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EXHIBIT 10
SAFECO DEFERRED COMPENSATION PLAN FOR EXECUTIVES
1. PURPOSE
The purpose of the SAFECO Deferred Compensation Plan for Executives
(the "Plan") is to provide a select group of management or highly
compensated employees of SAFECO Corporation ("SAFECO") and its
Subsidiaries with an opportunity to defer all or part of the Eligible
Compensation payable by the Corporation to such employees and all or
part of such employees' Excess Contributions to the Savings Plan.
2. DEFINITIONS
2.01 Account. The term "Account" means a separate deferred
compensation account established by the Corporation in the
name of a Participant.
2.02 Administrative Committee. The "Administrative Committee" shall
be the three-person committee, appointed by the SAFECO Board
of Directors, and which is responsible for the administration
of the Corporation's qualified retirement and savings plans.
2.03 Beneficial Owner. "Beneficial Owner" has the meaning set forth
in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
2.04 Beneficiary. "Beneficiary" refers to an individual or
individuals designated by the Participant to receive certain
benefits described in this Plan in the event of the
Participant's death.
2.05 Board of Directors or Board. The "Board of Directors" or the
"Board" shall refer to the Board of Directors of SAFECO
Corporation.
2.06 Change in Control. A "Change in Control" shall be deemed to
have occurred if the event set forth in any one of the
following paragraphs has occurred:
(a) Any Person is or becomes the Beneficial Owner,
directly or indirectly, of SAFECO securities (not
including in the securities beneficially owned by
such Person any securities acquired directly from
SAFECO or its Affiliates) representing 25% or more of
the combined voting power of SAFECO's then
outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (x) of paragraph (c)
of this Section 2.06; or
(b) The following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who were directors of SAFECO on
the date the Plan is adopted by the SAFECO Board of
Directors, and any
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new director (other than a director whose initial
assumption of office is in connection with an actual
or threatened election contest, including but not
limited to a consent solicitation, relating to the
election of directors of SAFECO) whose appointment or
election by the Board of Directors or nomination for
election by SAFECO's shareholders was approved by a
vote of at least two-thirds of the directors then
still in office who either were directors on the date
the Plan was adopted or whose appointment, election
or nomination for election was previously so approved
or recommended; or
(c) There is consummated a merger or consolidation of
SAFECO or any Subsidiary with any other corporation,
other than (x) a merger or consolidation which would
result in the voting securities of SAFECO outstanding
immediately prior to such merger or consolidation
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity or any parent
thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under
an employee benefit plan of SAFECO or any Subsidiary,
at least 75% of the combined voting power of the
securities of SAFECO or such surviving entity or any
parent thereof outstanding immediately after such
merger or consolidation, or (y) a merger or
consolidation effected to implement a
recapitalization of SAFECO (or similar transaction)
in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of
SAFECO (not including in the securities beneficially
owned by such Person any securities acquired directly
from SAFECO or its Affiliates other than in
connection with the acquisition by SAFECO or its
Affiliates of a business) representing 25% or more of
the combined voting power of SAFECO's then
outstanding securities; or
(d) The shareholders of SAFECO approve a plan of complete
liquidation or dissolution or there is consummated an
agreement for the sale or disposition of all or
substantially all of SAFECO's assets, other than a
sale or disposition by SAFECO of all or substantially
all of its assets to an entity of which at least 75%
of the combined voting power is owned by shareholders
of SAFECO in substantially the same proportions as
their ownership of SAFECO immediately prior to such
sale.
Notwithstanding the foregoing, a "Change in Control" shall not
be deemed to have occurred by virtue of the consummation of
any transaction or series of integrated transactions
immediately following which the record holders of the Common
Stock immediately prior to such transaction or series of
transactions continue to have substantially the same
proportionate ownership in an entity which owns all or
substantially all of SAFECO's assets immediately following
such transaction or series of transactions.
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2.07 Closing Price. "Closing Price" means the price at which the
last trade of SAFECO Common Stock was made prior to 1:00 p.m.
West Coast time on the NASDAQ Stock Market.
2.08 Code. "Code" means the Internal Revenue Code of 1986, as
amended.
2.09 Common Stock. "Common Stock" means SAFECO Corporation common
stock.
2.10 Compensation Committee. "Compensation Committee" means the
Compensation Committee of the Board of Directors.
