Exhibit 10.14
CHANGE IN CONTROL
SEVERANCE
AGREEMENT
THIS AGREEMENT, effective February 1, 2006, is
made by and between Safeco Corporation, a Washington corporation
(“Safeco”), and Paula Rosput Reynolds (the
“Executive”).
WHEREAS, Safeco (together with its subsidiaries,
collectively, the “Company”), considers it essential to
the best interests of its shareholders to foster the continued
employment of key management personnel; and
WHEREAS, Safeco recognizes that, as is the case
with many publicly held corporations, the possibility of a Change
in Control exists and that such possibility, and the uncertainty
and questions which it may raise among management, may result in
the departure or distraction of management personnel to the
detriment of the Company and its stockholders; and
WHEREAS, Safeco has determined that appropriate
steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company’s
management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in
Control;
NOW, THEREFORE, in consideration of the premises
and the mutual covenants herein contained, the Company and the
Executive agree as follows:
1. Defined Terms . The definitions of
capitalized terms used in this Agreement are provided in
Section 15.
2. Term of Agreement . The Term of this
Agreement shall commence on the date hereof and shall continue in
effect until the earlier of (i) the date it is terminated by
written agreement between the Company and the Executive and
(ii) seventh anniversary of a Change in Control.
3. Company’s Covenants Summarized .
In order to induce the Executive to remain in the employ of the
Company and in consideration of the Executive’s covenants
stated in Section 4, the Company agrees, under the conditions
described herein, to pay the Executive the Severance Payments and
the other payments and benefits described herein. Except as
provided in Section 5.1, Section 5.4,
Section 6.2(A), and Section 9.1, no amount or benefit
shall be payable under this Agreement unless there shall have been
a termination of the Executive’s employment with the Company
following a Change in Control and during the Term. This Agreement
shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between
the Executive and the Company, the Executive shall not have any
right to be retained in the employ of the Company.
4. The Executive’s Covenants . The
Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control during the
Term, the Executive will remain in the employ of the Company until
the earliest of (i) a date which is six (6) months from
the date of such Potential Change of Control, (ii) the date of
a Change in Control, (iii) the date of termination by the
Executive of the Executive’s employment for Good Reason or by
reason of death, Disability or Retirement, or (iv) the
termination by the Company of the Executive’s employment for
any reason.
5. Compensation Other Than Severance
Payments .
5.1 Salary During Incapacity or
Illness . Following a Change in Control and during the Term,
during any period that the Executive fails to perform the
Executive’s fulltime duties with the Company as a result of
incapacity due to physical or mental illness, the Company shall pay
the Executive’s full salary to the Executive at the rate in
effect at the commencement of any such period, together with all
compensation and benefits payable to the Executive under the terms
of any applicable compensation or benefit plan, program or
arrangement maintained by the Company during such period, until the
Executive’s employment is terminated by the Company for
Disability.
5.2 Salary During Term . If
the Executive’s employment shall be terminated for any reason
following a Change in Control and during the Term, the Company
shall pay the Executive’s full salary to the Executive
through the Date of Termination at the rate in effect at the time
the Notice of Termination is given or, if higher, the rate in
effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all
compensation and benefits payable to the Executive through the Date
of Termination under the terms of the Company’s compensation
and benefit plans, programs or arrangements.
5.3 Post-Termination Compensation
and Benefits . If the Executive’s employment shall be
terminated for any reason following a Change in Control and during
the Term, the Company shall pay to the Executive the normal
post-termination compensation and benefits as such payments become
due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the Company’s
applicable retirement, insurance and other compensation or benefit
plans, programs and arrangements as in effect immediately prior to
the Date of Termination or, if more favorable to the Executive, as
in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason.
5.4 Incentive Awards
.
(A) Stock Options and SARs .
Immediately prior to the Change in Control, all awards of stock
options and stock appreciation rights (“SARs”)
previously granted to the Executive shall become fully vested and
exercisable. The phrase “immediately prior to the Change in
Control” shall be understood to mean sufficiently in advance
of a Change in Control to permit the Executive to take all steps
reasonably necessary to exercise all options and SARs and to deal
with the shares of stock underlying the awards of stock options and
SARs so that such shares may be treated in the same manner as the
shares of stock of other shareholders in connection with the Change
in Control.
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(B) Performance Stock Rights
. To the extent deemed earned, each outstanding performance stock
right (“PSR”) previously granted to the Executive shall
become immediately payable in cash upon a Change in Control, and
the remainder of each outstanding PSR shall be canceled for no
value. All outstanding PSRs shall be deemed to have been earned to
the extent of the greater of:
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(i)
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the number of
shares determined by the Committee based on the extent to which the
performance goals specified in the PSR award agreement have been
achieved during the portion of the performance period ending on the
last day of the last fiscal quarter of the Company ending on or
before the date of the Change in Control, and
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(ii)
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the number of
shares equal to the product of the target shares identified in the
PSR award agreement multiplied by a fraction with a numerator equal
to the whole number of calendar months beginning with the month in
which the PSR was granted and ending on the date of the Change in
Control and a denominator equal to the whole number of calendar
months in the entire performance period covered by the PSR award
agreement and less any shares previously issued under the PSR award
agreement.
