Employment Agreement with Michael S. McGavick

Amendment No. 1 to Employment Agreement

 

 

                              EMPLOYMENT AGREEMENT

 

 

                               SAFECO CORPORATION

 

                                       AND

 

                               MICHAEL S. MCGAVICK

 

 

                          DATED AS OF JANUARY 26, 2001

 

 

                              EMPLOYMENT AGREEMENT

 

      This Employment Agreement (this "Agreement"), dated as of January 26, 2001

("Effective Date"), between SAFECO Corporation, a Washington corporation

("SAFECO"), and Michael S. McGavick ("Employee");

 

      WHEREAS, SAFECO desires to provide for the services and employment of

Employee upon the terms and conditions stated in this Agreement; and

 

      WHEREAS, Employee desires to perform services for SAFECO upon the terms

and conditions stated in this Agreement;

 

      NOW, THEREFORE, for and in consideration of the foregoing premises and for

other good and valuable consideration, the sufficiency and receipt of which are

hereby acknowledged, SAFECO and Employee agree as follows:

 

1.    EMPLOYMENT

 

      SAFECO will employ Employee and Employee will accept employment by SAFECO

as its President and Chief Executive Officer. Employee will also be a Director

upon appointment by SAFECO's Board of Directors. Employee will have the

authority, subject to SAFECO's Articles of Incorporation and Bylaws, as may be

granted from time to time by the Board of Directors of SAFECO. Employee will

perform the duties and have the responsibilities and authority assigned to the

president in SAFECO's Bylaws, the duties customarily performed by the chief

executive officer of a corporation which is, in all respects, similar to SAFECO

and such other duties as may be assigned from time to time by the Board of

Directors of SAFECO, which relate to the business of SAFECO, its subsidiaries,

or any business ventures in which SAFECO or its subsidiaries may participate.

 

2.    ATTENTION AND EFFORT

 

      Employee will devote all of his entire productive time, ability, attention

and effort to SAFECO's business and will skillfully serve its interests during

the term of this Agreement; provided, however, that Employee may devote

reasonable periods of time to (a) engaging in personal investment activities,

(b) serving on the Board of Directors of other corporations, if such service

would not otherwise be prohibited by Section 7 of this Agreement and is approved

pursuant to SAFECO's Policy on Outside Directorships, and (c) engaging in

charitable or community service activities, so long as none of the foregoing

additional activities materially interfere with Employee's duties under this

Agreement and are approved or reported pursuant to SAFECO's Policy on Outside

Directorships.

 

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3.    COMPENSATION

 

      During the term of this Agreement, SAFECO agrees to pay or cause to be

paid to Employee, and Employee agrees to accept in exchange for the services

rendered hereunder by him, the following compensation:

 

      3.1   BASE SALARY

 

      Employee's compensation shall consist, in part, of an annual base salary

at a rate of at least Eight Hundred Fifty Thousand Dollars ($850,000.00) before

all customary payroll deductions. Such annual base salary shall be paid in

substantially equal installments and at the same intervals as other officers of

SAFECO are paid. This salary may be, but is not required to be, increased from

time-to-time, subject to and in accordance with the annual compensation review

procedures of SAFECO's Compensation Committee, with Employee's first

compensation review anticipated to occur in December 2001, with the first

potential adjustment to salary effective beginning January 1, 2002.

 

      3.2   BONUSES

 

            (a) Employee shall be entitled to participate in SAFECO's

non-discretionary cash bonus program and for purposes of that program shall be

deemed to have three years of service effective as of the Effective Date of this

Agreement.

 

            (b) Employee may also be entitled to receive, in addition to the

base salary and non-discretionary bonus described above, an annual bonus in an

amount to be determined by the Board of Directors of SAFECO or under the Board's

delegated authority by the Compensation Committee of the Board (the

"Committee"), in its or their sole discretion. The goals on which Employee's

discretionary bonus for 2001 will be based shall be discussed and agreed upon by

and among Employee, the Lead Director and the Compensation Committee of the

Board. Employee's target bonus shall be equal to one hundred per cent (100%) of

annual base salary, and his maximum bonus shall be equal to two hundred per cent

(200%) of annual base salary. For 2001, Employee's bonus shall be guaranteed to

be at least the target bonus. For 2002, Employee's bonus shall be guaranteed to

be at least fifty per cent (50%) of the target bonus.

 

            (c) Because it is anticipated that Employee will be required to

forfeit a calendar year 2000 bonus from his previous employer, Employee is also

entitled to receive, in addition to the base salary and bonuses described above,

a one-time hiring bonus in the amount of Six Hundred Fifty Thousand Dollars

($650,000.00) to be paid by SAFECO within five (5) business days following the

Effective Date; provided that

 

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Employee shall fully refund this hiring bonus to SAFECO if (i) Employee is not

required to forfeit a calendar year 2000 bonus from his previous employer or

(ii) Employee terminates his employment with SAFECO before December 31, 2001.

 

      3.3   STOCK OPTIONS

 

      Employee shall be entitled to receive a stock option to purchase 300,000

shares of SAFECO common stock (the "Initial Option") effective January 26, 2001

with an exercise price equal to the Fair Market Value (as that term is defined

in the SAFECO Long-Term Incentive Plan of 1997 (the "1997 Plan")) of SAFECO

Common Stock on January 26, 2001. The Initial Option shall have a term of ten

years and shall vest 100% on the fifth anniversary of the date of grant. Such

vesting shall be accelerated (i) 100% if Employee is terminated by the Company

without Cause (as defined below) on or prior to the third anniversary of the

Effective Date, and (ii) if Employee's employment terminates for any reason

after the third anniversary of the Effective Date, in a percentage equivalent to

the number of whole months (with February 2001 being the first month) from the

Effective Date to the date of termination divided by 60. The vested portion of

the Initial Option shall remain exercisable until the earlier of one year after

termination of Employee's employment for any reason and the tenth anniversary of

the date of grant. The Initial Option shall be granted under and otherwise

subject to all the terms and conditions of the 1997 Plan and the agreement

evidencing the award.

 

      Employee shall be entitled to participate in the Company's ongoing stock

option program on the same basis as other executives. Additional stock option

awards to Employee, if any, will be made in the sole discretion of the

Committee; provided that management will recommend to the Committee that

Employee receive a stock option grant with a fair value of $850,000 (i.e.,

determined by Black-Scholes or similar valuation methodology) at the Committee's

May 2001 meeting, and that, if the Company terminates Employee's employment

within three years of the Effective Date for any reason other than Cause (as

defined below), then the vesting of such award shall be accelerated such that

Employee's vested stake is two times his vested stake on the date of such

termination, but no more than 100%.

 

      3.4   RESTRICTED STOCK RIGHTS

 

      Because it is anticipated that Employee will be required to forfeit

$560,000 in estimated value of long-term cash bonuses and $697,000 in stock

option value from his previous employer, Employee shall be entitled to receive a

grant of $1,150,000 in value of Restricted Stock Rights (the "RSR Award")

effective on January 26, 2001. The RSR Award shall be subject to forfeiture upon

termination of Employee's employment; provided that the Restricted Stock Award

shall vest and no longer be

 

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<PAGE>   5

 

subject to forfeiture in four equal annual installments beginning one year after

the date of grant; and provided, further, that the unvested portion of the

Restricted Stock Award shall become 100% vested upon termination of Employee's

employment by the Company without Cause (as defined below), by reason of

Employee's death or disability, or upon a Change in Control (as defined below).

The RSR Award shall be granted under and otherwise subject to all the terms and

conditions of the 1997 Plan and the agreement evidencing the award.

 

      Employee shall be entitled to participate in the Company's ongoing

Restricted Stock Rights program on the same basis as other executives.