2.11 Corporation. "Corporation" means SAFECO Corporation and its
subsidiaries, collectively.
2.12 Deferrals. "Deferrals" refers to the amount of Eligible
Compensation and/or Excess Contributions that a Participant
specifies in his or her Election pursuant to the terms and
conditions of the Plan.
2.13 Disability. "Disability" means a permanent and total
disability as defined in Section 22(e) of the Code.
2.14 Election. "Election" means a written document signed by an
eligible employee stating the employee's intent to participate
in the Plan and specifying the amount or percentage of
Eligible Compensation and/or Excess Contributions which the
employee desires to have credited to his Account in the Plan.
2.15 Eligible Compensation. "Eligible Compensation" means
compensation payable to a Participant by the Corporation in
the form of salary, bonus, gain on the exercise of
non-qualified stock options, settlements of restricted stock
rights ("RSRs"), and dividend equivalents payable on RSRs.
2.16 Excess Contributions. "Excess Contributions" means the amount
of base salary (not to exceed 6%) elected by an employee to
contribute to the Savings Plan which is in excess of
applicable Code limitations on contributions to the Savings
Plan.
2.17 Hardship. "Hardship" means an unforeseeable emergency
resulting from a sudden and unexpected illness or accident of
the Participant or a Participant's dependent (as defined in
Section 152(a) of the Code), loss of the Participant's
property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising from events beyond the
Participant's control.
2.18 Match. "Match" means an amount equal to two-thirds of the
amount of Excess Contributions which a Participant has elected
to defer under the Plan.
2.19 Participant. A "Participant" means an employee eligible to
participate in the Plan who has timely filed an Election to
defer compensation in accordance with Section 3.
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Any such person shall be a Participant as of the effective
date of his or her first Election and shall continue until the
date of the last payment pursuant to Section 6.
2.20 Person. "Person" for purposes of Section 2.06 means any person
(as defined in Section 2(a)(9) of the Exchange Act, and as
such term is modified in Section 13(d) and 14(d) of the
Exchange Act) other than (i) any employee plan established by
SAFECO, (ii) SAFECO or any of its affiliates (as defined in
Rule 12b-2 promulgated under the Exchange Act) ("Affiliates"),
(iii) an underwriter temporarily holding securities pursuant
to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by SAFECO shareholders in
substantially the same proportions as their ownership of
SAFECO.
2.21 Phantom Stock. "Phantom Stock" refers to an investment option
tied to the performance of the Common Stock where each unit of
Phantom Stock is the economic equivalent of one share of
Common Stock.
2.22 RSRs. "RSRs" refers to restricted stock rights issued under
the SAFECO Incentive Plan of 1987, the SAFECO Long-Term
Incentive Plan of 1997, or any successor incentive plan.
2.23 Retirement. "Retirement" means a Participant's termination of
employment with the Corporation occurring at or after age 55
(other than as a result of death or Disability), provided the
sum of the Participant's age and the Participant's years of
service with the Corporation equals or exceeds 75.
2.24 Savings Plan. "Savings Plan" means the SAFECO Employees'
Savings Plan.
2.25 Subsidiary. "Subsidiary" means any corporation of which 50% or
more of the voting stock is owned, directly or indirectly, by
SAFECO Corporation.
3. ELECTIONS TO DEFER
3.01 Filing of Election. An eligible employee who wishes to
participate in the Plan shall file an Election with the
Corporation in the form provided by the Administrative
Committee, which shall specify the timing and amount of
Deferrals, if any, to be made under the Plan by the
Participant. A Participant may elect to defer all or any
portion of the Participant's Eligible Compensation and/or
Excess Contributions.
3.02 Election Irrevocable. An Election is irrevocable as to the
amount or percentage of Eligible Compensation or Excess
Contributions to be deferred in the year to which the Election
relates. Any request to change the amount or percentage to be
deferred shall not be effective until the first day of the
next calendar year. Notwithstanding the above, if a
Participant obtains a Hardship withdrawal from the Plan under
Section 6.06, the Participant's Election shall be
automatically revoked, beginning with the first day of the
next regularly scheduled payroll period, for the remainder of
the calendar year.
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3.03 Timing of Election
(a) Elections to defer Eligible Compensation shall be
filed with the Administrative Committee no later than
December 31 and shall be effective for Eligible
Compensation earned on or after January 1 of the
following calendar year, except that Elections to
defer amounts payable in settlement of RSRs shall not
take effect until one additional year later.
