Non-Qualified Allocations of $8,165 with respect to
the profit-sharing plan and $4,800 with respect to the savings plan.
STOCK OPTION AWARDS
Information concerning grants of stock options to the Named Executive Officers
during 1998 is stated below. Under regulations of the Securities and Exchange
Commission 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
13
<PAGE>
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.
Were one to apply the assumed rates of appreciation to the Common Stock of the
Corporation for the same ten-year period as required for options in the
following table, market capitalization would increase from $6.6 billion to $10.8
billion at the 5% rate and to $17.2 billion at the 10% rate. In addition, a
shareholder, unlike an option holder, would receive dividends paid by the
Corporation during that ten-year period.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE APPRECIATION
UNDERLYING TOTAL OPTIONS FOR OPTION TERM
OPTIONS GRANTED TO EXERCISE --------------------------
GRANTED(1) EMPLOYEES IN PRICE(2) EXPIRATION 5%(3) 10%(4)
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
- ----------------------------------- ----------- --------------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
R.H. Eigsti........................ 50,000 13.7 $ 48.625 3/31/08 1,510,515 3,817,416
B.A. Dickey........................ 30,000 8.2 $ 48.625 5/06/08 917,400 2,324,880
W.R. Stoddard...................... 15,000 4.1 $ 48.625 5/06/08 458,700 1,162,440
R.H. Talbot........................ 15,000 4.1 $ 48.625 5/06/08 458,700 1,162,440
J.W. Ruddy......................... 12,000 3.3 $ 48.625 5/06/08 366,960 929,952
</TABLE>
- ------------------------
(1) Options to purchase SAFECO Common Stock. The grant date for each option is
May 6, 1998. 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. Vesting is accelerated upon a change in control
of the Corporation.
(2) The exercise price, which is the fair market value of the Common Stock on
the date of grant, may be paid to the Corporation in cash, in shares of
Common Stock valued at fair market value on the date of exercise, or in part
cash and part stock. In addition, optionees may finance the exercise price
of an option through a subsidiary of the Corporation. The interest rate on
such loans fluctuates quarterly and is equal to the most recently published
applicable federal rate determined pursuant to Section 1274(d) of the Code.
(3) This rate of appreciation produces an ending market price of $78.84 per
share on March 31, 2008 and $79.21 on May 6, 2008.
(4) This rate of appreciation produces an ending market price of $124.97 per
share on March 31, 2008 and $126.12 on May 6, 2008.
14
<PAGE>
STOCK OPTION EXERCISES
Information concerning exercises of stock options during 1998 by the Named
Executive Officers and the value of their unexercised options at December 31,
1998 is stated below:
AGGREGATED OPTION EXERCISES IN 1998
AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 1998 DECEMBER 31, 1998(1)
SHARES (#) ($)
ACQUIRED ON VALUE -------------------- --------------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ---------- -------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
R.H. Eigsti........................... 3,538 69,102 157,388 146,250 2,337,972 869,844
B.A. Dickey........................... 0 0 119,700 88,500 1,945,594 533,719
W.R. Stoddard......................... 3,300 112,609 13,875 25,875 199,414 90,430
R.H. Talbot........................... 5,000 93,750 13,750 39,250 80,438 90,375
J.W. Ruddy............................ 1,000 33,906 30,000 26,000 476,219 123,344
</TABLE>
- ------------------------
(1) Based on $42.9375, the last sale price of the Corporation's Common Stock on
December 31, 1998.
LONG-TERM INCENTIVE PLAN AWARDS IN 1998
Information concerning awards of performance stock rights during 1998 to the
Named Executive Officers is stated below:
LONG-TERM INCENTIVE PLAN AWARDS IN 1998
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF NON-STOCK-PRICE-BASED PLANS (1)
SHARES, UNITS PERFORMANCE OR OTHER
OR OTHER RIGHTS PERIOD UNTIL ----------------------------------
NAME (#) MATURATION OR PAYOUT THRESHOLD (#) MAXIMUM (#)
- -------------------------------------------- --------------- -------------------- ------------------- -------------
<S> <C> <C> <C> <C>
R.H. Eigsti................................. 11,351 1998-2000 0 11,351
B.A. Dickey................................. 7,863 1998-2000 0 7,863
W.R. Stoddard............................... 4,103 1998-2000 0 4,103
R.H. Talbot................................. 4,103 1998-2000 0 4,103
J.W. Ruddy.................................. 3,829 1998-2000 0 3,829
</TABLE>
- ------------------------
(1) The performance stock rights will vest and shares will become payable only
to the extent that specified performance goals (E.G., return on equity;
increases in operating earnings, income and stock price; expense levels; and
premium growth) are achieved. The awards cover a three-year performance
period, within which there are three performance cycles. Only the shares
relating to the second and third performance cycles (1998-1999 and
1998-2000, respectively) are included in this table. Any payment made for
the first performance cycle is reported under the Bonus column of the
Summary Compensation Table.
