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EXHIBIT 10.7
PERFORMANCE STOCK RIGHTS
AWARD AGREEMENT
ISSUED UNDER THE SAFECO LONG-TERM INCENTIVE PLAN OF 1997
SAFECO CORPORATION ("SAFECO") grants to Michael S. McGavick ("Employee") the
following performance stock rights pursuant to, and in accordance with the
provisions of, the SAFECO Long-Term Incentive Plan of 1997 (the "Plan").
1. SHARES SUBJECT TO RIGHTS. SAFECO shall issue to Employee up to a total
of 33,171 shares of SAFECO common stock (the "Award Shares"), or, at the
Employee's request, make a payment of an amount equal to the Fair Market
Value of the Award Shares (or any portion thereof) upon the Employee's
achievement of the stated Performance Goals for each of the Performance
Cycles covered by this Award Agreement.
2. PERFORMANCE CYCLES. The period covered by this Award Agreement is
January 1, 2001 through December 31, 2003 (the "Award Period"), within
which each of the following periods shall constitute a Performance
Cycle:
Performance Cycle 1: January 1, 2001 through December 31, 2001;
Performance Cycle 2: January 1, 2001 through December 31, 2002; and
Performance Cycle 3: January 1, 2001 through December 31, 2003
3. PERFORMANCE GOALS. The Performance Goals for each Performance Cycle are
stated on Schedule A, Performance Goals.
4. SHARES EARNED. Following the end of each Performance Cycle, the number
of Award Shares earned ("Earned Shares") shall be determined based on
the Combined Percentage Achieved for that Performance Cycle, computed as
follows:
a. The sum of the product of the Percentage Achieved for each
Performance Goal multiplied by the appropriate weighting factor
shall equal the Combined Percentage Achieved for that
Performance Cycle; provided, that the Combined Percentage
Achieved for any Performance Cycle may not exceed 100%.
b. The Earned Shares with respect to any Performance Cycle shall
equal the Combined Percentage Achieved multiplied by the number
of shares set forth below, less any Award Shares previously
issued under this Award Agreement:
Performance Cycle Number of Shares
Performance Cycle 1 1/3 Award Shares
Performance Cycle 2 2/3 Award Shares
Performance Cycle 3 Total Award Shares
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5. ACHIEVEMENT OF PERFORMANCE GOALS; PAYMENT OF SHARES EARNED. The
determination as to whether a Performance Goal has been met, its level
of achievement and the Combined Percentage Achieved shall be made as
soon as practical after the end of each Performance Cycle by the
Committee selected by the SAFECO Board of Directors to administer the
Plan (the "Committee"). Promptly following such determination (and in
any event no later than 45 days following the end of a Performance
Cycle), the Earned Shares shall be settled by the issuance and delivery
of unrestricted shares of SAFECO common stock equal to the number of
Earned Shares or, at Employee's request, by a cash payment equal to the
Fair Market Value of those shares on the date settlement would otherwise
have been made in shares (the "Settlement Date") or by a combination of
cash and shares.
6. ADJUSTMENT OF PERFORMANCE GOALS. The Committee may adjust the
Performance Goals in such manner as it deems equitable in recognition of
unusual or nonrecurring events affecting SAFECO, changes in applicable
tax laws or accounting principles, or such other factors as the
Committee may determine. If, however, an Employee is a person covered by
Section 162(m) of the Code and the adjustment of any Performance Goal or
other term of this Award Agreement would cause an increase in the number
of Award Shares to be issued with respect to a Performance Cycle, then
the Committee may not make such adjustment.
7. TAX WITHHOLDING. As a condition to settlement of the Earned Shares,
Employee must tender to SAFECO on or before the Settlement Date an
amount sufficient to satisfy all applicable federal, state and local
withholding tax requirements ("Tax Requirements"). Unless Employee pays
SAFECO an amount equal to the Tax Requirements by the Settlement Date,
SAFECO shall pay the Tax Requirements and either withhold the amount
paid from Employee's next paycheck or reduce the number of Award Shares
issued to Employee (or the cash equivalent paid to Employee) by the
number of Award Shares which, as of the Settlement Date, has a Fair
Market Value equal to the Tax Requirements.
8. TERMINATION OF EMPLOYMENT. If Employee ceases to be an employee of
either SAFECO or a subsidiary of SAFECO for any reason, then, except as
provided in the Plan with respect to a Change in Control or to the
extent the Committee may decide otherwise in select situations, Employee
shall lose all rights to receive any Award Shares or their cash
equivalent with respect to any unexpired Performance Cycles covered by
this Award Agreement (including the Performance Cycle in which Employee
terminates employment).
9. FORFEITURE. In the event Employee engages in any activity deemed by the
Committee to be in competition with SAFECO or otherwise contrary to
SAFECO's interests while employed by SAFECO or one of its subsidiaries,
or within one year following Employee's termination of employment, all
of Employee's rights under this Award Agreement shall be forfeited,
including the right to receive settlement of any Earned
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Shares. In addition, in such event, Employee shall surrender to SAFECO
any Award Shares issued to Employee during the 12 months prior to
termination of employment, or if such Award Shares were settled in cash
or Employee no longer owns the Award Shares, Employee shall reimburse
SAFECO for the Fair Market Value of the Award Shares on the date they
were settled. Employee agrees that SAFECO shall have the right to offset
any amounts owing to Employee by SAFECO (e.g., including, without
limitation, salary, profit-sharing bonus, payment for accrued vacation
and sick leave) by any amount that Employee owes to SAFECO under this
Section 9.