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(C) Restricted Stock Rights .
All restrictions with respect to restricted stock rights
(“RSRs”) shall lapse upon a Change in Control, and all
outstanding RSRs of the Executive shall be immediately settled by a
cash payment.
(D) Leadership Performance
Plan . Executive shall be eligible to receive an incentive
award pursuant to the terms of the Leadership Performance
Plan.
(E) Other Incentive Awards .
All other restrictions with respect to outstanding incentive awards
of the Executive not described in subsections (A) through
(D) of this Section 5.4 shall lapse upon a Change in
Control, and such awards shall be fully vested and
nonforfeitable.
(F) Fair Market Value . For
purposes of this Section 5.4, with respect to determining the
cash equivalent value of an RSR or PSR or the spread payable upon
exercise of an SAR, the fair market value of a share of the
Company’s stock shall be deemed to equal the greater of
(i) the fair market value of a share of stock as of the date
on which a Change in Control occurs and (ii) the highest price
of a share of stock which is paid or offered to be paid, by any
person or entity, in connection with any transaction which
constitutes a Change in Control.
5.5 Deferral Election . The
Executive may elect to defer all or a portion of the payments that
are to be made to the Executive under Section 6.1(A) and
Section 6.2. The Executive may exercise such election by
delivering a notice of election (in accordance with
Section 10) prior to the occurrence of the Change in Control,
which notice shall state the portion of such payments that is to be
deferred (expressed as a dollar amount or as a percentage
(“the Deferred Benefit”)), the date the payment of the
Deferred Benefit shall commence (“the Deferred
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Benefit Commencement Date”), and the
number of equal consecutive monthly installments (not to exceed
120) that the Deferred Benefit is to be paid in. In no event shall
the Deferred Benefit Commencement Date be subsequent to the first
day of January of the year immediately following the
Executive’s sixty-fifth birthday. In the event such an
election is made:
(A) The amount that would have
otherwise been paid under the provisions of Section 6.1(A) and
Section 6.2 shall be reduced by an amount equal to the
Deferred Benefit.
(B) The Deferred Benefit, together
with simple interest calculated at an annual rate of ten percent
(10%) on the unpaid balance of the Deferred Benefit from the
date that payment of the Deferred Benefit would have otherwise been
made, shall be paid in the number of equal consecutive monthly
installments selected by the Executive, with the first such
installment being made on the Deferred Benefit Commencement Date
and a subsequent payment being made on the first day of each month
thereafter.
(C) If the Executive dies prior to
receiving the full amount of the Deferred Benefit, the Company
shall continue to pay the Deferred Benefit to the estate of the
Executive in the same manner as the Deferred Benefit would have
been paid to the Executive if the Executive had not
died.
(D) The Deferred Benefit shall in no
event be set aside or deposited to a separate account or fund, and
the rights of the Executive to the Deferred Benefit shall not be
greater than the rights of any other general, unsecured creditor of
the Company.
(E) The Executive, the
Executive’s spouse, and any other person or entity claiming
through or under the Executive shall not have any power or
authority to commute, encumber, or dispose of any right to receive
payment of the Deferred Benefit, all of which payments are
expressly declared to be non-assignable. In the event of any
attempt at assignment or other disposition, the Company shall have
no further liability to pay the Deferred Benefit. The Deferred
Benefit provided for in this Agreement shall not be subject to
seizure for the payment of any debts, judgments, alimony, separate
maintenance or child support, or be reached or transferred by
operation of law, or in the event of bankruptcy, insolvency or
otherwise.
6. Severance Payments .
6.1 Severance Payments
Enumerated . The Company shall pay the Executive the payments
described in this Section 6.1 (the “Severance
Payments”) upon the termination of the Executive’s
employment following a Change in Control and during the Term, in
addition to any payments and benefits to which the Executive is
then entitled under Section 5, unless such termination is
(i) by the Company for Cause, (ii) by reason of death,
Disability or Retirement, or (iii) by the Executive without
Good Reason. Additionally, during the one-month period beginning
with the first day of the month immediately following the first
anniversary of the Change in Control, the Executive may voluntarily
terminate her employment for any reason and, upon such termination,
the Company shall pay the Executive the Severance Payments and the
Gross-Up Payment, in addition to any payments and benefits to which
the Executive is then entitled under Section 5. For purposes
of this Agreement, the Executive’s employment shall
be
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deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive
with Good Reason, if (i) the Executive’s employment is
terminated by the Company without Cause prior to a Change in
Control and such termination was at the request or direction of a
Person who has entered into an agreement with the Company the
consummation of which would constitute a Change in Control,
(ii) the Executive terminates her employment with Good Reason
prior to a Change in Control and the circumstance or event which
constitutes Good Reason occurs at the request or direction of such
Person, or (iii) the Executive’s employment is
terminated by the Company without Cause prior to a Change in
Control and the Executive reasonably demonstrates that such
termination is otherwise in connection with or in anticipation of a
Change in Control.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefit otherwise payable
to the Executive, the Company shall pay to the Executive a lump sum
severance payment, in cash, equal to three (or, if less, the number
of years, rounded to the nearest hundredth of a year, remaining
until December 31 of the year in which the Executive attains
age 65) times the higher of the Executive’s annual base
salary in effect immediately prior to the occurrence of the event
or circumstance upon which the Notice of Termination is based and
the Executive’s base salary in effect immediately prior to
Date of Termination.
