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EXHIBIT 10.3
SEPARATION AGREEMENT
This Separation Agreement is made and entered into by and between W.
RANDALL STODDARD ("Stoddard") and SAFECO INSURANCE COMPANY OF AMERICA (the
"Company"), as of the date written under the signature of Stoddard on the
signature page of this Agreement.
RECITALS
A. Stoddard is employed as President of the Company, and, pursuant to terms
of this Agreement, resigns from employment effective August 31, 2000.
B. This Agreement sets forth the complete understanding between Stoddard
and the Company regarding the commitments and obligations arising out of the
termination of their employment relationship.
AGREEMENT
1. Continued Employment.
1.1 Employment Transition Period. Stoddard's active duties and
responsibilities with the Company as officer and director will end on August 2,
2000. Under the terms and subject to the conditions of this Agreement,
Stoddard's status as an employee with the Company shall continue through and
including August 31, 2000. During such period, Stoddard shall be considered an
"employee" of the Company for the limited purposes of the employee benefit plan
coverages available to employees of the Company and the SAFECO Long-Term
Incentive Plan of 1997 ("Plan"), but Stoddard shall not be required to report to
the Company for or to perform any work. Stoddard will resign from employment
with the Company effective August 31, 2000.
1.2 Group Insurance Benefits Coverage. The Company shall continue to
provide coverage under any group insurance benefits plan under which Stoddard
and/or his dependents were covered on the date hereof, through and including
August 31, 2000. Stoddard shall be responsible to pay any amounts chargeable as
"employee premium contribution" amounts with respect to any such coverage.
Contingent upon Stoddard's execution of this Agreement and the expiration of the
revocation period described in Section 13.3, SAFECO Corporation has agreed that
Stoddard may be treated as eligible to participate as a retired employee under
the Company's retiree medical program. From and after August 31, 2000, Stoddard
and/or his dependents shall be eligible for such benefits continuation or
conversion coverage as may be available or required under the terms of the
Company's benefits plans or policies, or as may be required under the group
health plan provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985, as subsequently amended (COBRA), or other applicable federal or state law.
1.3 Eligibility for Other Group Benefits. Stoddard shall be eligible
as an "employee" of the Company through August 31, 2000 for group benefits under
the Company's employee benefit plans. Stoddard shall be eligible to participate
in and shall receive pro rata contributions to the
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SAFECO Employees' Profit Sharing Retirement Plan, Savings Plan, and Cash Balance
Plan, and for a Profit Sharing Bonus (based on an assumed annual salary of
$335,000) as the same may be available to other employees of the Company.
1.4 Payment for Accrued Sick Leave and Vacation Units. The Company
shall pay Stoddard for any vested sick leave units and vacation pay accrued but
unused at August 31, 2000, but only to the extent compensable under the
Company's normal sick leave and vacation policies and procedures.
1.5 Reimbursement for Expenses Incurred. The Company shall reimburse
Stoddard for reasonable and necessary business expenses incurred by him on or
before August 31, 2000, but not submitted for reimbursement at such date, to the
extent reimbursable under the Company's normal expense reimbursement policies
and procedures and submitted for payment by September 15, 2000.
1.6 RSRs and Performance Stock Rights. Stoddard acknowledges and
agrees that as a consequence of his resignation on August 31, 2000, any rights
he may have under any grant of a restricted stock right ("RSR") or performance
stock right award ("PSR Award") granted under the Plan will expire, and he will
not be entitled to any payment under any RSR or PSR Award after August 31, 2000.
1.7 Stock Options. Stoddard acknowledges and agrees that as a
consequence of his resignation on August 31, 2000, and pursuant to the terms of
each stock option for SAFECO Corporation common stock ("Stock Option") that has
been granted to him under either the SAFECO Incentive Plan of 1987 or the Plan,
other than the Stock Options granted to him in May 1998, May 1999 and May 2000
whose terms have been extended pursuant to Section 3.1, he will have through
November 30, 2000, to exercise each Stock Option and after that date he will
lose all rights under each Stock Option.
2. Payments. As compensation to Stoddard, and in consideration of his
resignation as an employee and officer of the Company and his release granted
herein, the Company agrees to pay a total sum of $1,005,000, plus an amount
equal to 5,062 multiplied by the closing price of SAFECO Corporation common
stock as reported on NASDAQ on August 31, 2000 ("Calculated Payment"). This
payment shall be allocated and paid as follows:
2.1 Release Payment. $375,000 shall be allocated as consideration for
Stoddard's release of claims as set forth in section 5 of this Agreement (the
"Release Payment"). Stoddard and the Company agree that $75,000 of the Release
Payment represents liquidated damages for potential wage-related claims and
shall be subject to withholding and deduction for payroll taxes and other
deductions as are required by federal and state law. Stoddard and the Company
agree that $300,000 of the Release Payment represents liquidated damages for
other potential claims being released and does not constitute wages or a wage
substitute and that the Company will not make payroll deductions or wage
withholding from that amount. The Release Payment shall be made within 30 days
following the expiration of the revocation period described in Section 13.3
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in the form of three checks, one payable to Stoddard in the amount of $75,000
less the applicable withholding and deduction for payroll taxes, one payable to
Stoddard in the amount of $216,000 (72% of $300,000 of the Release Payment) and
one payable to the Internal Revenue Service on behalf of Stoddard in the amount
of $84,000 (28% of $300,000 of the Release Payment).