10. CONTINUATION OF EMPLOYMENT. Nothing in this Award Agreement shall be
construed or interpreted to confer upon Employee any right to continued
employment by SAFECO or a SAFECO subsidiary or to interfere in any way
with the right of SAFECO, in its sole discretion, to terminate Employee
at any time.
11. NO ADDITIONAL COMPENSATION PAYMENTS. No dividend equivalent payments
shall be made with respect to the Award Shares.
12. COORDINATION WITH OTHER BENEFIT PLANS. Settlements of Award Shares shall
not be taken into account in administering other employee benefit and
bonus programs for which Employee may be eligible (e.g., the SAFECO
Employees' Profit Sharing Retirement Plan, Cash Balance Plan or 401(k)
Savings Plan and the profit-sharing cash bonus).
13. RIGHTS NOT TRANSFERABLE. The rights granted to Employee under this Award
Agreement shall not be transferable except by will or by the laws of
descent and distribution. During the Employee's lifetime, only Employee
or Employee's guardian may exercise such rights.
14. NO RIGHTS AS STOCKHOLDER. Neither Employee, nor Employee's personal
representative, heir, legatee or distributee, shall be deemed to be a
holder of, or to have any rights with respect to, any Award Shares until
the Award Shares are issued.
15. NO SEPARATE FUND. SAFECO has not segregated any assets or established
any separate account or fund to insure payment of its obligations under
this Award Agreement.
16. OTHER PLAN PROVISIONS. The rights granted under this Award Agreement are
subject to all of the provisions of the Plan, as it may be amended from
time to time, and, except as otherwise expressly provided, to all
constructions, interpretations, rules and regulations which may be
adopted in connection with the Plan. Capitalized terms not otherwise
defined in this Award Agreement shall have the meanings assigned to them
in the Plan.
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17. PLAN DOCUMENT. By signing below to acknowledge acceptance of the rights
granted under this Award Agreement, Employee acknowledges that Employee
has received a Plan Summary which includes the text of the Plan and has
been afforded an opportunity to ask any questions that Employee may have
regarding the Plan or the rights granted under this Award Agreement.
Dated this 27th day of March, 2001.
SAFECO: SAFECO CORPORATION
By: ______________________________
Robert S. Cline
Chair, Compensation Committee
EMPLOYEE: Accepted this ___ day of _____________, 2001
_________________________________
Michael S. McGavick
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SCHEDULE A--PERFORMANCE GOALS
For March 2001 Corporate Performance Stock Rights
a. Operating Return on Equity--Receives 1/3 Weight. The average annual
operating return on equity for SAFECO, with investments at cost, for
each Performance Cycle:
----------------------------- --------------------------- --------------------------
| PERFORMANCE | PERFORMANCE | PERFORMANCE |
| CYCLE 1 | CYCLE 2 | CYCLE 3 |
----------------------------- --------------------------- --------------------------
| PERCENTAGE | RETURN ON | PERCENTAGE | RETURN ON | PERCENTAGE | RETURN ON |
| ACHIEVED | EQUITY* | ACHIEVED | EQUITY** | ACHIEVED | EQUITY*** |
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*Return on equity figure for Performance Cycle 1 is the return on equity
figure for calendar year 2001.
**Return on equity figure for Performance Cycle 2 is the average of the
return on equity figures for calendar years 2001 and 2002.
***Return on equity figure for Performance Cycle 3 is the average of the
return on equity figures for calendar years 2001, 2002 and 2003.
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b. Operating Earnings Per Share--Receives 1/3 Weight. The average annual
operating earnings per share for SAFECO.
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| PERFORMANCE | PERFORMANCE | PERFORMANCE |
| CYCLE 1 | CYCLE 2 | CYCLE 3 |
----------------------------- --------------------------- --------------------------
| PERCENTAGE | EARNINGS | PERCENTAGE | EARNINGS | PERCENTAGE |EARNINGS PER|
| ACHIEVED | PER SHARE* | ACHIEVED | PER SHARE** | ACHIEVED | SHARE*** |
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*Earnings per share figure for Performance Cycle 1 is the earnings per
share for calendar year 2001.
**Earnings per share figure for Performance Cycle 2 is the average of
the earnings per share figures for calendar years 2001 and 2002.
***Earnings per share figure for Performance Cycle 3 is the average of
the earnings per share figures for calendar years 2001, 2002 and 2003.
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c. Change in Stock Price--Receives 1/3 Weight. For each Performance Cycle,
the average annual change in the price of SAFECO's common stock more
than the average annual change in the price of the common stocks of the
companies included in the Peer Index used in SAFECO's proxy statement:
Percentage Change in SAFECO Stock Price
Achieved Over Change in Average of Peer
Index Companies Stock Prices*
Redacted