Additional Restricted Stock Right awards to Employee, if any, will be made in

the sole discretion of the Committee; provided that management shall recommend

to the Committee that Employee receive a Restricted Stock Right award for 2001

with a grant value of $425,000 at the Committee's February 2001 meeting, and

that, if the Company terminates Employee's employment within three years of the

Effective Date for any reason other than Cause (as defined below), then the

vesting of such award shall be accelerated such that Employee's vested stake is

two times his vested stake on the date of such termination, but no more than

100%.

 

      3.5   PERFORMANCE STOCK RIGHTS

 

      Employee shall be entitled to participate in the Company's Performance

Stock Rights program on the same basis as other executives. Performance Stock

Right awards to Employee, if any, will be made in the sole discretion of the

Committee; provided that management shall recommend to the Committee that

Employee receive a Performance Stock Right award for the 2001-2003 cycle with a

grant value of $425,000 at the Committee's February 2001 meeting.

 

      3.6   OTHER EQUITY GRANTS

 

      Employee shall be entitled to participate in any future equity

compensation programs of the Company on the same basis as other executives;

provided that awards to Employee, if any, under such programs, will be made in

the sole discretion of the Committee.

 

4.    BENEFITS

 

      4.1   RETIREMENT AND SAVINGS PLANS

 

      During Employee's employment with SAFECO, Employee shall be entitled to

participate in all defined contribution plans and defined benefit plans or

plans, including excess benefit or supplemental retirement plans or agreements,

maintained by SAFECO, as now or hereinafter in effect, that are applicable to

SAFECO's

 

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<PAGE>   6

 

employees generally or to its executive officers, subject to and on a basis

consistent with the terms, conditions and overall administration of such plans,

programs and arrangements. Benefits payable under such plans shall commence

pursuant to the terms of such plans.

 

      4.2   OTHER BENEFIT PROGRAMS

 

      During Employee's employment with SAFECO, Employee will be entitled to

participate, subject to and in accordance with applicable eligibility

requirements, in all other employee benefit plans, programs and arrangements of

SAFECO, as now or hereinafter in effect, that are applicable to the SAFECO's

employees generally or to its executive officers (including, but not limited to,

all SAFECO relocation policies), as the case may be, subject to and on a basis

consistent with the terms, conditions and overall administration of such plans,

programs and arrangements, and subject to Section 4.1. To the extent that there

is a period of employment required for purposes of eligibility or participation

with respect to full benefit coverage under any employee fringe benefit program,

Employee shall be deemed to have met such requirement as of the Effective Date

of this Agreement. SAFECO shall provide to Employee all of the fringe benefits

and perquisites that are available to the SAFECO's employees generally or to its

executive officers, as the case may be, subject to and on a basis consistent

with the terms, conditions and overall administration of such benefits and

perquisites.

 

      4.3   COUNTRY CLUB MEMBERSHIP

 

      SAFECO will pay directly or reimburse Employee for initiation fees and

membership dues at one Puget Sound area social or country club that Employee

anticipates using for business entertainment. Employee's club selection is

subject to approval by the Compensation Committee of the Board of Directors of

SAFECO.

 

      4.4   HOUSING LOAN AND BENEFITS

 

            (a) SAFECO will provide Employee with a home purchase loan in an

amount up to one and one-half times Employee's base salary. Interest on the loan

will be computed at the lowest non-taxable interest rate, with interest due

during the first two years of the loan deferred and added to the principal.

After the first two years, Employee will pay interest quarterly during the term

of the loan. The principal amount will be due at the earlier of fifteen (15)

years from the date of the loan or one (1) year after the termination of

Employee's employment with SAFECO.

 

            (b) SAFECO understands that Executive will sell his Illinois house

and purchase a home in the Puget Sound area. If the Illinois house is purchased

under

 

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<PAGE>   7

 

SAFECO's relocation program, SAFECO agrees to insure that the price paid for the

house will be no less than its current appraised value. If requested by

Employee, SAFECO will provide a bridge loan for the interim period between

Employee's purchase of a house in the Puget Sound area and the sale of

Employee's Illinois house, with repayment of the bridge loan due upon the

closing of the sale of the Illinois house. If required, SAFECO will also provide

a guarantee of Employee's mortgage obligations on the Illinois house, pending

its sale.

 

            (c) SAFECO will gross up any income imputed to Employee based on

SAFECO's reimbursement of Employee's house hunting trips to and temporary living

expenses in the Puget Sound area incurred before the closing date of Employee's

purchase of a Puget Sound area house.

 

      4.5   COMPANY CAR

 

      Pursuant to its policy for provision of an automobile for its President

and Chief Executive Officer, SAFECO will provide a car for Employee's use and

pay directly or reimburse Employee for maintenance and operation costs.

 

      4.6   VACATION AND OTHER LEAVES

 

      Employee shall be entitled to paid vacation and other paid absences,

whether for holidays, illness, or any similar purposes, in accordance with

policies applicable generally to executive officers of SAFECO; provided,

however, that Employee shall be entitled to at least twenty (20) days of paid

vacation per calendar year.

 

      4.7   AIR TRANSPORTATION

 

      When Employee requires air travel, SAFECO shall provide Employee with the

fastest and most efficient form of air transport, whether through commercial or

private service. Costs of air transportation for Employee's business travel will

be paid by SAFECO. Employee's personal use of such air transport services will

be provided to Employee at SAFECO's cost.

 

      4.8   EXPENSES

 

      Employee shall be entitled to receive reimbursement for all reasonable and

customary expenses incurred by him in performing services under this Agreement,

including all expenses of travel and accommodations while away from his

residence on business or at the request of and in the service of SAFECO;

provided, however, that such expenses are incurred, accounted for and approved

in accordance with the policies and procedures established from time-to-time by

SAFECO.

 

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      4.9   FINANCIAL COUNSELING AND TAX PREPARATION

 

      SAFECO shall pay directly or reimburse Employee for financial consulting

and/or tax preparation fees not to exceed in total $10,000 annually.

 

      4.10  LEGAL FEES

 

      SAFECO shall pay directly or reimburse Employee for reasonable legal fees

and expenses not to exceed $30,000 incurred by Employee in connection with the

negotiation and preparation of this Agreement and review of the benefits to be

granted hereunder.

 

5.    TERMINATION

 

      Employment of Employee pursuant to this Agreement may be terminated as

follows, but in any case, the provisions of Section 7 hereof shall survive the

termination of this Agreement and the termination of Employee's employment

hereunder:

 

      5.1   BY SAFECO

 

      With or without Cause (as defined below), SAFECO may terminate the

employment of Employee at any time during the term of employment upon giving

Notice of Termination (as defined below).

 

      5.2   BY EMPLOYEE

 

      Employee may terminate his employment at any time, for any reason, upon

giving Notice of Termination.

 

      5.3   AUTOMATIC TERMINATION

 

      This Agreement and Employee's employment hereunder shall terminate

automatically upon the death or total disability of Employee. The term "total

disability" as used herein shall mean Employee's inability to perform the duties

set forth in Section 1 hereof for a period of sixty (60) consecutive days or

periods aggregating one hundred five (105) calendar days in any 12-month period

as a result of physical or mental illness, loss of legal capacity or any other

cause beyond Employee's control, unless Employee is granted a leave of absence

by the Board of Directors of SAFECO. Employee and SAFECO hereby acknowledge that

Employee's ability to perform the duties specified in Section 1 is of the

essence of this Agreement. Termination hereunder shall be deemed to be effective

(a) at the end of the calendar

 

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month in which Employee's death occurs or (b) immediately upon a determination

by the Board of Directors of SAFECO of Employee's total disability, as defined

herein.