2.2 Non-Compete, Non-Solicitation and Non-Disparagement Payments. In
consideration of the promises made by Stoddard not to compete, not to solicit
employees and not to disparage the Company in Sections 7.1, 7.2 and 7.3,
respectively, the Company will pay Stoddard $330,000 on September 1, 2001,
$300,000 on September 1, 2002, and the Calculated Payment on September 1, 2003,
respectively. Each of these payments shall be made in the form of two checks,
one payable to Stoddard in the amount of 72% of the specified payment and the
second payable to the Internal Revenue Service on behalf of Stoddard in the
amount of 28% of the specified payment.
2.3 Payments in Case of Death. Should Stoddard die after his
execution of this Agreement but before one or more of the payments described
under Sections 2.1 or 2.2 have been made, then, so long as Stoddard has not made
any claim described in Section 5 of this Agreement against the Company or any of
its affiliates, employees, officers or directors or otherwise violated the terms
of this Agreement, Stoddard's right to receive the payments described in
Sections 2.1 and 2.2 shall pass to his estate, i.e., to the person or persons to
whom such rights pass by will or under applicable laws of descent and
distribution.
3. Further Consideration. As further consideration to Stoddard for the
release granted under Section 5 of this Agreement, the Company, at no cost to
Stoddard, will do the following:
3.1 SAFECO Stock Option Term Extension. Contingent upon Stoddard's
execution of this Agreement and the expiration of the revocation period
described in Section 13.3, SAFECO Corporation through the Compensation Committee
of its Board of Directors has agreed to amend those SAFECO Corporation stock
options previously granted to Stoddard in May 1998, May 1999 and May 2000 to
provide that the term of each shall extend until August 31, 2003, the third
anniversary of Stoddard's resignation, and to amend each of those options and
the April 1997 stock option to accelerate the vesting of any unvested shares to
August 2, 2000. Stoddard acknowledges that as a consequence of extending the
term of each of these stock options none of them will qualify for preferential
income tax treatment as an incentive stock option under the Internal Revenue
Code.
3.2 Outplacement Services. The Company agrees to provide outplacement
services to Stoddard through July 31, 2001.
3.3 Attorney's Fees. The Company agrees to pay up to $2,000 of the
attorney's fees incurred by Stoddard for a review of this Agreement.
3.4 Tax Consultation. The Company agrees to pay up to $2,000 of the
tax consultation fees incurred by Stoddard for a review of matters raised by the
payments contemplated by this Agreement.
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3.5 Option Loan. The Company agrees to recommend to its affiliate,
SAFECO Credit Company, Inc., ("Credit Company") to extend any outstanding
loan(s) to Stoddard that were made in connection with the exercise of a SAFECO
stock option until December 31, 2000. Stoddard acknowledges that Credit Company
will not extend such loans beyond December 31, 2000.
4. Resignation.
4.1 Resignation. In consideration of the payments and other
compensation described above, Stoddard tenders his resignation as an officer and
director of the Company and its affiliates effective August 2, 2000, and his
resignation as an employee effective August 31, 2000.
4.2 No Authority To Act. From and after August 2, 2000, Stoddard
shall have no further authority to bind the Company to any contract or agreement
or to act on behalf of the Company, and the Company shall have no obligation to
reimburse Stoddard for any expenses incurred by him on or after August 31, 2000,
except as expressly stated in this Agreement.
5. Release and Settlement.
5.1 Release Payment. For the purposes of this Agreement "Release
Payment" means the payment by the Company of the amounts referenced in Section
2.1.
5.2 Release. In consideration of the Company's delivery of the
Release Payment to Stoddard under the terms of this Agreement, Stoddard hereby
releases the Company and its affiliated companies, and the employees, agents,
officers, directors and shareholders of any of them, from all claims, demands,
actions or causes of action of any kind or nature whatsoever which Stoddard may
now have or may ever have had against any of them, whether such claims are known
or unknown, and including but not limited to the Claims described in Section
5.3. However, nothing in this Separation Agreement shall create or imply any
waiver by Stoddard (i) with respect to his entitlement to compensation for
vested retirement benefits or deferred compensation, in accordance with the
terms and conditions of the Company's employee benefit plans, or (ii) of any
claims with respect to any breach by the Company of its obligations under this
Agreement.
