SECURITIES AND EXCHANGE COMMISSION | |||
Washington, D.C. 20549 | |||
______________________ | |||
SCHEDULE 14A INFORMATION | |||
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 | |||
Filed by the Registrant x Filed by a Party other than the Registrant ¨ | |||
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ý | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
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SAFECO CORPORATION | |||
(Name of Registrant as Specified In Its Charter) | |||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | |||
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(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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Seattle, Washington | |
Dear Shareholder: | June 25, 2008 |
· | Election of five directors, four to serve a term of three years and one to serve a term of two years. | |
· | Ratification of Ernst & Young LLP's appointment as our independent registered public accounting firm. | |
· | Adjournment or postponement of the annual meeting, if necessary or appropriate, to solicit additional proxies to approve the merger agreement. | |
· | Any other business that may properly come before the annual meeting. | |
Sincerely, | |
Paula Rosput Reynolds Chair, President and Chief Executive Officer |
When: | 1:30 p.m., Pacific Time, July 29, 2008 |
Where: | Safeco Center Magnolia Room, 1st Floor 1191 Second Avenue Seattle, Washington 98101 | |
Record Date: June 10, 2008 |
Purposes: | 1. | To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of April 23, 2008, by and among Liberty Mutual Insurance Company, Big Apple Merger Corporation and Safeco Corporation. |
2. | To elect five directors, four to serve a term of three years and one to serve a term of two years. | |
3. | To ratify Ernst & Young LLP's appointment as Safeco's independent registered public accounting firm. | |
4. | To adjourn or postpone the annual meeting, if necessary or appropriate, to solicit additional proxies for the approval of the merger agreement. | |
5. | To transact any other business that may properly come before the annual meeting or at any adjournment or postponement of the annual meeting. |
By Order of the Safeco Board of Directors | |
Arthur Chong | |
Executive Vice President and Chief Legal Officer |
HOW TO VOTE BY INTERNET 24 hours a day – 7 days a week | HOW TO VOTE BY TELEPHONE Toll-free, 24 hours a day – 7 days a week | ||
1. | Read this proxy statement. | 1. | Read this proxy statement. |
2. | If you are a registered shareholder, locate your control number on your proxy card. Go to the following website: http://www.eproxy.com/saf then follow the instructions. | 2. | If you are a registered shareholder, locate your control number on your proxy card. Call toll-free 1-866-580-9477 and follow the instructions given for casting your vote. |
3. | If you are an employee participant in the Safeco Stock Ownership Fund within our 401(k) Plan, locate your control number in the e-mail you received from BNY Mellon Shareowner Services. Go to the following website: http://www.eproxy.com/saf then follow the instructions. If you are a non-employee participant in this fund, just follow the instruction in Step 2 above. | 3. | If you are an employee participant in the Safeco Stock Ownership Fund within our 401(k) Plan, locate your control number in the e-mail you received from BNY Mellon Shareowner Services. Call toll-free 1-866-580-9477 and follow the instructions given for casting your vote. If you are a non-employee participant in this fund, just follow the instruction in Step 2 above. |
4. | If you're a beneficial shareholder (you hold your shares through a bank, broker or other institution), follow the instructions on your voting ins truction form. | 4. | If you're a beneficial shareholder (you hold your shares through a bank, broker or other institution), follow the instructions on your voting instruction form. |
Section | Page | |
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE ANNUAL MEETING | Q-1 | |
SUMMARY TERM SHEET | 1 | |
The Companies | 1 | |
Annual Meeting of Safeco Shareholders | 1 | |
Purposes and Effects of the Merger; Consideration | 3 | |
Effects of the Merger Not Being Completed | 3 | |
What You Will Receive in the Merger | 3 | |
Safeco Stock Options and Restricted Stock Rights | 3 | |
Safeco Agency Stock Purchase Plan | 4 | |
Material U.S. Federal Income Tax Consequences | 4 | |
Recommendation of the Safeco Board of Directors | 4 | |
Opinion of Financial Advisor | 4 | |
Merger Agreement | 5 | |
No Solicitation | 5 | |
Conditions to Completion of the Merger | 5 | |
Termination of the Merger Agreement | 6 | |
Termination Fee | 7 | |
Interests of Safeco's Directors and Executive Officers in the Merger | 8 | |
Merger Financing | 8 | |
Dissenters' Rights | 8 | |
Market Price Data and Dividend Information | 8 | |
FORWARD-LOOKING INFORMATION | 9 | |
MARKET PRICE DATA AND DIVIDEND INFORMATION | 10 | |
THE ANNUAL MEETING | 11 | |
Date, Time and Place of the Annual Meeting | 11 | |
Purpose of the Annual Meeting | 11 | |
Record Date for the Annual Meeting | 11 | |
Shares Entitled to Vote | 11 | |
Quorum Requirement | 11 | |
Adjournments and Postponements | 12 | |
Required Vote | 12 | |
Treatment of Abstentions | 12 | |
Treatment of Broker Non-Votes | 12 | |
Voting by Safeco's Directors and Executive Officers | 13 | |
Voting of Proxies | 13 | |
Proxies without Instructions. | 13 | |
Revocability of Proxies | 14 |
Solicitation of Proxies | 14 | |
Other Business | 14 | |
THE COMPANIES | 15 | |
Safeco Corporation | 15 | |
Liberty Mutual Insurance Company | 15 | |
Big Apple Merger Corporation | 15 | |
THE MERGER | 16 | |
Background of the Merger | 16 | |
Purposes and Effects of the Merger; Consideration | 29 | |
Effects of the Merger Not Being Completed | 30 | |
Recommendation of the Safeco Board of Directors and Its Reasons for the Merger | 30 | |
Opinion of Financial Advisor | 33 | |
Interests of Safeco's Directors and Executive Officers in the Merger | 41 | |
Directors' and Officers' Indemnification and Insurance | 45 | |
Employee Matters | 46 | |
Safeco Agency Stock Purchase Plan | 46 | |
Delisting and Deregistration of Safeco Common Stock | 46 | |
Certain Relationships Between Safeco and Liberty Mutual | 47 | |
Dissenters' Rights | 47 | |
Merger Financing; Sources of Funds | 51 | |
Material U.S. Federal Income Tax Consequences | 51 | |
Regulatory Matters | 53 | |
Litigation Relating to the Merger | 54 | |
THE MERGER AGREEMENT | 55 | |
Structure of the Merger | 55 | |
Completion and Effectiveness of the Merger | 55 | |
Merger Consideration | 56 | |
Treatment of Stock Options and Restricted Stock Rights | 56 | |
Exchange of Stock Certificates | 56 | |
Corporate Governance Matters | 57 | |
Representations and Warranties | 58 | |
Covenants Relating to Conduct of Business | 61 | |
Reasonable Best Efforts | 64 | |
No Solicitation by Safeco | 65 | |
Recommendation of the Safeco Board of Directors | 66 | |
Safeco Shareholders Meeting | 67 | |
Employee Matters | 68 | |
Indemnification and Insurance | 69 | |
Charitable Contributions | 70 | |
"Safeco" Trademark and Branding | 70 | |
Principal Executive Offices of the Surviving Corporation | 70 | |
Other Covenants and Agreements | 71 | |
Conditions to the Completion of the Merger | 71 | |
Expenses | 72 | |
Termination of the Merger Agreement | 72 | |
Termination Fee | 74 |
Governing Law | 75 | |
Amendments, Extensions and Waivers of the Merger Agreement; No Third Party Beneficiaries | 75 | |
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 76 | |
Directors and Executive Officers | 76 | |
Principal Holders of Safeco Common Stock | 77 | |
OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING | 78 | |
PROPOSAL 2: ELECTION OF DIRECTORS | 78 | |
2008 Nominees for Director | 78 | |
Continuing Directors | 79 | |
BOARD ATTENDANCE AND BOARD COMMITTEES | 81 | |
CORPORATE GOVERNANCE PRACTICES | 82 | |
NOMINATING/GOVERNANCE COMMITTEE AND DIRECTOR NOMINATIONS | 86 | |
AUDIT COMMITTEE REPORT | 88 | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S FEES AND SERVICES | 91 | |
COMPENSATION COMMITTEE REPORT | 92 | |
COMPENSATION OF DIRECTORS | 124 | |
COMPENSATION COMMITTEE | 127 | |
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 131 | |
PROPOSAL 4: ADJOURNMENT OR POSTPONEMENT OF THE ANNUAL MEETING FOR THE PURPOSE OF OBTAINING ADDITIONAL VOTES | 132 | |
MULTIPLE SHAREHOLDERS SHARING THE SAME ADDRESS | 133 | |
SUBMISSION OF SHAREHOLDERS PROPOSALS | 133 | |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | 133 | |
WHERE YOU CAN FIND MORE INFORMATION | 133 | |
LIST OF SAFECO SHAREHOLDERS | 135 | |
DIRECTIONS TO THE ANNUAL MEETING | 136 |
ANNEX A – Agreement and Plan of Merger, dated as of April 23, 2008 | A-1 |
ANNEX B – Opinion of Morgan Stanley & Co. Incorporated | B-1 |
ANNEX C – Chapter 23B.13 of the Washington Business Corporation Act | C-1 |
Q: | Why was the 2008 annual meeting of Safeco shareholders postponed from May 7, 2008? |
A: | In light of Safeco's entering into a merger agreement, by and among Liberty Mutual, Merger Sub and Safeco, the Safeco board of directors determined to postpone the 2008 annual meeting of Safeco shareholders originally scheduled to be held on May 7, 2008 to July 29, 2008, which meeting, both as of its original date and its rescheduled date, is referred to in this proxy statement as the annual meeting. |
Q: | What matters will be considered at the annual meeting? |
A: | At the annual meeting, Safeco shareholders will be asked to approve the merger agreement pursuant to which Merger Sub will merge with and into Safeco, with Safeco continuing as the surviving corporation and a subsidiary of Liberty Mutual. At the annual meeting, Safeco shareholders will also be asked to consider and vote upon the election of five directors, four to serve a term of three years and one to serve a term of two years, the ratification of Ernst & Young LLP's appointment as Safeco's independent registered public accounting firm, the adjournment or postponement of the annual meeting, if necessary or appropriate, to solicit additional proxies for the approval of the merger agreement and the transaction of any other business that may properly come before the annual meeting or at any adjournment or postponement of the annual meeting. Each of the proposals is independent, and is not contingent on approval by Safeco shareholders of any of the other proposals. |
If the merger is completed, the Safeco board of directors following the completion of the merger will be composed of the directors of Merger Sub at the effective time of the merger and all directors of Safeco immediately prior to the completion of the merger will cease to be Safeco directors as of the time of the completion of the merger. | |
Q: | Why am I receiving these materials? |
A: | You are a Safeco shareholder and as such, the Safeco board of directors wants you to vote at our July 29, 2008 annual meeting. |
In order to complete the merger, Safeco shareholders must approve the merger agreement. The Safeco board of directors has unanimously determined that the merger agreement and the merger are advisable and in the best interests of Safeco and its shareholders, and has unanimously adopted the merger agreement and approved the transactions contemplated by the merger agreement. The Safeco board of directors unanimously recommends that Safeco shareholders vote "FOR" the proposal to approve the merger agreement. See "The Merger – Recommendation of the Safeco Board of Directors and Its Reasons for the Merger." |
This proxy statement contains important information about the proposed merger, the merger agreement and the annual meeting, which you should read carefully. The enclosed voting materials allow you to vote your shares without attending the annual meeting. | |
For a more complete description of the annual meeting, see "The Annual Meeting." | |
Your vote is very important. You are encouraged to vote as soon as possible. | |
Q: | What will Safeco shareholders receive in the merger? |
A: | If the proposed merger is completed, at the effective time of the merger, Safeco shareholders will be entitled to receive $68.25 in cash, which is referred to in this proxy statement as the per share amount, without interest and less any applicable withholding taxes, for each share of Safeco common stock they own. |
For a more complete description of what Safeco shareholders will receive in the merger, see "The Merger Agreement – Merger Consideration." | |
Q: | Will I still receive quarterly dividends between now and the completion of the merger? |
A: | Yes. Under the terms of the merger agreement, Safeco is permitted to declare and pay regular quarterly cash dividends with record dates of July 11, 2008 and October 10, 2008 and payment dates of July 28, 2008 and October 27, 2008, respectively. The regular quarterly cash dividend with a record date of October 10, 2008 and a payment date of October 27, 2008 will only be made if declared by the Safeco board of directors and if the merger has not been completed by October 10, 2008. |
Q: | After the merger is completed, how will I receive the cash for my shares? |
A. | Promptly (and in any event no later than three business days) after the merger is completed, the exchange agent appointed by Liberty Mutual will mail written instructions on how to exchange your Safeco common stock certificates for the per share amount of $68.25 in cash. You will receive cash for your shares from the exchange agent after you comply with these instructions. |
If you hold your shares in book-entry form – that is, without a stock certificate – unless you do not vote in favor of the merger and you properly perfect your dissenters' rights under Washington law, the exchange agent will automatically send you the per share amount of $68.25 in cash in exchange for the cancellation of your shares of Safeco common stock after completion of the merger, provided that you comply with applicable tax certification requirements. | |
If your shares of Safeco common stock are held in "street name" by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee on how to surrender your "street name" shares and receive cash for those shares. | |
Q: | Should Safeco shareholders send in their Safeco common stock certificates now? |
A: | No. After the merger is completed, you will receive written instructions from the exchange agent on how to exchange your Safeco common stock certificates for the per share amount of $68.25 in cash, without interest and less any applicable withholding taxes. |
Please do not send in your Safeco common stock certificates with your proxy card. | |
Q: | What vote is required to approve the merger agreement? |
A: | Under the Washington Business Corporation Act, which is referred to in this proxy statement as the WBCA, in order for the merger agreement to be approved, shares of Safeco common stock representing at least two-thirds of the votes entitled to be cast by all Safeco shareholders at the annual meeting must vote "FOR" |
the approval of the merger agreement, provided that a quorum is present. As of the close of business on June 10, 2008, the record date for the annual meeting, there were 89,934,465 shares of Safeco common stock issued and outstanding and such shares were held by approximately 2,267 holders of record. | |
Q: | What is the vote required to pass the other proposals? |
A: | In accordance with our Bylaws and the WBCA, in order for each director candidate to be elected, such director candidate must receive more votes "FOR" than "WITHHELD," provided that a quorum is present. For the ratification of Ernst & Young LLP as Safeco's independent registered public accounting firm for 2008 to be approved, the WBCA requires that the proposal must receive more votes "FOR" than "AGAINST," provided that a quorum is present. For the proposal to adjourn or postpone the annual meeting, if necessary or appropriate, to solicit additional proxies to approve the merger agreement to be approved, the WBCA requires that the proposal must receive more votes "FOR" than "AGAINST," provided that a quorum is present. |
Q: | What quorum is required for the annual meeting? |
A: | Under the WBCA, no proposal may be acted on at the annual meeting unless a quorum is present. In order for a quorum to exist, at least a majority of the votes entitled to be cast at the annual meeting must be present in person or by proxy. |
Q: | What governmental and regulatory approvals are required? |
A: | State insurance laws generally require that, prior to the acquisition of an insurance company, the acquiring party must obtain approval from the insurance commissioner of the insurance company's state of domicile and any state in which an insurance company is commercially domiciled. Accordingly, Liberty Mutual has made the necessary applications with the insurance commissioners of California, Illinois, Indiana, Missouri, Oregon, Texas and Washington, the states of domicile or commercial domicile of Safeco's insurance company subsidiaries. |
In addition, the insurance laws and regulations of certain states in the United States require that, prior to an acquisition of an insurance company doing business in that state or licensed by that state (or the acquisition of its holding company), a notice filing disclosing certain market share data in the applicable jurisdiction must be made and an applicable waiting period must expire or be terminated. These notice filings have been made in the applicable jurisdictions. | |
The merger is also subject to U.S. antitrust laws. Safeco filed the required notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which is referred to in this proxy statement as the HSR Act, on April 30, 2008 with both the Antitrust Division of the Department of Justice and the Federal Trade Commission, which are referred to in this proxy statement as the Antitrust Division and the FTC, respectively. Liberty Mutual separately filed the required notification under the HSR Act on May 1, 2008 with both the Antitrust Division and the FTC. The statutory waiting period under the HSR Act has expired. The Antitrust Division or the FTC, as well as any state attorney general or private person, may challenge the merger at any time before or after its completion. | |
For more information on the governmental and regulatory approvals required for completion of the merger, see "The Merger – Regulatory Matters." | |
Q: | When do Safeco and Liberty Mutual expect the merger to be completed? |
A: | Safeco and Liberty Mutual are working to complete the merger as expeditiously as practicable. However, they cannot predict the exact timing of the completion of the merger because it is subject to governmental and regulatory approvals and other conditions. See "The Merger Agreement – Conditions to Completion of the Merger." |
Q: | When and where will the annual meeting be held? |
A: | The annual meeting will be held on July 29, 2008, at 1:30 p.m., Pacific Time, at the Safeco Center, Magnolia Room, 1st Floor, 1191 Second Avenue, Seattle, Washington 98101. |
Q: | Who is entitled to vote at the annual meeting? |
A: | Only holders of Safeco common stock as of the close of business on June 10, 2008, are entitled to vote the shares of Safeco common stock that they held at that time at the annual meeting, or at any adjournment or postponement of the annual meeting. |
Q: | If my shares are held in "street name" by my broker, bank or other nominee, will my broker, bank or nominee vote my shares for me? |
A: | Your broker, bank or other nominee may have discretionary authority to vote your shares for you on certain proposals that are considered routine matters. The proposal for the approval of the merger agreement is not a routine matter and your broker, bank or other nominee will only vote your shares on the proposal to approve the merger agreement if you provide specific instructions on how to vote. The election of directors and the ratification of Ernst & Young LLP's appointment as Safeco's independent registered public accounting firm are considered routine matters and your broker, bank or other nominee may vote for these matters, unless you direct otherwise. You should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without instructions, your shares will not be voted for the merger agreement and will effectively be votes against the merger agreement. |
Q: | What if I am a Safeco Stock Ownership Fund participant? |
A: | If you participate in the Safeco 401(k) Plan's Safeco Stock Ownership Fund, you may instruct Wells Fargo, the plan administrator and named fiduciary for voting purposes, how to vote the shares allocated to your account. Unless you are a current employee of Safeco, you have access to voting instructions from BNY Mellon Shareowner Services, Safeco's tabulator of proxy votes. The voting instructions will show the number of units held in your plan account and will permit you to give instructions for voting the allocable shares those units represent. Please follow the instructions provided in the Notice of Annual Meeting of Shareholders. Current employees will receive an e-mail from BNY Mellon Shareowner Services with instructions for voting through the Internet or by telephone. As explained in your voting instructions, your Internet, telephone or written instructions will serve to inform Wells Fargo how to cast your vote. If you do not give timely voting instructions, Wells Fargo will vote your shares in the same proportion as the other Safeco Stock Ownership Fund shares were voted. For example, suppose 70% of the shares in the fund that voted were voted in favor of a proposal, and 30% of the shares were voted against it. If you held 100 shares through the fund and didn't vote, your shares would be voted 70 in favor and 30 against the proposal. |
Q: | What happens if I sell my shares of Safeco common stock before the annual meeting? |
A: | The record date for the annual meeting is earlier than the date of the annual meeting and the date that the merger is expected to be completed. If you transfer your shares of Safeco common stock after the record date but before the annual meeting, you will retain your right to vote at the annual meeting, but will transfer the right to receive the per share amount of $68.25 in cash, without interest and less any applicable withholding taxes, to the person to whom you transfer your shares, so long as such person owns the shares of Safeco common stock when the merger is completed. In such case, your vote is still very important and you are encouraged to vote. |
Q: | How will I know the merger has occurred? |
A: | If the merger occurs, Safeco and/or Liberty Mutual will promptly make a public announcement of this fact. |
Q: | What should Safeco shareholders do now in order to vote on the matters being considered at the annual meeting? | ||||
A: | If you are a holder of Safeco common stock, you may submit your vote on any or all of the matters being considered at the annual meeting in person or by proxy. You may vote by proxy in any of the following ways: | ||||
· | Internet. | You may vote by proxy through the Internet by going to the website listed on your proxy card. Once at the website, follow the instructions to vote your proxy. | |||
· | Telephone. | You may vote by proxy using the toll-free number listed on your proxy card. Voice prompts will help you and confirm that your voting instructions have been followed. | |||
· | Mail. | You may vote by proxy by marking, signing, dating and returning your proxy card in the pre-addressed postage-paid envelope provided. | |||
Please refer to your proxy card or the information forwarded by your bank, broker or other nominee to see which options are available to you. | |||||