(b) Elections to defer Excess Contributions shall be
filed with the Administrative Committee no later than
December 31 of the year prior to the year in which
the Excess Contributions will occur.
3.04 Special Rule Applicable in 1998. Eligible employees shall have
until May 15, 1998 to file Elections to defer Eligible
Compensation earned and/or Excess Contributions made during
the remainder of 1998 as well as settlements of RSRs payable
in February 1999.
4. DEFERRAL ACCOUNTS
4.01 Establishment of Accounts. An Account shall be established for
each Participant to which all Deferrals and Matches made on
behalf of the Participant shall be credited.
4.02 Crediting of Accounts.
(a) Deferrals of Eligible Compensation shall be credited
to a Participant's Account on the date such Deferrals
would otherwise be payable to the Participant.
(b) Deferrals of Excess Contributions and the
corresponding Match shall be credited to a
Participant's Account on the date the Excess
Contributions would have been contributed to the
Savings Plan but for applicable Code limitations.
4.03 Earnings. Each Account shall be credited with earnings
equivalent to those that would accrue if the Account were
actually invested in the investment options selected by the
Participant from among the phantom investment options offered
under the Plan from time to time.
5. INVESTMENT OPTIONS
5.01 Investment Options. The phantom investment options available
under the Plan are those set forth in Appendix A. The
Corporation is under no obligation to offer any particular
investment option and reserves the right to eliminate, change,
and add investment options at any time.
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5.02 Switching Investments. Participants may change investment
option selections from time to time under rules established by
the Administrative Committee.
6. DISTRIBUTION OF DEFERRED COMPENSATION ACCOUNT
6.01 General. Except as provided in Section 6.07 with respect to
Hardship withdrawals and Section 7 concerning Change in
Control situations, no withdrawal or payment shall be made
from a Participant's Account except following the earliest to
occur of the Participant's death, Disability, Retirement or
other termination of service with the Corporation. Payments
shall be made in accordance with Sections 6.02 and 6.03 unless
the Participant files an election pursuant to Section 6.05
requesting an alternative distribution type and/or time
period. All payments shall be made in cash, regardless of the
investment options selected by the Participant.
6.02 Retirement Distributions. The Participant's Account balance
shall be paid to the Participant (or the Participant's
Beneficiary) in 10 annual installments commencing in January
of the year following the Participant's retirement. The amount
of each annual installment payment shall equal the value of
the Participant's Account as of December 31 divided by the
remaining number of installment payments (including the
payment in question).
6.03 Distributions Following Death, Disability and Other
Non-Retirement Terminations. In the event that a Participant
dies prior to Retirement or terminates employment with the
Corporation due to Disability or for any other reason besides
Retirement, the entire balance of the Participant's Account
shall be paid out in a single lump sum in January of the year
following the year in which the death, Disability, or other
termination of employment occurred. The value of the Account
shall be determined as of December 31 of the year in which the
Participant's death, Disability, or other termination
occurred.
6.04 Designation of Beneficiary. A Participant may designate a
Beneficiary to receive amounts payable under the Plan in the
event of the Participant's death. The Participant may revoke
or change a Beneficiary designation by filing a written notice
of revocation or change of Beneficiary with the Administrative
Committee at any time. If the Participant fails to designate a
Beneficiary or if the designated Beneficiary predeceases the
Participant, then the unpaid amounts in the Account of a
deceased Participant shall be paid to the Participant's
estate.
6.05 Distribution Election. Participants shall be permitted, in
accordance with rules established by the Administrative
Committee, to specify a distribution type and/or period
different from those set forth in Sections 6.02 and 6.03
above. To be effective, a distribution election must be made
in writing and received by the Administrative Committee at
least 12 months prior to the Participant's termination of
employment with the Corporation, except that the 12-month
waiting period shall not apply if the termination of
employment was due to the Participant's death or Disability. A
Participant may revoke any such distribution election by
written notice or file a new
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distribution election with the Administrative Committee at any
time, subject to Section 6.06; provided, however, that an
election made under this Section 6.05 shall become irrevocable
once the Participant is within 12 months of termination. Any
distribution election filed by a Participant shall apply to
the entire Account, including both the amounts credited to the
Account prior to the election date and those credited
thereafter, without regard to how the Account may be allocated
among investment options.