(B) For the thirty-six
(36) month period immediately following the Date of
Termination or, if shorter, for the period commencing immediately
following the Date of Termination and ending on December 31 of
the year in which the Executive attains age 65 (such applicable
period, the “Severance Period”), the Company shall
arrange to provide the Executive with life, disability, accident
and health insurance benefits substantially similar to those which
the Executive is receiving immediately prior to the Date of
Termination; provided , however , that, unless the
Executive consents to a different method (after taking into account
the effect of such method on the calculation of “parachute
payments” pursuant to Section 6.2), such health
insurance benefits shall be provided through a third-party insurer.
Benefits otherwise receivable by the Executive pursuant to this
Section 6.1 (B) shall be reduced to the extent comparable
benefits are actually received by or made available to the
Executive (other than benefits available pursuant to the
Consolidated Omnibus Budget Reform Act of 1985) during the
Severance Period (and any such benefits actually received by or
made available to the Executive shall be reported to the Company by
the Executive).
(C) Notwithstanding any provision of
any annual or long-term incentive plan to the contrary, the Company
shall pay to the Executive a lump sum amount, in cash, equal to the
sum of (i) any incentive compensation which has been allocated
or awarded to the Executive for a completed year or other measuring
period preceding the Date of Termination under any such plan and
which, as of the Date of Termination, is contingent only upon the
continued employment of the Executive to a subsequent date, and
(ii) a pro rata portion to the Date of Termination of the
aggregate value of all contingent incentive compensation awards to
the Executive for all then uncompleted periods under any such plan,
calculated as to each such award by multiplying the award that the
Executive would have earned on the last day of the performance
award period, assuming the achievement, at the level that would
produce the maximum award, of the individual and corporate
performance goals established with respect to such award, by the
fraction obtained
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by dividing the number of full months and any
fractional portion of a month during such performance award period
through the Date of Termination by the total number of months
contained in such performance award period.
6.2 “ Gross-Up Payment
.”
(A) Whether or not the Executive
becomes entitled to the Severance Payments, if any of the payments
or benefits received or to be received by the Executive in
connection with a Change in Control or the Executive’s
termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or
any Person affiliated with the Company or such Person) (such
payments or benefits, excluding the Gross-Up Payment, being
hereinafter referred to as the “Total Payments”) will
be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the “Gross-Up Payment”)
such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the Gross-Up
Payment, and after taking into account the phase out of the
itemized deductions attributable to the Gross-Up Payment, shall be
equal to the Total Payments.
(B) For purposes of determining
whether any of the Total Payments will be subject to the Excise Tax
and the amount of such Excise Tax, (i) all of the Total
Payments shall be treated as “parachute payments”
(within the meaning of section 280G(b)(2) of the Code) unless, in
the opinion of tax counsel selected by the accounting firm which
was, immediately prior to the Change in Control, the
Company’s independent accountant (the
“Accountant”) and which tax counsel is reasonably
acceptable to the Executive (“Tax Counsel”), such
payments or benefits (in whole or in part) do not constitute
parachute payments, including by reason of section 280G(b)(4)(A) of
the Code, (ii) all “excess parachute payments”
within the meaning of section 280G(b)(1) of the Code shall be
treated as subject to the Excise Tax unless, in the opinion of Tax
Counsel, such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
(within the meaning of section 280G(b)(4)(B) of the Code) in excess
of the Base Amount allocable to such reasonable compensation, or
are otherwise not subject to the Excise Tax, and (iii) the
value of any noncash benefits or any deferred payment or benefit
shall be determined by the Accountant in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the highest
marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state and
locality of the Executive’s residence on the Date of
Termination (or if there is no Date of Termination, then the date
on which the Gross-Up Payment is calculated for purposes of this
Section 6.2), net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and
local taxes.
(C) In the event that the Excise Tax
is finally determined to be less than the amount taken into account
hereunder in calculating the Gross-Up Payment, the Executive shall
repay to the Company, at the time that the amount of such reduction
in Excise Tax is finally determined,
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the portion of the Gross-Up Payment attributable
to