All shares entitled to vote and represented by properly completed proxies received prior to the annual meeting, and not revoked, will be voted at the annual meeting as instructed on the proxies. If you do not indicate how your shares should be voted on a matter, the shares represented by your properly completed proxy will be voted as the Safeco board of directors recommends and therefore "FOR" the approval of the merger agreement and the other proposals to be considered at the annual meeting. | |||||
Q: | May I vote in person? | ||||
A: | Yes. If your shares of Safeco common stock are not held in "street name" by a broker, bank or other nominee, you may attend the annual meeting of Safeco shareholders, and vote your shares in person, rather than by marking, signing, dating and returning your proxy card or submitting your proxy through the Internet or by telephone. If you wish to vote in person and your shares are held by a broker, bank or other nominee, you need to obtain a proxy from the broker, bank or other nominee authorizing you to vote your shares held in the broker's, bank's or other nominee's name. | ||||
Q: | Can I change my vote after I have delivered my proxy? | ||||
A | Yes. If you are the record holder of your Safeco shares, you can revoke your proxy or change your vote in one of these ways: | ||||
· | if you voted through the Internet or by telephone, by casting a new vote by the method you used previously no less than 48 hours before the annual meeting; | ||||
· | if you voted by delivering your proxy card, by delivering another proxy card dated after your prior proxy card no less than 48 hours before the annual meeting; | ||||
· | regardless of the method you used to cast your previous vote, by attending the annual meeting and voting in person; and | ||||
· | regardless of the method you used to cast your previous vote, by delivering a written notice of revocation of your vote no less than 48 hours before the annual meeting to the Secretary of Safeco at Safeco Plaza, 1001 Fourth Avenue, Seattle, Washington 98154. | ||||
If your shares are held in "street name," you should contact your broker, bank or other nominee directly to change your vote. |
Q: | What should I do if I receive more than one set of voting materials for the annual meeting? |
A: | You may receive more than one set of voting materials for the annual meeting, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please mark, sign, date and return each proxy card and voting instruction card that you receive. |
Q: | Who can help answer my questions? |
A: | If you have any questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement, the enclosed proxy card or voting instructions, you should contact Georgeson Inc., which is referred to in this proxy statement as Georgeson, at the address or telephone number below: |
· | Consideration and approval of the merger agreement; |
· | Election of five directors, four to serve a three year term and one to serve a two year term on the Safeco board of directors. Safeco's nominees for these positions are, respectively, Joseph W. Brown, Kerry Killinger, Gary F. Locke, Charles R. Rinehart and Gerardo I. Lopez, each of whom is currently a Safeco director; |
· | Ratification of the appointment of Ernst & Young LLP as Safeco's independent registered public accounting firm for 2008; |
· | Adjournment or postponement of the annual meeting, if necessary or appropriate, to solicit additional proxies for the approval of the merger agreement; and |
· | Transaction of any other business that may properly come before the annual meeting or at any adjournment or postponement of the annual meeting. |
· | approval of the merger agreement by Safeco shareholders; |
· | expiration or termination of the applicable waiting period under the HSR Act; |
· | certain specified approvals or filings under all applicable state laws regulating the business of insurance shall have been obtained or filed without any conditions or restrictions that would, individually or in the aggregate, reasonably be likely to have a material adverse effect on either Safeco or Liberty Mutual, measured at the level of what would be a material adverse effect on Safeco, which is referred to in this proxy statement as a Regulatory Material Adverse Effect; and |
· | the absence of any law, injunction or order that makes the completion of the merger illegal or otherwise prohibits the completion of the merger. |
· | Safeco's representation that there has been no material adverse effect on Safeco since December 31, 2007 shall be true and correct as of the date of the merger agreement and as of the closing date of the merger as though made on and as of the closing date; |
· | all of Safeco's other representations and warranties, disregarding all qualifications or limitations therein relating to materiality or material adverse effect, shall be true and correct (both when made and at and as of the closing date of the merger, provided that representations and warranties that speak as of a specified date will be determined as of that date), except where the failure to be so true and correct would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on Safeco; |
· | Safeco shall have performed in all material respects all of its obligations required to be performed under the merger agreement, at or prior to the closing of the merger; and |
· | the absence of any material suit, action or proceeding by any U.S. governmental entity of competent jurisdiction challenging the acquisition by Liberty Mutual or Merger Sub of shares of Safeco common stock, seeking to restrain or prohibit the completion of the merger, or seeking to prohibit or limit the ownership or operation by Safeco or any of its subsidiaries or by Liberty Mutual or any of its subsidiaries of any material portion of any business or assets of Safeco and its subsidiaries, taken as a whole, or Liberty Mutual and its subsidiaries, taken as a whole, where such |
prohibition or limitation would, individually or in the aggregate, reasonably be likely to have a Regulatory Material Adverse Effect. |
· | all of Liberty Mutual's and Merger Sub's representations and warranties, disregarding all qualifications or limitations therein relating to materiality or material adverse effect, shall be true and correct (both when made and at and as of the closing date of the merger, provided that representations and warranties that speak as of a specified date will be determined as of that date), except where the failure to be so true and correct would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on Liberty Mutual; and |
· | each of Liberty Mutual and Merger Sub shall have performed in all material respects all of its obligations required to be performed under the merger agreement, at or prior to the closing of the merger. |
· | by the mutual written consent of Safeco and Liberty Mutual; |
· | by either Safeco or Liberty Mutual, if: |
o | the merger is not completed by November 15, 2008 (which date may be extended to December 31, 2008, by either Safeco or Liberty Mutual, under certain circumstances, if either party notifies the other before November 15, 2008 of its election to extend); |
o | any governmental entity in the U.S. issues a final, non-appealable order, injunction, or judgment or takes any other final, non-appealable action restraining, enjoining or otherwise prohibiting the merger; or |
o | the approval of the Safeco shareholders is not obtained at the annual meeting or any adjournment or postponement of such meeting. |
· | by Liberty Mutual if: |
o | Safeco has breached or failed to perform any of its representations, warranties, covenants or agreements contained in the merger agreement, which breach cannot be cured or has not been cured within 45 days following written notice and such breach would result in a failure of any of the closing conditions for the benefit of Liberty Mutual and Merger Sub; or |
o | prior to Safeco shareholders voting on the proposal to approve the merger agreement at the annual meeting, (1) the Safeco board of directors effects a Safeco recommendation withdrawal (as described under "The Merger Agreement – Recommendation of the Safeco Board of Directors"), or (2) Safeco materially breaches its obligation to hold a meeting of Safeco shareholders to vote on the proposal to approve the merger agreement, its no solicitation obligations under the merger agreement, its obligations relating to the Safeco board recommendation under the merger agreement (as described under "The Merger Agreement – Recommendation of the Safeco Board of Directors") or its notice and other obligations to Liberty Mutual in connection with a Safeco recommendation withdrawal or Safeco's termination of the merger agreement to accept a superior proposal. |
· | by Safeco: |
o | if Liberty Mutual or Merger Sub has breached or failed to perform any of its representations, warranties, covenants or agreements contained in the merger agreement, which breach cannot be cured or has not been cured within 45 days following written notice and such breach would result in a failure of any of the closing conditions for the benefit of Safeco; or |
o | prior to the approval of the merger agreement by the Safeco shareholders, in order to enter into an agreement with respect to a third party acquisition proposal that the Safeco board of directors determines in good faith (after consultation with its financial advisor and outside legal counsel) constitutes a superior proposal (as described under "The Merger Agreement – No Solicitation by Safeco"), provided that in order to terminate on this basis (1) Safeco must notify Liberty Mutual in writing of its intention to terminate and the terms and conditions of the acquisition proposal no less than four business days before such termination, and must, if requested by Liberty Mutual, negotiate in good faith with Liberty Mutual regarding any amendment to the merger agreement proposed in writing by Liberty Mutual during such four business day period and (2) the Safeco board of directors must take into account any changes to the terms and conditions of the merger agreement proposed by Liberty Mutual in response during the four business day period. |
· | if Liberty Mutual terminates the merger agreement because the merger is not completed by November 15, 2008 (or if such date is extended by either party, December 31, 2008), and (1) at any time after April 23, 2008 an acquisition proposal is publicly proposed or announced and is not irrevocably withdrawn prior to such termination; and (2) within twelve months after the date of such termination, Safeco enters into a definitive agreement with any third party with respect to, or completes, an acquisition proposal with respect to more than 50% of Safeco's equity securities or more than 50% of Safeco's and its subsidiaries' net income or total assets; |
· | if either Safeco or Liberty Mutual terminates the merger agreement because Safeco shareholders failed to approve the merger agreement at the annual meeting or any postponement or adjournment thereof and (1) at any time after April 23, 2008 an acquisition proposal is publicly proposed or announced and is not irrevocably withdrawn as of the time of such meeting, and (2) within twelve months after the date of such termination, Safeco enters into a definitive agreement with any third party with respect to, or completes, an acquisition proposal with respect to more than 50% of Safeco's equity securities or more than 50% of Safeco's and its subsidiaries' net income or total assets; |
· | if Safeco terminates the merger agreement to accept an acquisition proposal that the Safeco board of directors determines in good faith (after consultation with its financial advisor and outside legal counsel), constitutes a superior proposal; |
· | if Liberty Mutual terminates the merger agreement because of a Safeco breach or failure to perform any of its representations, warranties, covenants or agreements contained in the merger agreement and (1) at any time after April 23, 2008 an acquisition proposal is publicly proposed or announced and is not irrevocably withdrawn prior to the Safeco breach or failure to perform giving rise to such termination, and (2) within twelve months after the date of such termination, Safeco enters into a definitive agreement with any third party with respect to, or completes, an |
acquisition proposal with respect to more than 50% of Safeco's equity securities or more than 50% of Safeco's and its subsidiaries' net income or total assets; or |
· | if Liberty Mutual terminates the merger agreement because the Safeco board of directors has (1) withdrawn, or modified or qualified in a manner adverse to Liberty Mutual, its recommendation that Safeco shareholders approve the merger agreement, (2) failed to include its recommendation that Safeco shareholders approve the merger agreement in this proxy statement or (3) approved, adopted, recommended, or publicly proposed to approve, adopt or recommend any acquisition proposal. |
Company Common Stock | |||
High | Low | Dividends (1) | |
2006 | |||
First quarter | $58.86 | $50.14 | $0.25 |
Second quarter | $57.44 | $49.09 | $0.30 |
Third quarter | $59.15 | $51.75 | $0.30 |
Fourth quarter | $64.85 | $57.88 | $0.30 |
2007 | |||
First quarter | $69.15 | $57.43 | $0.30 |
Second quarter | $67.32 | $60.68 | $0.40 |
Third quarter | $64.26 | $54.46 | $0.40 |
Fourth quarter | $62.40 | $53.18 | $0.40 |
2008 | |||
First quarter | $55.55 | $41.09 | $0.40 |
Second quarter, through June 24, 2008 | $67.47 | $42.83 | $0.40 |
(1) | The merger agreement provides that, during the period from April 23, 2008 until the effective time of the merger or the termination of the merger agreement, Safeco is permitted to declare and pay regular quarterly cash dividends not in excess of $0.40 per share of common stock per quarter, with agreed upon record and payment dates. |
April 22, 2008 | $45.23 |
June 24, 2008 | $67.30 |
· | Consideration and approval of the merger agreement; |
· | Election of five directors, four to serve a three year term and one to serve a two year term on the Safeco board of directors. Safeco's nominees for these positions are Joseph W. Brown, Kerry Killinger, Gary F. Locke, Charles R. Rinehart and Gerardo I. Lopez, each of whom is currently a director; |
· | Ratification of the selection of Ernst & Young LLP to be Safeco's independent registered public accounting firm for 2008; |
· | Adjournment or postponement of the annual meeting, if necessary or appropriate, to solicit additional proxies for the approval of the merger agreement; and |
· | Transaction of any other business that may properly come before the annual meeting or at any adjournment or postponement of the annual meeting. |
· | The Merger. Under the WBCA, in order for the merger agreement to be approved, shares of Safeco common stock representing at least two-thirds of the votes entitled to be cast by all Safeco shareholders at the annual meeting must be voted "FOR" the approval of the merger agreement, provided that a quorum is present. |
· | Election of Directors. In accordance with Safeco's bylaws and the WBCA, in order for each director candidate to be elected, such director candidate must receive more votes "FOR" than "WITHHELD," provided that a quorum is present. |
· | Ratification of Independent Accountant. Under the WBCA, in order for the ratification of Ernst & Young LLP as Safeco's independent registered public accounting firm for 2008 to be approved, the proposal must receive more votes "FOR" than "AGAINST," provided that a quorum is present. |
· | Adjournment or Postponement of the Annual Meeting to Solicit Additional Proxies for the Approval of the Merger Agreement. Under the WBCA, in order to adjourn or postpone the annual meeting, if necessary or appropriate, to solicit additional proxies to approve the merger agreement, the proposal must receive more votes "FOR" than "AGAINST," provided that a quorum is present. |
· | "FOR" the proposal to approve the merger agreement; |
· | "FOR" the proposal to elect the directors named in the director proposal; |
· | "FOR" the proposal to ratify the selection of Ernst & Young LLP as Safeco's independent registered public accounting firm for 2008; and |
· | "FOR" the proposal to adjourn or postpone the annual meeting, if necessary or appropriate, to solicit additional proxies for the approval of the merger agreement. |
· | the Safeco board of directors' analysis and understanding of the business, operations, financial performance, financial condition, earnings and future prospects of Safeco on a stand-alone basis, and the Safeco board of directors' assessment, based on such analysis and understanding, that the merger would be more favorable to Safeco and its shareholders than remaining an independent public company in light of the potential rewards and risks and uncertainties associated with Safeco continuing to operate on a stand-alone basis. Those risks and uncertainties included those relating to Safeco's ability to achieve its business plan and projected future financial performance, the increasingly competitive nature of the industries in which Safeco operates and Safeco's relatively small size in comparison with a number of its competitors, many of which are better capitalized and have significantly greater resources than Safeco; |
· | the current and historical market prices of Safeco common stock and the fact that the merger consideration of $68.25 per share to be paid to Safeco shareholders represented a premium of approximately: |
o | 50% over the closing trading price of Safeco common stock on April 21, 2008; |
o | 47% over the average closing trading price of Safeco common stock during the three month period prior to April 21, 2008; and |
o | 34% over the average closing trading price of Safeco common stock during the six month period prior to April 21, 2008; |
· | the fact that the merger consideration of $68.25 in cash per share to be paid to Safeco shareholders exceeded or was within the range of results of the valuation analyses performed by Morgan Stanley; |
· | the view of the Safeco board of directors that continuing to operate on a stand-alone basis was not likely to produce greater value in the near term, if Safeco common stock were to trade consistently in line with the values of Safeco's peers; |
· | the fact that the merger consideration would be paid entirely in cash, which provides certainty and immediate value to Safeco shareholders, and holders of stock options for Safeco common stock and restricted stock rights (including as compared to a transaction involving a substantial amount of securities, such as the case in the acquisition proposal submitted by Party D); |
· | the fact that the merger consideration of $68.25 per share reflected the highest value proposed by any of the parties following due diligence, and the view of the Safeco board of directors, after consultation with Safeco management and Morgan Stanley, that based upon the information then available, it was unlikely that there would be available an alternative transaction, if one were to be pursued, that would provide greater value to Safeco shareholders than the merger; |
· | the judgment of the Safeco board of directors that further negotiation with Party A, Party B or Party D or entering into negotiations with any other parties, including Party C, could unduly risk the proposal received from Liberty Mutual; |
· | the opinion of Morgan Stanley that, as of April 22, 2008, and, based upon and subject to the assumptions, qualifications and limitations set forth in such opinion, the merger consideration of $68.25 per share in cash to be paid to the holders of shares of Safeco common stock pursuant to the merger agreement was fair, from a financial point of view, to such shareholders. A summary of Morgan Stanley's financial analyses is described under "—Opinion of Financial Advisor" beginning on page 33 and the written opinion of Morgan Stanley, dated April 22, 2008, is included as Appendix B to this proxy statement; |
· | the terms of the merger agreement, including: |
o | the limited number and nature of the conditions to Liberty Mutual's and Merger Sub's obligation to consummate the merger, including in particular the absence of a financing condition, and the likelihood of satisfying such conditions; |
o | the fact that Liberty Mutual has agreed to use its reasonable best efforts to take all actions necessary to obtain required governmental and regulatory approvals, except to the extent that taking such actions would reasonably be expected to have a Regulatory Material Adverse Effect; |
o | Safeco's ability, under certain circumstances, to furnish information to and conduct negotiations with third parties regarding acquisition proposals; |
o | the fact that, subject to compliance with the terms and conditions of the merger agreement, the Safeco board of directors is permitted to change its recommendation that Safeco shareholders vote in favor of the proposal to approve the merger agreement whether or not such change of recommendation is in response to an acquisition proposal and, prior to the approval of the merger agreement by Safeco shareholders, to terminate the merger agreement in order to enter into a definitive alternative acquisition agreement with respect to a superior proposal, in each case, upon the payment to Liberty Mutual of a $182,500,000 termination fee (representing approximately 2.9% of Safeco's equity value based on the per share amount of $68.25); |
o | the view of the Safeco board of directors, after consultation with Morgan Stanley and Skadden Arps, that as a percentage of the aggregate merger consideration to be paid in the merger, the termination fee was within the range of termination fees provided for in recent comparable acquisition transactions and the conditions to its payment were similar to those applicable to such transactions; |
o | the fact that Liberty Mutual had represented that it has and will have available at and at all times prior to the completion of the merger sufficient funds to complete the merger and the other transactions contemplated by the merger agreement and the fact that Safeco, on behalf of its shareholders, would have the right to bring claims for breach of such representation even if the merger agreement were to be terminated; |
o | the fact that the merger agreement permits Safeco to continue to declare regular quarterly cash dividends at its current levels; |
o | Liberty Mutual's agreement to, during the two year period following the effective time of the merger, provide employees of Safeco and its subsidiaries who continue employment with the surviving corporation with compensation and benefits under employee benefit and compensation plans that in the aggregate are not less favorable than those currently provided by Safeco to its employees; |
o | the fact that Liberty Mutual has agreed to maintain the "Safeco" brand following the merger; |
o | the fact that Liberty Mutual has agreed to honor Safeco's commitments to the Safeco Insurance Foundation; and |
o | the fact that Liberty Mutual intends to maintain the surviving corporation's principal executive offices in Seattle, Washington following the merger; and |
· | the availability of dissenters' rights to Safeco shareholders who comply with all of the procedural requirements under the WBCA, which allows such shareholders to seek determination of the fair value of their shares in Washington courts. |
· | the fact that Safeco will no longer exist as an independent public company and that Safeco shareholders will not participate in any future earnings or growth of Safeco business and will not benefit from any appreciation in Safeco value, including any appreciation in value that could be realized as a result of improvements to our operations; |
· | the conditions to Liberty Mutual's obligation to complete the merger and the right of Liberty Mutual to terminate the merger agreement under certain circumstances; |
