EXHIBIT 10.1
SAFECO CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
AS AMENDED AND RESTATED ON NOVEMBER 4, 1998
(AS LAST AMENDED FEBRUARY 5, 2003)
1. PURPOSE
The purpose of this Deferred Compensation Plan ("Plan") is to provide for
deferral of payment of all or any portion of the annual retainer, meeting fees,
and any other fees or retainers payable to non-employee directors of SAFECO
Corporation ("Company"); dividend equivalents payable on Restricted Stock Rights
("RSRs") granted to such directors; and all or any part of amounts payable in
settlement of RSRs granted to non-employee directors and certain gains realized
by such directors on stock-for-stock exercises of options to purchase the
Company's common stock ("Common Stock").
2. ADMINISTRATIVE COMMITTEE
The Board shall from time to time appoint a committee to administer this Plan
(the "Administrative Committee"). The Administrative Committee shall have full
power and authority to construe and interpret the Plan. Members of the
Administrative Committee who are otherwise eligible to participate in this Plan
may do so while serving as members of that Committee, provided that no member
shall be entitled to vote or take any other action as part of the Committee with
respect to his or her benefits under the Plan. Decisions of the Administrative
Committee shall be final and binding upon the directors, their legal
representatives and beneficiaries. Approval by the Administrative Committee of
any election or request made by a director or the legal representative or
beneficiary of a director shall be subject to the sole discretion of the
Administrative Committee.
3. ELIGIBILITY
Any non-employee director of the Company is eligible to participate in the Plan.
4. ELECTION TO DEFER FEES
(a) Deferral Election. A non-employee director may elect to defer
all or a specified percentage of the annual retainer, meeting
fees, and any other fees or retainers (all of the foregoing
are collectively referred to as "Fees") that may thereafter
become payable by executing and delivering to the
Administrative Committee an election ("Deferral Election")
stating the dollar amount or percentage of the Fees to be
deferred.
(b) Timing. To be effective, a Deferral Election must be filed
with the Administrative Committee by December 31 of the year
prior to the year in which the Fees are payable, except that
any director newly elected to the Company's Board of Directors
shall have 30 days following the date of such director's
election in which
to file an irrevocable Deferral Election covering Fees payable
during the remainder of the current year. A Deferral Election
filed by December 31 shall be irrevocable for the next year
and will thereafter remain in effect indefinitely on a
year-by-year basis until participation in the Plan terminates,
or until the Deferral Election is amended or revoked by a new
Deferral Election, which shall take effect the following year.
(c) Special Rule for New Fees. If, during the course of a year, a
non-employee director becomes eligible to receive a type of
Fee for which the director was not eligible on December 31 of
the prior year, the director may file a Deferral Election with
respect to any payments of such Fee payable during the
remainder of the current year, provided the Deferral Election
is made before the earlier of (i) 30 days following the date
the director becomes eligible for the Fee, and (ii) the date
the Fee or any portion thereof is payable.
5. ELECTION TO DEFER GAINS ON STOCK-FOR-STOCK OPTION EXERCISES
(a) Deferral of Qualifying Gains. A non-employee director may
elect to defer Qualifying Gain (as defined below) realized on
the exercise of one or more non-qualified stock options to
purchase Common Stock, provided the option exercised was
granted under a plan or program that permits deferral of gain
with respect to such option.
(i) Qualifying Gain. "Qualifying Gain" means the net
value accrued upon exercise of an option using a
stock-for-stock payment method (i.e., the amount by
which the total value of the shares exercised exceeds
the total value of the shares used to pay the
exercise price). For example, a director elects to
defer the Qualifying Gain accrued upon exercise of an
option to purchase 1,000 shares of Common Stock at an
exercise price of $20 per share when the Common Stock
has a current fair market value of $25 per share. The
director delivers 800 shares of Common Stock (worth
$20,000) to pay the exercise price. In return, the
director receives 800 shares of Common Stock worth
$20,000 and the director's Account (as defined below)
is credited with a Qualifying Gain of $5,000.