15
<PAGE>
RETIREMENT PROGRAM
The Corporation's retirement program is comprised of three plans which qualify
for favorable tax treatment under the Code and three non-qualified supplemental
plans. The three qualified plans are The SAFECO Employees' Cash Balance Plan
("Cash Balance Plan"), The SAFECO Employees' Profit Sharing Retirement Plan
("Profit-Sharing Plan") and The SAFECO 401(k) Savings Plan ("Savings Plan"). The
three non-qualified plans are designed to allocate to employees amounts not
eligible for contribution under the qualified plans because of limitations
imposed by the Code. All employees (except Non-Participating 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. The Cash Balance Plan is
credited with an amount equal to 3% of the annual compensation of participating
employees 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 the
SAFECO Employees' Supplemental Retirement Plan B ("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: $38,840 for Mr. Eigsti, $33,137 for Mr.
Dickey, $23,852 for Mr. Stoddard, $28,431 for Mr. Talbot and $26,642 for Mr.
Ruddy.
CHANGE IN CONTROL AND RETIREMENT AGREEMENTS
Messrs. Eigsti, Dickey, Stoddard, Talbot 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 a specified
subsidiary or, in the case of the agreements with Messrs. Stoddard, Talbot and
Ruddy, decides 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. Stoddard,
Talbot and Ruddy provide that vesting of awards under the Corporation's
incentive plans will occur, and if any excise tax is 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.
The stock options awarded to the Named Executive Officers, as well as to other
key employees, under the SAFECO Long-Term Incentive Plan of 1997 (the "Plan")
and the predecessor incentive plan provide for accelerated vesting in the event
of a change in control of the Corporation. Moreover, under the terms of the
Plan, in such event all outstanding restricted stock right awards will become
immediately vested and payable in cash and, to the extent deemed earned under
the formula set forth in the Plan, all outstanding performance stock rights will
become immediately payable in cash.
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.
16
<PAGE>
Mrs. Runstad, a director of the Corporation, is of counsel to the Seattle law
firm of Foster Pepper & Shefelman PLLC, which received fees for legal services
provided to the Corporation and its subsidiaries during 1998.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1998 were Robert S. Cline,
Chair, Phyllis J. Campbell, John W. Ellis, William G. Reed, Jr and George H.
Weyerhaeuser.
PROPOSAL TO APPROVE THE SAFECO LONG-TERM INCENTIVE PLAN
OF 1997 AS AMENDED AND RESTATED
(PROPOSAL 2)
At the Annual Meeting, the shareholders are being asked to approve the SAFECO
Long-Term Incentive Plan of 1997 as amended and restated (the "Amended Plan").
Approval of the Amended Plan will have the effect of (i) adding non-employee
directors as eligible participants and (ii) approving the material terms of
certain performance goals for purposes of Section 162(m) of the Code. The SAFECO
Long-Term Incentive Plan of 1997 (the "Plan") was initially approved by the
shareholders in 1997.
For nearly 40 years the Corporation has had incentive plans to provide Common
Stock to key employees. The Corporation has not, however, had a program for
compensating non-employee directors with Common Stock. The Nominating Committee
of the Board of Directors reviewed elements of director compensation at its
November 2, 1998 meeting. Given the benefit of aligning the economic interests
of directors with those of the Corporation's shareholders and the desirability
of using stock-based remuneration to attract and retain non-employee directors,
the Nominating Committee, along with the Compensation Committee, recommended to
the Board of Directors that non-employee directors of the Corporation be
eligible to receive such compensation. Those Committees recommended that the
Board of Directors, subject to approval by the shareholders at the Annual
Meeting, amend the Plan to add non-employee directors as eligible participants.
Upon the recommendation of the Committees and subject to shareholder approval,
the Board of Directors, at its November 4, 1998 meeting, approved the proposal
to amend the Plan to permit non-employee directors to participate.