6.06 Special Rule for First-Time Participants. In the case of
Participants making an Election to defer compensation for the
first time, a distribution election made under Section 6.05
shall be given effect even if the Participant terminates
employment within 12 months of such election, provided the
distribution election was made at the same time as the initial
Election to defer compensation. A distribution election made
by a first-time Participant at the time of his or her initial
Election shall be irrevocable for 12 months.
6.07 Hardship Withdrawals. A Participant may request that the
Corporation make an immediate, accelerated distribution from
his or her Account in the event the Participant has incurred a
severe financial Hardship. Distributions will not be made to
the extent that such Hardship can be relieved through
insurance proceeds, liquidation of the Participant's assets
(but only to the extent that such liquidation would not itself
cause a severe financial Hardship) or by cessation of
deferrals under the Plan. Payments for severe financial
Hardship under this Plan are limited to the extent necessary
to comply with Treas. Reg. Section 1.457-2. The Administrative
Committee shall determine whether the Participant has incurred
a severe financial Hardship and may, in its sole discretion,
grant the immediate, accelerated distribution of all or any
portion of the Participant's Account; provided, however, that
such distribution shall not exceed the amount determined by
the Administrative Committee to be necessary to alleviate the
severe financial Hardship.
7. CHANGE IN CONTROL
In the event of a Change in Control, the entire unpaid balance of each
Participant's Account shall be paid to the Participant (or the
Participant's Beneficiary or estate) in a single lump sum within 30
days after the Change in Control.
8. PHANTOM STOCK UNITS
8.01 Phantom Stock Units. Deferrals allocated to Phantom Stock
shall be credited in units ("Units") based on the Closing
Price of the Common Stock on the date such amounts are
credited to a Participant's Account.
8.02 Phantom Dividends. To the extent cash dividends are paid by
SAFECO on the Common Stock, Participants' Accounts 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
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Participant's Account on the record date for the cash
dividend. Phantom dividends shall be credited to a
Participant'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.
8.03 Distributions. In determining the amount of an installment
payment or lump sum distribution payable to a Participant
(other than a distribution under Section 7 following a Change
in Control), the value of a Phantom Stock Unit shall equal the
average of the Closing Price of the Common Stock during the
last 10 trading days of the year prior to the year in which
the lump sum distribution or installment payment is to be
made.
8.04 Distributions Resulting from a Change in Control. In
determining the amount of the lump sum distribution payable to
a Participant following a Change in Control, Phantom Stock
Units shall be valued as follows:
(a) If the Change in Control was of the type described in
paragraph (a) of Section 2.06, the value of a Phantom
Stock Unit shall equal the highest price paid for
shares of Common Stock by any Person who became a
Beneficial Owner of securities representing 25% or
more of the combined voting power of SAFECO's
outstanding securities.
(b) If the Change in Control was of any type other than
that described in paragraph (a) of Section 2.06, the
value of a Phantom Stock Unit shall equal the highest
Closing Price of the Common Stock during the last 10
trading days prior to and including the date of the
Change in Control.
8.05 No Share Issuance. No actual shares of Common Stock will be
issued directly or indirectly under the Plan in respect of
Phantom Stock Units.
8.06 Changes in Capital Structure. In the event of any change in
the Common Stock of SAFECO 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 Participants under the Plan
shall be proportionately adjusted by the Administrative
Committee.
8.07 No Voting or Other Rights. No voting or other rights of any
kind associated with the ownership of Common Stock shall inure
to a Participant by virtue of the Participant's deemed
investment in Phantom Stock Units.
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9. 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 Participant, the Participant shall have no rights by way of
anticipation or otherwise to assign or dispose of any interest under
the Plan.
10. ADMINISTRATION
The Plan shall be administered by the Administrative Committee. The
Administrative Committee shall have the exclusive authority over all
matters involving administration of the Plan, including the selection
of employees eligible to participate. The Administrative Committee
shall also have exclusive authority to interpret the Plan and may adopt
such rules and procedures as it deems necessary or desirable from time
to time, subject to the Plan's express provisions. The Administrative
Committee may delegate administrative duties to other persons,
including officers of the Corporation, and may retain the services of
lawyers, accountants, or other outside third parties to assist with the
administration of the Plan. In cases where a decision or Plan
interpretation of the Administrative Committee relates specifically to
the benefits to which a member of the Administrative Committee may be
entitled, the decision or interpretation shall be subject to review and
approval by the Compensation Committee.