(ii) Valuation of shares. For purposes of calculating the
Qualifying Gain, shares shall be valued at the price
at which the last sale of the Common Stock was made
prior to 1:00 p.m. Pacific Time on the NASDAQ Stock
Market on the date the option is exercised.
(b) Stock Option Election. An election to defer Qualifying Gain on
a stock option exercise shall be valid only if: (i) a separate
irrevocable election ("Stock Option Election") is completed
and signed by the director with respect to the stock option;
(ii) the Stock Option Election is delivered to and accepted by
the Administrative Committee at least six months before the
director elects to exercise the stock option; (iii) the
exercise price is paid in Common Stock (either through
physical
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delivery or attestation); and (iv) the director complies with
such other rules as the Administrative Committee may establish
from time to time.
6. ELECTION TO DEFER RSR SETTLEMENTS AND RSR DIVIDENDS
(a) Deferral of RSR Settlement Amounts. A non-employee director
may elect to defer amounts payable in settlement of RSRs ("RSR
Settlement Amounts") granted to such director by executing and
delivering to the Administrative Committee a Deferral Election
indicating the RSR Settlement Amounts that the director wishes
to defer. RSR Settlement Amounts may be deferred only if the
underlying RSR was granted under a plan or program that
permits the deferral of RSR Settlement Amounts.
(b) Deferral of RSR Dividend Equivalents. A non-employee director
may elect to defer dividend equivalents payable on RSRs ("RSR
Dividend Equivalents") granted to such director by executing
and delivering to the Administrative Committee a Deferral
Election indicating that the director wishes to defer RSR
Dividend Equivalents. Any such election to defer RSR Dividend
Equivalents must include all RSR Dividend Equivalents declared
during the following year. RSR Dividend Equivalents may only
be deferred if the underlying RSR was granted under a plan or
program that permits the deferral of RSR Dividend Equivalents.
(c) Timing of Elections.
1. RSR Settlements. A non-employee director may file a
Deferral Election with respect to RSR Settlement
Amounts with the Administrative Committee no later
than December 31 of a year, provided that such
Deferral Election shall not be effective if the
non-employee director's membership on the Board
terminates within one year of the date on which such
Deferral Election is filed. Notwithstanding this one
year rule, if, during the course of a year, a
non-employee director first becomes eligible to
receive RSRs, the director may file a Deferral
Election for RSR Settlement Amounts, provided that
the Deferral Election is made within 30 days
following the date the director is notified of
eligibility for the RSR. A non-employee director may
revoke or change a previous Deferral Election made
with respect to RSR Settlement Amounts, provided that
such revocation or change shall not be effective if
the non-employee director's membership on the Board
terminates within one year of the date on which such
revocation or change is filed with the Administrative
Committee.
2. RSR Dividend Equivalents. A Deferral Election with
respect to RSR Dividend Equivalents must be filed
with the Administrative Committee by December 31 of
the year prior to the calendar year in which the RSR
Dividend Equivalents are declared and shall be
irrevocable with respect to the RSR Dividend
Equivalents declared in such calendar year.
Notwithstanding the foregoing, if, during the course
of a year, a non-employee director first becomes
eligible to
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receive RSRs, the director may file a Deferral
Election with respect to any RSR Dividend Equivalents
declared during the remainder of the current year,
provided that the Deferral Election is made within 30
days following the date the director is notified of
eligibility for the RSR and applies only to RSR
Dividend Equivalents declared after the date the
Deferral Election is filed.
7. DEFERRAL ACCOUNTS
(a) Establishment of Accounts. The Company shall establish an
account ("Account") in the name of each participating
non-employee director, to which all deferred Fees, Qualifying
Gains, RSR Settlement Amounts and RSR Dividend Equivalents
attributable to the director and the earnings thereon shall be
credited. A director's Account shall at all times be a
bookkeeping entry only and shall not represent any investment
made by the Company on the director's behalf. A director shall
be fully vested at all times in the deferred Fees, Qualifying
Gains, RSR Settlement Amounts and RSR Dividend Equivalents
credited to his or her Account.