 

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<PAGE>   10

 

      5.4   NOTICE

 

      The term "Notice of Termination" shall mean at least thirty (30) days'

written notice of termination of Employee's employment, during which period

Employee's employment and performance of services will continue; provided,

however, that SAFECO may, upon notice to Employee and without reducing

Employee's compensation during such period, excuse Employee from any or all of

his duties during such period. The effective date of the termination of

Employee's employment hereunder shall be the date on which such 30-day period

expires.

 

6.    TERMINATION PAYMENTS

 

      In the event of termination of the employment of Employee, all

compensation and benefits set forth in this Agreement shall terminate except as

specifically provided in this Section 6:

 

      6.1   TERMINATION BY SAFECO

 

      If SAFECO terminates Employee's employment without Cause prior to the

third anniversary of the Effective Date: (i) Employee shall be entitled to

receive (a) termination payments equal to three years' annual base salary and

target bonus and (b) any unpaid annual base salary which has accrued for

services already performed as of the date termination of Employee's employment

becomes effective; and (ii) if Employee is terminated by SAFECO for Cause,

Employee shall not be entitled to receive any of the foregoing benefits, other

than those set forth in clause (i)(b) above. If SAFECO terminates Employee's

employment without Cause after the third anniversary on or prior to the fifth

anniversary of the Effective Date, Employee shall receive (a) termination

payments equal to three years' annual base salary (at the annual rate then in

effect), and (b) an amount equal to the amount set forth in clause (i)(b) above.

Except as provided above, Employee's rights upon termination of employment will

be governed by SAFECO's standard policy and practice, or as determined by the

Board of Directors or a committee thereof. The termination payments are payable

contingent upon Employee's resignation from SAFECO's Board of Directors and

execution of a waiver and release of claims arising out of his employment and/or

the termination of his employment with SAFECO.

 

      6.2   TERMINATION BY EMPLOYEE

 

      In the case of the termination of Employee's employment by Employee,

Employee shall not be entitled to any payments hereunder, other than those set

forth in clauses (i)(b) or (ii)(b) of subsection 6.1 hereof.

 

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      6.3   PROCEDURES REGARDING TERMINATION FOR CAUSE

 

      No termination of Employee's employment by SAFECO for Cause shall be

effective unless the provisions of this Section 6.3 shall have been complied

with. Employee shall be given written notice by the Board of Directors of the

intention to terminate him for Cause, such notice (i) to state in detail the

particular circumstances that constitute the grounds on which the proposed

termination for Cause is based and (ii) to be given no later than 60 days after

the Board of Directors first learns of such circumstances. At the sole

discretion of the Board of Directors, Employee may be placed on paid

administrative leave and relieved of all employment responsibilities upon

issuance of the notice. Employee shall have 15 days after receiving such notice

in which to cure such grounds, to the extent such cure is possible. If he fails

to cure such grounds, Employee shall then be entitled to a hearing before the

Board of Directors. Such hearing shall be held within 20 days of his receiving

such notice, provided that he requests such hearing within 15 days of receiving

such notice. If, within five days following such hearing, the Board of Directors

gives written notice to Employee confirming that, in the judgment of at least

two-thirds of the members of the Board of Directors (excluding Employee), Cause

for terminating his employment on the basis set forth in the original notice

exists, his employment with SAFECO shall thereupon be terminated for Cause.

 

      6.4   TERMINATION IN CONNECTION WITH A CHANGE IN CONTROL

 

      Contemporaneously with the execution of this Agreement, SAFECO and

Employee shall execute a Change in Control Severance Agreement (the "Change in

Control Agreement"), a true and correct copy of which is attached hereto as

Exhibit A. In circumstances constituting a Change in Control, as defined in the

Change in Control Agreement, Employee's rights upon termination employment will

be governed by the terms of the Change in Control Agreement, and this Section 6

will be null and void.

 

      6.5   PAYMENT SCHEDULE

 

      All payments under this Section 6 shall be made to Employee at the same

interval as payments of salary were made to Employee immediately prior to

termination.

 

      6.6   CAUSE

 

      Wherever reference is made in this Agreement to termination being with or

without Cause, "Cause" shall include, without limitation, the occurrence of one

or more of the following events:

 

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<PAGE>   12

 

            (a) Failure or refusal to carry out the lawful duties of Employee

described in Section 1 of this Agreement or any directions of the Board of

Directors of SAFECO or any committee of the Board, which directions are

reasonably consistent with the duties herein set forth to be performed by

Employee (other than as a result of illness, accident, or other physical or

mental incapacity), provided that (i) a demand for performance of services has

been delivered to Employee in writing by or on behalf of the Board of Directors

of the Company subsequent to the completion of the procedures set forth in

Section 6.3 identifying the manner in which such Board of Directors believes

that Employee has failed to perform and (ii) Employee has thereafter failed to

remedy such failure to perform;

 

            (b) Violation by Employee of a state or federal criminal law

involving the commission of a crime against SAFECO or a felony involving moral

turpitude or a violation of 18 U.S.C. Section 1033 (unless the action

constituting such violation was taken with the advice of counsel which may

include the general counsel of SAFECO), including the entry of a guilty or nolo

contendere plea;

 

            (c) Conduct by Employee that constitutes willful gross neglect or

willful gross misconduct in carrying out his duties, resulting, in either case,

in material harm to SAFECO, monetarily or otherwise, unless Employee reasonably

believed in good faith that such act or non-act was in or not opposed to the

best interests of SAFECO; or

 

            (d) Current use by Employee of illegal substances; deception, fraud,

misrepresentation or dishonesty by Employee; any incident materially

compromising Employee's reputation or ability to represent SAFECO with the

public.

 

7.    NONCOMPETITION AND NONSOLICITATION

 

      7.1   APPLICABILITY

 

      This Section 7 shall survive the termination of Employee's employment with

SAFECO.

 

      7.2   SCOPE OF COMPETITION

 

      Employee agrees that he will not, directly or indirectly, during his

employment and for a period of 3 years from the date on which his employment

with SAFECO terminates for any reason, or this Agreement expires, be employed

by, consult with, be a director of or otherwise perform services for, own,

manage, operate, join, control or participate in the ownership, management,

operation or control of or be connected with, in any manner, any Competitor. A

"Competitor" shall include any entity which, directly or indirectly, competes

with SAFECO or produces, markets, distributes or

 

 

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otherwise derives benefit from the production, marketing or distribution of

products or services which compete with products then produced or services then

being provided or marketed, by SAFECO or the feasibility for production of which

SAFECO is then actually studying, or which is preparing to market or is

developing products or services that will be in competition with the products or

services then produced or being studied or developed by SAFECO, in each case

within the geographical area of the United States, unless released from such

obligation in writing by SAFECO's Board of Directors. Employee shall be deemed

to be related to or connected with a Competitor if such Competitor is (a) a

partnership in which he is a general or limited partner or employee, (b) a

corporation or association of which he is a shareholder, officer, employee or

director, or (c) a partnership, corporation or association of which he is a

member, consultant or agent; provided, however, that nothing in this Agreement

shall prevent the purchase or ownership by Employee of shares which constitute

less than one percent of the outstanding equity securities of a publicly or

privately held corporation, if Employee had no other relationship with such

corporation.

 

      7.3   SCOPE OF NONSOLICITATION

 

      Employee shall not directly or indirectly solicit, influence or entice, or

attempt to solicit, influence or entice, any employee or consultant of SAFECO to

cease his relationship with SAFECO or solicit, influence, entice or in any way

divert any customer, distributor, partner, joint venturer or supplier of SAFECO

to do business or in any way become associated with any Competitor. This Section

7.3 shall apply during the time period and geographical area described in

Section 7.2.