· | the risks and uncertainties related to the announcement and pendency of the merger and the risks and costs to Safeco if the merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential effect on our business and our relationships with agents and customers; |
· | the amount of time it could take to complete the merger, including the fact that consummation of the merger is subject to governmental and regulatory approvals and that there can be no assurance that such approvals will be received prior to the outside date, or at all, or that the governmental or regulatory bodies will not seek to impose conditions that may cause the parties not to consummate the merger; |
· | the terms of the merger agreement that place certain limitations on Safeco's ability to consider third party acquisition proposals and to terminate the merger agreement and accept a superior proposal; |
· | the fact that Safeco may be required to pay the termination fee to Liberty Mutual, under certain circumstances, including if Safeco terminates the merger agreement to accept a superior proposal or in the event that the Safeco board of directors changes its recommendation that Safeco shareholders vote in favor of approval of the merger agreement other than in response to an acquisition proposal; |
· | the restrictions on the conduct of Safeco's business prior to the completion of the merger, requiring Safeco to conduct our business only in the ordinary course, subject to specific limitations, which may delay or prevent Safeco from undertaking business opportunities that may arise pending completion of the merger; and |
· | the fact that an all cash transaction would be taxable to Safeco shareholders that are U.S. persons for U.S. federal income tax purposes. |
· | reviewed certain publicly available financial statements and other business and financial information of Safeco and Liberty Mutual, respectively; |
· | reviewed certain internal financial statements and other financial and operating data concerning Safeco; |
· | reviewed certain financial projections prepared by the management of Safeco; |
· | discussed the past and current operations and financial condition and the prospects of Safeco, including information relating to certain potential strategic, financial and operational benefits to a buyer anticipated from the merger, with senior executives of Safeco; |
· | reviewed the reported prices and trading activity for Safeco common stock; |
· | compared the financial performance of Safeco, and the prices and trading activity of Safeco common stock with that of certain other comparable publicly-traded companies and their securities; |
· | reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; |
· | participated in discussions and negotiations among representatives of Safeco and Liberty Mutual and their financial and legal advisors; |
· | reviewed the merger agreement and certain related documents; and |
· | performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate. |
Purchase Price Premiums | Share Price | Premium | |
Premium to April 21, 2008 | $45.61 | 50% | |
Premium to 3 Month Average | $46.38 | 47% | |
Premium to 6 Month Average | $50.88 | 34% | |
Premium to 52-week High | $67.23 | 1% |
Purchase Price Valuation Multiples | |||
2008E P/E – IBES estimates | $5.95 | 11.5x | |
2009E P/E – IBES estimates | $6.05 | 11.3x | |
2008E P/E – Management estimates | $6.70 | 10.2x | |
2009E P/E – Management estimates | $7.66 | 8.9x | |
Price / Book Value (3/31/08) | $37.09 | 1.84x | |
Price / Book Value (12/31/07) | $37.81 | 1.81x |
· | Large capitalization companies: |
o | The Travelers Companies |
o | The Allstate Corporation |
o | The Hartford Financial Services Group, Inc. |
o | Chubb Corporation |
o | The Progressive Corporation; and |
· | Small / mid capitalization companies: |
o | Mercury General Corporation |
o | The Hanover Insurance Group |
o | OneBeacon Insurance Group Ltd. |
o | Selective Insurance Group |
o | State Auto Financial Corporation |
o | Harleysville Group Inc. |
· | closing stock price as of April 21, 2008 to 2008 estimated earnings per share, or net income per share, which is referred to in this proxy statement as EPS; and |
· | closing stock price as of April 21, 2008 to 2007 year end book value per share, which is referred to in this proxy statement as YE BV. |
Price / 2008 E EPS | Price / 2007 YE BV | |
Safeco Corporation | 7.7x | 1.21x |
Large Cap Trading Value Comparables | ||
The Travelers Companies | 8.2x | 1.17x |
The Allstate Corporation | 8.2x | 1.28x |
The Hartford Financial Services Group, Inc. | 7.5x | 1.21x |
Chubb Corporation | 8.6x | 1.34x |
The Progressive Corporation | 14.8x | 2.47x |
Large Cap Median | 8.2x | 1.28x |
Small / Mid Cap Trading Value Comparables | ||
Mercury General Corporation | 11.5x | 1.36x |
The Hanover Insurance Group | 9.7x | 0.95x |
OneBeacon Insurance Group Ltd. | 10.3x | 0.86x |
Selective Insurance Group | 11.2x | 1.27x |
State Auto Financial Corporation | 13.0x | 1.27x |
Harleysville Group Inc. | 11.1x | 1.55x |
Small/Mid Cap Median | 11.2x | 1.27x |
Overall Median | 10.3x | 1.27x |
· | Meadowbrook Insurance Group, Inc. acquisition of ProCentury Corporation (announced February 20, 2008); |
· | Employers Holdings, Inc. acquisition of AmCOMP Incorporated (announced January 10, 2008); |
· | QBE Insurance Group Ltd. acquisition of North Pointe Holdings Corporation (announced January 3, 2008); |
· | The MAPFRE Group acquisition of The Commerce Group, Inc. (announced October 30, 2007); |
· | Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft, which is referred to in this proxy statement as Munich Re, acquisition of The Midland Company (announced October 17, 2007); |
· | The Doctors Company acquisition of SCPIE Holdings Inc. (announced October 16, 2007); |
· | D. E. Shaw & Co., L.P. acquisition of James River Group, Inc. (announced June 11, 2007); |
· | Liberty Mutual Insurance Company acquisition of Ohio Casualty Corporation (announced May 6, 2007); |
· | Zurich Financial Services Group acquisition of Bristol West Holdings, Inc. (announced March 1, 2007); |
· | QBE Insurance Group Ltd. acquisition of Winterthur US Holdings, Inc. (announced January 4, 2007); |
· | Elara Holdings, Inc. acquisition of Direct General Corporation (announced December 4, 2006); and |
· | The Delek Group Ltd. acquisition of Republic Companies Group, Inc. (announced August 4, 2006); |
· | transaction equity price per share to estimated one year forward earnings per share, or net income per share, which is referred to in this proxy statement as NTM EPS; and |
· | transaction equity price per share to YE BV. |
Price / YE BV | Price / NTM EPS | |
Meadowbrook Insurance Group, Inc. acquisition of ProCentury Corporation | 1.66x | 12.2x |
Employers Holdings, Inc. acquisition of AmCOMP Incorporated | 1.27x | 11.6x |
QBE Insurance Group Ltd. acquisition of North Pointe Holdings Corporation | 1.51x | 17.8x |
The MAPFRE Group acquisition of The Commerce Group, Inc. | 1.65x | 12.9x |
Munich Re acquisition of The Midland Company | 2.16x | 16.0x |
The Doctors Company acquisition of SCPIE Holdings Inc. | 1.20x | N/A |
D. E. Shaw & Co., L.P. acquisition of James River Group, Inc. | 2.34x | 13.6x |
Liberty Mutual Insurance Company acquisition of Ohio Casualty Corporation | 1.65x | 15.3x |
Zurich Financial Services Group acquisition of Bristol West Holdings, Inc. | 1.87x | 14.5x |
QBE Insurance Group Ltd. acquisition of Winterthur US Holdings, Inc. | 1.27x | 11.0x |
Elara Holdings, Inc. acquisition of Direct General Corporation | 1.64x | 13.3x |
The Delek Group Ltd. acquisition of Republic Companies Group, Inc. | 1.64x | 9.6x |
Mean | 1.65x | 13.4x |
Median | 1.65x | 13.3x |
· | the fact that each of Safeco's current five most highly compensated executive officers is party to a change in control severance agreement with Safeco that provides for certain benefits and payments upon a termination of employment following a change in control of Safeco; |
· | the fact that unvested stock options and restricted stock rights, including those held by Safeco's directors and executive officers, will vest and be converted into the right to receive an amount in cash pursuant to the terms of the merger agreement; |
· | the fact that the surviving corporation will continue to (1) provide indemnification against and advancement of expenses for claims against former or present directors and officers of Safeco for acts or omissions occurring at or prior to the effective time of the merger and (2) for a period of six years after the effective time of the merger, maintain directors' and officers' liability insurance policies on terms no less favorable than those presently provided or maintained by Safeco with respect to claims arising from facts or events occurring at or prior to the effective time of the merger; and |
· | the fact that, during the two year period following the effective time of the merger, the surviving corporation has agreed to provide employees of Safeco and its subsidiaries who continue employment with the surviving corporation or any of its subsidiaries after the merger with compensation and employee benefits that in the aggregate are not less favorable than those currently provided by Safeco and its subsidiaries to its employees immediately prior to the date of the merger agreement. |
For further discussion of arrangements that trigger payments or benefits to Safeco's named executive officers as of December 31, 2007, upon termination of employment in various circumstances or upon a change in control, see "– Potential Payments Upon Separation of Service or Change in Control" on page 116.
· | a lump-sum cash payment of three times annual base salary; |
· | a lump-sum cash payment of any incentive compensation that has already been allocated or awarded to the executive for a completed period and which is contingent only on continued employment; |
· | a pro rata portion of the aggregate value of all contingent incentive compensation awards, assuming the highest achievement of individual and company goals so as to produce maximum payouts; |
· | continuation of life, disability, accident and health benefits for thirty-six months substantially similar to those which the executive is receiving immediately prior to termination, reduced to the extent any comparable benefits are received or made available to the executive during such period; and |
· | a tax gross-up to the extent a certain excise tax is imposed on any amounts payable in connection with a change in control or termination of the executive. |
Type of Benefit or Payment | Change in Control No Termination($) | Termination Without Cause or With Good Reason upon Change in Control ($) |
Cash Payment | – | 2,925,000 |
Prorated 2008 Bonus | 1,050,959 | 1,050,959 |
Incentive Compensation | – | 8,079,247 |
280G Tax Gross-Up | – | 5,568,462 |
Other Perks or Benefits | – | 25,339 |
Type of Benefit or Payment | Change in Control No Termination($) | Termination Without Cause or With Good Reason upon Change in Control ($) |
Cash Payment | – | 1,710,000 |
Prorated 2008 Bonus | 342,312 | 342,312 |
Incentive Compensation | – | 2,487,113 |
280G Tax Gross-Up | – | 1,958,675 |
Other Perks or Benefits | – | 55,679 |
Type of Benefit or Payment | Change in Control No Termination($) | Termination Without Cause or With Good Reason upon Change in Control ($) |
Cash Payment | – | 1,350,000 |
Prorated 2008 Bonus | 236,466 | 236,466 |
Incentive Compensation | – | 1,862,168 |
280G Tax Gross-Up | – | 1,408,477 |
Other Perks or Benefits | – | 37,703 |
Type of Benefit or Payment | Change in Control No Termination($) | Termination Without Cause or With Good Reason upon Change in Control ($) |
Cash Payment | – | 1,500,000 |
Prorated 2008 Bonus | 300,274 | 300,274 |
Incentive Compensation | – | 2,181,678 |
280G Tax Gross-Up | – | 1,789,561 |
Other Perks or Benefits | – | 4,975 |
Type of Benefit or Payment | Change in Control No Termination($) | Termination Without Cause or With Good Reason upon Change in Control ($) |
Cash Payment | – | 1,620,000 |
Prorated 2008 Bonus | 324,296 | 324,296 |
Incentive Compensation | – | 2,356,212 |
280G Tax Gross-Up | – | 1,775,442 |
Other Perks or Benefits | – | 58,713 |
Name and Position | Aggregate Number of Shares Subject to Outstanding Stock Options | Aggregate Number of Shares Subject to Vested Stock Options | Weighted Average Exercise Price of Outstanding Stock Options | Number of Restricted Stock Rights |
Paula Rosput Reynolds, President and CEO | 424,272 | 0 | $54.31 | 152,645 |
Ross Kari, EVP and CFO | 69,872 | 2,442 | $50.90 | 40,419 |
Arthur Chong, EVP and Chief Legal Officer | 45,636 | 0 | $47.92 | 42,209 |
Michael H. Hughes EVP, Insurance Operations | 60,975 | 31,060 | $44.61 | 29,081 |
R. Eric Martinez, Jr. EVP, Fulfillment | 65,804 | 0 | $50.10 | 37,228 |
Name | Number of Stock Options | Number of Restricted Stock Rights |
Joseph W. Brown | 4,000 | 22,500 |
Robert S. Cline | 8,000 | 11,825 |
Peter L.S. Currie (Audit Committee Chair) | 0 | 4,325 |
Maria S. Eitel* | 0 | 4,325 |
Joshua Green, III | 8,000 | 11,825 |
John S. Hamlin | 0 | 2,500 |
Kerry Killinger (Compensation Committee Chair) | 0 | 11,825 |
Gary F. Locke | 0 | 6,825 |
William G. Reed, Jr. (Finance Committee Chair) | 0 | 11,825 |
Charles R. Rinehart | 0 | 1,825 |
Judith Runstad (Nominating / Governance Committee Chair) | 8,000 | 11,825 |
· | during the two year period following the effective time of the merger, subject to certain exceptions, Safeco, as the surviving corporation, will provide employees of Safeco and its subsidiaries who continue employment with the surviving corporation or any of its subsidiaries after the merger (who are referred to in this proxy statement as the affected employees) with compensation and employee benefits that in the aggregate are not less favorable than those provided to the affected employees by Safeco or its subsidiaries immediately prior to April 23, 2008 (excluding, except as described below, retiree medical benefits). Affected employees will not participate in stock-based compensation plans or programs following the effective time, but the value of the affected employees’ stock-based compensation will be included in determining their levels of compensation during that period; |
· | Any affected employee who terminates employment during the period beginning with the effective time of the merger and ending on the second anniversary of the effective time shall be entitled to severance pay and benefits no less favorable than the severance pay and benefits such employee would have been entitled to pursuant to Safeco's severance plans and arrangements that were disclosed in connection with the merger agreement had such termination of employment occurred immediately prior to the effective time. |
· | Safeco, as the surviving corporation, will recognize prior service for purposes of eligibility to participate, vesting and level of benefits, to the extent such service was recognized under the analogous Safeco benefit plan in which an affected employee participated prior to the effective time (excluding for (i) benefit accrual purposes under any defined benefit pension plan or levels of benefits or entitlement to eligibility or coverage under any post-retirement medical plan, (ii) retiree medical benefits (which are described below), or (iii) service that would result in duplication of benefits for the same period of service). |
· | Liberty Mutual will cause Safeco as the surviving corporation to provide certain groups of current and former Safeco employees with retiree medical and life insurance benefits, including, for certain of these groups, cost sharing as to these benefits. |
· | Safeco, as the surviving corporation, will, subject to certain exceptions, waive all preexisting conditions and waiting periods with respect to participation and coverage requirements applicable to the affected employees under any benefits plans established by the surviving corporation or its affiliates, except to the extent that such limitations or waiting periods have not been satisfied under benefits plans existing prior to the effective time of the merger; and |
· | Liberty Mutual will cause Safeco, as the surviving corporation, to honor all existing employment, change in control, severance, termination and similar agreements as in effect on April 23, 2008. |
· | deliver to Safeco, before the vote is taken at the annual meeting regarding the merger agreement, written notice of your intent to demand payment for your shares of Safeco common stock if the merger is effected, which notice must be separate from your proxy. Your vote against the approval of the merger agreement alone will not constitute written notice of your intent to exercise your dissenters' rights; |
· | not vote your shares in favor of the merger agreement; and |
· | follow the statutory procedures for perfecting dissenters' rights under chapter 23B.13 of the WBCA, which are described below under the heading "Appraisal Procedures." |
· | the merger is abandoned or rescinded; |
· | a court having jurisdiction permanently enjoins or sets aside the merger; or |
· | your demand for payment is withdrawn with Safeco's written consent. |
Appraisal Procedures
· | a statement as to where the demand for payment and certificates representing certificated shares of Safeco common stock must be sent and when certificates for certificated shares must be deposited; |
· | information for holders of uncertificated shares as to what extent transfer of the shares will be restricted after the payment demand is received; |
· | a form for demanding payment that includes the date of the first announcement to the news media or to shareholders of the terms of the merger and requires that the person asserting dissenters' rights certify whether or not the person acquired beneficial ownership of the shares of Safeco common stock before that date; |
· | the date by which Safeco must receive your payment demand, which date will not be fewer than 30 or more than 60 days after the date the written notice is delivered to you; and |
· | a copy of chapter 23B.13 of the WBCA. |
· | financial data relating to Safeco including a balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; |
· | an explanation of how we estimated the fair value of the shares; |
· | an explanation of how we calculated the interest; |
· | a statement of the dissenter's right to demand supplemental payment if such shareholder believes that the amount paid is less than the fair value of the shares and amount of interest due or under certain other circumstances enumerated in the statute and described below; and |
· | a copy of chapter 23B.13 of the WBCA. |
· | a citizen or individual resident of the United States; |
· | a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any of its political subdivisions; |
· | a trust that (1) is subject to the primary supervision of a court within the United States and the authority of one or more U.S. persons, within the meaning of Section 7701(a)(30) of the Internal Revenue Code, to control all substantial decisions or (2) has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person; or |
· | an estate that is subject to U.S. federal income tax on its income regardless of its source. |
Litigation Relating to the Merger
Loring v. Brown, et al.
On May 9, 2008, a purported class action complaint, Loring v. Brown, et al, Action No. CV80733 RSM, was filed against Safeco and its directors, allegedly on behalf of Safeco shareholders, in the United States District Court for the Western District of Washington. The complaint alleges, among other matters, that the terms on which the Safeco board of directors agreed for Safeco to be acquired by Liberty Mutual constitute a breach of the directors' fiduciary and other duties due to the inadequacy of the consideration to be received by the class and the defendants' alleged failure to explore other alternatives. The complaint seeks injunctive and other relief against consummation of the merger and unspecified monetary damages.
Gotham Investors v. Reynolds, et al.
On June 2, 2008 a purported class action complaint on behalf of Safeco's shareholders, Gotham Investors v. Reynolds, et al., was filed against Safeco, Safeco's directors and Liberty Mutual in King County, Washington Superior Court. That action was subsequently removed by defendants to the U.S. District Court for the Western District of Washington where it bears No.2:08-cv-980. The complaint alleges that the merger agreement advances the interests of Safeco's directors and Liberty Mutual at the expense of Safeco shareholders, principally because of an alleged failure to explore other possible transactions, and that the preliminary proxy statement filed by Safeco on or about May 23, 2008, was deficient in failing to disclose the amount of the compensation received by Morgan Stanley for its prior work on behalf of Liberty Mutual and its expectation of future work, as well as certain details of the methodologies used in assessing the consideration to be received pursuant to the merger agreement.
Memorandum of Understanding; Settlement in Principle.
The plaintiffs, Safeco and Liberty Mutual entered into a memorandum of understanding reflecting a settlement in principle of the complaints in the Loring v. Brown, et al. and Gotham Investors v. Reynolds, et al. actions on June 24, 2008. In connection with the settlement, (1) Safeco has included certain additional disclosures in this proxy statement and (2) Liberty Mutual has agreed that for the six month period beginning on the date of closing of the merger, Liberty Mutual will not, and will use its reasonable best efforts to cause its affiliates not to, consummate any transaction in which it sells 90% or more of Safeco's assets (as existing on the date of consummation of the merger) to an unaffiliated third party, whether by merger, consolidation, or otherwise, for an amount in excess of 120% of the amount that Liberty Mutual paid in connection with the merger (including transaction costs incurred by Liberty Mutual and Safeco and any debt assumed or issued in connection with the merger), which is referred to in this proxy statement as a flip transaction, unless Liberty Mutual pays or causes to be paid to the members of the shareholder class an amount equal to 10% of any amount in excess of 120% of the amount that Liberty Mutual paid in connection with the merger (including transaction costs incurred by Liberty Mutual and Safeco and any debt assumed or issued in connection with the merger), up to a maximum payment of $15,000,000.
The settlement will not affect the amount or form of the merger consideration that Safeco shareholders are entitled to receive in the proposed merger or otherwise modify the terms of the transaction, other than in connection with the consummation of a flip transaction as described above. Under the terms of the settlement, the parties have agreed to enter into a stipulation of settlement that will dismiss the claims in the two complaints with prejudice and release the defendants, Liberty Mutual, Safeco, and the current and former directors of Safeco, and their current and former affiliates, representatives and advisors from all of the claims that were or could have been brought in the settled litigation, including all claims relating to the merger, the merger agreement and any disclosure made in connection therewith. Liberty Mutual has agreed to pay on behalf of all of the defendants without contribution from them the sum of $850,000 to plaintiffs' counsel for attorneys fees and expenses within five business days after final dismissal of the two actions. The settlement will be contingent upon, among other things, confirmatory due diligence, consummation of the merger and final court approval.