5.3 The Claims. For the purposes of this Agreement, "Claims" shall
mean and include claims with respect to any of the following: (i) breach of
contract; (ii) discrimination, retaliation, or constructive or wrongful
discharge; (iii) lost wages, lost employee benefits, physical and personal
injury, stress, mental distress, or impaired reputation; (iv) claims arising
under the Age Discrimination in Employment Act ("ADEA"), Title VII of the Civil
Rights Act, the Equal Pay Act, or any other federal, state or local laws or
regulations prohibiting employment discrimination; (v) attorneys' fees (other
than those that the Company has agreed to reimburse under Section 3.3); and (vi)
any other claim arising from or relating to Stoddard's employment with the
Company and/or his separation from service, including claims with respect to the
Severance Agreement dated March 11, 1999 between Stoddard and SAFECO
Corporation, which
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Stoddard agrees is terminated as of the date of the expiration of the revocation
period described in Section 13.3.
5.4 Consideration for Release. The Company represents, and Stoddard
acknowledges, that the Release Payment and the further consideration described
in Section 3 exceed any amount the Company may arguably be required to pay under
any agreement or arrangement to which Stoddard is a party or under which he
claims some benefit, or under the standard policies and procedures of the
Company, and represents valuable consideration to him for the release of his
ADEA and other claims described above.
6. Confidential Information.
6.1 Confidential Information. Stoddard recognizes that by virtue of
his employment by the Company, Stoddard has acquired certain non-public
information with respect to the Company, and its operations (the "Confidential
Information"). Stoddard recognizes and acknowledges that the Confidential
Information constitutes valuable, special and unique assets of the Company,
access to and knowledge of which were essential to the performance of Stoddard's
duties during his employment.
6.2 Non-Disclosure. Stoddard agrees to hold the Confidential
Information in trust and confidence. Stoddard agrees not to (i) directly or
indirectly make use of the Confidential Information, (ii) reveal any
Confidential Information to any other party, or (iii) divulge or use any
Confidential Information for any purpose other than for the benefit of the
Company, except and to the extent Stoddard may be required to disclose by lawful
order or process of a court (in which event Stoddard will provide reasonable
advance notice of such disclosure to the Company and will cooperate with the
Company's efforts to obtain protective treatment for such information).
6.3 Materials. Unless the Company otherwise agrees, Stoddard shall
not remove from the Company's premises or possession any documents, compilations
of data or other files or records of any nature, or any copy or reproduction
thereof, that contain Confidential Information or that belong to the Company.
7. No Competing Employment; No Solicitation of Employees.
7.1 No Competing Employment. Stoddard agrees that until September 1,
2001, Stoddard shall not work for or consult with any company that competes with
the Company or its affiliates in the insurance business without the prior
written consent of the Company.
7.2 No Solicitation of Employees. Stoddard agrees that until
September 1, 2002, Stoddard shall not solicit, directly or indirectly, any
employee of the Company or its affiliates to leave such employment and/or to
become an employee, officer or consultant of or to any other enterprise.
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7.3 Non-Disparagement. Stoddard agrees not to criticize, disparage,
or make negative comments about the Company, its affiliates, or any of its or
their directors, officers or employees. This Section 7.3 shall not be construed
to prohibit Stoddard from responding truthfully to any court or regulatory body
or to responding truthfully under oath in compliance with a subpoena or other
legal process.
8. No Admission. Stoddard understands and acknowledges that neither the
Release Payment nor the execution and delivery of this Agreement by the Company
constitutes an admission by the Company to (i) any breach of an agreement with
Stoddard, (ii) any violation of a federal, state or local statute, regulation or
ordinance, or (iii) any other wrongdoing.
9. Legal Action.
9.1 No Action on Released Claims. Stoddard agrees not to sue or
pursue any court or administrative action against the Company, or any of its
employees, agents, officers, directors or shareholders, regarding any claims
released herein or otherwise arising from Stoddard's employment with the Company
or his separation from service, except with respect to any breach by the Company
of its obligations under this Agreement.
9.2 Liability for Defense Costs. If, notwithstanding this Agreement,
Stoddard should file any lawsuit or other proceeding based on legal claims that
Stoddard has released herein, Stoddard agrees that he will pay or reimburse the
Company for all reasonable costs which it, or its employees, agents, officers or
directors, incur in defending against Stoddard's claims. This Section shall not
apply to any claimed breach by the Company of any of the terms or conditions of
this Agreement.