 

      7.4   ASSIGNMENT OF INTELLECTUAL PROPERTY

 

      All concepts, designs, machines, devices, uses, processes, technology,

trade secrets, works of authorship, customer lists, plans, embodiments,

inventions, improvements or related work product (collectively "Intellectual

Property") which Employee develops, conceives or first reduces to practice

during the term of his employment hereunder or within one year after the

termination of his employment hereunder or the expiration of this Agreement,

whether working alone or with others, shall be the sole and exclusive property

of SAFECO, together with any and all Intellectual Property rights, including,

without limitation, patent or copyright rights, related thereto, and Employee

hereby assigns to SAFECO all of such Intellectual Property. "Intellectual

Property" shall include only such concepts, designs, machines, devices, uses,

processes, technology, trade secrets, customer lists, plans, embodiments,

inventions, improvements and work product which (a) relate to Employee's

performance of services under this Agreement, to SAFECO's field of business or

to SAFECO's actual or demonstrably anticipated research or development, whether

or

 

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<PAGE>   14

 

not developed, conceived or first reduced to practice during normal business

hours or with the use of any equipment, supplies, facilities or trade secret

information or other resource of SAFECO or (b) are developed in whole or in part

on SAFECO's time or developed using SAFECO's equipment, supplies, facilities or

trade secret information, or other resources of SAFECO, whether or not the work

product relates to SAFECO's field of business or SAFECO's actual or demonstrably

anticipated research.

 

      7.5   DISCLOSURE AND PROTECTION OF INVENTIONS

 

      Employee shall disclose in writing all concepts, designs, processes,

technology, plans, embodiments, inventions or improvements constituting

Intellectual Property to SAFECO promptly after its or their development. At

SAFECO's request and at SAFECO's expense, Employee will assist SAFECO or its

designee in efforts to protect all rights relating to such Intellectual

Property. Such assistance may include, without limitation, the following: (a)

making application in the United States and in foreign countries for a patent or

copyright on any work products specified by SAFECO; (b) executing documents of

assignment to SAFECO or its designee of all of Employee's right, title and

interest in and to any work product and related intellectual property rights;

and (c) taking such additional action (including, without limitation, the

execution and delivery of documents) to perfect, evidence or vest in SAFECO or

its designee all right, title and interest in and to any Intellectual Property

and any rights related thereto.

 

      7.6   NONDISCLOSURE; RETURN OF MATERIALS

 

      During the Term and following termination of Employee's employment with

SAFECO, Employee will not disclose (except as required by his duties to SAFECO)

any concept, design, process, technology, trade secret, customer list, plan,

embodiment, or invention, any other Intellectual Property or any other

confidential information, whether patentable or not, of SAFECO of which Employee

becomes informed or aware during his employment, whether or not developed by

Employee. In the event of the termination of his employment with SAFECO or the

expiration of this Agreement, Employee will return all documents, data and other

materials of whatever nature, including, without limitation, drawings,

specifications, research, reports, embodiments, software and manuals to SAFECO

which pertain to his employment with SAFECO or to any Intellectual Property and

shall not retain or cause or allow any third party to retain photocopies or

other reproductions of the foregoing.

 

      7.7   EQUITABLE RELIEF

 

      Employee acknowledges that the provisions of this Section 7 are essential

to SAFECO, that SAFECO would not enter into this Agreement if it did not include

this

 

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<PAGE>   15

 

Section 7 and that damages sustained by SAFECO as a result of a breach of this

Section 7 cannot be adequately remedied by damages, and Employee agrees that

SAFECO, notwithstanding any other provision of this Agreement, including,

without limitation, Section 13 hereof, and in addition to any other remedy it

may have under this Agreement or at law, shall be entitled to injunctive and

other equitable relief to prevent or curtail any breach of any provision of this

Agreement, including, without limitation, this Section 7.

 

      7.8   EFFECT OF VIOLATION

 

      Employee and SAFECO acknowledge and agree that additional consideration

has been given for Employee entering into this Section 7, such additional

consideration including, without limitation, certain provisions for termination

payments pursuant to Section 6 of this Agreement. Violation by Employee of this

Section 7 shall relieve SAFECO of any obligation it may have to make such

termination payments, but shall not relieve Employee of his obligations, as

required hereunder, not to compete.

 

      7.9   DEFINITION OF SAFECO

 

      For purposes of subsection 7.2 and subsection 7.3 hereof, "SAFECO" shall

include all subsidiaries of SAFECO, SAFECO's and any business ventures in which

SAFECO, its subsidiaries may participate.

 

8.    REPRESENTATIONS AND WARRANTIES

 

      In order to induce SAFECO to enter into this Agreement, Employee

represents and warrants to SAFECO as follows:

 

      8.1   NO VIOLATION OF OTHER AGREEMENTS

 

      Neither the execution nor the performance of this Agreement by Employee

will violate or conflict in any way with any other agreement by which Employee

may be bound, or with any other duties imposed upon Employee by corporate or

other statutory or common law.

 

      8.2   PATENTS, ETC.

 

      Employee has prepared and attached hereto as Schedule 1 a list of all

inventions, patent applications and patents made or conceived by Executive prior

to the date hereof, which are subject to prior agreement or which Employee

desires to exclude from this Agreement, or, if no such list is attached,

Employee hereby

 

                                      -14-

<PAGE>   16

 

represents and warrants to SAFECO that there are no such inventions, patent

applications or patents.

 

      9.    INDEMNIFICATION

 

      Employee shall be indemnified by SAFECO to the extent permitted by

applicable law and as provided by Article XII of SAFECO's Bylaws.

 

      10.   FORM OF NOTICE

 

      All notices given hereunder shall be given in writing, shall specifically

refer to this Agreement and shall be personally delivered or sent by telecopy or

other electronic facsimile transmission or by registered or certified mail,

return receipt requested, at the address set forth below or at such other

address as may hereafter be designated by notice given in compliance with the

terms hereof:

 

       If to Employee: Michael S. McGavick

                       [such address as may appear in the personnel

                       records of SAFECO or such other address as

                       Employee may specify in writing]

 

       If to SAFECO:   Secretary

                       SAFECO Corporation

                       SAFECO Plaza

                       Seattle, WA 98185

 

       Copy to:        General Counsel

                       SAFECO Corporation

                       SAFECO Plaza

                       Seattle, Washington 98185

 

      If notice is mailed, such notice shall be effective upon mailing, or if

notice is personally delivered or sent by telecopy or other electronic facsimile

transmission, it shall be effective upon receipt.

 

11.   ASSIGNMENT

 

      This Agreement is personal to Employee and shall not be assignable by

Employee. Subject to the provisions of Section 6.5 and Section 6.6 of this

Agreement, SAFECO may assign its rights hereunder to (a) any corporation

resulting from any merger, consolidation or other reorganization to which SAFECO

is a party or (b) any corporation, partnership, association or other person to

which SAFECO may transfer all or substantially all of the assets and business of

SAFECO existing at such time. All of the terms and provisions of this Agreement

shall be binding upon and shall

 

                                      -15-

<PAGE>   17

 

inure to the benefit of and be enforceable by the parties hereto and their

respective successors and permitted assigns.

 

12.   WAIVERS

 

      No delay or failure by either party in exercising, protecting or enforcing

any of its or his rights, titles, interests or remedies under this Agreement,

and no course of dealing or performance with respect thereto, shall constitute a

waiver. The express waiver by a party of any right, title, interest or remedy in

a particular instance or circumstance shall not constitute a waiver thereof in

any other instance or circumstance. All rights and remedies shall be cumulative

and not exclusive of any other rights or remedies.

 

13.   ARBITRATION

 

      Subject to the provisions of Section 7.7 of this Agreement, any

controversies or claims arising out of or relating to this Agreement shall be

fully and finally settled by arbitration in accordance with the Commercial

Arbitration Rules of the American Arbitration Association then in effect (the

"AAA Rules"), conducted by one arbitrator either mutually agreed upon by SAFECO

and Employee or chosen in accordance with the AAA Rules, except that the parties

thereto shall have any right to discovery as would be permitted by the Federal

Rules of Civil Procedure for a period of 90 days following the commencement of

such arbitration and the arbitrator thereof shall resolve any dispute which

arises in connection with such discovery. The prevailing party shall be entitled

to costs, expenses and reasonable attorneys' fees, and judgment upon the award

rendered by the arbitrator may be entered in any court having jurisdiction

thereof.