· | due incorporation, good standing, qualification and corporate power, organizational documents and governmental licenses, authorizations, permits and approvals to conduct its business; |
· | corporate power and authority to enter into, and perform its obligations under, the merger agreement, enforceability of the merger agreement, approval of the merger agreement by the Safeco board of directors, recommendation of the Safeco board of directors that Safeco shareholders vote to approve the merger agreement and the vote required for approval of the merger agreement by Safeco shareholders; |
· | required governmental filings and approvals; |
· | the absence of conflicts between the execution, delivery or performance of the merger agreement and Safeco's or its subsidiaries' organizational documents, any applicable law or order, any of Safeco's material contracts, or any governmental licenses, authorizations, permits or approvals, and the absence of any liens resulting from the execution, delivery or performance of the merger agreement; |
· | capitalization and outstanding stock options and restricted stock rights; |
· | Safeco's subsidiaries; |
· | filings with the SEC and internal controls and procedures; |
· | financial statements; |
· | statutory statements of Safeco's insurance subsidiaries filed with state insurance departments; |
· | the accuracy of information contained in this proxy statement and compliance with SEC rules and regulations; |
· | the absence of a material adverse effect on Safeco since December 31, 2007; |
· | the absence of undisclosed liabilities; |
· | compliance with applicable laws, including insurance laws; |
· | the absence of material litigation; |
· | conduct of, and matters related to, insurance agents and producers of Safeco and its insurance subsidiaries, reinsurance matters and actuarial analyses; |
· | the absence of material claims and assessments by any state insurance guaranty association; |
· | policy reserves; |
· | title to real property owned by Safeco and its subsidiaries and leases for real property; |
· | receipt of the fairness opinion from Morgan Stanley; |
· | tax matters; |
· | employee benefit plan matters, post-employment compensation and deferred compensation matters; |
· | employee and labor matters; |
· | environmental laws and regulations; |
· | intellectual property rights; |
· | material contracts of Safeco and its subsidiaries; and |
· | finders' fees due in connection with the merger. |
· | due incorporation, good standing, qualification and corporate power, and governmental licenses, authorizations, permits and approvals to conduct its business; |
· | corporate power and authority to enter into, and perform its obligations under, the merger agreement, enforceability of the merger agreement and approval of the merger agreement by the board of directors of Liberty Mutual and Merger Sub; |
· | required governmental filings and approvals; |
· | the absence of conflicts between the execution, delivery or performance of the merger agreement and Liberty Mutual's or Merger Sub's organizational documents, any applicable law or order, or any material agreement of Liberty Mutual or Merger Sub and the absence of any liens resulting from the execution, delivery or performance of the merger agreement; |
· | capitalization, ownership and operations of Merger Sub; |
· | accuracy of information supplied by Liberty Mutual or Merger Sub for inclusion in this proxy statement; |
· | compliance with applicable laws, including insurance laws; |
· | the absence of any litigation or governmental order that would reasonably be expected to prevent, materially delay or materially impair the consummation of the transactions contemplated by the merger agreement; |
· | finders fees due in connection with the merger; and |
· | the availability, at and at all times prior to the completion of the merger, of (1) cash, marketable securities, available lines of credit or (2) other sources of immediately available funds to pay the merger consideration to Safeco shareholders and to pay all other amounts payable by Liberty Mutual, Merger Sub or the surviving corporation in connection with the merger and the transactions contemplated by the merger agreement. |
· | changes or fluctuations in the economy or the securities, credit or financial markets generally in the U.S.; |
· | national or international political conditions or changes therein (including acts of war, armed hostilities, sabotage or other acts of terrorism); |
· | changes that are the result of factors generally affecting the property and casualty insurance and/or surety industries and the geographic areas in which Safeco and its subsidiaries operate; |
· | any loss of, or adverse change in, the relationship of Safeco or any of its subsidiaries with its customers, employees, agents, suppliers, financing sources, business partners or regulators caused by the identity of Liberty Mutual or the announcement, negotiation or performance of the transactions contemplated by the merger agreement; |
· | changes in generally accepted accounting practices, which are referred to in this proxy statement as GAAP, or statutory accounting practices, which are referred to in this proxy statement as SAP, the rules or policies of the Public Company Accounting Oversight Board, or any applicable law or interpretation or application of any of the foregoing after the date of the merger agreement; |
· | any failure by Safeco to meet any internal or external projections, forecasts or estimates of revenues or earnings for any period (except that this exception does not preclude a determination that any event, change, circumstance or effect underlying such decline has resulted in, or contributed to, a material adverse effect on Safeco); |
· | the suspension of trading in securities on the NYSE or The NASDAQ National Market System or a decline in the price, or a change in the trading volume, of Safeco common stock on the NYSE (except that this exception does not preclude a determination that any event, change, circumstance or effect underlying such decline has resulted in, or contributed to, a material adverse effect on Safeco); |
· | effects resulting from earthquakes, hurricanes, tornadoes or other natural disasters; |
· | any change or announcement of a potential change in the credit rating or A.M. Best rating of Safeco or any of its subsidiaries or any of their securities (except that this exception does not preclude a determination that any event, change, circumstance or effect underlying such decline has resulted in, or contributed to, a material adverse effect on Safeco); |
· | compliance by Safeco with the terms of the merger agreement including the failure of Safeco to take any action as a result of restrictions placed on Safeco under the merger agreement (see "– Covenants Relating to Conduct of Business" below), or any actions taken, or failure to take any action, which Liberty Mutual has requested in writing or to which Liberty Mutual has consented in writing; or |
· | any shareholder litigation or threatened shareholder litigation, in each case, arising from allegations of a breach of fiduciary duty or similar obligations in connection with the merger agreement or the transactions contemplated by the merger agreement. |
· | changes or fluctuations in the economy or the securities, credit or financial markets generally in the U.S. |
· | national or international political conditions or changes therein (including acts of war, armed hostilities, sabotage or other acts of terrorism); |
· | changes that are the result of factors generally affecting the property and casualty insurance industry and the geographic areas in which Liberty Mutual and its subsidiaries operate; |
· | changes in GAAP or SAP, the rules or policies of the Public Company Accounting Oversight Board, or any applicable law or interpretation or application of any of the foregoing after the date of the merger agreement; or |
· | effects resulting from earthquakes, hurricanes, tornadoes or other natural disasters. |
· | amend, in any material respect, any of its organizational documents; |
· | declare, make or pay any dividend or distribution, except for regular quarterly cash dividends (not to exceed $0.40 per share per quarter, with agreed upon record and payment dates) and dividends or distributions to Safeco from wholly owned subsidiaries or among its wholly owned subsidiaries; |
· | adjust, split, combine, or reclassify any of its capital stock, or issue or authorize the issuance of any other securities in respect of its capital stock; |
· | repurchase, redeem or otherwise acquire any shares of the capital stock of Safeco or any of its subsidiaries, or any other equity interests or any rights, warrants or options to acquire any such shares or interests except for repurchases of Safeco shares not to exceed an agreed upon amount and repurchases in connection with the exercise of stock options or the vesting or settlement of other equity-based awards outstanding as of the date of the merger agreement; |
· | issue, sell, grant, pledge, amend, grant any rights in respect of or otherwise encumber any shares of its capital stock or other securities (including any stock options, warrants or similar securities), except for issuances pursuant to contracts in effect prior to the execution of the merger agreement; in connection with the exercise of stock options or the vesting or settlement of other equity-based awards outstanding as of the date of the merger agreement and certain issuances by its wholly owned subsidiaries; |
· | merge or consolidate with any other entity or acquire a material amount of the assets of, or make a material investment in, any other entity, except for acquisitions of inventory, equipment and software in the ordinary course of business or ordinary course investment portfolio transactions in accordance with Safeco's investment guidelines; |
· | sell, lease, license, subject to a material lien or otherwise dispose of any material assets, product lines or businesses of Safeco or any of its subsidiaries except (1) pursuant to contracts in effect prior to the execution of the merger agreement and ordinary course renewals thereof, (2) ordinary course investment portfolio transactions consistent with Safeco's investment guidelines or (3) sales, leases or licenses of inventory, equipment, software and other assets in the ordinary course of business; |
· | make any loans, advances, or capital contributions except (1) in connection with Safeco's agency loan program not exceeding $10,000,000 in the aggregate, (2) to or in Safeco subsidiaries or (3) ordinary course investment portfolio transactions consistent with Safeco's investment guidelines; |
· | create, incur, guarantee or assume any indebtedness, except for (1) transactions between Safeco and its wholly owned subsidiaries or among its wholly owned subsidiaries, (2) indebtedness for borrowed money to replace, renew or refinance existing indebtedness on terms materially no less favorable, (3) guarantees of indebtedness of Safeco subsidiaries or (4) indebtedness under certain existing agreements or the issuance of new commercial paper by Safeco; |
· | make or commit to any capital expenditure in excess of $10,000,000 in the aggregate during any twelve-month period other than capital expenditures provided for in Safeco's 2008 capital budget; |
· | cancel any material debts owed to Safeco or any of its subsidiaries, or waive any claims or rights of material value, except for cancellations or waivers in the ordinary course of business; |
· | except as required by contracts in effect prior to the execution of the merger agreement or Safeco benefit plans: |
o | increase the compensation or other benefits payable or provided to Safeco's directors or to employees at or above the Senior Vice President level; |
o | except in the ordinary course of business consistent with past practice, materially increase the compensation or other benefits payable or provided to Safeco's employees below the Senior Vice President level; or |
o | subject to certain exceptions, enter into any employment, change of control, severance or retention agreement with any employee; |
· | subject to certain exceptions, establish, adopt, enter into or amend any collective bargaining agreement, plan, trust, fund, policy or arrangement for the benefit of any current or former directors, officers or employees, except as would not result in a material increase in cost to Safeco or as required to comply with Section 409A of the Internal Revenue Code or required by the terms of such agreement, plan, trust, fund, policy or arrangement; |
· | settle or compromise any material claim, audit, arbitration, suit, investigation, complaint or other proceeding in excess of the amount of the corresponding reserve established on Safeco's consolidated balance sheet as reflected in the most recent applicable documents filed with or furnished to the SEC by Safeco plus any applicable third party insurance proceeds, except: |
o | as required by any contract in effect prior to the execution of the merger agreement; |
o | for settlements or compromises of insurance claims or litigation or arbitration arising in the ordinary course of business; or |
o | for any settlements or compromises involving total aggregate payments not to exceed an agreed upon amount; |
· | enter into any consent decree, injunction or similar restraint or form of equitable relief in settlement of any material claim or audit that would materially restrict the operations of the business after the effective time; |
· | except in the ordinary course of business consistent with past practice: |
o | amend or modify, in any materially adverse respect, or terminate any material contract (except that immediately prior to the effective time, Safeco will have the right to terminate Safeco's credit agreement and repay all outstanding indebtedness under Safeco's credit agreement); |
o | enter into any successor agreement to an expiring material contract that changes the terms of the expiring material contract in a way that is materially adverse to Safeco or any of its subsidiaries; or |
o | subject to certain exceptions, enter into any new agreement that would have been considered a material contract under the terms of the merger agreement if it were entered into prior to the date of the merger agreement; |
· | effect or permit a "plant closing" or "mass layoff" as those terms are defined in the Worker Adjustment and Retraining Notification Act of 1988 without complying with the notice requirements and all other provisions of such act; |
· | enter into any new material reinsurance transaction as cedent that does not contain market cancellation, termination and commutation provisions or which materially adversely changes the existing reinsurance profile of Safeco and its subsidiaries on a consolidated basis outside the ordinary course of business; |
· | alter or amend in any material respect any existing underwriting, claim handling, loss control, investment, actuarial, financial reporting or accounting practices, guidelines or policies or material assumptions underlying actuarial practices or policies, except as required by or determined by Safeco to be advisable under GAAP or SAP; |
· | except in the ordinary course of business and in a manner consistent with past practice, (1) make or rescind any tax election, (2) settle or compromise any claim relating to taxes or (3) enter into a written and legally binding agreement with a taxing authority related to taxes; |
· | make a request for a written tax ruling from a taxing authority or change any income or deduction reporting methods (including changes in methods of accounting) for federal income tax purposes from those employed in the preparation of Safeco's federal income tax returns for the taxable year ending December 31, 2006; |
· | enter into, renew or extend any agreements or arrangements that materially limit or otherwise materially restrict Safeco or any of its subsidiaries or any of their respective affiliates or any successor thereto, or that would, after the effective time of the merger, materially limit or materially restrict Liberty Mutual or its affiliates or any successor thereto, from engaging or competing in any line of business or in any material geographic area; |
· | terminate, cancel, amend or modify any insurance policies covering Safeco or its subsidiaries or their respective properties if such policies are not replaced by comparable coverage; |
· | adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of Safeco or any of its subsidiaries; or |
· | authorize any of, or commit, resolve, propose or agree to take any of, the foregoing actions. |
· | preparing and filing as promptly as practicable all documents to effect all necessary applications, notices and filings and to obtain as promptly as practicable all consents, clearances, waivers, licenses, orders, registrations, authorizations, approvals and permits contemplated by the merger agreement; and |
· | taking all reasonable steps as may be necessary or advisable to make all necessary filings and obtain all such consents, clearances, waivers, licenses, orders, registrations, authorizations, approvals and permits. |
· | a notification form under the HSR Act with the Antitrust Division and the FTC, including a request for early termination of the statutory waiting period; |
· | the appropriate filings required under the laws of the states where Safeco's insurance company subsidiaries are domiciled or commercially domiciled or any foreign state where they are licensed (see "The Merger – Regulatory Matters"); and |
· | all other necessary filings with any other governmental entity with respect to the transactions contemplated by the merger agreement. |
· | avoid the entry of, or to have vacated or terminated, any decree, order or judgment that would restrain, prevent or delay the consummation of the transactions contemplated by the merger agreement, on or before the outside date, including by defending through litigation on the merits any claim asserted in any court by any person or entity; and |
· | avoid or eliminate each and every material impediment that may be asserted by any governmental entity with respect to the merger agreement and the transactions contemplated by the merger agreement. |
· | proposing, negotiating, committing to and effecting, the sale, divestiture or disposition of assets or businesses of Liberty Mutual and its subsidiaries, including after the completion of the merger, those of the surviving corporation or its subsidiaries; |
· | proposing, negotiating, committing to and effecting obligations and commitments to the communities in which Safeco and its subsidiaries conduct business; and |
· | taking or committing to take actions or agreeing to any restrictions, limitations or conditions that limit Liberty Mutual's or its subsidiaries', or the surviving corporation's or its subsidiaries', business. |
· | solicit, initiate or knowingly encourage, or knowingly facilitate, any takeover proposal or the making or consummation of a takeover proposal; or |
· | enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish any non-public material information in connection with, any takeover proposal. |
· | any direct or indirect acquisition or purchase, in one transaction or a series of related transactions, of assets (including equity securities of any subsidiary of Safeco) or businesses that constitute 20% or more of the assets or account for 20% or more of the net income of Safeco and its subsidiaries, taken as a whole, or 20% or more of any class of equity securities of Safeco; |
· | any tender offer or exchange offer that if consummated would result in any third party or group of third parties beneficially owning 20% or more of any class of equity securities of Safeco; or |
· | any merger, consolidation, business combination, recapitalization or similar transaction involving Safeco or any of its subsidiaries, in each case, pursuant to which any third party or the shareholders of any third party would own 20% or more of any class of equity securities of Safeco or of any resulting parent company of Safeco. |
· | contact the third party making the takeover proposal (and its representatives) solely to clarify the terms and conditions of the takeover proposal; and |
· | if the Safeco board of directors determines in good faith (after consultation with its financial advisor and outside legal counsel) that the takeover proposal constitutes, or could reasonably be expected to lead to, a superior proposal: |
o | furnish information regarding Safeco and its subsidiaries to the third party making the takeover proposal (and its representatives) pursuant to a confidentiality agreement containing terms and conditions no less restrictive to the third party than the provisions contained in Safeco's confidentiality agreement with Liberty Mutual are to Liberty Mutual, so long as any information provided to the third party has already been provided or made available to Liberty Mutual or is provided or made available to Liberty Mutual substantially concurrent with the third party, and |
o | participate in discussions or negotiations with the third party making the takeover proposal. |
· | withdraw (or modify or qualify in a manner adverse to Liberty Mutual), the Safeco board recommendation; |
· | fail to include the Safeco board recommendation in this proxy statement; |
· | approve, adopt or recommend, or publicly propose to approve, adopt or recommend, any takeover proposal (each of the actions set forth in this bullet point or in the two preceding bullet points is referred to in this proxy statement as a Safeco recommendation withdrawal) (provided that Safeco and Liberty Mutual have agreed that the provision of factual information by Safeco to Safeco shareholders will not constitute a Safeco recommendation withdrawal so long as the disclosure through which such factual information is conveyed, taken as a whole, is not contrary to or materially inconsistent with the Safeco board recommendation); or |
· | allow Safeco or any of its subsidiaries to execute or enter into any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement or other similar contract (other than a confidentiality agreement in accordance with the terms of Safeco's no solicitation obligations) providing for, with respect to, or in connection with, any takeover proposal. |