11. AMENDMENT OF THE PLAN
The Compensation Committee may from time to time make such amendments
to the Plan as it deems appropriate, including without limitation the
addition or elimination of one or more investment options; provided,
however, that (i) no amendment which cancels or reduces the benefits to
which any Participant is entitled as of the date of such amendment
shall be effective without the written consent of the Participant, and
(ii) the provisions contained in Sections 7 and 8.04 shall not be
amended following a Change in Control without the written consent of
66.67% of the Participants. The Administrative Committee shall be
authorized to make amendments to the Plan which are immaterial or
clerical in nature or which are, in the opinion of counsel, required by
local, state or federal law or regulation.
12. TERMINATION OF THE PLAN
The Corporation reserves the right to terminate the Plan at any time by
action of the Board of Directors or the Compensation Committee, subject
to the limitations on amendments set forth in Section 11. Unless the
Board or the Compensation Committee determines otherwise, in the event
the Plan is terminated, the Account of each Participant shall be valued
as of the date specified for such purpose by the Board or the
Compensation Committee (the "Valuation Date"), and the value of the
Account shall be paid in cash to the Participant within 30 days
following the Valuation Date. In valuing Accounts following a
termination of the Plan, the value of a Phantom Stock Unit shall equal
the average of the Closing Price of the Common Stock during the last 10
trading days prior to and including the Valuation Date.
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13. NO EMPLOYMENT RIGHTS.
Nothing in the Plan shall confer upon any Participant any right to be
continued in the employment of the Corporation or to interfere in any
way with the right of the Corporation, in its sole discretion, to
terminate such Participant's employment at any time.
14. NO RIGHTS TO ASSETS
Participants shall have no rights to any assets of the funds selected
as investment options. The rights of a Participant (and of his or her
Beneficiary or estate) shall be solely those of an unsecured general
creditor of the Corporation, and shall not constitute an interest in
any specific asset of the Corporation.
15. DISPUTES
By participating in the Plan, a Participant waives the right to
litigate any dispute arising in connection with the Plan in any court
of otherwise competent jurisdiction. The determination of the
Administrative Committee as to any disputed questions concerning
interpretation of the Plan shall be final, binding, and conclusive upon
all persons. The Corporation may, but is not required to, agree to
assistance in the resolution of any dispute arising under the Plan from
a mediator who shall be a disinterested party to the dispute.
16. EMPLOYMENT TAXES; WITHHOLDING; EXPENSES
The Corporation will collect applicable employment taxes from
Participants on all amounts deferred under the Plan. From
distributions under the Plan, the Corporation will deduct federal,
state, and local taxes and such other amounts as may be required by
law to be withheld with respect to such payments.
17. EQUITABLE ADJUSTMENTS
The Administrative Committee may make equitable adjustments under the
Plan from time to time, including retroactive adjustments to correct
mathematical, accounting, or factual errors made in good faith by the
Corporation or a Participant. Any such adjustments will be final and
binding on all Participants and Beneficiaries.
18. GOVERNING LAW; SEVERABILITY
This Plan shall be governed by and interpreted in accordance with the
internal laws of the State of Washington without regard to conflicts of
law principles. If any provision of the Plan is held to be invalid or
unenforceable, such invalidity or unenforceability shall in no way
affect the validity or enforceability of any other Plan provision.
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19. BINDING PROVISIONS
All of the provisions of the Plan shall be binding upon and inure to
the benefit of the Corporation, its successors and assigns, each
Participant and every Beneficiary, guardian, personal representative
and heir of a Participant.
20. EFFECTIVE DATE
The effective date of the Plan shall be May 6, 1998.
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Appendix A
INVESTMENT OPTIONS UNDER
THE SAFECO DEFERRED COMPENSATION PLAN FOR EXECUTIVES
May 1998
In the case of deferrals of Eligible Compensation or Excess Contributions, the
following investment options shall be available:
a. SAFECO Phantom Stock Units on which dividend equivalents shall
be credited.
b. Interest-Accruing Account on which interest shall be credited
at a 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. Savings Plan Portfolios
- Common Stock - Fund A
- Fixed Income - Fund B
- Short-Term Securities - Fund C
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