(b) Crediting of Accounts. Deferrals of Fees shall be credited to
the director's Account on the date the Fees would have been
paid but for the Deferral Election. Each Qualifying Gain shall
be credited to the director's Account on the date that the
option to which the gain relates is exercised. RSR Settlement
Amounts that are deferred shall be credited to the director's
Account on the RSR settlement date. RSR Dividend Equivalents
that are deferred shall be credited to the director's Account
on the dividend date.
8. MEASUREMENT FUNDS
(a) Allocation Among Measurement Funds. A director's Account shall
be allocated among phantom investments (each a "Measurement
Fund") designated by the Administrative Committee for use as
an index to value the portion, if any, of the director's
Account allocated to that phantom investment. The allocation
of a director's deferred Fees, Qualifying Gains, RSR
Settlement Amounts and RSR Dividend Equivalents shall be
governed by the director's most recent Allocation Election
(described below) and such rules as the Administrative
Committee may establish from time to time. The Account of each
director shall be credited (or debited) on a daily basis
according to the performance of each Measurement Fund selected
by the director.
(b) Available Funds. The Measurement Funds available under this
Plan at any given time shall be set forth on Appendix A. The
Company is under no obligation to offer any particular
investment as a Measurement Fund and reserves the right to
eliminate, change and add Measurement Funds at any time by
action of the Administrative Committee.
(c) Allocation Election. Each non-employee director shall file a
written election ("Allocation Election") with the
Administrative Committee indicating the manner
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in which the director's future Qualifying Gains, deferred
Fees, RSR Settlement Amounts and RSR Dividend Equivalents are
to be allocated among the available Measurement Funds. A
director may file a new Allocation Election at any time. An
Allocation Election will be given effect no later than the
next business day after it is received and accepted by the
Administrative Committee.
(d) Reallocation Election. Once each year, in accordance with such
rules as the Administrative Committee may establish from time
to time, a director may file a written election with the
Administrative Committee reallocating the director's Account
among the available Measurement Funds (a "Reallocation
Election"). A Reallocation Election shall be effective as of
the next regularly-scheduled quarterly meeting of the
Company's Board of Directors held after the Administrative
Committee's receipt and acceptance of the director's
Reallocation Election, except that a Reallocation Election
will not be given effect if it would generate a "non-exempt"
transaction for purposes of the rules promulgated under
Section 16 of the Securities Exchange Act of 1934, as amended.
(A "non-exempt" transaction would result if a director's
Reallocation Election would cause a transfer of all or part of
the director's Account into (or out of) the Phantom Stock Fund
less than six months after the director filed a Reallocation
Election electing an opposite-way transfer into or out of that
Fund.)
(e) No Actual Investment. Notwithstanding any other Plan provision
that may be interpreted to the contrary, the Measurement Funds
are to be used for measurement purposes only. Neither a
director's election of any Measurement Fund nor the crediting
or debiting of amounts to the director's Account in accordance
with that election shall be construed as an actual investment
of the director's Account in any Measurement Fund.
9. PHANTOM STOCK FUND
(a) Phantom Stock Fund. Amounts allocated to the Phantom Stock
Fund shall be credited in units ("Units" or "Phantom Stock
Units") based on the price at which the last sale of Common
Stock was made prior to 1:00 p.m. Pacific Time on the NASDAQ
Stock Market on the date of crediting (the "Closing Price").
Fractional Units shall be credited to three decimal points.
(b) Dividends. To the extent cash dividends are paid by the
Company on the Common Stock, a director's Account shall be
credited with phantom dividends on Phantom Stock Units.
Phantom dividends shall equal the product of the dividend paid
on a share of Common Stock multiplied by the number of Units
in a director's Account on the record date for the cash
dividend. Phantom dividends shall be credited to a director's
Account in the form of additional Phantom Stock Units. The
number of additional Units credited shall be determined based
on the Closing Price of the Common Stock on the dividend
payment date.