 

14.   AMENDMENTS IN WRITING

 

      No amendment, modification, waiver, termination or discharge of any

provision of this Agreement, nor consent to any departure therefrom by either

party, shall in any event be effective unless the same shall be in writing,

specifically identifying this Agreement and the provision intended to be

amended, modified, waived, terminated or discharged and signed by SAFECO and

Employee, and each such amendment, modification, waiver, termination or

discharge shall be effective only in the specific instance and for the specific

purpose for which given. No provision of this Agreement shall be varied,

contradicted or explained by any oral agreement, course of dealing or

performance or any other matter not set forth in an agreement in writing and

signed by SAFECO and Employee.

 

15.   APPLICABLE LAW

 

                                      -16-

<PAGE>   18

 

      This Agreement shall in all respects, including all matters of

construction, validity and performance, be governed by, and construed and

enforced in accordance with, the laws of the state of Washington, without regard

to any rules governing conflicts of laws.

 

16.   SEVERABILITY

 

      If any provision of this Agreement shall be held invalid, illegal or

unenforceable in any jurisdiction, for any reason, including, without

limitation, the duration of such provision, its geographical scope or the extent

of the activities prohibited or required by it, then, to the full extent

permitted by law (a) all other provisions hereof shall remain in full force and

effect in such jurisdiction and shall be liberally construed in order to carry

out the intent of the parties hereto as nearly as may be possible, (b) such

invalidity, illegality or unenforceability shall not affect the validity,

legality or enforceability of any other provision hereof, and (c) any court or

arbitrator having jurisdiction thereover shall have the power to reform such

provision to the extent necessary for such provision to be enforceable under

applicable law.

 

17.   HEADINGS

 

      All headings used are for convenience only and shall not in any way affect

the construction of, or be taken into consideration in interpreting, this

Agreement.

 

18.   COUNTERPARTS

 

      This Agreement, and any amendment or modification entered into pursuant to

Section 14 hereof, may be executed in any number of counterparts, each of which

counterparts, when so executed and delivered, shall be deemed to be an original

and all of which counterparts, taken together, shall constitute one and the same

instrument.

 

19.   ENTIRE AGREEMENT

 

      This Agreement on and as of the date hereof constitutes the entire

agreement between SAFECO and Employee with respect to the subject matter hereof

and all prior or contemporaneous oral or written communications, understandings

or agreements between SAFECO and Employee with respect to such subject matter

are hereby superseded and nullified in their entireties.

 

                                      -17-

<PAGE>   19

 

IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on

the date set forth above.

 

 

                                        ----------------------------------------

                                        Michael S. McGavick

 

 

                                        SAFECO CORPORATION

 

                                        By

                                           -------------------------------------

                                           William G. Reed, Jr.

                                           Chairman of the Board of Directors

 

                                      -18-

<PAGE>   20

 

                                   SCHEDULE 1

 

                                      None.

 

<PAGE>   21

 

                                    EXHIBIT A

 

                                CHANGE IN CONTROL

                               SEVERANCE AGREEMENT

 

 

THIS AGREEMENT, effective January 26, 2001, is made by and between SAFECO

Corporation, a Washington corporation ("SAFECO"), and Michael S. McGavick (the

"Executive").

 

WHEREAS, SAFECO (together with its subsidiaries, collectively, the "Company"),

considers it essential to the best interests of its stockholders 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

 

<PAGE>   22

 

(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, together with all compensation and benefits payable to the Executive

through the Date of Termination under the terms of the Company's applicable

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.

 

      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.

 

      (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:

 

                                       2

<PAGE>   23

 

      (i)   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

 

      (ii)  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.

 

      (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) Other Incentive Awards. All other restrictions with respect to

outstanding incentive awards of the Executive not described in subsections (A)

through (C) of this Section 5.4 shall lapse upon a Change in Control, and such

awards shall be fully vested and nonforfeitable.

 

      (E) 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 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

 

                                       3

<PAGE>   24

 

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

his 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 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 his 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

 

 

                                       4

<PAGE>   25

 

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 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 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

 

                                       5

<PAGE>   26

 

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,

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, the portion of the Gross-Up

Payment attributable to such reduction (plus that portion of the Gross-Up

Payment attributable to the Excise Tax and federal, state and local income and

employment taxes imposed on the Gross-Up Payment being repaid by the Executive

to the extent that such repayment results in a reduction in Excise Tax and/or a

federal, state or local income or employment tax deduction) plus interest on the

amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B)

of the Code. In the event that the Excise Tax is determined to exceed the amount

taken into account hereunder in calculating the Gross-Up Payment (including by

reason of any payment the existence or amount of which cannot be determined at

the time of the Gross-Up Payment), the Company shall make an additional Gross-Up

Payment in respect of such excess (plus any interest, penalties or additions

payable by the Executive with respect to such excess) at the time that the

amount of such excess is finally determined. The Executive and the Company shall

each reasonably cooperate with the other in connection with any

 

                                       6

<PAGE>   27

 

administrative or judicial proceedings concerning the existence or amount of

liability for Excise Tax with respect to the Total Payments.

 

      6.3 Severance Payments Pay Date. The payments provided in subsections (A)

and (C) of Section 6.1 and in Section 6.2 shall be made not later than the fifth

day following the Date of Termination; provided, however, that if the amounts of

such payments cannot be finally determined on or before such day, the Company

shall pay to the Executive on such day an estimate, as determined in good faith

by the Executive or, in the case of payments under Section 6.2, in accordance

with Section 6.2, of the minimum amount of such payments to which the Executive

is clearly entitled and shall pay the remainder of such payments (together with

interest on the unpaid remainder (or on all such payments to the extent the

Company fails to make such payments when due) at 120% of the rate provided in

section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be

determined but in no event later than the thirtieth (30th) day after the Date of

Termination. In the event that the amount of the estimated payments exceeds the

amount subsequently determined to have been due, such excess shall constitute a

loan by the Company to the Executive, payable on the fifth (5th) business day

after demand by the Company (together with interest at 120% of the rate provided

in section 1274(b)(2)(B) of the Code). At the time that payments are made under

this Section, the Company shall provide the Executive with a written statement

setting forth the manner in which such payments were calculated and the basis

for such calculations including, without limitation, any opinions or other

advice the Company has received from Tax Counsel, the Accountant or other

advisors or consultants (and any such opinions or advice which are in writing

shall be attached to the statement).

 

      6.4 Executive's Legal Fees. The Company also shall pay to the Executive

all legal fees and expenses incurred by the Executive in disputing in good faith

any issue hereunder relating to the termination of the Executive's employment,

in seeking in good faith to obtain or enforce any benefit or right provided by

this Agreement or in connection with any tax audit or proceeding to the extent

attributable to the application of section 4999 of the Code to any payment or

benefit provided hereunder. Such payments shall be made within five (5) business

days after delivery of the Executive's written requests for payment accompanied

with such evidence of fees and expenses incurred as the Company reasonably may

require.