The Board of Directors has approved a program to grant non-employee directors
options for 2,000 shares annually following each year's annual meeting of
shareholders, subject to shareholder approval of the Amended Plan. If the
Amended Plan is approved by the shareholders, the first stock option grants to
non-employee directors will be awarded following the Annual Meeting. Currently,
ten non-employee directors serve on the Corporation's Board. Based on the
present size of the Board, options covering a total of 20,000 shares would be
granted each year to non-employee directors. Although the Board of Directors has
adopted a formal grant program for non-employee directors, subject to
shareholder approval of the Amended Plan, the Amended Plan does not limit the
size or frequency of the awards that may be made to non-employee directors, and
the Board may revoke or amend the terms of the grant program at any time without
the approval of the Corporation's shareholders.
Shareholder approval of the Amended Plan will also constitute approval for
purposes of Section 162(m) of the Code of the material terms of the performance
goals for performance stock rights ("PSRs"). Section 162(m) provides, with
certain exceptions, that a publicly held corporation may not take a federal
income tax deduction for compensation in excess of $1 million paid to a
company's Chief Executive Officer and the four other most highly compensated
executive officers. The $1 million limit on deductibility does not apply to
compensation that meets the requirements for "qualified performance-based
compensation" as defined in the applicable Treasury regulations. These
requirements include, among other things, that the material terms of the
performance goals be approved by the Company's shareholders. The performance
goals for the PSRs are stated below. General performance criteria that do not
establish specific target levels of
17
<PAGE>
performance, such as the performance goals stated for the PSRs, must be approved
by the shareholders every five years. Accordingly, it is intended that no
further shareholder approval of the performance goals stated below will be
required under Section 162(m) until 2004.
The only effect of shareholder approval of the Amended Plan is to add
non-employee directors as eligible participants under the Plan and to approve
PSR performance goals for purposes of Section 162(m). No change in the number of
shares authorized under the Plan is proposed. As approved by the shareholders in
1997, the Plan authorizes issuance of up to 6,000,000 shares of Common Stock
(about 4.4% of the number of shares of Common Stock currently outstanding). As
of February 5, 1999, 5,246,510 shares remained available for new grants under
the Plan.
SUMMARY OF THE LONG-TERM INCENTIVE PLAN AS AMENDED AND RESTATED
The following summary of the Amended Plan is qualified in its entirety by
reference to the complete text of the Amended Plan, which is attached to this
Proxy Statement as Appendix A.
The purpose of the Amended Plan is to enhance the long-term profitability and
shareholder value of the Corporation by offering incentives and rewards to
non-employee directors of the Corporation and selected eligible employees
(including employees who are directors) 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 Amended Plan provides that a committee appointed by the Board of Directors
(the "Plan Committee") will be responsible for administering the Amended Plan
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 Amended Plan is 6,000,000,
and of these, no more than 3,000,000 shares may be issued in connection with
RSRs and PSRs. In addition, the maximum number of shares with respect to which
stock options may be granted under the Amended Plan to any individual in any
calendar year is 300,000, and the maximum number of shares issuable with respect
to PSRs granted to any one individual will not exceed 300,000 shares (or an
equivalent cash amount) for any performance cycle. The Plan Committee has
established the length of each performance cycle as three calendar years. 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 Amended Plan 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 Amended Plan.
The Plan 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 Plan Committee does not also
consist solely of "non-employee directors" as defined in Rule 16b-3 under the
Exchange Act, the Amended Plan will be administered by a subcommittee to be
appointed by the Board of Directors consisting of at least two such non-employee
directors. The Plan Committee will have the authority to determine, in its sole
discretion, all matters relating to awards under the Amended 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, restrictions and
limitations, if any, of an award, and the terms of any instrument that evidences
an award. The Plan 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 Plan 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 Plan Committee has the exclusive authority to
interpret the Amended Plan and may adopt, amend and rescind rules and procedures
relating to the Amended Plan. The Plan Committee may delegate administrative
duties to such of the Corporation's officers as it so determines, except that
decisions
18
<PAGE>
concerning the terms and conditions of an award and the selection of recipients
of awards may not be so delegated.
Awards under the Amended Plan may be granted only to non-employee directors of
the Corporation and to salaried key management employees of the Corporation or
its subsidiaries (including employees who are also directors) who, in the
judgment of the Plan 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 to employees during or after the calendar year in which the employee
reaches age 65. Approximately 190 of the 12,000 employees of the Corporation and
its subsidiaries currently hold awards granted under the Plan. It is not
anticipated that every eligible employee will receive all the different types of
awards available under the Amended Plan.