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(c) No Actual Shares. No actual shares of Common Stock will be
issued directly or indirectly under the Plan in respect of
Phantom Stock Units.
(d) Reorganizations. In the event of any change in the Common
Stock by reason of an issuance of additional shares,
recapitalization, reclassification, merger, reorganization,
stock split, reverse stock split, combination of shares, stock
dividend or similar transaction, the number of Phantom Stock
Units held by directors under the Plan shall be
proportionately adjusted by the Administrative Committee.
(e) No Voting Rights. No voting or other rights of any kind
associated with the ownership of Common Stock shall inure to a
director by virtue of the director's allocation of all or any
part of the director's Account to the Phantom Stock Fund.
10. DISTRIBUTION OF DEFERRED COMPENSATION ACCOUNT
(a) General. Except as otherwise expressly provided in this Plan,
no withdrawal or payment shall be made from a director's
Account except following the first to occur of the director's
death, permanent disability, retirement as a director or other
termination of service as a director of the Company. Payments
shall be made in accordance with paragraphs (b) and (c) of
this Section 10 unless the director has filed an election
under paragraph (d) of this Section requesting an alternative
distribution type and/or time period. All payments shall be
made in cash, regardless of the Measurement Funds selected by
the director.
(b) Retirement and Disability Distributions. If a director
terminates service as a director on account of a permanent
disability, as determined by the Administrative Committee, or
retires as a director of the Company under the Company's
retirement policy for directors as then in effect, the balance
in the director's Account shall be paid to the director in 10
annual installments, with each installment payable in January
as soon as practicable after year-end, commencing the January
next following the director's retirement or termination of
service. The amount of the installment payable following any
given year-end shall be determined by valuing the director's
Account as of the close of business on the last business day
of the year and then multiplying that value by a fraction, the
numerator of which is one and the denominator of which is the
remaining number of installment payments.
(c) Distributions Following Death and Other Non-Retirement
Terminations. If a director dies prior to retirement as a
director or terminates service as a director of the Company
for any reason besides retirement or a permanent disability,
the entire balance of the director's Account shall be paid out
in a single lump sum within 30 days after the termination of
service or the date the Company is notified, in a form
acceptable to the Administrative Committee, of the director's
death, as applicable. The value of the director's Account
shall be determined as of the date of the director's death or
termination of service.
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(d) Distribution Election.
(i) Election permitted. A director shall be permitted, in
accordance with rules established by the
Administrative Committee from time to time, to elect
a distribution type and/or period (up to ten years)
different from those set forth in paragraphs (b) and
(c) above (a "Distribution Election"), provided that
distributions must commence no later than the year
after the director retires from the Board of
Directors or otherwise terminates service as a
director.
(ii) Procedure. To be effective, a Distribution Election
must be made in writing and be received by the
Administrative Committee at least 12 months prior to
the director's retirement or termination of service
as a director of the Company, except that the
12-month waiting period shall not apply if the
termination of service was due to the director's
death or permanent disability. Except as provided in
paragraph (iv) below, a director may revoke a
Distribution Election by written notice or file a new
Distribution Election with the Administrative
Committee at any time, subject to the above 12-month
waiting period, except that a Distribution Election
shall become irrevocable once the director is within
12 months of normal retirement under the Company's
retirement policy for directors as then in effect.
(iii) Entire Account. Any Distribution Election filed by a
director shall apply to his or her entire Account,
including both the amounts credited to the Account
prior to the date of the Distribution Election and
those credited thereafter, without regard to how the
Account may be allocated among investment options.
(iv) Elections by first-time directors. In the case of a
director making his or her first Deferral Election
under this Plan, a Distribution Election filed with
the Administrative Committee at the same time as the
director's initial Deferral Election shall be given
effect even if the director terminates service as a
director less than 12 months later. A Distribution
Election filed at the same time as the director's
initial Deferral Election shall be irrevocable for 12
months.