 

7.    Termination Procedures and Compensation During Dispute.

 

      7.1 Notice of Termination. After a Change in Control and during the Term,

any purported termination of the Executive's employment (other than by reason of

death) shall be communicated by written Notice of Termination from one party

hereto to the other party hereto in accordance with Section 10. For purposes of

this Agreement, a "Notice of Termination" shall mean a notice which shall

indicate the specific termination provision in this Agreement relied upon and

shall state in reasonable detail the facts and circumstances claimed to provide

a basis for termination of the Executive's employment under the provision so

indicated. Further, a Notice of Termination for Cause is required to include a

copy of a resolution duly adopted by the affirmative vote of not less than

three-quarters (3/4) of the entire membership of the Board at a meeting of the

Board which was called and held for the purpose of considering such termination

(after reasonable notice to the Executive and an opportunity for the Executive,

together with the Executive's counsel, to be heard before the Board) finding

that, in the good faith opinion of the

 

                                       7

<PAGE>   28

 

Board, the Executive was guilty of conduct stated in clause (i) or (ii) of the

definition of Cause herein, and specifying the particulars thereof in detail.

 

      7.2 Date of Termination. "Date of Termination," with respect to any

purported termination of the Executive's employment after a Change in Control

and during the Term, shall mean (i) if the Executive's employment is terminated

for Disability, thirty (30) days after Notice of Termination is given (provided

that the Executive shall not have returned to the full-time performance of the

Executive's duties during such thirty (30) day period), and (ii) if the

Executive's employment is terminated for any other reason, the date specified in

the Notice of Termination (which, in the case of a termination by the Company,

shall not be less than thirty (30) days (except in the case of a termination for

Cause) and, in the case of a termination by the Executive, shall not be less

than fifteen (15) days nor more than sixty (60) days, respectively, from the

date such Notice of Termination is given).

 

      7.3 Dispute Concerning Termination. If within fifteen (15) days after any

Notice of Termination is given, or, if later, prior to the Date of Termination

(as determined without regard to this Section 7.3), the party receiving such

Notice of Termination notifies the other party that a dispute exists concerning

the termination, the Date of Termination shall be extended until the earlier of

(i) the date on which the Term ends or (ii) the date on which the dispute is

finally resolved, either by mutual written agreement of the parties or by a

final judgment, order or decree of an arbitrator or a court of competent

jurisdiction (which is not appealable or with respect to which the time for

appeal therefrom has expired and no appeal has been perfected); provided,

however, that the Date of Termination shall be extended by a notice of dispute

given by the Executive only if such notice is given in good faith and the

Executive pursues the resolution of such dispute with reasonable diligence.

 

      7.4 Compensation During Dispute. If a purported termination occurs

following a Change in Control and during the Term and the Date of Termination is

extended in accordance with Section 7.3, the Company shall continue to pay the

Executive the full compensation in effect when the notice giving rise to the

dispute was given (including, but not limited to, salary) and continue the

Executive as a participant in all compensation, benefit and insurance plans in

which the Executive was participating when the notice giving rise to the dispute

was given, until the Date of Termination, as determined in accordance with

Section 7.3. Amounts paid under this Section 7.4 are in addition to all other

amounts due under this Agreement (other than those due under Section 5.2) and

shall not be offset against or reduce any other amounts due under this

Agreement.

 

8.    No Mitigation. The Company agrees that, if the Executive's employment with

the Company terminates during the Term, the Executive is not required to seek

other employment or to attempt in any way to reduce any amounts payable to the

Executive by the Company pursuant to Section 6 or Section 7.4. Further, the

amount of any payment or benefit provided for in this Agreement (other than

Section 6.1(B)) shall not be reduced by any compensation earned by the Executive

as the result of employment by another employer, by retirement benefits, by

offset against any amount claimed to be owed by the Executive to the Company, or

otherwise.

 

9.    Successors; Binding Agreement.

 

                                       8

<PAGE>   29

 

      9.1 SAFECO Successors. In addition to any obligations imposed by law upon

any successor to SAFECO, SAFECO will require any successor (whether direct or

indirect, by purchase, merger, consolidation or otherwise) to all or

substantially all of the business and/or assets of SAFECO to expressly assume

and agree to perform this Agreement in the same manner and to the same extent

that SAFECO would be required to perform it if no such succession had taken

place. Failure of SAFECO to obtain such assumption and agreement prior to the

effectiveness of any such succession shall be a breach of this Agreement and

shall entitle the Executive to compensation from the Company in the same amount

and on the same terms as the Executive would be entitled to hereunder if the

Executive were to terminate the Executive's employment for Good Reason after a

Change in Control, except that, for purposes of implementing the foregoing, the

date on which any such succession becomes effective shall be deemed the Date of

Termination.

 

      9.2 Executive's Successors. This Agreement shall inure to the benefit of

and be enforceable by the Executive's personal or legal representatives,

executors, administrators, successors, heirs, distributees, devisees and

legatees. If the Executive shall die while any amount would still be payable to

the Executive hereunder (other than amounts which, by their terms, terminate

upon the death of the Executive) if the Executive had continued to live, all

such amounts, unless otherwise provided herein, shall be paid in accordance with

the terms of this Agreement to the executors, personal representatives or

administrators of the Executive's estate.

 

10.   Notices. For the purpose of this Agreement, notices and all other

communications provided for in the Agreement shall be in writing and shall be

deemed to have been duly given when delivered or mailed by United States

registered mail, return receipt requested, postage prepaid, addressed, if to the

Executive, to the address inserted below the Executive's signature on the final

page and, if to the Company, to the address stated below, or to such other

address as either party may have furnished to the other in writing in accordance

herewith, except that notice of a change of address shall be effective only upon

actual receipt:

 

      To the Company:

 

      SAFECO Corporation

      SAFECO Plaza

      Seattle, WA 98185

      Attention: Chief Executive Officer

 

11.   Miscellaneous. No provision of this Agreement may be modified, waived or

discharged unless such waiver, modification or discharge is agreed to in writing

and signed by the Executive and an officer of SAFECO. No waiver by either party

hereto at any time of any breach by the other party hereto of, or of any lack of

compliance with, any condition or provision of this Agreement to be performed by

such other party shall be deemed a waiver of similar or dissimilar provisions or

conditions at the same or at any prior or subsequent time. This Agreement

supersedes any other agreements or representations, oral or otherwise, express

or implied, with respect to its subject matter which have been made by either

party. The validity, interpretation, construction and performance of this

Agreement shall be governed by the laws of the State of

 

                                       9

<PAGE>   30

 

Washington. All references to sections of the Exchange Act or the Code shall be

deemed also to refer to any successor provisions to such sections. Any payments

provided for hereunder shall be paid net of any applicable withholding required

under federal, state or local law and any additional withholding to which the

Executive has agreed. The obligations of the Company and the Executive under

this Agreement which by their nature may require either partial or total

performance after the expiration of the Term (including, without limitation,

those under Sections 6 and 7) shall survive such expiration.

 

12.   Validity. The invalidity or unenforceability of any provision of this

Agreement shall not affect the validity or enforceability of any other provision

of this Agreement, which shall remain in full force and effect.

 

13.   Counterparts. This Agreement may be executed in several counterparts, each

of which shall be deemed to be an original but all of which together will

constitute one and the same instrument.

 

14.   Settlement of Disputes; Arbitration.

 

      (A) All claims by the Executive for benefits under this Agreement shall be

directed to and determined by the Committee and shall be in writing. Any denial

by the Committee of a claim for benefits under this Agreement shall be delivered

to the Executive in writing and shall state the specific reasons for the denial

and the specific provisions of this Agreement relied upon. The Committee shall

afford a reasonable opportunity to the Executive for a review of the decision

denying a claim and shall further allow the Executive to appeal to the Committee

a decision of the Committee within sixty (60) days after notification by the

Committee that the Executive's claim has been denied.

 

      (B) Any further dispute or controversy arising under or in connection with

this Agreement shall be settled exclusively by arbitration in Seattle,

Washington in accordance with the rules of the American Arbitration Association

then in effect. Judgment may be entered on the arbitrator's award in any court

having jurisdiction. Notwithstanding any provision of this Agreement to the

contrary, the Executive shall be entitled to seek specific performance of the

Executive's right to be paid until the Date of Termination during the pendency

of any dispute or controversy arising under or in connection with this

Agreement.