10. Arbitration.
10.1 Notice and Selection of Arbitrator. The parties agree that any
dispute arising under this Agreement, other than an action at law or in equity
by the Company to seek damages for or to seek injunctive relief against Stoddard
for a violation of any provision of Section 6 or 7, shall be submitted to
arbitration in Seattle, Washington, before a disinterested arbitrator.
Arbitration shall be commenced by service on the other party to the dispute by a
written request for arbitration, containing a brief description of the matter at
issue and the names and addresses of three arbitrators acceptable to the
petitioner. The other party shall within thirty (30) days following receipt of
such notice either select one of the proposed arbitrators or provide the names
and addresses of three other arbitrators acceptable to the proposing party. If
the parties are unable to select an arbitrator from those proposed, or, if they
are unable to select a third arbitrator, an arbitrator shall be chosen
impartially by the American Arbitration Association.
10.2 Rules of Proceeding. Arbitration proceedings shall be conducted
under the employment rules then prevailing of the American Arbitration
Association. The arbitrator shall not be bound to any formal rules of evidence
or procedure, and may consider such matters as a reasonable business person
would take into account in decision-making.
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10.3 Decision Final and Binding. The decision of the arbitrator shall
be final and binding on the parties, and may be entered and enforced in any
court of competent jurisdiction.
10.4 Expenses. Each party shall share equally the expenses of the
arbitrator and other arbitration expenses. Attorney fees, witness fees and other
expenses incurred by a party in preparing for the arbitration are not
"arbitration expenses" and shall be paid by the party incurring them.
11. Confidentiality.
11.1 Terms of Agreement. Stoddard and the Company agree that neither
of them shall reveal or publicize the existence of this Agreement or its terms,
including but not limited to the amount of the Release Payment, except under
compulsion of law and as required under the rules and regulations of the
Securities and Exchange Commission ("SEC"). Stoddard acknowledges that a copy of
this Agreement will be filed as an exhibit to a filing made by SAFECO
Corporation with the SEC. Further, the parties agree that they shall not discuss
with or make to the public at large or to any individual person or persons any
statements about this Agreement, or matters relating to its terms.
Notwithstanding the provisions of this Section 10.1, the parties may discuss the
existence and terms of this Agreement with their respective attorneys,
accountants and financial advisors to the extent necessary to obtain counsel and
advice therefrom. Stoddard may also discuss the existence and terms of this
Agreement with his spouse after obtaining her agreement to be bound by this
confidentiality provision.
11.2 Employment References. In the event a prospective employer
contacts the Company for an employment reference with respect to Stoddard, the
Company shall not provide any information relating to Stoddard or his employment
history or performance with the Company except for such information Stoddard
authorizes the Company in writing from time to time to release in response to
such inquiries.
12. Costs. Except for the Company's agreement to pay for Stoddard's
attorney's fees as stated and limited in Section 3.3, each party shall bear its
own costs and expenses incurred in connection with the negotiation of this
Agreement and the preparation of this Agreement.
13. Acknowledgment.
13.1 Informed Agreement. Stoddard declares that he has read and fully
understands the terms of this Agreement, and its significance and consequence.
Stoddard further declares that this Agreement is the product of good faith
negotiations between himself and the Company, and that he voluntarily accepts
the same for the purpose of resolving arrangements with respect to his
separation from service. Stoddard understands and acknowledges that, except as
specifically reserved herein, in exchange for the Release Payment he is waiving
and giving up every possible claim arising out of his employment with the
Company and/or his separation from service.
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13.2 Attorney. Stoddard acknowledges that the Company has advised him
to review the terms of this Agreement with an attorney and that he has done so
or knowingly waived his right to do so.
13.3 Review and Revocation Periods. Stoddard acknowledges that the
Company has given him at least 21 days during which to consider this Agreement
prior to signing, and understands that he has seven days after signing in which
he may revoke this Agreement. This Agreement shall not become effective or
enforceable until such seven-day period has expired. Stoddard understands that
he may revoke this Agreement by delivering a written notice to Allie Mysliwy at
SAFECO Plaza, Seattle, WA 98185, no later than the close of business on the
seventh day after his execution hereof. Stoddard understands and acknowledges
that if he revokes this Agreement it shall not be effective or enforceable and
he will not receive the payments described herein.
14. Entire Agreement. This is the entire agreement between Stoddard and the
Company. Neither the Company nor any affiliate has made any promises to Stoddard
other than those included within this Agreement.
15. Governing Law. The parties acknowledge that this Settlement Agreement
shall be interpreted under and enforced by and consistent with the laws of the
State of Washington.
/s/ W. Randall Stoddard
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W. RANDALL STODDARD
Dated: August 8, 2000
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SAFECO INSURANCE COMPANY OF AMERICA
By /s/ R.H. Eigsti
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R.H. Eigsti, Chairman
Dated: August 2, 2000
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