(e) Tax Distributions. If, for any reason, all or any portion of a
director's Account becomes taxable to the director prior to
distribution in accordance with the Plan, a director may
petition the Administrative Committee for a special
distribution of the taxable portion. Upon the grant of such a
petition, which shall not be unreasonably withheld, the
Company shall promptly distribute to the director the portion
of his or her Account that has become taxable.
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11. BENEFICIARIES
A director may designate one or more beneficiaries to receive amounts payable
under the Plan in the event of the director's death. To designate beneficiaries,
the director shall complete a beneficiary designation form in accordance with
the Administrative Committee's rules and procedures as in effect from time to
time. A director may change a beneficiary designation at any time by filing a
new beneficiary designation form with the Administrative Committee. Upon the
Administrative Committee's acceptance of the new form, all beneficiary
designations previously filed shall be canceled. If the director names someone
other than his or her spouse as primary beneficiary, a spousal consent, in the
form designated by the Administrative Committee, must be signed by the
director's spouse and returned to the Administrative Committee. If the director
fails to designate a beneficiary or if the designated beneficiary predeceases
the director, then the unpaid amounts in the Account of a deceased director
shall be paid to the director's surviving spouse, or, if the director has no
surviving spouse, to the personal representative of the director's probate
estate.
12. ANNUAL STATEMENTS
At least annually, the Company will provide each non-employee director with a
statement showing the deferred Fees, Qualifying Gains, RSR Settlement Amounts
and RSR Dividend Equivalents credited to the director's Account and any
additional amounts credited (or debited) thereto in accordance with the
director's Allocation Election(s) and the provisions of this Plan.
13. TERMINATION OR AMENDMENT OF THE PLAN
The Plan may be terminated, modified, or amended from time to time by resolution
of the Board of Directors. If the Plan is terminated, all amounts accrued in
directors' Accounts before termination will remain subject to the provisions of
the Plan as though the Plan had not been terminated.
14. DIRECTORS' RIGHTS
(a) No Funding or Interest in Company Assets. Amounts deferred and
accrued under the Plan remain the property of the Company, and
no director or other person shall acquire any property
interest in any assets of the Company on account of
participation in the Plan. A director's rights are limited to
receiving from the Company the payments provided for in the
Plan. The Plan is unfunded, and to the extent that any
director acquires a right to receive payments from the Plan,
such right shall be no greater than the right of an unsecured
creditor of the Company.
(b) Transferability. Interests in the Plan may not be transferred,
assigned, pledged or encumbered. Prior to the time payment of
an Account is actually made to a director, the director shall
have no rights by way of anticipation or otherwise to assign
or dispose of any interest under the Plan.
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15. GOVERNING LAW
This Plan shall be governed by and interpreted in accordance with the internal
laws of the state of Washington without regard to conflict of law principles.
16. EFFECTIVE DATE
The effective date of this Plan is November 2, 1994.
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Appendix A
MEASUREMENT FUNDS UNDER
THE SAFECO CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS
The following Measurement Funds shall be available under the Plan:
a. Phantom Stock Fund (described in Section 9 of the Plan);
b. Interest-Accruing Fund (interest credited at an annual rate
equal to the applicable federal long-term rate for purposes of
Section 1274 of the Internal Revenue Code of 1986, as amended,
in effect at January 1 of each year);
c. SAFECO 401(k) Savings Plan Investment Options:
- Diversified Common Stock Portfolio
- Intermediate Term Bond Portfolio
- Money Market Portfolio
- SAFECO Equity Fund
- SAFECO Growth Fund
- SAFECO Income Fund
- SAFECO International Stock Fund
- SAFECO Small Company Stock Fund
- Vanguard Total Bond Market Index Fund
- Vanguard Total Stock Market Index Fund
- Vanguard Growth Index Fund
- Vanguard Balanced Index Fund
- RS Emerging Growth Fund
- SAFECO High-Yield Bond Fund
- Fidelity Growth Company Fund
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