· | if such Safeco recommendation withdrawal is not being made as a result of a superior proposal, Safeco provides Liberty Mutual with two business days prior written notice advising Liberty Mutual of the Safeco board of directors' intention to effect such Safeco recommendation withdrawal and specifying the reasons for the Safeco recommendation withdrawal; or |
· | if such Safeco recommendation withdrawal is being made as a result of a superior proposal, Safeco provides Liberty Mutual with four business days prior written notice advising Liberty Mutual of the Safeco board of directors' intention to effect such Safeco recommendation withdrawal and specifying the reasons for the Safeco recommendation withdrawal as well as the material terms and conditions of any superior proposal (including the identity of the third party making the superior proposal and copies of all documents and correspondence evidencing the superior proposal), and, if requested by Liberty Mutual, negotiates in good faith with Liberty Mutual regarding any amendment to the merger agreement proposed in writing by Liberty Mutual during such four business day period, and the Safeco board of directors determines at the end of such four business day period, taking into account any changes to the terms and conditions of the merger agreement proposed by Liberty Mutual in response during the four business day period, that the takeover proposal in question continues to constitute (in the good faith judgment of the Safeco board of directors) a superior proposal. |
· | (1) were hired by Safeco prior to January 1, 2004, (2) were age 36 or older as of December 31, 2004, (3) were or are, as the case may be, age 55 or older on the applicable retirement date, (4) have years of service at retirement from Safeco and are an age that total at least 75 and (5) were or are a participant in Safeco's medical plan on the applicable retirement date; or |
· | are former employees of American States Insurance Company who were age 50 or older on December 31, 1998 and had or have at least 10 years of service on the applicable retirement date. |
· | approval of the merger agreement by the affirmative vote of at least two-thirds of the votes entitled to be cast by all Safeco shareholders at a meeting at which a quorum is present, which is referred to in this proxy statement as the requisite shareholder vote; |
· | expiration or termination of the applicable waiting period under the HSR Act; |
· | certain specified approvals or filings under all applicable state laws regulating the business of insurance shall have been obtained or filed without any conditions or restrictions that would, individually or in the aggregate, reasonably be likely to have a Regulatory Material Adverse Effect; and |
· | the absence of any law, temporary restraining order, preliminary or permanent injunction, or other order issued by a court in the U.S. or other U.S. governmental entity of competent jurisdiction that has the effect of making the merger illegal or otherwise prohibiting the completion of the merger, so long as any party asserting this condition shall have used its reasonable best efforts to prevent the entry of any such temporary restraining order, injunction or other order, including taking any and all actions required to be taken by it under the merger agreement, and to appeal any temporary restraining order, injunction or other order that may be entered. |
· | Safeco's representation that there has been no material adverse effect on Safeco since December 31, 2007 shall be true and correct as of the date of the merger agreement and as of the closing date of the merger as though made on and as of the closing date; |
· | all of Safeco's other representations and warranties, disregarding all qualifications or limitations therein relating to materiality or material adverse effect, shall be true and correct (both when made and at and as of the closing date of the merger, provided that representations and warranties that speak as of a specified date will be determined as of that date), except where the failure to be so true and correct would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on Safeco; |
· | Safeco shall have performed in all material respects all of its obligations required to be performed under the merger agreement, at or prior to the closing of the merger; and |
· | the absence of any material suit, action or proceeding by any U.S. governmental entity of competent jurisdiction challenging the acquisition by Liberty Mutual or Merger Sub of shares of Safeco common stock, seeking to restrain or prohibit the completion of the merger, or seeking to prohibit or limit the ownership or operation by Safeco or any of its subsidiaries or by Liberty |
Mutual or any of its subsidiaries of any material portion of any business or assets of Safeco and its subsidiaries, taken as a whole, or Liberty Mutual and its subsidiaries, taken as a whole, where such prohibition or limitation would, individually or in the aggregate, reasonably be likely to have a Regulatory Material Adverse Effect. |
· | all of Liberty Mutual's and Merger Sub's representations and warranties, disregarding all qualifications or limitations therein relating to materiality or material adverse effect, shall be true and correct (both when made and at and as of the closing date of the merger, provided that representations and warranties that speak as of a specified date will be determined as of that date), except where the failure to be so true and correct would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on Liberty Mutual; and |
· | each of Liberty Mutual and Merger Sub shall have performed in all material respects all of its obligations required to be performed under the merger agreement, at or prior to the closing of the merger. |
· | by mutual written consent of Safeco and Liberty Mutual; |
· | by either Safeco or Liberty Mutual, if: |
o | the merger has not been completed by November 15, 2008 (which date may be extended to December 31, 2008, by either Safeco or Liberty Mutual, under certain circumstances, if either party notifies the other before November 15, 2008 of its election to extend) (such date, after giving effect to any extensions under the terms of the merger agreement is referred to in this proxy statement as the outside date); provided that the right to extend the outside date or terminate the merger agreement on this basis will not be available to (1) Safeco if it breaches any of its obligations relating to holding a meeting of Safeco shareholders for the purpose of obtaining the requisite shareholder vote, the Safeco board recommendation or no solicitation or other actions relating to takeover proposals or (2) either Safeco or Liberty Mutual if such party's failure to act in good faith or use its reasonable best efforts to consummate the transactions contemplated by the merger agreement in accordance with its obligations under the merger agreement is a principal cause of the failure of the merger to be completed by November 15, 2008; |
o | any governmental entity in the U.S. of competent jurisdiction issues a final, non-appealable order, injunction, or judgment or takes any other final, non-appealable action restraining, enjoining or otherwise prohibiting the merger; provided that the right to terminate the merger agreement on this basis will not be available to either Safeco or Liberty Mutual if such party's failure to act in good |
faith or use its reasonable best efforts to consummate the transactions contemplated by the merger agreement in accordance with its obligations under the merger agreement is a principal cause for the application or imposition of such order, injunction or judgment; or |
o | the requisite shareholder vote is not obtained at the annual meeting or any adjournment or postponement of such meeting. |
· | by Liberty Mutual, if: |
o | Safeco has breached or failed to perform any of its representations, warranties, covenants or agreements contained in the merger agreement, which breach cannot be cured by the outside date or has not been cured within 45 days notice and such breach would result in the failure of any of the closing conditions for the benefit of Liberty Mutual and Merger Sub; provided that Liberty Mutual will not have a right to terminate the merger agreement on this basis if it is then in material breach of any of its representations, warranties, covenants or agreements under the merger agreement; or |
o | prior to Safeco shareholders voting on the proposal to approve the merger agreement at the annual meeting or any postponement or adjournment thereof, (1) the Safeco board of directors effects a Safeco recommendation withdrawal or (2) Safeco materially breaches its obligation to hold a meeting of Safeco shareholders to vote on the proposal to approve the merger agreement, its no solicitation obligations under the merger agreement, its obligations relating to the Safeco board recommendation under the merger agreement or its notice and other obligations to Liberty Mutual in connection with a Safeco recommendation withdrawal or Safeco's termination of the merger agreement to accept a superior proposal (excluding in each case inadvertent breaches which are capable of being cured and that are cured within three business days of the receipt of notice of such breach); provided that Liberty Mutual's right to terminate the merger agreement on the basis of a recommendation withdrawal (other than in connection with a Safeco recommendation withdrawal as a result of a superior proposal), will terminate ten business days after such Safeco recommendation withdrawal. |
· | by Safeco: |
o | if Liberty Mutual or Merger Sub has breached or failed to perform any of their representations, warranties, covenants or agreements contained in the merger agreement, which breach cannot be cured by the outside date or has not been cured within 45 days notice and such breach would result in the failure of any of the closing conditions for the benefit of Safeco; provided that Safeco will not have a right to terminate the merger agreement on this basis if it is then in material breach of any of its representations, warranties, covenants or agreements under the merger agreement; or |
o | prior to obtaining the requisite shareholder vote, in order to enter into a definitive agreement with respect to a superior proposal (as described under "The Merger Agreement – No Solicitation by Safeco"), provided that in order to terminate on this basis (1) Safeco must notify Liberty Mutual in writing of its intention to terminate and the material terms and conditions of the superior proposal (including the identity of the third party making the superior proposal and copies of all documents and correspondence evidencing the superior proposal) no less than four business days before such termination, and must, if requested by Liberty Mutual, negotiate in good faith with Liberty Mutual regarding any amendment to the merger agreement proposed in writing by Liberty Mutual during such four business day period and (2) the Safeco board of directors must determine at the end of such four business day period, taking into account any changes to the terms and conditions of the merger agreement proposed by Liberty Mutual in response during the four business day period, that the takeover proposal in question continues to constitute (in the good faith judgment of the Safeco board of directors) a superior proposal. |
· | if Liberty Mutual terminates the merger agreement because the merger is not completed by the outside date and (1) at any time after April 23, 2008 a takeover proposal is publicly proposed or announced and is not irrevocably withdrawn prior to such termination (provided that a takeover proposal will not be considered to have been irrevocably withdrawn by the third party making such takeover proposal if within twelve months of such termination Safeco or any of its subsidiaries has entered into a definitive agreement with respect to, or has completed, a takeover proposal with such third party), and (2) within twelve months after the date of such termination, Safeco enters into a definitive agreement with any third party with respect to, or completes, a takeover proposal with respect to more than 50% of Safeco's equity securities or more than 50% of Safeco's and its subsidiaries' net income or total assets; |
· | if either Safeco or Liberty Mutual terminates the merger agreement because the requisite shareholder vote is not obtained at the annual meeting or any postponement or adjournment thereof and (1) at any time after April 23, 2008 a takeover proposal is publicly proposed or announced and is not irrevocably withdrawn as of the time of such meeting (provided that a takeover proposal will not be considered to have been irrevocably withdrawn by the third party making such takeover proposal if within twelve months of such meeting Safeco or any of its subsidiaries has entered into a definitive agreement with respect to, or has completed, a takeover proposal with such third party), and (2) within twelve months after the date of such termination, Safeco enters into a definitive agreement with any third party with respect to, or completes, a takeover proposal with respect to more than 50% of Safeco's equity securities or more than 50% of Safeco's and its subsidiaries' net income or total assets; |
· | if Safeco terminates the merger agreement to accept a superior proposal; |
· | if Liberty Mutual terminates the merger agreement because of a Safeco breach or failure to perform any of its representations, warranties covenants or agreements contained in the merger agreement and (1) at any time after April 23, 2008 a takeover proposal is publicly proposed or announced and is not irrevocably withdrawn prior to the breach or failure to perform giving rise to such termination (provided that a takeover proposal will not be considered to have been irrevocably withdrawn by the third party making such takeover proposal if within twelve months of such termination Safeco or any of its subsidiaries has entered into a definitive agreement with respect to, or has completed, a takeover proposal with such third party), and (2) within twelve months after the date of such termination, Safeco enters into a definitive agreement with any third party with respect to, or completes, a takeover proposal with respect to more than 50% of Safeco's equity securities or more than 50% of Safeco's and its subsidiaries' net income or total assets; or |
· | if Liberty Mutual terminates the merger agreement because the Safeco board of directors has effected a Safeco recommendation withdrawal. |
Name | Number of Shares Beneficially Owned and Nature of Beneficial Ownership(1) | Number of Shares Acquirable Within 60 Days(2) | Number of Stock Units Held(3) | Percent of Class |
Joseph W. Brown | 20,000 | 26,500 | 12,379 | * |
Arthur Chong | 10,802 | 0 | 0 | * |
Robert S. Cline | 7,000 | 19,825 | 40 | * |
Peter L.S. Currie | 0 | 4,325 | 0 | * |
Maria S. Eitel | 0 | 4,325 | 0 | * |
Joshua Green III(4) | 2,547,432 | 19,825 | 5,573 | 2.86 |
John S. Hamlin | 0 | 2,500 | 0 | * |
Ross J. Kari | 5,604 | 4,885 | 0 | * |
Kerry Killinger | 0 | 11,825 | 7,458 | * |
Gary F. Locke | 0 | 6,825 | 0 | * |
Gerardo I. Lopez | 0 | 0 | 0 | * |
R. Eric Martinez, Jr. | 0 | 12,589 | 0 | * |
Allie R. Mysliwy** | 48,559 | 0 | 3,683 | * |
William G. Reed, Jr.(5) | 175,749 | 11,825 | 0 | * |
Paula Rosput Reynolds | 36,496 | 0 | 1,453 | * |
Charles R. Rinehart | 0 | 1,825 | 51 | * |
Judith M. Runstad | 9,000 | 19,825 | 0 | * |
All directors and executive officers as a group as of May 1, 2008 (20 persons; does not include Mr. Mysliwy**) | 2,822,883 | 168,589 | 26,954 | 3.36 |
* | Total beneficial ownership of our outstanding common stock (including shares subject to stock options that may be exercised within 60 days) is less than 1%. |
** | Mr. Mysliwy resigned as an executive officer of Safeco effective December 31, 2007. |
(1) | These numbers include shares allocated to executives' accounts under the 401(k) Plan's Safeco Stock Ownership Fund. Share numbers do not include restricted stock right (RSR) holdings that have not yet settled. |
(2) | Amounts include shares that may be purchased within 60 days by exercise of options granted under Safeco's LTIP. Amounts also include RSR holdings that have vested, but have not yet settled, including directors' annual grants of RSRs, which settle to the extent vested when the director leaves the Safeco board of directors. The amounts reflect the following RSR holdings that have vested but have not settled: 15,000 RSRs for Mr. Brown, 10,000 RSRs for Mr. Cline, 2,500 RSRs for Mr. Currie, 10,000 RSRs for Mr. Green, 10,000 RSRs for Mr. Killinger, 5,000 RSRs for Mr. Locke, 10,000 RSRs for Mr. Reed and 10,000 RSRs for Ms. Runstad. |
(3) | These numbers represent share equivalents to stock units acquired under Safeco's Deferred Compensation and Supplemental Benefit Plan for Executives and Safeco's Deferred Compensation Plan for Directors. All non-employee directors may choose to defer all or part of their compensation into a stock fund and other measurement funds that track our 401(k) Plan investments. Our executive officers also may choose to defer all or part of their cash compensation and settlement of RSRs granted under Safeco's LTIP into the stock fund. The stock fund is a measurement fund that ties credited earnings to the performance of the Safeco Stock Ownership Fund. |
(4) | Represents 2,546,832 shares owned by the Joshua Green Corporation, a corporation in which Mr. Green has a substantial interest and with respect to which Mr. Green exercises voting and investment power, and 600 shares owned by his spouse. 607,202 of the shares owned by the Joshua Green Corporation have been pledged as security for a line of credit. |
(5) | Includes 7,772 shares owned by Mr. Reed's spouse and 5,000 shares owned by a charitable foundation for which Mr. Reed has sole voting and investment power. Mr. Reed disclaims any beneficial interest in the shares owned by the charitable foundation. |
Name/Address | Number of Shares Beneficially Owned | Percent of Shares Outstanding |
LSV Asset Management 1 N. Wacker Drive, Suite 4000 Chicago, IL 60606 | 5,144,105 | 5.35% |
The Vanguard Group, Inc. 100 Vanguard Blvd. Malvern, PA 19355 | 5,421,777 | 6.04% |
Name | Audit | Compensation | Finance | Nominating/ Governance |
Joseph W. Brown, Non-Executive Chair** | ||||
Robert S. Cline | X* | X | X | |
Peter L.S. Currie*** | X | X | ||
Maria S. Eitel**** | X | X | ||
Joshua Green III | X | X | X* | |
John S. Hamlin | X | |||
Kerry Killinger | X* | X | ||
Gary F. Locke | X | |||
Gerardo Lopez | X | |||
Paula Rosput Reynolds | X | |||
William G. Reed, Jr. | X | X* | X | |
Charles R. Rinehart | X | |||
Judith M. Runstad | X* | |||
Total Meetings in 2007 | 6 | 7 | 4 | 5 |
* | Committee Chair. |
** | Mr. Brown served as Non-Executive Chairman of the Board until May 7, 2008, at that time Paula Rosput Reynolds was appointed Board Chair. Mr. Brown joined the Compensation Committee. |
*** | Mr. Currie assumed the position of Audit Committee Chair on May 7, 2008 and Mr. Cline became our Non-Executive Lead Director on that date. |
**** | Ms. Eitel resigned as a member of the Safeco board of directors effective May 7, 2008. |
· | The director is currently employed or has been employed by Safeco within the last three years (employment as an interim Chairman or CEO will not disqualify a director from being considered as an independent director), or an immediate family member is, or has been within the last three years, an executive officer of Safeco. |
· | The director or an immediate family member is a current partner of a firm that is Safeco's internal or external auditor; the director is a current employee of such a firm; the director has an immediate family member who is a current employee of such a firm and who participates in the firm's audit, assurance or tax compliance (but not tax planning) practice; or the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and worked on Safeco's audit within that time. |
· | The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of Safeco's present executive officers at the same time serves or served on that company's compensation committee. |
· | The director has received, or has an immediate family member who has received from Safeco in excess of $100,000 in direct compensation during any twelve-month period within the last three years, other than director and committee fees and pension or other forms of deferred compensation for prior service that is not contingent in any way on continued service, payments arising solely from investments in Safeco's securities, compensation paid to an immediate family member who is a non-executive employee of Safeco or benefits under a tax-qualified retirement plan or non-discretionary compensation. |
· | The director is a current employee, or an immediate family member is a current executive officer, of a company to which Safeco made, or from which Safeco received, payments for property or services (other than those arising solely from investments in Safeco's securities or payments under non-discretionary charitable contribution matching programs) in an amount which, in any of the last three fiscal years, exceeded 2% of such other company's consolidated gross revenues, or $1,000,000, whichever is more. Both the payments and the consolidated gross revenues to be measured are those reported in the last completed fiscal year. |
· | Helping set the board's agenda and meeting schedules; |
· | Presiding over the board's executive sessions (sessions attended only by non-employee directors) and board of directors or shareholder meetings if the Board Chair is not present; |
· | Acting as liaison to the independent directors; |
· | Consulting with the Nominating/Governance Committee Chair on governance matters; |
· | Consulting with the Compensation Committee Chair on matters relating to the Chief Executive Officer; |
· | Serving as a point of contact for Safeco's senior officers; and |
· | Monitoring our shareholder communications processes, which are described in more detail below. |
· | E-mail. Safeco shareholders and other interested parties may send correspondence to Safeco's shareholder communications e-mail box at shacom@safeco.com. |