 

15.   Definitions. For purposes of this Agreement, the following terms shall

have the meanings indicated below:

 

      (A) "Accountant" shall have the meaning stated in Section 6.2.

 

      (B) "Affiliate" shall have the meaning stated in Rule 12b-2 promulgated

under Section 12 of the Exchange Act.

 

      (C) "Base Amount" shall have the meaning stated in section 280G(b)(3) of

the Code.

 

      (D) "Beneficial Owner" shall have the meaning stated in Rule 13d-3 under

the

 

                                       10

<PAGE>   31

 

Exchange Act.

 

      (E) "Board" shall mean the Board of Directors of SAFECO.

 

      (F) "Cause" for termination by the Company of the Executive's employment

shall mean (i) the willful and continued failure by the Executive to

substantially perform the Executive's duties with the Company (other than any

such failure resulting from the Executive's incapacity due to physical or mental

illness or any such actual or anticipated failure after the issuance of a Notice

of Termination for Good Reason by the Executive pursuant to Section 7.1) after a

written demand for substantial performance is delivered to the Executive by the

Board, which demand specifically identifies the manner in which the Board

believes that the Executive has not substantially performed the Executive's

duties, or (ii) the willful engaging by the Executive in conduct which is

demonstrably and materially injurious to the Company or its subsidiaries,

monetarily or otherwise. For purposes of clauses (i) and (ii) of this

definition, (x) no act, or failure to act, on the Executive's part shall be

deemed "willful" unless done, or omitted to be done, by the Executive not in

good faith and without reasonable belief that the Executive's act, or failure to

act, was in the best interest of the Company and (y) in the event of a dispute

concerning the application of this provision, no claim by the Company that Cause

exists shall be given effect unless the Company establishes to the Committee by

clear and convincing evidence that Cause exists.

 

      (G) A "Change in Control" shall be deemed to have occurred if the event

stated in any one of the following paragraphs shall have occurred:

 

      (i) any 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)

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 (a) of paragraph (iii)

below; or

 

      (ii) the following individuals cease for any reason to constitute a

majority of the number of directors then serving: individuals who, on the date

hereof, constitute the Board and any 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 or nomination for election by SAFECO's stockholders was approved or

recommended by a vote of at least two-thirds (2/3) of the directors then still

in office who either were directors on the date hereof or whose appointment,

election or nomination for election was previously so approved or recommended;

or

 

      (iii) there is consummated a merger or consolidation of SAFECO or any

direct or indirect subsidiary of SAFECO with any other corporation, other than

(a) 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

 

                                       11

<PAGE>   32

 

combination with the ownership of any trustee or other fiduciary holding

securities under an employee benefit plan of SAFECO or any subsidiary of SAFECO,

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 (b) 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) representing 25% or

more of the combined voting power of SAFECO's then outstanding securities; or

 

      (iv) the stockholders of SAFECO approve a plan of complete liquidation or

dissolution of SAFECO or there is consummated an agreement for the sale or

disposition by SAFECO of all or substantially all of SAFECO's assets, other than

a sale or disposition by SAFECO of all or substantially all of SAFECO's assets

to an entity, at least 75% of the combined voting power of the voting securities

of which are owned by stockholders 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 of SAFECO 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 the assets of SAFECO

immediately following such transaction or series of transactions.

 

      (H) "Code" shall mean the Internal Revenue Code of 1986, as amended from

time to time.

 

      (I) "Committee" shall mean (i) the individuals (not fewer than three in

number) who, on the date six months before a Change in Control, constitute the

Compensation Committee of the Board, plus (ii) in the event that fewer than

three individuals are available from the group specified in clause (i) above for

any reason, such individuals as may be appointed by the individual or

individuals so available (including for this purpose any individual or

individuals previously so appointed under this clause (ii)).

 

      (J) "Company" shall mean SAFECO and its subsidiaries, collectively.

 

      (K) "Date of Termination" shall have the meaning stated in Section 7.2.

 

      (L) "Deferred Benefit" shall have the meaning stated in Section 5.4.

 

      (M) "Deferred Benefit Commencement Date" shall have the meaning stated in

Section 5.4.

 

      (N) "Disability" shall be deemed the reason for the termination by the

Company of the Executive's employment, if, as a result of the Executive's

incapacity due to physical or mental illness, the Executive shall have been

absent from the full-time performance of the Executive's

 

                                       12

<PAGE>   33

 

duties with the Company for a period of one hundred and thirty (130) consecutive

business days, the Company shall have given the Executive a Notice of

Termination for Disability, and, within thirty (30) days after such Notice of

Termination is given, the Executive shall not have returned to the full-time

performance of the Executive's duties.

 

      (O) "Exchange Act" shall mean the Securities Exchange Act of 1934, as

amended from time to time.

 

      (P) "Excise Tax" shall mean any excise tax imposed under section 4999 of

the Code.

 

      (Q) "Executive" shall mean the individual named in the first paragraph of

this Agreement.

 

      (R) "Good Reason" for termination by the Executive of the Executive's

employment shall mean the occurrence (without the Executive's express written

consent) after any Change in Control, or prior to a Change in Control under the

circumstances described in clause (ii) of the second sentence of Section 6.1

(treating all references in paragraphs (i) through (vii) below to a "Change in

Control" as references to a "Potential Change in Control"), of any one of the

following acts by the Company, or failures by the Company to act, unless, in the

case of any act or failure to act described in paragraph (i), (v), (vi) or (vii)

below, such act or failure to act is corrected prior to the Date of Termination

specified in the Notice of Termination given in respect thereof:

 

      (i) the assignment to the Executive of any duties inconsistent with the

Executive's status as a senior executive officer of the Company or a substantial

adverse alteration in the nature or status of the Executive's responsibilities

from those in effect immediately prior to the Change in Control;

 

      (ii) a reduction by the Company in the Executive's annual base salary as

in effect on the date hereof or as the same may be increased from time to time;

 

      (iii) the relocation of the Executive's principal place of employment to a

location outside of King County, Washington (or, if different, the county in

which such principal place of employment is located immediately prior to the

Change in Control) or the Company's requiring the Executive to be based anywhere

other than such principal place of employment (or permitted relocation thereof)

except for required travel on the Company's business to an extent substantially

consistent with the Executive's present business travel obligations;

 

      (iv) the failure by the Company to pay to the Executive any portion of the

Executive's current compensation, or to pay to the Executive any portion of an

installment of deferred compensation under any deferred compensation program of

the Company, within seven (7) days of the date such compensation is due;

 

      (v) the failure by the Company to continue in effect any compensation plan

(including stock option, restricted stock, stock appreciation right, incentive

compensation and bonus plans) in which the Executive participates immediately

prior to the Change in Control which is material

 

                                       13

<PAGE>   34

 

to the Executive's total compensation, unless an equitable arrangement (embodied

in an ongoing substitute or alternative plan) has been made with respect to such

plan, or the failure by the Company to continue the Executive's participation

therein (or in such substitute or alternative plan) on a basis not materially

less favorable, both in terms of the amount or timing of payment of benefits

provided and the level of the Executive's participation relative to other

participants, as existed immediately prior to the Change in Control;

 

      (vi) the failure by the Company to continue to provide the Executive with

benefits substantially similar to those enjoyed by the Executive under any of

the Company's profit sharing, pension, savings, life insurance, medical, health

and accident, or disability plans in which the Executive was participating

immediately prior to the Change in Control, the taking of any action by the

Company which would directly or indirectly materially reduce any of such

benefits or deprive the Executive of any material fringe benefit enjoyed by the

Executive at the time of the Change in Control, or the failure by the Company to

provide the Executive with the number of paid vacation days to which the

Executive is entitled on the basis of years of service with the Company in

accordance with the Company's normal vacation policy in effect at the time of

the Change in Control; or

 

      (vii) any purported termination of the Executive's employment which is not

effected pursuant to a Notice of Termination satisfying the requirements of

Section 7.1; for purposes of this Agreement, no such purported termination shall

be effective.