Under the Amended Plan, 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 5, 1999, the last sale price of the
Corporation's Common Stock, as reported on the Nasdaq National Market, was
$37.375 per share. Stock options may be either incentive stock options, which
may be granted only to employees, or nonqualified stock options. The Plan
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 exercise, in a
combination of cash and shares, or in such other form of consideration as the
Plan Committee in its discretion may permit. 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 Plan 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
Plan 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 three-year performance period. The
Plan Committee has discretion to determine the number of shares for 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 Plan Committee, relative to internal goals, or
relative to levels attained in prior years.
The Plan 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 Plan Committee may
determine; provided,
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however, that the Plan 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 Plan 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 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
Plan 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 Plan Committee's discretion, the grant of any award under the Amended
Plan 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 Amended Plan 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 Plan 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
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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 Plan Committee will make
proportional adjustments to the maximum number and class of shares subject to
the Amended Plan and to the maximum number and class of shares for which awards
may be granted to any participant, as set forth in the Amended Plan. In
addition, the Plan 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 Amended Plan remains outstanding, a change
in control (as defined in the Amended Plan) 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.
- 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 Amended Plan 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 Amended Plan or materially modify the requirements
as to eligibility for participation in the Amended Plan 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
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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
Amended Plan 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 Amended Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
SAFECO LONG-TERM INCENTIVE PLAN OF 1997 AS AMENDED AND RESTATED.
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 5, 1999. 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 2000 ANNUAL MEETING
The Corporation's 2000 Annual Meeting of Shareholders will be held on May 3,
2000. Under the federal proxy solicitation rules, in connection with the
preparation of proxy materials for the 2000 Annual Meeting of Shareholders, any
proposal submitted by a shareholder to be considered for inclusion in the
Corporation's proxy materials for such meeting must be received by the
Corporation by November 19, 1999.
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 90 days before the scheduled
date of the Annual Meeting of Shareholders. For the 2000 Annual Meeting of
Shareholders, such notice must be received by February 3, 2000. 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.
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. For the 2000 Annual Meeting of Shareholders, such notice must
be filed by February 3, 2000. 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.
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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 the proposal to approve the SAFECO
Long-Term Incentive Plan of 1997 as amended and restated.
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 19, 1999 Chairman and Chief Executive Officer
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APPENDIX A
SAFECO LONG-TERM INCENTIVE PLAN OF 1997
AS AMENDED AND RESTATED
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 non-employee directors of
the Company and 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
<PAGE>
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 non-employee directors of the Company and 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
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combination thereof, or in such other consideration as the Committee in its
discretion may permit. 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
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to the RSR. Such amount shall be paid as near in time as reasonably
practical to the applicable dividend payment dates.
(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.
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(f) The Company shall not make dividend equivalent payments with respect to
shares subject to PSRs.
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.
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(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 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 numerator equal to the whole
number of calendar months beginning with the month in
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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
highest 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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PROXY
SAFECO CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
FOR THE ANNUAL MEETING OF SHAREHOLDERS
MAY 5, 1999
The undersigned hereby appoints Roger H. Eigsti, Robert S. Cline, John W. Ellis,
Joshua Green III and Judith M. Runstad, each with full power of substitution, as
the true and lawful attorneys 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 5, 1999, 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
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FOLD AND DETACH HERE
<PAGE>
2415
/x/ Please mark your votes as in this example.
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(The Board of Directors recommends a vote "FOR" proposals 1 and 2)
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1. Election of FOR WITHHELD
Directors / / / /
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
Nominees:
Phyllis J. Campbell
Boh A. Dickey
William P. Gerberding
Norman B. Rice
Paul W. Skinner
2. To approve the SAFECO Long-Term Incentive Plan of 1997 as amended and
restated.
FOR AGAINST ABSTAIN
/ / / / / /
Change of Address on Reverse Side / /
This proxy when properly executed will be voted as directed herein. IF NO
DIRECTION IS GIVEN, THE PROXIES NAMED ON THE REVERSE SIDE INTEND TO VOTE THE
SHARES TO WHICH THIS PROXY RELATES "FOR" PROPOSALS 1 AND 2. THE PROXIES WILL
VOTE IN THEIR DISCRETION ON ANY OTHER MATTERS PROPERLY COMING BEFORE THE
MEETING. The undersigned hereby revokes all prior proxies given by the
undersigned to vote at the meeting or any adjournment or postponement
thereof.
SIGNATURE(S) DATE
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Please sign exactly as name appears hereon. If the stock is registered in the
names of two or more persons, each should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
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FOLD AND DETACH HERE