· | Mail. Safeco shareholders and other interested parties may write to: | |
Shareholder Communications with Independent Directors c/o Safeco Corporation Safeco Plaza 1001 Fourth Avenue Seattle, Washington 98154 |
· | Ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
· | Full, fair, accurate, timely and understandable disclosure in the reports and documents we file with the SEC and in our other public communications; |
· | Compliance with applicable laws, rules and regulations; |
· | Prompt internal reporting of violations of the code; and |
· | Accountability for adherence to the ethical standards set forth in the code. |
· | Discussing the matter with an immediate manager; |
· | Discussing the matter with a local Human Resources manager; |
· | Reporting a concern via e-mail through our ethics mailbox; |
· | Calling our internal employee hotline (anonymously, if preferred); |
· | Calling an independent organizational consultant (anonymously, if preferred); or |
· | Calling our external hotline (anonymously, if preferred). |
· | Identifying qualified director candidates; |
· | Recommending nominees for our board committees; |
· | Overseeing the board's self-evaluation process; |
· | Reviewing and overseeing our corporate governance practices and policies; |
· | Reviewing our charitable contribution budget and the strategic direction of our community relations; |
· | Reviewing director compensation; and |
· | Reviewing our directors' and officers' insurance policy. |
· | Independence; |
· | Diversity; |
· | Age; |
· | Skills; |
· | Experience in the context of the make-up of the board and its committees; and |
· | The capacity and desire to represent the interests of Safeco shareholders as a whole and not primarily any special interest group or constituency. |
· | The name of the candidate and a brief biographical description and résumé; |
· | The candidate's contact information and documentation of his or her willingness to be nominated and, if elected, to serve; |
· | A description of any relationships the candidate has with Safeco; |
· | The submitting shareholder's address and telephone number; and |
· | A signed declaration of the shareholder's current status as a shareholder and the number of shares currently held. |
· | Reviewed and discussed Safeco's audit and the audited consolidated financial statements for 2007 with management and Safeco's independent registered public accounting firm, including a report by the independent registered public accounting firm regarding: (1) the critical accounting policies and practices used by Safeco; (2) alternative accounting treatments within generally accepted accounting principles, including the ramifications of the use of alternative treatments and the treatment preferred by our independent registered public accounting firm; (3) internal control over financial reporting; and (4) other material written communications between Safeco's independent registered public accounting firm and management, including any management letter provided by Safeco's independent registered public accounting firm and Safeco's response to that letter and a review of difficulties, if any, the independent registered public accounting firm encountered in the course of their audit work and management's response; |
· | Discussed with Ernst & Young LLP, who is responsible for expressing an opinion on the conformity of the audited consolidated financial statements with U.S. generally accepted accounting principles, its judgments as to the quality, not just the acceptability, of Safeco's accounting principles and such other matters as are required to be discussed with us under generally accepted auditing standards and the NYSE listing standards (including Statement on Auditing Standards Nos. 61 and 90, rules of the SEC, and other professional standards); |
· | Received written disclosures and a letter from Ernst & Young LLP as required by Independence Standards Board Standard No. 1 and discussed with Ernst & Young LLP its independence; and |
· | Based on the reviews and discussions described above, recommended to the Safeco board of directors that Safeco include its audited consolidated financial statements for the year ended December 31, 2007 in Safeco's Annual Report on Form 10-K. |
2007 | 2006 | ||
Audit Fees | $ 3,630,000 | $ 3,425,000 | |
Audit-Related Fees | $ 156,000 | $ 175,000 | |
Tax Fees | — | — | |
All Other Fees | — | — | |
Total | $ 3,786,000 | $ 3,600,000 |
• Ace USA • Allianz of America/Fireman's Fund Ins. • Allstate Financial • American Family Insurance • American International Group • Chubb Corporation • CNA Financial • Erie Insurance Group • GEICO • Hanover Insurance Group • Hartford Financial | • Liberty Mutual • Mercury General Group • MetLife Property & Casualty Co. • Nationwide Insurance Companies • Ohio Casualty Insurance • OneBeacon Insurance Company • Progressive Corp • Sentry Insurance • St. Paul Travelers • State Farm Group • USAA |
• Zurich/Farmers Group |
Position | 2007 Cash Incentive Opportunity | 2007 Equity Incentive Opportunity |
CEO | Target: $1,250,000 Maximum: $3,750,000 | Target: $3,250,000 Maximum: $5,687,000 |
CFO | Target: 70% of salary Maximum: 210% of salary | Target: 195% of salary Maximum: 340% of salary |
Other Named Executives |
(1) | Operating return on equity: Income from continuing operations, excluding the after-tax effects of realized gains/losses, the after-tax impact of restructuring charges and the after-tax effects of significant, unusual and/or nonrecurring events divided by adjusted average shareholders' equity, adjusted to eliminate after-tax unrealized appreciation or depreciation of fixed-maturity investments. |
(2) | Premium growth: Percent increase in net written premiums for the year over net written premiums for the previous year, excluding from both periods the premiums from Safeco Financial Institution Solutions, a lender-placed property insurance business which was sold in April 2006. Net written premiums represent the amount of premiums charged for policies issued with effective dates during the period. |
(3) | Combined ratio: Expressed as a percentage, combined ratio equals losses plus expenses divided by our net earned premiums – the lower the ratio, the better the performance. |
Performance Measure | Threshold | Target | Maximum | Actual Achievement in 2007 |
Equity measure: Operating Return on Equity | 8.0% [0.25 modifier] | 16.8% [0.9-1.1 modifier*] | 20.9% [1.37-1.75 modifier*] | 18.06% |
Cash measure: Net Written Premium Growth | (0.75)%-(0.25)% [0.75-0.85 modifier**] | 0.75%-1.25% [0.9-1.1 modifier**] | 3.75-4.25% [1.9-2.0 modifier**] | 1.25% |
Cash measure: Combined Ratio | 95.5%-96.5% [0.45-0.6 modifier***] | 91.5%-92.5% [0.9-1.1 modifier***] | 88.5% [1.55-1.7 modifier***] | 91.4% |
* | Assuming net written premium growth of 1.00%. |
** | Assuming combined ratio of 91.5%-92.5%. A higher or lower combined ratio would result in a lower or higher modifier, respectively, provided that any modifier cannot be less than 0.40 nor greater than 2.0. |
*** | Assuming net written premium growth of 0.75%-1.25%. A higher or lower net written premium growth would result in a higher or lower modifier, respectively, provided that any modifier cannot be less than 0.40 nor greater than 2.0. |
· | Achievement against company performance measures, which is primarily expressed by the pool modifier; |
· | Individual performance against pre-established financial, operational and leadership goals for the year; and |
· | Pre-established guidelines regarding award amounts for each Named Executive that are typically expressed as a percentage of salary and are set according to his or her role with Safeco and with consideration of competitive compensation data. |
Name | Individual Performance Goals |
CEO—P. Reynolds | • Growing our policies in force at a rate greater than the industry average, without sacrificing our profitability • Improving our business processes throughout Safeco in order to deliver higher quality products and services for our customers and agent partners at a lower cost • Satisfying a diverse public whose expectations of excellence continue to rise • Investing in the future by developing our agents and employees |
CFO—R. Kari | • Continuing to build transparency and refine investment for value-oriented investors • Advancing efforts to improve business process efficiency in meeting customer requirements • Enhancing strategic planning processes • Building strength and experience in financial personnel |
Chief Legal Officer—A. Chong | • Managing our outside legal fees • Providing guidance and support on corporate governance matters • Building on staff productivity improvements while maintaining quality representation • Efficiently use and evaluate resources to defend our customers • Raising the quality of our engagement with regulators |
EVP, Fulfillment—E. Martinez | • Developing strategy for key fulfillment groups • Efficient management of departmental expenses • Improving customer service |
Chief Business Officer—A. Mysliwy | • Developing marketing campaigns to increase customer awareness • Refining communications to agent partners and customers • Effective management of business processes • Providing the work environment and tools to enhance attraction, retention, innovation and collaboration |
Name | Total Value of Equity Incentive Awards Granted in 2008 for 2007 Performance ($) | Shares Underlying RSR Incentive Award (#) | Shares Underlying Option Incentive Award (#) |
P. Reynolds | 4,030,000 | 65,479 | 128,390 |
R. Kari | 1,329,900 | 21,608 | 42,369 |
A. Chong | 1,027,650 | 16,697 | 32,739 |
E. Martinez | 1,269,450 | 20,626 | 40,443 |
Name | Position | Shares & Equivalents Currently Held* | Approximate Requirement as of Deadline** | Deadline |
P. Reynolds | President and CEO | 190,594 | 72,867 | January 2011 |
R. Kari | Executive Vice President and CFO | 46,023 | 25,561 | June 2011 |
A. Chong | Executive Vice President and Chief Legal Officer | 53,011 | 20,179 | November 2010 |
E. Martinez | Executive Vice President – Fulfillment | 37,228 | 24,215 | July 2012 |
* | As of May 1, 2008. | |
** | Calculated using the closing price of Safeco common stock as of May 1, 2008 ($66.90), as well as the annual salary of each Named Executive on that date. |
Name and Principal Position | Year | Salary ($) (1) | Bonus ($) (2) | Stock Awards ($) (3) | Option Awards ($) (4) | Non-equity Incentive Plan Compen- sation ($) (5) | Change in Pension Value & Nonqualified Deferred Compen- sation Earnings ($) (6) | All Other Compen- sation ($) (7) | Total ($) |
Paula Rosput Reynolds, President & CEO | 2007 | 962,500 | 0 | 2,674,571 | 975,719 | 1,250,000 | 29,191 | 121,771 | 6,013,752 |
2006 | 925,000 | 1,110,000 | 1,422,021 | 941,785 | 888,000 | 0 | 854,527 | 6,141,333 | |
Ross Kari, EVP & CFO (8) | 2007 | 550,000 | 0 | 574,350 | 116,252 | 423,500 | 8,510 | 8,430 | 1,681,042 |
2006 | 291,667 | 385,000 | 86,376 | 24,649 | 308,000 | 0 | 666,205 | 1,761,897 | |
Arthur Chong, EVP & Chief Legal Officer | 2007 | 418,750 | 0 | 787,408 | 53,861 | 322,438 | 29,340 | 47,497 | 1,659,294 |
2006 | 400,000 | 250,000 | 673,953 | 0 | 546,000 | 946 | 22,972 | 1,893,871 | |
R. Eric Martinez, Jr. EVP, Fulfillment (9) | 2007 | 262,500 | 500,000 | 173,531 | 48,853 | 367,500 | 0 | 215,512 | 1,567,896 |
Allie Mysliwy, EVP, Chief Business Officer (10) | 2007 | 363,667 | 0 | 649,457 | 51,311 | 254,567 | 34,984 | 62,479 | 1,416,465 |
2006 | 312,000 | 0 | 746,793 | 109,430 | 371,000 | 25,175 | 61,573 | 1,625,971 |
(1) | The amounts shown in this column represent salary paid during the given year. For executives who were hired during the year or had a salary rate increase during the year, this amount is less than their annual base rate of salary. Amounts shown in this table also include amounts an executive may have elected to defer into the DCP. | |
(2) | This column reports cash bonuses that were promised and paid without regard to company performance, such as sign-on and guaranteed bonuses. Accordingly, amounts shown here represent the guaranteed portion of Ms. Reynolds' bonus; the guaranteed portion of Mr. Kari's bonus; Mr. Chong's sign-on bonus; and Mr. Martinez's sign-on bonus. | |
(3) | This column shows the dollar amount recognized as an expense for financial statement reporting purposes for the given fiscal year ended December 31, in accordance with FAS 123(R), in connection with RSRs awarded to the Named Executives. For Ms. Reynolds, Mr. Kari, Mr. Chong and Mr. Mysliwy, amounts shown for 2007 include amounts associated with awards granted in prior year(s). For Mr. Chong and Mr. Mysliwy, amounts shown for 2006 include amounts associated with awards granted in prior year(s). Assumptions used in the calculation of these amounts are included in footnote 11 to our audited financial statements for the fiscal year ended December 31, 2007 and footnote 12 to our audited financial statements for the fiscal year ended December 31, 2006 included in Safeco's Annual Reports on Form 10-K filed with the SEC on February 28, 2008 and February 23, 2007, respectively, and available at www.safeco.com. However, pursuant to SEC rules, the amounts shown above do not reflect any assumption that a portion of the awards will be forfeited. |
(4) | This column shows the dollar amount recognized for financial statement reporting purposes for the given fiscal year ended December 31, in accordance with FAS 123(R), in connection with stock options awarded to the Named Executives. For Ms. Reynolds, Mr. Kari, Mr. Chong and Mr. Mysliwy, amounts shown for 2007 include amounts associated with awards granted in prior year(s). For Mr. Mysliwy, amounts shown for 2006 include amounts associated with awards granted in prior years. Assumptions used in the calculation of these amounts are included in footnotes to our financial statements as described above. However, pursuant to SEC rules, the amounts shown above do not reflect any assumption that a portion of the awards will be forfeited. |
(5) | We treat cash awards under our PIC Plan as non-equity incentive plan compensation as this term is defined by the SEC. Awards are made to Named Executives under this plan based on company and individual performance. |
(6) | Amounts shown represent the annual increase in the actuarial present value of the individual's accumulated benefit under our CBP plus the annual increase in value of the individual's Excess CBP Sub-Account. Earnings on nonqualified deferred compensation balances are not included in this column because these earnings are not treated as above-market or preferential. |
(7) | Amounts shown for 2007 are explained in further detail in the table and narrative below. Pursuant to SEC rules, we do not report the dividend equivalents we pay on RSRs, which we pay at the same rate as dividends on our outstanding shares of common stock. |
Name | Safeco 401(k) Contribution ($) | Safeco DCP Contribution ($) | Tax Gross Ups ($) | Relocation Assistance ($) | Personal Use Auto/ Aircraft ($) | Other ($) | Total ($) |
P. Reynolds | 15,750 | 105,571 | 0 | 0 | 0 | 450 | 121,771 |
R. Kari | 6,750 | 1,500 | 0 | 0 | 0 | 180 | 8,430 |
A. Chong | 17,310 | 29,942 | 0 | 0 | 0 | 245 | 47,497 |
E. Martinez | 0 | 0 | 32,309 | 155,349 | 27,779 | 75 | 215,512 |
A. Mysliwy | 24,311 | 37,988 | 0 | 0 | 0 | 180 | 62,479 |
Other. Includes employer-paid life insurance premiums. |
(8) | Safeco appointed Mr. Kari as Chief Financial Officer and Executive Vice President effective June 21, 2006. |
(9) | Safeco appointed Mr. Martinez as Executive Vice President, Fulfillment effective July 1, 2007. |
(10) | Mr. Mysliwy resigned as our Executive Vice President, Chief Business Officer on December 31, 2007, but Mr. Mysliwy remained an employee of Safeco until February 29, 2008 providing transition services. |
Name | Grant Date | Date of Comp. Committee Action (1) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | All Other Option Awards: Number of Securities Underlying Options (#) (4) | Exercise or Base Price of Option Awards ($/Sh) (5) | Grant Date Fair Value ($) (6) | |
Target ($) | Maximum ($) | |||||||
P. Reynolds | 1,250,000 | 3,750,000 | ||||||
2/22/07 | 2/20/07 | 45,882 | 68.70 | 666,670 | ||||
2/22/07 | 2/7/07 | 37,442 | 2,572,265 | |||||
R. Kari | 385,000 | 1,155,000 | ||||||
2/22/07 | 2/20/07 | 17,733 | 68.70 | 257,662 | ||||
2/22/07 | 2/7/07 | 14,471 | 994,158 | |||||
A. Chong | 297,500 | 892,500 | ||||||
2/22/07 | 2/20/07 | 12,897 | 68.70 | 187,395 | ||||
2/22/07 | 2/7/07 | 10,524 | 722,999 | |||||
E. Martinez | 367,500 | 1,102,500 | ||||||
7/1/07 | 4/25/07 | 25,361 | 62.26 | 290,995 | ||||
7/1/07 | 4/25/07 | 16,602 | 1,033,641 | |||||
A. Mysliwy | 252,000 | 756,000 | ||||||
2/22/07 | 2/20/07 | 10,188 | 68.70 | 148,033 | ||||
2/22/07 | 2/7/07 | 8,314 | 571,172 |
(1) | Dates for Compensation Committee action awarding grants effective on February 22, 2007 for the Named Executives reflect the practice of the Compensation Committee to approve an equity award with a specified expected economic value at its regularly scheduled first quarter meeting, with the actual number of shares underlying the award to be determined with respect to the average closing price over a period of time (typically 20 trading days) preceding the actual grant date. The dates of Compensation Committee action with respect to equity granted to Mr. Martinez when he joined Safeco vary from the date of grant, as shown, because the Compensation Committee approved the awards when they approved his offer of employment, with a grant date effective on the date he commenced employment. |
(2) | Amounts shown in the "Target" column reflect applicable individual salary percentage guidelines and 2007 base salary, both as of April 2007, and assume no incentive pool modifier. The "Maximum" amounts shown reflect a maximum cash incentive award of 300% of target, regardless of the value of the cash incentive pool modifier with respect to company results. Cash incentives payable to Named Executives for any year are also subject to the PIC Plan, which imposes a maximum per-person annual limit on cash incentives of $6,000,000. |
(3) | Amounts shown represent the number of shares of Safeco common stock underlying RSRs awarded pursuant to the LTIP. RSRs are subject to service-based vesting, and awards made in 2007 typically vest and settle 100% on February 13 of the second year after the grant date, except that the RSR award for Mr. Martinez vests 30% on July 1, 2008, 30% on July 1, 2009 and 40% on July 1, 2010. |
(4) | Amounts shown represent the number of shares of Safeco common stock underlying options awarded pursuant to the LTIP. Stock options issued under this plan are subject to service-based vesting. Vesting schedule details with respect to outstanding equity awards at year-end, including 2007 option and RSR grants, can be found following the table called "Outstanding Equity Awards at December 31, 2007." |
(5) | The exercise price of stock options granted under the LTIP is the closing share price of Safeco common stock on the date of grant. Accordingly, the exercise prices shown in this column reflect our closing share |
prices on February 22, 2007 and June 29, 2007 (the previous business day before the grant since July 1, 2007 was not a business day). |
(6) | Grant Date Fair Value Column. Shows aggregate grant date fair value of RSRs and stock options computed in accordance with FAS 123(R), as follows: |
a. | For RSRs, grant date fair value is computed by multiplying the number of shares underlying the award by the closing stock price on date of grant, or if the grant date falls on a weekend, the closing stock price on the previous business day. The closing stock prices for the grant dates shown in the table were: |
Date | Closing Price | ||
2/22/07 | $68.70 | ||
7/01/07 | $62.26 (on 6/29/07) |
b. | For options, the grant date fair values we report in this table are computed in accordance with FAS 123(R) based on a Black-Scholes valuation model. You can find out about the assumptions underlying our Black-Scholes valuation model by reading footnote 11 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on February 28, 2008 and available at www.safeco.com. |
Name | Option Awards | Stock Awards | ||||
Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) (1) | Market Value of Shares or Units of Stock That Have Not Vested ($) (2) | |
P. Reynolds (3) | 0 | 250,000 | 57.75 | Jan. 3, 2016 | 112,028 | 6,237,719 |
0 | 45,882 | 68.70 | Feb. 15, 2014 | |||
R. Kari (4) | 2,443 | 7,327 | 55.17 | June 21, 2016 | 20,981 | 1,168,222 |
0 | 17,733 | 68.70 | Feb. 15, 2014 | |||
A. Chong (5) | 0 | 12,897 | 68.70 | Feb. 15, 2014 | 29,006 | 1,615,054 |
E. Martinez (6) | 25,361 | 62.26 | July 1, 2014 | 16,602 | 924,399 | |
A. Mysliwy (7) | 0 | 10,188 | 68.70 | Feb. 15, 2014 | 28,100 | 1,564,608 |
65,682 | 0 | 38.19 | May 7, 2013 | |||
1,255 | 0 | 33.32 | May 1, 2012 |
(1) | Amounts shown represent the number of shares of common stock underlying outstanding RSR awards. |
(2) | The market value shown for all awards in this column was calculated by multiplying $55.68, the closing price of our common stock as of the last business day of the year, which was December 31, 2007, by the number of shares underlying the applicable award. |
(3) | Reynolds. The year-end holdings shown for Ms. Reynolds consist of awards that vest or vested as follows: |
Type of Award | Grant Date | Original Grant (#) | Vesting Schedule | ||
Option | 1/3/06 | 250,000 | 50% (125,000 options) vest 1/3/09 25% (62,500 options) vest 1/3/10 25% (62,500 options) vest 1/3/11 | ||
Option | 2/22/07 | 45,882 | 100% (45,882 options) vest 2/15/10 | ||
RSR | 2/22/07 | 37,442 | 100% (37,442 RSRs) vest 2/13/09 |
RSR | 3/10/06 | 57,148 | 25% (14,287 RSRs) vested 2/15/07 25% (14,287 RSRs) vest 2/15/08 25% (14,287 RSRs) vest 2/13/09 25% (14,287 RSRs) vest 2/15/10 | ||
RSR | 1/3/06 | 42,300 | 25% (10,575 RSRs) vested 1/3/07 25% (10,575 RSRs) vest 1/3/08 25% (10,575 RSRs) vest 1/3/09 25% (10,575 RSRs) vest 1/3/10 |
(4) | Kari. The year-end holdings shown for Mr. Kari consist of awards that vest or vested as follows: |
�� | Type of Award | Grant Date | Original Grant (#) | Vesting Schedule | |
Option | 6/21/06 | 9,770 | 25% (2,443 options) vested 6/21/07 25% (2,442 options) vest 6/21/08 25% (2,443 options) vest 6/21/09 25% (2,442 options) vest 6/21/10 | ||
Option | 2/22/07 | 17,733 | 100% (17,733 options) vest 2/15/10 | ||