 

      The Executive's right to terminate the Executive's employment for Good

Reason shall not be affected by the Executive's incapacity due to physical or

mental illness. The Executive's continued employment shall not constitute

consent to, or a waiver of rights with respect to, any act or failure to act

constituting Good Reason hereunder.

 

      For purposes of any determination regarding the existence of Good Reason,

any claim by the Executive that Good Reason exists shall be presumed to be

correct unless the Company establishes to the Committee by clear and convincing

evidence that Good Reason does not exist.

 

      (S) "Gross-Up Payment" shall have the meaning stated in Section 6.2.

 

      (T) "Notice of Termination" shall have the meaning stated in Section 7.1.

 

      (U) "Person" shall have the meaning given in Section 3(a)(9) of the

Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except

that such term shall not include (i) SAFECO or any of its subsidiaries, (ii) a

trustee or other fiduciary holding securities under an employee benefit plan of

SAFECO or any of its Affiliates, (iii) an underwriter temporarily holding

securities pursuant to an offering of such securities, or (iv) a corporation

owned, directly or indirectly, by the stockholders of SAFECO in substantially

the same proportions as their ownership of stock of SAFECO.

 

      (V) "Potential Change in Control" shall be deemed to have occurred if the

event stated in any one of the following paragraphs shall have occurred:

 

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<PAGE>   35

 

      (i) SAFECO enters into an agreement, the consummation of which would

result in the occurrence of a Change in Control;

 

      (ii) SAFECO or any Person publicly announces an intention to take or to

consider taking actions which, if consummated, would constitute a Change in

Control;

 

      (iii) any Person becomes the Beneficial Owner, directly or indirectly, of

securities of SAFECO representing 10% or more of either the then outstanding

shares of common stock of SAFECO or the combined voting power of the SAFECO's

then outstanding securities (not including in the securities beneficially owned

by such Person any securities acquired directly from SAFECO or its affiliates);

or

 

      (iv) the Board adopts a resolution to the effect that, for purposes of

this Agreement, a Potential Change in Control has occurred.

 

      (W) "Retirement" shall be deemed the reason for the termination by the

Company or the Executive of the Executive's employment if such employment is

terminated on or after the date Executive attains age 65.

 

      (X) "SAFECO" shall mean SAFECO Corporation and, except in determining

under Section 15(G) whether or not any Change in Control has occurred, shall

include any successor to its business and/or assets which assumes and agrees to

perform this Agreement by operation of law, or otherwise.

 

      (Y) "Severance Payments" shall mean the payments so described in Section

6.1.

 

      (Z) "Severance Period" shall have the meaning stated in Section 6.1(B).

 

      (AA) "Tax Counsel" shall have the meaning stated in Section 6.2.

 

      (BB) "Term" shall mean the period of time described in Section 2

(including any extension, continuation or termination described therein).

 

      (CC) "Total Payments" shall mean the payments so described in Section 6.2.

 

 

 

SAFECO CORPORATION

 

 

By:

    ---------------------------------     --------------------------------------

    William G. Reed, Jr.                  Michael S. McGavick

    Chairman of the Board of Directors    Address:

 

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FIRST AMENDMENT TO

EMPLOYMENT AGREEMENT

 

This First Amendment (the “Amendment”) to the Employment Agreement dated as of January 26, 2001 (the “Employment Agreement”) between SAFECO Corporation (“SAFECO”) and Michael S. McGavick (“Employee”) is made on this 12th day of December, 2002.

 

WHEREAS, SAFECO and Employee have entered into the Employment Agreement;

 

WHEREAS, Employee has requested a reduction in the amount of Employee’s termination payments as originally specified in the Employment Agreement; and

 

WHEREAS, SAFECO has agreed to make such change and the parties agree that it is appropriate to make related changes to Employee’s noncompetition and nonsolicitation obligations;

 

NOW, THEREFORE, the parties agree as follows:

 

1. TERMINATION PAYMENTS

 

The annual base salary portion of the termination payments is amended from three years’ to one years’ annual base salary throughout Section 6.1 of the Employment Agreement, and such Section shall read as follows:

 

6.1 Termination by SAFECO

 

If SAFECO terminates Employee’s employment without Cause prior to the third anniversary of the Effective Date: (i) Employee shall be entitled to receive (a) termination payments equal to one years’ annual base salary and target bonus and (b) any unpaid annual base salary which has accrued for services already performed as of the date termination of Employee’s employment becomes effective; and (ii) if Employee is terminated by SAFECO for Cause, Employee shall not be entitled to receive any of the foregoing benefits, other than those set forth in clause (i)(b) above. If SAFECO terminates Employee’s employment without Cause after the third anniversary but before the fifth anniversary of the Effective Date, Employee shall receive (a) termination payments equal to one years’ annual base salary (at the annual rate then in effect), and (b) an amount equal to the amount set forth in clause (i)(b) above. Except as provided above, Employee’s rights upon termination of employment will be governed by SAFECO’s standard policy and practice, or as determined by the Board of Directors or a committee

 


thereof. The termination payments are payable contingent upon Employee’s resignation from SAFECO’s Board of Directors and execution of a waiver and release of claims arising out of his employment and/or the termination of his employment with SAFECO.

 

2. NONCOMPETITION AND NONSOLICITATION TIME PERIOD

 

The three year time period set forth in Section 7.2 of the Employment Agreement is amended to one year, and such Section shall read as follows:

 

7.2 Scope of Competition

 

Employee agrees that he will not, directly or indirectly, during his employment and for a period of one year from the date on which his employment with SAFECO terminates for any reason, or this Agreement expires, be employed by, consult with, be a director of or otherwise perform services for, own, manage, operate, join, control or participate in the ownership, management, operation or control of or be connected with, in any manner, any Competitor. A “Competitor” shall include any entity which, directly or indirectly, competes with SAFECO or produces, markets, distributes or otherwise derives benefit from the production, marketing or distribution of products or services which compete with products then produced or services then being provided or marketed, by SAFECO or the feasibility for production of which SAFECO is then actually studying, or which is preparing to market or is developing products or services that will be in competition with the products or services then produced or being studied or developed by SAFECO, in each case within the geographical area of the United States, unless released from such obligation in writing by SAFECO’s Board of Directors. Employee shall be deemed to be related to or connected with a Competitor if such Competitor is (a) a partnership in which he is a general or limited partner or employee, (b) a corporation or association of which he is a shareholder, officer, employee or director, or (c) a partnership, corporation or association of which he is a member, consultant or agent; provided, however, that nothing in this Agreement shall prevent the purchase or ownership by Employee of shares which constitute less than one percent of the outstanding equity securities of a publicly or privately held corporation, if Employee had no other relationship with such corporation.

 

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3. EFFECT UPON REMAINDER OF EMPLOYMENT AGREEMENT

 

Except as modified by this Amendment, the Employment Agreement remains in full force and effect, and unless specifically referenced in this Amendment, all other terms and provisions of the Employment Agreement remain unchanged. In the event of any inconsistency between this Amendment and the Employment Agreement regarding the specific subject matter of this Amendment, this Amendment shall control.

 

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

 

SAFECO Corporation

 

 

 

Michael S. McGavick

 

 

 

 

 

 

 

By

 

/S/    WILLIAM G. REED, JR.


 

 

 

 

/S/    MICHAEL S. MCGAVICK


 

 

 

William G. Reed, Jr.

Chairman of the Board of Directors

 

 

 

 

 

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