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EXHIBIT 10.4
SAFECO CORPORATION
NONQUALIFIED STOCK OPTION CONTRACT
SAFECO Corporation ("SAFECO") hereby grants to Michael S. McGavick ("Optionee")
a nonqualified option to purchase 300,000 shares of SAFECO Common Stock, subject
to the SAFECO Long-Term Incentive Plan of 1997 and the following terms and
conditions:
1. TERM. This option contract is effective from January 26, 2001, until the
earlier of (i) the close of business ten years from such date or (ii) such
other date as may apply pursuant to paragraph 8 below relating to
retirement, disability, death or other termination of employment.
2. PURCHASE PRICE. Optionee may purchase the shares covered by this option
contract at a price of $24.25 per share.
3. LIMITATIONS ON EXERCISE (VESTING).
(a) Except as otherwise provided in this Option Contract, this option
will become exercisable (or, as stated herein, shall "vest") 100% on
January 26, 2006, and no part of this option shall be vested before
that date.
(b) If, however, the Optionee is terminated by SAFECO without Cause, as
defined in the Optionee's Employment Agreement dated as of January
26, 2001 (the "Employment Agreement") on or before January 26, 2004,
or if the Optionee's employment terminates for any reason after
January 26, 2004, the vesting of this option shall be accelerated as
of the termination date in a percentage equivalent to the number of
whole months from (and including) February 2001 to the date of
termination divided by 60.
4. EXERCISE OF OPTIONS. The Optionee may exercise up to the total number of
shares that have vested, subject to a minimum purchase of 10 shares at any
one time. Shares that have vested may be purchased at any time until this
option contract terminates. All unexercised rights will terminate upon the
expiration of the option contract term.
5. METHOD OF EXERCISE. To exercise this option, in whole or in part, the
Optionee shall deposit with the controller of SAFECO a written notice
identifying the option by date and designating the number of shares as to
which the Optionee is exercising the option, accompanied by payment in
full for the number of shares being purchased.
6. EXERCISE OF RIGHTS FOLLOWING CHANGE IN CONTROL. Notwithstanding the
limitations on exercise set forth in paragraph 3, in the event there is a
Change in Control of SAFECO, the option shall become fully vested and
exercisable immediately prior to the Change in Control and may thereafter
be exercised in whole or in part at any time prior to the expiration of
the term of the option provided in this option contract.
7. TRANSFERABILITY. This option shall not be subject to execution, attachment
or similar process. Except as permitted by the Plan and the Compensation
Committee, this option may not be assigned, pledged or transferred in any
manner, by operation of law or otherwise, except by will or by the laws of
descent and distribution, and during the lifetime of the Optionee, only
the Optionee or the Optionee's guardian may exercise this option.
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8. TERMINATION OF EMPLOYMENT; RETIREMENT; DISABILITY AND DEATH
(a) In the event the Optionee ceases to be employed by SAFECO, this
option may be exercised, but only to the extent exercisable on the
date of termination of employment, at any time within three months
following such termination of employment, except that:
(i) If the Optionee's employment is terminated by SAFECO without
Cause (as Cause is defined in the Employment Contract) on or
before January 26, 2004, or if Employee's employment
terminates for any reason after January 26, 2004, the vested
portion of this option, as determined in accordance with
paragraph 3(b), may be exercised until the earlier of one year
after termination of Employee's employment and January 26,
2011.
(ii) If the Optionee's termination of employment is on account of
Retirement, then the option, to the extent exercisable at the
date of termination of employment, may be exercised at any
time prior to the expiration of its stated term, but in no
event later than the fifth anniversary date of the Optionee's
termination of employment.
(iii) If the Optionee's termination of employment is on account of a
permanent and total disability within the meaning of Section
22(e)(3) of the Internal Revenue Code (or any successor
provision), then the option, to the extent exercisable at the
date of termination of employment, may be exercised at any
time within one year after the date of termination or until
January 26, 2011, whichever is the shorter period.
(iv) If the Optionee's termination of employment is caused by the
death of the Optionee, then the option may be exercised at any
time prior to the expiration of the term stated in this option
contract by the person(s) to whom the Optionee's rights pass
by will or by operation of law without regard to any
requirements related to continued employment or installment
vesting.
(v) If the Optionee dies following termination of employment and
during the period in which the option is exercisable under
subparagraph (i), (ii), (iii) or (iv) of this paragraph 8,
then, to the extent the option was vested at the date of
termination of employment, the option may be exercised at any
time prior to the expiration of the term stated in this option
contract by the person(s) to whom the Optionee's rights pass
by will or by operation of law.
(b) Any portion of the option that is not exercisable on the date of
termination of the Optionee's employment shall terminate on such
date, unless the Committee determines otherwise.
(c) To the extent that the option is not exercised following termination
of employment within the time periods provided in this paragraph 8,
all further rights to exercise the option shall terminate.
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9. RIGHTS AS STOCKHOLDER. Neither the Optionee nor the Optionee's legal
representative, heir, legatee or distributee shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any
shares subject to this option until after the stock is issued.
10. PROVISIONS OF THE SAFECO LONG-TERM INCENTIVE PLAN OF 1997. This option is
subject to all of the provisions of the SAFECO Long-Term Incentive Plan of
1997 and, to the extent provided in such Plan, to all constructions,
interpretations, rules and regulations which may from time to time be
promulgated pursuant to or in connection with the Plan. Capitalized terms
not otherwise defined in this option contract shall have the meanings
assigned to them in the Plan.
11. FORFEITURE.
(a) If, at any time within (i) one year after the exercise of any
portion of this option or (ii) one year after termination of
employment, whichever is the later (the "Restricted Period"), the
Optionee engages in any activity harmful to SAFECO's interests or
which is in competition with any of SAFECO's operations, then the
Optionee's rights under this option shall terminate effective as of
the date on which the Optionee commences such activity (unless
terminated sooner by operation of another term or condition of this
option), and any option gain realized by the Optionee from
exercising all or any portion of the option during the Restricted
Period shall be immediately payable to SAFECO.
(b) Such harmful or competitive activities include, without limitation,
(i) engaging in conduct related to the Optionee's employment for
which either criminal or civil penalties may be sought; (ii)
accepting employment with or serving as a consultant, advisor or in
any other capacity to any party which is in competition with any
member or members of the SAFECO family of companies in any of their
lines of business; (iii) disclosing or misusing any confidential
information concerning the SAFECO companies; and (iv) participating
in a hostile attempt to acquire control of SAFECO.
(c) SAFECO shall have the right to reduce payment of any amounts owed to
the Optionee (for wages, fringe benefits, unused vacation or any
other reason except as may be prohibited by law) to the extent of
any amounts owing to SAFECO by the Optionee under the foregoing
forfeiture provisions.
(d) The provisions of subparagraphs (a), (b) and (c) of this paragraph
11 shall lapse and be of no further effect upon the occurrence of a
Change in Control (as defined in the Plan).
12. GOVERNING LAW. This option contract shall be governed by the laws of the
State of Washington, excluding any conflicts or choice-of-law rule or
principle that might otherwise refer construction or interpretation of the
option contract to the substantive law of another jurisdiction. The
Optionee and SAFECO submit to the exclusive jurisdiction
and venue of the federal or state courts in King County, Washington, to resolve
issues that may arise out of or relate to this option contract.
Dated: January 26, 2001
SAFECO CORPORATION OPTIONEE
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By
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Robert S. Cline Michael S. McGavick
Chair, Compensation Committee
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