RSR | 2/22/07 | 14,471 | 100% (14,471 RSRs) vest 2/13/09 | ||
RSR | 6/21/06 | 8,680 | 25% (2,170 RSRs) vested 2/15/07 25% (2,170 RSRs) vest 2/15/08 25% (2,170 RSRs) vest 2/13/09 25% (2,170 RSRs) vest 2/15/10 |
(5) | Chong. The year-end holdings shown for Mr. Chong consist of awards that vest or vested as follows: |
Type of Award | Grant Date | Original Grant (#) | Vesting Schedule | ||
Option | 2/22/07 | 12,897 | 100% (12,897 options) vest 2/15/10 | ||
RSR | 2/22/07 | 10,524 | 100% (10,524 RSRs) vest 2/13/09 | ||
RSR | 3/10/06 | 13,976 | 25% (3,494 RSRs) vested 2/15/07 25% (3,494 RSRs) vest 2/15/08 25% (3,494 RSRs) vest 2/13/09 25% (3,494 RSRs) vest 2/15/10 | ||
RSR | 11/14/05 | 16,000 | 25% (4,000 RSRs) vested 11/14/06 25% (4,000 RSRs) vested 11/14/07 25% (4,000 RSRs) vest 11/14/08 25% (4,000 RSRs) vest 11/14/09 |
(6) | Martinez. The year-end holdings shown for Mr. Martinez consist of awards that vest or vested as follows: |
Type of Award | Grant Date | Original Grant (#) | Vesting Schedule | ||
Option | 7/1/07 | 25,361 | 30% (7,608 options) vest 7/1/08 30% (7,609 options) vest 7/1/09 40% (10,144 options) vest 7/1/10 | ||
RSR | 7/1/07 | 16,602 | 30% (4,981 RSRs) vest 7/1/08 30% (4,980 RSRs) vest 7/1/09 40% (6,641 RSRs) vest 7/1/10 |
(7) | Mysliwy. The year-end holdings shown for Mr. Mysliwy consist of awards that vest or vested as follows: |
Type of Award | Grant Date | Original Grant (#) | Vesting Schedule | ||
Option | 2/22/07 | 10,188 | 100% (10,188 options) vest 2/15/10 |
Option | 5/7/03 | 65,682 | 26% (17,075 options) vested 5/7/04 26% (17,075 options) vested 5/7/05 26% (17,075 options) vested 5/7/06 22% (14,457 options) vested 5/7/07 | ||
Option | 5/1/02 | 61,455 | 26.4% (16,250 options) vested 5/1/03 26.4% (16,250 options) vested 5/1/04 25.6% (15,706 options) vested 5/1/05 21.6% (13,249 options) vested 5/1/06 | ||
RSR | 2/22/07 | 8,314 | 100% (8,314 RSRs) vest 2/13/09 | ||
RSR | 3/10/06 | 10,480 | 25% (2,620 RSRs) vested 2/15/07 25% (2,620 RSRs) vest 2/15/08 25% (2,620 RSRs) vest 2/13/09 25% (2,620 RSRs) vest 2/15/10 | ||
RSR | 3/11/05 | 14,204 | 25% (3,551 RSRs) vested 2/15/06 25% (3,551 RSRs) vested 2/15/07 25% (3,551 RSRs) vest 2/15/08 25% (3,551 RSRs) vest 2/13/09 | ||
RSR | 5/5/04 | 19,296 | 25% (4,824 RSRs) vested 2/15/05 25% (4,824 RSRs) vested 2/15/06 25% (4,824 RSRs) vested 2/15/07 25% (4,824 RSRs) vest 2/15/08 |
Name | Option Awards | Stock Awards | ||
Number of Shares Acquired on Exercise (#) (1) | Value Realized On Exercise (2) ($) | Number of Shares Acquired on Vesting (#) (3) | Value Realized on Vesting ($)(4) | |
P. Reynolds | 0 | 0 | 24,862 | 1,654,195 |
R Kari | 0 | 0 | 2,170 | 149,513 |
A. Chong | 0 | 0 | 7,494 | 466,257 |
E. Martinez | 0 | 0 | 0 | 0 |
A. Mysliwy | 71,446 | 1,872,013 | 11,674 | 804,339 |
(1) | Amounts shown represent the gross number of shares acquired on exercise. To the extent that a Named Executive used shares to pay the exercise price or satisfy tax withholding obligations, the actual number of shares acquired would be less than the amounts shown. |
(2) | Amounts shown in this column as the value realized upon exercise reflect the difference between the market price of Safeco common stock on the date of exercise and the exercise price of the options. The amount realized has not been reduced to reflect the payment of tax withholding obligations. |
(3) | Amounts shown represent the gross number of shares that vested. To the extent that a Named Executive settled an award in cash or used shares to satisfy tax withholding obligations, the number of shares actually acquired would be less than the amount shown. |
(4) | Amounts shown in this column as the value realized upon vesting were computed by multiplying the number of shares that vested by the closing price of Safeco common stock on the date of vesting. Amounts shown have not been reduced to reflect the payment of tax withholding obligations. |
Name | Plan Name | Number of Years Credited Service (#) (1) | Present Value of Accumulated Benefit ($) (2) |
P. Reynolds | CBP | 1.0 | 6,976 |
Excess CBP Sub-Account | 1.0 | 22,215 | |
R. Kari | CBP | 0.5 | 7,004 |
Excess CBP Sub-Account | 0.5 | 1,506 | |
A. Chong | CBP | 1.1 | 8,002 |
Excess CBP Sub-Account | 1.1 | 22,283 | |
A. Mysliwy | CBP | 25.0 | 113,431 |
Excess CBP Sub-Account | 25.0 | 73,228 |
(1) | Each listed executive's number of years credited service is less than his or her years of actual service by at least one year and no more than 13 months, due to our service eligibility requirements, which require an employee to work at Safeco for at least one year to be eligible to participate in the CBP and, if applicable, the Excess CBP Sub-Account. |
(2) | For purposes of this table, we assume a retirement age of 65 years, the normal retirement age for purposes of the CBP. If the individuals named in the table were to have not been employed by Safeco as of year-end, the actual amounts payable to them also would have been their actual account balances. For the CBP, the actual account balances as of year-end were as follows: |
Name | Actual CBP Account Balances at 12/31/2007 ($) | ||
P. Reynolds | 6,750 | ||
R. Kari | 6,750 | ||
A. Chong | 7,800 | ||
A. Mysliwy | 110,320 |
Name | Executive Contributions in 2007 ($) (1) | Safeco Contributions in 2007 ($)(2) | Aggregate Earnings in 2007($) (3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Dec. 31, 2007 ($) |
P. Reynolds | 393,943 | 105,571 | 10,848 | 0 | 601,724 |
R. Kari | 0 | 1,500 | 4 | 0 | 1,504 |
A. Chong | 11,625 | 29,942 | 1,307 | 0 | 55,564 |
E. Martinez | 0 | 0 | 0 | 0 | 0 |
A. Mysliwy | 76,115 | 37,988 | (1,216) | 0 | 481,656 |
(1) | Executive Contributions Column. The table below shows whether amounts reported in this column, if greater than zero, are reported in the Summary Compensation Table and what these executive contributions comprise. For Ms. Reynolds, the bonus deferral amount was reported in the Non-Equity Incentive Plan Compensation column (NEIPC) for 2006. |
Name | Nature of Item Deferred | Amount | In SCT | SCT Column |
P. Reynolds | Bonus deferral | 199,800 | Yes | NEIPC |
Excess savings deferral | 44,250 | Yes | Salary | |
RSR dividend equivalents | 149,893 | No | NA | |
A. Chong | Excess savings deferral | 11,625 | Yes | Salary |
A. Mysliwy | Excess savings deferral | 21,565 | Yes | Salary |
Salary deferral | 54,550 | Yes | Salary |
(2) | All amounts shown in this column are reported as compensation in the Summary Compensation Table in that table's "All Other Compensation" column. |
(3) | Aggregate earnings on individuals' DCP balances are not reported in the Summary Compensation Table, because they are not treated as above-market or preferential. |
· | Excess Savings Match. 401(k) participants with one year of service received a match on salary deferrals into the 401(k) equal to 2/3 of the first 6% deferred. Effective January 1, 2008, participants receive a match on salary deferrals into the 401(k) equal to 100% of up to the first 6% deferred and the one year service requirement was eliminated. Internal Revenue Code Section 401(a)(17) limits the earnings eligible for deferral to $225,000. Employees who participate in the DCP can defer to the DCP amounts earned in excess of this limit. We call this type of employee deferral an "excess savings deferral." The "excess savings match" is a contribution Safeco makes to the DCP with respect to any such excess savings deferrals, at the same rate that would apply if the deferrals were being made to the 401(k). |
· | Supplemental Guaranteed Contribution. Participants in the 401(k) also received a "safe harbor" contribution by Safeco equal to 3% of the participant's eligible earnings with respect to employee |
deferrals. This guaranteed contribution is subject to limitations imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code. The "supplemental guaranteed contribution" is a guaranteed contribution Safeco makes to the DCP equal to 3% of the eligible earnings in excess of these Internal Revenue Code limits. |
· | Supplemental Profit Sharing Contribution. All profit sharing contributions by Safeco were discontinued as of December 31, 2007. Prior to this date, Safeco could authorize, in its discretion, an additional profit sharing contribution for all participants in the 401(k). Safeco authorized a profit sharing contribution of 4.68% of eligible earnings (salary and bonus) for all 401(k) participants in 2007. The "supplemental profit sharing contribution" was a credit for DCP participants equal to a defined percentage of eligible earnings in excess of the Internal Revenue Code's Section 401(a)(17) limit or any amount which could not be made to the qualified plan as a result of the application of the Section 415 limit. Accordingly, Safeco authorized a supplemental profit sharing credit equal to 4.68% of eligible earnings in excess of Internal Revenue Code's Section 401(a)(17) limits to the DCP participants in 2007. |
DCP Measurement Funds | Annualized Return (%) | ||
American Funds EuroPacific Growth | 19.22 | ||
American Funds Growth Funds of America | 11.26 | ||
Goldman Sachs Small Value I | (5.33) | ||
Hotchkis & Wiley Large Cap Value I | (10.55) | ||
Safeco Stock Ownership Fund | (10.82) | ||
Undiscovered Managers Small Cap Growth | (3.25) | ||
Vanguard Balanced Index Institutional | 6.34 | ||
Vanguard Total Bond Market Index | 7.05 | ||
Vanguard Developed Market Index | 11.04 | ||
Vanguard Institutional Total Stock Market Index Fund | 5.62 | ||
Wells Fargo Advantage Total Return Bond I | 6.38 | ||
Wells Fargo Stable Return G Fund | 4.99 | ||
Wells Fargo Total Return Bond G | 6.94 |
· | Change in Control Severance Agreements with each of our Named Executives; |
· | Our Executive Severance Guidelines (not applicable to the CEO); |
· | The LTIP; and |
· | Our DCP. |
· | Six months after the potential change in control; |
· | A change in control actually occurs; |
· | Termination for good reason, or due to death, disability or retirement; or |
· | Termination by company for any reason. |
(i) | a lump-sum cash payment of three times annual base salary; | |
(ii) | a lump sum cash payment of any incentive compensation that has already been allocated or awarded to the executive for a completed period and which is contingent only on continued employment; |
(iii) | a pro rata portion of the aggregate value of all contingent incentive compensation awards, assuming the highest achievement of individual and company goals so as to produce maximum payouts; |
(iv) | continuation of life, disability, accident and health benefits for thirty-six months substantially similar to those which the executive is receiving immediately prior to termination, reduced to the extent any comparable benefits are received or made available to the executive during such period; and |
(v) | a tax gross-up to the extent a certain excise tax is imposed on any amounts payable in connection with a change in control or termination of the executive. |
· | Acquisition by a person of beneficial ownership of 25% of the Safeco's voting securities; |
· | A change of a majority of the board to directors not approved by incumbent directors; |
· | A merger or consolidation in which Safeco voting securities represent less than 75% of voting power after transaction; or |
· | Approval of plan of complete liquidation, dissolution or sale of all or substantially all of Safeco's assets. |
· | Cash severance: typical payment is one year's pay, maximum payment is two years' pay (in each case, "pay" being base salary plus target bonus) |
· | Payment in lieu of bonus: typical payment is pro-rated bonus at target, not adjusted for company results and maximum payment is pro-rated bonus at target, adjusted for company results |
· | Equity acceleration: typical payment is pro-rated vesting of equity awards that would otherwise vest within twelve months and maximum payment is vesting of all equity awards that would otherwise vest within twelve months |
· | Payment for health coverage: a lump-sum payment equal to three months of company health plan premiums for that employee and |
· | Outplacement services for up to one year |
Type of Benefit or Payment | Involuntary, Not for Cause Termination (1)($) | Change in Control –No Termination($) (2) | Termination Without Cause Upon Change in Control ($) (3) | Disability ($) (4) | Death ($) (5) |
Cash Payment | NA | 0 | 2,925,000 | 0 | 0 |
Bonus (6) | NA | 0 | 1,250,000 | 1,250,000 | 1,250,000 |
RSR Acceleration (7) | NA | 6,237,719 | 6,237,719 | 6,237,719 | 6,237,719 |
Option Acceleration (8) | NA | 0 | 0 | 0 | 0 |
Excess CBP Sub-Account Acceleration of Unvested Portion (9) | NA | 0 | 16,661 | 16,661 | 16,661 |
DCP Acceleration of Unvested Portion (10) | NA | 0 | 0 | 0 | 0 |
Outplacement Services (11) | NA | 0 | 0 | 0 | 0 |
280G Tax Gross-Up (12) | NA | 0 | 1,478,484 | 0 | 0 |
Other Perks or Benefits (13) | NA | 0 | 30,322 | 0 | 0 |
Total | NA | 6,237,719 | 11,938,186 | 7,504,380 | 7,504,380 |
Type of Benefit or Payment | Involuntary, Not for Cause Termination (1) ($) | Change in Control–No Termination($) (2) | Termination Without Cause upon Change in Control ($) (3) | Disability ($) (4) | Death ($) (5) |
Cash Payment | 1,870,000 | 0 | 1,650,000 | 0 | 0 |
Bonus (6) | 385,000 | 0 | 423,500 | 385,000 | 385,000 |
RSR Acceleration (7) | 120,826 | 1,168,222 | 1,168,222 | 1,168,222 | 1,168,222 |
Option Acceleration (8) | 1,245 | 3,737 | 3,737 | 3,737 | 3,737 |
Excess CBP Sub-Account Acceleration of Unvested Portion (9) | 0 | 0 | 1,506 | 1,506 | 1,506 |
DCP Acceleration of Unvested Portion (10) | 0 | 0 | 0 | 0 | 0 |
Outplacement Services (11) | 146,025 | 0 | 0 | 0 | 0 |
280G Tax Gross-Up (12) | 0 | 0 | 0 | 0 | 0 |
Other Perks or Benefits (13) | 10,000 | 0 | 44,650 | 0 | 0 |
Total | 2,533,096 | 1,171,959 | 3,291,615 | 1,558,465 | 1,558,465 |
Type of Benefit or Payment | Involuntary, Not for Cause Termination (1) ($) | Change in Control –No Termination ($) (2) | Termination Without Cause upon Change in Control ($) (3) | Disability ($) (4) | Death ($) (5) |
Cash Payment | 1,445,000 | 0 | 1,275,000 | 0 | 0 |
Bonus (6) | 293,125 | 0 | 322,438 | 293,125 | 293,125 |
RSR Acceleration (7) | 417,266 | 1,615,054 | 1,615,054 | 1,615,054 | 1,615,054 |
Option Acceleration (8) | 0 | 0 | 0 | 0 | 0 |
Excess CBP Sub-Account Acceleration of Unvested Portion (9) | 0 | 0 | 22,283 | 22,283 | 22,283 |
DCP Acceleration of Unvested Portion (10) | 0 | 0 | 0 | 0 | 0 |
Outplacement Services (11) | 111,178 | 0 | 0 | 0 | 0 |
280G Tax Gross-Up (12) | 0 | 0 | 0 | 0 | 0 |
Other Perks or Benefits (13) | 10,000 | 0 | 44,845 | 0 | 0 |
Total | 2,276,569 | 1,615,054 | 3,279,620 | 1,930,462 | 1,930,462 |
Type of Benefit or Payment | Involuntary, Not for Cause Termination (1) ($) | Change in Control –No Termination($) (2) | Termination Without Cause upon Change in Control ($) (3) | Disability ($) (4) | Death ($) (5) |
Cash Payment | 1,785,000 | 0 | 1,575,000 | 0 | 0 |
Bonus (6) | 367,500 | 0 | 367,500 | 367,500 | 367,500 |
RSR Acceleration (7) | 277,342 | 924,399 | 924,399 | 924,399 | 924,399 |
Option Acceleration (8) | 0 | 0 | 0 | 0 | 0 |
Excess CBP Sub-Account Acceleration of Unvested Portion (9) | 0 | 0 | 0 | 0 | 0 |
DCP Acceleration of Unvested Portion (10) | 0 | 0 | 0 | 0 | 0 |
Outplacement Services (11) | 133,875 | 0 | 0 | 0 | 0 |
280G Tax Gross-Up (12) | 0 | 0 | 0 | 0 | 0 |
Other Perks or Benefits (13) | 10,000 | 0 | 38,704 | 0 | 0 |
Total | 2,573,717 | 924,399 | 2,905,603 | 1,291,899 | 1,291,899 |
(1) | This column description also includes resignations that occur by the executive for good reason (as agreed to by Safeco). With the exception of the amount shown in the "Other Perks or Benefits" row, amounts shown represent maximum suggested payments under our executive severance guidelines. The executive severance guidelines described above that apply to our other Named Executives do not apply to our CEO; any severance payments or other benefits to our CEO upon a termination not governed by the Change in Control Severance Agreement or other Safeco plan would be determined in the discretion of the Compensation Committee. |
(2) | Our LTIP provides for accelerated vesting of all equity awards issued under that plan in the event of a change in control. |
(3) | Amounts shown in this column reflect the terms of our Change in Control Severance Agreement, and estimated attorneys' fees. With respect to the amount shown as bonus payment, the table assumes that because the bonus period was complete, the amount payable as bonus would be considered to be incentive compensation that has already been allocated or awarded to the executive in 2008 for 2007 performance. If the termination event were to occur during the course of a performance period, any awarded but unpaid cash incentive with respect to the previous completed period would be payable, as well as a pro-rata amount with respect to the current period. In that case, the pro-rata amount would be based on an assumption that company results and individual performance were at levels that would result in the maximum possible individual cash incentive award (or 300% of target) and the maximum possible equity award. |
(4) | Assumes total and permanent disability. Reflects acceleration of unvested RSRs, but not options. No amounts are shown with respect to standard disability pay we make available on the same basis to all employees. |
(5) | Reflects acceleration of unvested RSRs and options. No amounts are shown with respect to life insurance coverage, which we provide for all employees, with premiums paid for by Safeco, in the amount of one year's salary. |
(6) | Amounts shown in this row for involuntary not for cause termination, disability or death, reflect payment of a target bonus modified by the actual cash incentive pool modifier for Safeco's 2007 results, which was 1.0. For Mr. Kari and Mr. Chong, these amounts are based on actual salary paid, as reported in the Summary Compensation Table. Amounts shown for Mr. Martinez are based on annual salary rate rather than actual salary paid, consistent with the terms of his offer letter. Amounts shown for termination without cause upon change in control reflect cash incentives paid in 2008 for 2007 performance, as reported in the Summary Compensation Table. |
(7) | Amounts shown for RSR acceleration were calculated by multiplying the number of shares that would have vested due to the triggering event by $55.68, the closing price of our common stock on December 31, 2007. Our LTIP provides for accelerated vesting of all equity awards issued under that plan in the event of a change in control. For awards granted prior to February 2007, our LTIP also provided for acceleration of all RSRs upon disability or death; this provision was modified in February 2007 and, for awards granted subsequent to this modification, acceleration of RSRs upon death, disability or retirement will depend on the provisions of the particular award agreement or other Compensation Committee action. |
(8) | Upon acceleration, using a market price of $55.68, the closing price of our common stock on December 31, 2007, all of Ms. Reynolds', Mr. Chong's and Mr. Martinez's options would have been underwater. Values shown with respect to option accelerations for Mr. Kari were calculated by subtracting the aggregate exercise price from the aggregate market price of the options that would have accelerated, using a market price of $55.68, the closing price of our common stock on December 31, 2007. |
(9) | For Ms. Reynolds, Mr. Kari and Mr. Chong, unvested amounts in the Excess CBP Sub-Account would have vested upon termination within two years of a change in control or upon death or disability. When the CBP was frozen on January 1, 2008, all unvested Excess CBP Sub-Account balances of the participants, including Ms. Reynolds, Mr. Kari and Mr. Chong, became vested. Mr. Martinez was not eligible to participate in the DCP's Excess CBP Sub-Account. |
(10) | Amounts credited to Ms. Reynolds', Mr. Kari's, Mr. Chong's and Mr. Martinez's DCP accounts as of December 31, 2007 were already vested in their entirety as of that date. |
(11) | In the event of involuntary, not-for-cause termination, the appropriate amount of outplacement services, if any, provided for Ms. Reynolds will be at the discretion of the Compensation Committee. Amounts for Mr. Kari, Mr. Chong and Mr. Martinez assume one year's outplacement services at an estimated, aggregate incremental cost to Safeco. As of December 31, 2007, our practice was to provide one year's outplacement services to all employees in the event of involuntary, not-for-cause termination. The value associated with such services for senior executives can be significantly higher than for other employees. |
(12) | Represents estimated cost to Safeco of providing a 280G excise tax gross-up based on a 280G excise tax rate of 20%, a 35% federal income tax rate, and a 1.45% Medicare tax rate. The amount shown for the 280G excise tax gross-up does not include any such excise tax gross-up with respect to the estimated cash bonus payment shown, because the bonus performance period was complete as of the date of the table, and as such, the payment need not be treated as relating to a change in control for purposes of the excise tax calculation. The amount shown in this row with respect to termination upon a change in control reflects 36 months' health and welfare benefits continuation and estimated attorneys' or other advisors' fees. |
· | A separation payment of $1,224,000; |
· | Eligibility to receive his incentive payment for 2007 under the PIC Plan, subject to company performance, which was paid out in the amount of $254,567 on March 14, 2008; |
· | COBRA coverage premiums for up to 18 months and, after COBRA benefits expire, eligibility for Safeco's standard retiree medical benefits; |
· | Up to $10,000 to defray the cost of attorneys and tax advisors; |
· | Payment for accrued, unused sick leave and vacation (consistent with treatment of employees generally); and |
· | Accelerated vesting of 14,485 RSRs previously granted. |
Both the acceleration of RSRs and the separation payment are consistent with the severance guidelines for executive officers. In addition, the compensation arrangements in connection with Mr. Mysliwy resignation took into account his extensive past contributions to Safeco, the specific facts and circumstances of his resignation, his transitional services, and the release of claims against Safeco to which Mr. Mysliwy agreed.
Type of Fee | Amount | ||
Annual Board Retainer | $40,000 | ||
Annual Non-Executive Chairman Retainer | $100,000 | ||
Annual Committee Chair Retainer (other than Audit Committee) | $7,500 | ||
Annual Audit Committee Chair Retainer | $12,000 | ||
Meeting Fees | |||
Board Meeting | $1,500 | ||
Committee Meeting | $1,000 | ||
RSR Grant—Economic Value | $120,000 |
Name | Fees Earned or Paid in Cash (1) ($) | Stock Awards (2) ($) | Total ($) |
Joseph W. Brown (Chair) | 156,500 | 472,392 | 628,892 |
Robert S. Cline (Audit Committee Chair) | 86,500 | 129,061 | 215,561 |
Peter L.S. Currie | 67,500 | 129,061 | 196,561 |
Maria S. Eitel | 67,000 | 129,061 | 196,061 |
Joshua Green, III (Nominating/Governance Committee Chair) | 75,500 | 129,061 | 204,561 |
John S. Hamlin | 60,500 | 105,196 | 165,696 |
Kerry Killinger (Compensation Committee Chair) | 75,000 | 129,061 | 204,061 |
Gary F. Locke | 61,500 | 129,061 | 190,561 |
William G. Reed, Jr. (Finance Committee Chair) | 78,500 | 129,061 | 207,561 |
Charles R. Rinehart (3) | 58,000 | 76,793 | 134,793 |
Judith Runstad | 61,500 | 129,061 | 190,561 |
(1) | The cash retainer is paid in May at the board's annual meeting, and quarterly meeting fees are paid on the following quarter's dividend payment date. |
(2) | Amounts shown in the "Stock Awards" column reflect the 2007 expense associated with RSR awards for each director. Assumptions used in the calculation of these amounts are included in footnote 11 to our audited consolidated financial statements for the fiscal year ended December 31, 2007 included in Safeco's Annual Report on Form 10-K filed with the SEC on February 28, 2008 and available at www.safeco.com. However, pursuant to SEC rules, the amounts shown above do not reflect any assumption that a portion of the awards will be forfeited. |
Name | 2007 RSR Grants FAS 123(R) Grant Date Fair Value ($) | ||
J. Brown | 479,850 | ||
R. Cline | 116,764 | ||
P. Currie | 116,764 | ||
M. Eitel | 116,764 | ||
J. Green | 116,764 | ||
J. Hamlin | 159,950 | ||
K. Killinger | 116,764 | ||
G. Locke | 116,764 | ||
W. Reed | 116,764 | ||
C. Rinehart | 116,764 | ||
J. Runstad | 116,764 |
Name | RSRs (#) | Options (#) | ||
J. Brown | 22,500 | 4,000 | ||
R. Cline | 11,825 | 8,000 | ||
P. Currie | 4,325 | 0 | ||
M. Eitel | 4,325 | 0 | ||
J. Green | 11,825 | 8,000 | ||
J. Hamlin | 2,500 | 0 | ||
K. Killinger | 11,825 | 0 | ||
G. Locke | 6,825 | 0 | ||
W. Reed | 11,825 | 0 | ||
C. Rinehart | 1,825 | 0 | ||
J. Runstad | 11,825 | 8,000 |
(3) | Mr. Rinehart was appointed to the Board of Directors effective March 20, 2007. |
Name | DCP Balance ($) | ||
Joseph W. Brown | 681,215 | ||
Robert S. Cline | 2,213 | ||
Peter L.S. Currie | 119,309 |
Joshua Green III | 797,156 | ||
Kerry Killinger | 387,679 | ||
Gary F. Locke | 228,568 | ||
William G. Reed, Jr. | 855,438 | ||
Charles R. Rinehart | 1,404 | ||
Judith Runstad | 42,588 |
· | any director (or nominee for director) of Safeco; |
· | any executive officer of Safeco; |
· | any person or entity with beneficial ownership of 5% or more of the outstanding stock of Safeco; or |
· | any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner. |
· | Annually, each director and executive officer completes a Director and Officer Questionnaire, which is referred to in this proxy statement as a D&O Questionnaire, that requests, among other items, information regarding their business and non-profit affiliations, their immediate family members and the business and non-profit affiliations of their immediate family members. |
· | Any person who is appointed as a director or executive officer completes a D&O Questionnaire before such person's appointment, except if it is impracticable for an executive officer to submit such information in advance, the person may submit such information promptly following the appointment. |
· | On a quarterly basis, we distribute a questionnaire to the executive officers and directors to capture any potential related person transactions and to receive updates to the information requested in the annual D&O questionnaire. |
· | Our legal department compiles and reviews the information received and distributes a report to the Audit Committee if any potential related person transactions are identified. Our legal department also compiles and updates a master list of related persons and distributes it quarterly to appropriate Safeco departments for review and identification of potential related person transactions. |
· | the benefits to Safeco; |
· | impact on director independence; |
· | availability of other sources for comparable products or services; |
· | terms of the transaction versus terms available to unrelated third parties or to employees generally; |
· | whether the proposed transaction presents, or appears to present, a conflict of interest; and |
· | any other legal, regulatory or other considerations relevant to the transaction. |
Company SEC Filings (File No. 1-6563) | Period and Date Filed |
Annual Report on Form 10-K | Fiscal year ended December 31, 2007, filed on February 28, 2008 |
Quarterly Report on Form 10-Q | Quarterly period ended March 31, 2008, filed on May 7, 2008 |
Current Reports on Form 8-K | Filed on April 23, 2008 |
DRIVING DIRECTIONS Traveling North on I-5: • Take I-5 exit 165 at Seneca Street. • Turn slight left onto Seneca Street. • Drive west 4 blocks onto Seneca toward 2nd Ave • Drive past 2nd Ave and the garage entrance is half a block down on the left (between 2nd and 1st) Traveling South on I-5: • Take I-5 exit 165B at Union Street. • Stay straight on Union Street • Drive west 6 blocks onto Uniontoward 2nd Ave. • Turn left onto 2nd Ave • Drive south onto 2nd Ave two blocks to Seneca street. • Turn right onto Seneca street • The garage is half a block down onthe left (between 2nd and 1st) | ||
PARKING | ||
The Safeco Center parking garage has an entrance on Seneca Street between First Avenue and Second Avenue. Parking in this garage will be validated at the annual meeting. The garage is operated by Standard Parking (206-381-8552). The parking garage has spaces designated for Washington State Disabled Parking Permit holders. Height limit in the garage is 6 feet, 8 inches. | ||
Note: If you plan on attending the annual meeting in person, please bring, in addition to your admission ticket (proxy card), a proper form of identification. The use of video, still photography or audio recording at the annual meeting is not permitted. For the safety of attendees, all bags, packages and briefcases are subject to inspection. Your compliance is appreciated. |
ARTICLE I | ||
THE MERGER; CERTAIN RELATED MATTERS | ||
Section 1.1 | The Merger | A-5 |
Section 1.2 | Closing; Effective Time | A-5 |
Section 1.3 | Effects of the Merger | A-5 |
Section 1.4 | Articles of Incorporation; Bylaws | A-5 |
Section 1.5 | Directors and Officers of Surviving Corporation | A-6 |
Section 1.6 | Effect on Capital Stock | A-6 |
Section 1.7 | Treatment of Options and Other Company Equity Awards | A-6 |
Section 1.8 | Certain Adjustments | A-7 |
Section 1.9 | Dissenting Shares | A-7 |
ARTICLE II | ||
PAYMENT AND EXCHANGE OF CERTIFICATES; WITHHOLDING | ||
Section 2.1 | Payment and Exchange of Certificates | A-7 |
Section 2.2 | Withholding Rights | A-9 |
ARTICLE III | ||
REPRESENTATIONS AND WARRANTIES OF THE COMPANY | ||
Section 3.1 | Corporate Existence and Power | A-9 |
Section 3.2 | Corporate Authorization | A-10 |
Section 3.3 | Governmental Authorization | A-10 |
Section 3.4 | Non-Contravention | A-10 |
Section 3.5 | Capitalization | A-11 |
Section 3.6 | Subsidiaries | A-11 |
Section 3.7 | [Reserved] | A-11 |
Section 3.8 | Company SEC Filings, etc. | A-12 |
Section 3.9 | Company Financial Statements | A-12 |
Section 3.10 | Company SAP Statements | A-12 |
Section 3.11 | Information Supplied | A-13 |
Section 3.12 | Absence of Certain Changes or Events | A-13 |
Section 3.13 | No Undisclosed Material Liabilities | A-13 |
Section 3.14 | Compliance with Laws | A-13 |
Section 3.15 | Litigation | A-14 |
Section 3.16 | Insurance Matters | A-14 |
Section 3.17 | Policy Reserves | A-15 |
Section 3.18 | Title to Properties; Absence of Liens | A-15 |
Section 3.19 | Opinion of Financial Advisor | A-16 |
Section 3.20 | Taxes | A-16 |
Section 3.21 | Employee Benefit Plans and Related Matters; ERISA | A-17 |
Section 3.22 | Employees, Labor Matters | A-17 |
Section 3.23 | Environmental Matters | A-18 |
Section 3.24 | Intellectual Property | A-18 |
Section 3.25 | Material Contracts | A-18 |
Section 3.26 | Brokers and Finders' Fees | A-19 |
Section 3.27 | No Other Representations and Warranties; Disclaimer | A-19 |
ARTICLE IV | ||
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB | ||
Section 4.1 | Corporate Existence and Power | A-19 |
Section 4.2 | Corporate Authorization | A-20 |
Section 4.3 | Governmental Authorization | A-20 |
Section 4.4 | Non-Contravention | A-20 |
Section 4.5 | Capitalization; Interim Operations of Merger Sub | A-21 |
Section 4.6 | Information Supplied | A-21 |
Section 4.7 | Compliance with Laws | A-21 |
Section 4.8 | Litigation | A-22 |
Section 4.9 | Brokers and Finders' Fees | A-22 |
Section 4.10 | Financing | A-22 |
Section 4.11 | Interested Shareholder | A-22 |
Section 4.12 | No Other Representations and Warranties; Disclaimer | A-22 |
ARTICLE V | ||
CONDUCT OF BUSINESS | ||
Section 5.1 | Conduct of Business by the Company | A-23 |
Section 5.2 | Conduct of Business by Parent | A-26 |
ARTICLE VI | ||
ADDITIONAL AGREEMENTS | ||
Section 6.1 | Preparation of the Proxy Statement | A-26 |
Section 6.2 | Shareholders Meeting; Company Board Recommendation | A-26 |
Section 6.3 | No Solicitation | A-27 |
Section 6.4 | Access to Information | A-29 |
Section 6.5 | Reasonable Best Efforts | A-29 |
Section 6.6 | Employee Matters | A-31 |
Section 6.7 | Expenses | A-33 |
Section 6.8 | Transfer Taxes | A-33 |
Section 6.9 | Directors' and Officers' Indemnification and Insurance | A-33 |
Section 6.10 | Public Announcements | A-34 |
Section 6.11 | Notification | A-34 |
Section 6.12 | State Takeover Laws | A-35 |
Section 6.13 | Section 16(b) | A-35 |
Section 6.14 | Delisting | A-35 |
Section 6.15 | Principal Executive Offices of the Surviving Corporation | A-35 |
Section 6.16 | Community Commitments | A-35 |
Section 6.17 | Branding | A-35 |
Section 6.18 | Agency Force | A-35 |
ARTICLE VII | ||
CONDITIONS | ||
Section 7.1 | Conditions to Each Party's Obligation to Effect the Merger | A-36 |
Section 7.2 | Conditions to Obligations of Parent and Merger Sub | A-36 |
Section 7.3 | Conditions to Obligations of the Company | A-37 |
Section 7.4 | Frustration of Closing Conditions | A-37 |
ARTICLE VIII | ||
TERMINATION AND AMENDMENT | ||
Section 8.1 | Termination | A-37 |
Section 8.2 | Effect of Termination | A-38 |
Section 8.3 | Termination Fee | A-39 |
Section 8.4 | Procedure for Termination | A-40 |
ARTICLE IX | ||
GENERAL PROVISIONS | ||
Section 9.1 | Non-Survival of Representations, Warranties, Covenants and Agreements | A-40 |
Section 9.2 | Notices | A-40 |
Section 9.3 | Interpretation | A-41 |
Section 9.4 | Counterparts; Effectiveness | A-42 |
Section 9.5 | Entire Agreement; No Third Party Beneficiaries | A-42 |
Section 9.6 | Severability | A-42 |
Section 9.7 | Assignment | A-43 |
Section 9.8 | Amendment | A-43 |
Section 9.9 | Extension; Waiver | A-43 |
Section 9.10 | Governing Law and Venue; Waiver Of Jury Trial | A-43 |
Section 9.11 | Specific Performance | A-44 |
Section 9.12 | Definitions | A-44 |
LIBERTY MUTUAL INSURANCE COMPANY | ||||
By: | /s/ Michael J. Fallon | |||
Name: | Michael J. Fallon | |||
Title: | Vice President |
BIG APPLE MERGER CORPORATION | ||||
By: | /s/ Michael J. Fallon | |||
Name: | Michael J. Fallon | |||
Title: | President |
SAFECO CORPORATION | ||||
By: | /s/ Ross J. Kari | |||
Name: | Ross J. Kari | |||
Title: | Executive Vice President and Chief Financial Officer |
Board of Directors Safeco Corporation Seattle, Washington 98185 |
(a) | reviewed certain publicly available financial statements and other business and financial information of the Company and the Buyer, respectively; |
(b) | reviewed certain internal financial statements and other financial and operating data concerning the Company; |
(c) | reviewed certain financial projections prepared by the management of the Company; |
(d) | discussed the past and current operations and financial condition and the prospects of the Company, including information relating to certain potential strategic, financial and operational benefits to a buyer anticipated from the Merger, with senior executives of the Company; |
(e) | reviewed the reported prices and trading activity for the Company Common Stock; |
(f) | compared the financial performance of the Company, and the prices and trading activity of the Company Common Stock with that of certain other comparable publicly-traded companies and their securities; |
(g) | reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; |
(h) | participated in discussions and negotiations among representatives of the Company and the Buyer and their financial and legal advisors; |
(i) | reviewed the Merger Agreement and certain related documents; and |
(j) | performed such other analyses, reviewed such other information and considered such other factors as we have deemed appropriate. |
Very truly yours, | ||||
MORGAN STANLEY & CO. INCORPORATED | ||||
By: | /s/ Eric Bischof | |||
Name: | Eric Bischof | |||
Title: | Managing Director | |||
Votes must be indicated (x) in Black or Blue ink.
Please mark, sign, date and return this proxy card promptly using the enclosed envelope.
Please Mark Here for Address Change or Comments
SEE RE VERSE SIDE
THE SAFECO BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 1, 2, 3 AND 4.
FOR AGAINST ABSTAIN
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF APRIL 23, 2008, BY AND AMONG LIBERTY MUTUAL IN SURANCE COMPANY, BIG APPLE MERGER CORPORATION AND SAFECO COR PORATION.
3. RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS SAFECO’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2008.
4. ADJOURN OR POSTPONE THE ANNUAL MEETING, IF NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES APPROVING TH E MERGER AGREEMENT.
I/We plan to attend the Annual Meeting (admission ticket attached)
FOR AGAINST ABSTAIN
FOR AGAINST ABSTAIN
2. ELECTION OF DIRECTORS.
FOR WITHHELD EXCEPTIONS* ALL FOR ALL (as marked below)
Nominees:
01 JOSEPH W. BROWN
02 KERRY KIL LINGER
03 GARY F. LOCKE
04 CHARLES R. RINEHART
05 GERARDO I. LOPEZ
Instructions: To with hold authority to vote for any individual nominee, mark the “Exceptions” box and write that nominee’s name on the space provided below.
*Exceptions
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 WHIC H THIS PROXY RELATES “FOR” WITH RESPECT TO PROPOSALS 1, 3 AND 4 AND “FOR ALL” WITH RESPECT TO PROPOSAL 2. THE PROXIES WILL VOTE IN THEIR DISCRETION ON ANY OTHER MATTERS PROPERLY COMING BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTMENT THEREOF. The undersigned hereby revokes all prior proxies given by the undersigned to vote at the Annual Meeting or any adjournment or postponement thereof.
Signature Signature Date
Please sign exactly as name appears hereon. Joint owners should each sign. When signing as an attorney, executor, administrator, trustee or guardian, please give full title as such.
FOLD AND DETACH HERE
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING, BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
The deadline for Internet and Tele phone voting is 5:0 0 p.m., Eastern Time, July 28, 2008 for registered shareholders and 11:59 p.m., Eastern Time, July 26, 2008 for participants in the Safeco 401(k) Plan’s Safeco Stock Ownership Fund.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.
INTERNET http://www.eproxy.com/saf
Use the Internet to vote your proxy. Have your proxy card or Notice of Internet Availability of Proxy Materials in hand when you access the web site.
OR
TELEPHONE 1-866-580-9477
Use any touch-tone telephone to vote your proxy. Have your proxy card or Notice of Internet Availability of Proxy Materials in hand when you cal .
If you vote your proxy through the Internet or by telephone, you do NOT need to mail back your proxy card. To vote by mail, mark, sign and date your proxy card and re turn it to BNY Mellon Shareowner Services, P.O. Box 3862, S. Hackensack, New Jersey 07606-9562
SAFECO CORPORATION
Proxy Solicited On Behalf of the Safeco Board of Directors for the Annual Meeting of Shareholders July 29, 2008
If I am a registered shareholder, I, by signing the reverse, appoint Paula Rosput Reynolds and Art Chong, each with full power of substitution, as the true and lawful attorneys and proxies for me, to represent and vote my shares at the Annual Meeting of Shareholders of Safeco Corporation to be held at the Safeco Center, Magnolia Room, 1st Floor, 1191 Second Avenue, Seattle, Washington 98101 at 1:30 p.m., Pacific Time, on July 29, 2008, and any adjournment or postponement thereof, and to represent and vote my shares in the transaction of such business as may properly come before the Annual Meeting.
If I am a participant in the Safeco 401(k ) Plan’s Safeco Stock Ownership Fund, I, by signing the reverse, direct Wells Fargo Bank, N.A ., trustee of such fund, to vote my shares as indicated on the reverse, or if not so indicated, in accordance with the plan document as described in the proxy statement.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but, if you are a registered shareholder, you need not mark any boxes if you wish to vote in accordance with the Safeco Board of Directors’ recommendations. The proxies named above cannot vote your shares unless you sign and return this card.
(Continued, and to be signed and dated, on the other side.)
Address Change/Comments (Mark the corresponding box on the reverse side)
FOLD AND DETACH HERE
You can now access your SAFECO CORPORATION account online.
Access your Safeco Corporation shareholder account online via Investor ServiceDirect® (ISD).
The transfer agent for Safeco Corporation, now makes it easy and convenient to get current in formation on your shareholder account.
Vie w account status View certificate history Vie w book-entry in formation
View payment history for dividends Make address changes Obtain a duplicate 1099 tax form Establish/change your PIN
Visit us on the web at http://www.bnymelon.com/shareowner/isd
For Technical Assistance Call 1-877-978-7778 between 9am-7pm Monday-Friday Eastern Time
ADMISSION TICKET Annual Meeting of Shareholders July 29, 2008, 1:30 p.m., Pacific Time
Safeco Center, Magnolia Room, 1st Floor 1191 Second Avenue, Seattle, Washington 98101
This Admission Ticket should not be returned with your proxy but should be retained and brought with you to the Annual Meeting.
Note: If you vote by returning the at ached proxy card via mail and plan to attend the Annual Meeting of Shareholders , plea se so indicate by marking the appropriate box on the proxy card. If you plan on attending the Annual Meeting in person, plea se bring, in addition to this Admission Ticket, a proper form of identification. The use of video, still photography or audio recording at the Annual Meeting is not permitted. For the safety of attendees, al bags, packages and briefcases are subject to inspection. Your compliance is appreciated.