<PAGE> 1
- --------------------------------------------------------------------------------
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
THE PROGRESSIVE CORPORATION
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
THE PROGRESSIVE CORPORATION
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
[Progressive Logo Here]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 28, 1995
Notice is hereby given that the Annual Meeting of Shareholders of The
Progressive Corporation will be held at 6671 Beta Drive, Mayfield Village, Ohio,
on Friday, April 28, 1995, at 10:00 a.m., Cleveland time, for the following
purposes:
1. To fix the number of directors at nine;
2. To elect eight directors, each to serve for a term of one year;
3. To approve The Progressive Corporation 1995 Executive Bonus Plan;
4. To approve The Progressive Corporation Executive Deferred
Compensation Plan;
5. To approve The Progressive Corporation 1995 Incentive Plan; and
6. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on February 28, 1995,
will be entitled to notice of and to vote at said meeting or any adjournment
thereof.
By Order of the Board of Directors.
DAVID M. SCHNEIDER, Secretary
March 24, 1995
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
<PAGE> 3
THE PROGRESSIVE CORPORATION
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
for use at the Annual Meeting of Shareholders of The Progressive Corporation, an
Ohio corporation (the "Company"), to be held at 10:00 a.m., Cleveland time, on
Friday, April 28, 1995, at 6671 Beta Drive, Mayfield Village, Ohio 44143, and at
any adjournment thereof. This statement and the accompanying proxy, together
with the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1994, will first be sent to shareholders on or about March 24,
1995.
The close of business on February 28, 1995, has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting. At that date, the Company had outstanding 71,358,294 Common Shares,
each of which will be entitled to one vote.
ITEM 1: PROPOSAL TO FIX THE NUMBER OF DIRECTORS AT NINE
The Company's Code of Regulations provides that the number of directors be
fixed by the shareholders at no less than five or more than twelve. The number
of directors is currently fixed at eight. The Board of Directors is proposing
that the number of directors be fixed at nine. Eight nominees are named herein
for election to the Board. Accordingly, there will be one vacancy on the Board
if shareholders approve the proposal and vote to elect eight directors. The
reason for fixing the number of directors at a higher number than the number to
be in office immediately after the Annual Meeting is to have a vacancy available
which could be filled by the directors without the time and expense involved in
holding a special meeting of shareholders, should a person who could make a
valuable contribution as a director of the Company become available during the
year. Through the process of electing directors on an annual basis, shareholders
will have the opportunity to determine whether any person named to fill the
vacancy will continue to serve as a director after the Annual Meeting
immediately following his or her appointment to the Board and from year to year
thereafter. No decision has been made to fill the vacancy, nor have any
candidates been considered and approved by the Board of Directors.
VOTE REQUIRED FOR APPROVAL
Under the Company's Code of Regulations, the affirmative vote of a majority
of the issued and outstanding Common Shares of the Company is required for
approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
1
<PAGE> 4
ITEM 2: ELECTION OF DIRECTORS
At the meeting, the shares represented by proxies, unless otherwise
specified, will be voted for the election as directors of the eight nominees
hereinafter named, to serve until the next Annual Meeting of Shareholders and
until their respective successors are duly elected and qualified. If, by reason
of death or other unexpected occurrence, any one or more of the nominees
hereinafter named should not be available for election, the proxies will be
voted for such substitute nominee(s), if any, as the Board of Directors may
propose. Proxies cannot be voted at the Annual Meeting for a greater number of
persons than the eight nominees named in this proxy statement, although persons
in addition to those nominees may be nominated by the shareholders at the
meeting.
If notice in writing is given by any shareholder to the President or
Secretary not less than 48 hours before the time fixed for holding the meeting
that he desires that the voting for election of directors shall be cumulative,
and if an announcement of the giving of such notice is made upon the convening
of such meeting by the Chairman or Secretary or by or on behalf of the
shareholder giving such notice, each shareholder shall have the right to
cumulate such voting power as he possesses at such election and to give one
nominee a number of votes equal to the number of directors to be elected
multiplied by the number of shares he holds, or to distribute such number of
votes among two or more nominees, as he sees fit. If the enclosed proxy is
executed and returned and voting for the election of directors is cumulative,
the persons named in the enclosed proxy will have the authority to cumulate
votes and to vote the shares represented by such proxy, and by other proxies
held by them, so as to elect as many of the eight nominees named below as
possible.
The following information is set forth with respect to each person
nominated for election as a director. Unless otherwise indicated, each such
nominee has held the principal occupation indicated for more than the last five
years. Each such nominee, other than Janet Hill, is currently a director of the
Company.
<TABLE>
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE LAST FIVE YEARS' BUSINESS EXPERIENCE SINCE
- ---------------------------- --- ---------------------------------------------- --------
<S> <C> <C> <C>
Milton N. Allen (1) 67 Director of various companies; Chairman of the 1978
Board, MDSS, Inc., Cleveland, Ohio (software
and computer services) until July 1990
B. Charles Ames (2) 69 Principal, Clayton, Dubilier & Rice, Inc., New 1983
York, New York (investment banking) since May
1990; Chairman and Chief Executive Officer,
Uniroyal Goodrich Tire Company, Akron, Ohio
(manufacturing) prior to May 1990
2
<PAGE> 5
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE LAST FIVE YEARS' BUSINESS EXPERIENCE SINCE
- ---------------------------- --- ---------------------------------------------- --------
<S> <C> <C> <C>
Stephen R. Hardis (3) 59 Chief Financial and Administrative Officer, 1988
Vice Chairman and a director of Eaton
Corporation, Cleveland, Ohio (manufacturing)
Janet Hill (4) 47 President, Staubach Alexander Hill, LLC, Wash-
ington, D.C. (real estate consulting) since
January 1995; Vice President, Alexander &
Associates, Inc., Washington, D.C. (management
consulting)
Peter B. Lewis (5) 61 President and Chief Executive Officer of the 1965
Company; Chairman of the Board of the Company
since April 1993; President, Chairman of the
Board and Chief Executive Officer of Pro-
gressive Casualty Insurance Company
Norman S. Matthews (6) 62 Consultant, New York, New York 1981
Donald B. Shackelford (7) 62 Chairman of the Board, State Savings Bank, 1976
Columbus, Ohio (savings and loan)
Paul B. Sigler 61 Professor, Yale University and Investigator in 1981
the Howard Hughes Medical Institute
<FN>
- ---------------
(1) Mr. Allen is also a director of AGA Gas, Inc., which is publicly held, and
Actron Manufacturing Company and The Bradford Group, Inc., which are
privately held.
(2) Mr. Ames is also a director of Diamond Shamrock R & M, Inc., M.A. Hanna
Company and Warner-Lambert Company, which are publicly held, and Homeland
Holding, Inc., Lexmark Holding, Inc., WESCO Distribution, Inc. and CDW
Holding, Inc., which are privately held.
(3) Mr. Hardis is also a director of Nordson Corporation and KeyCorp and a
trustee of First Union Realty Investment Trust, all of which, as well as
Eaton Corporation, are publicly held.
(4) Ms. Hill is also a director of Wendy's International, Inc., which is
publicly held, and the New York Cotton Exchange.
(5) Mr. Peter B. Lewis is also an officer and director of other subsidiaries of
the Company. Mr. Daniel R. Lewis, Treasurer of the Company through December
15, 1994, is the brother of Mr. Peter B. Lewis.
(6) Mr. Matthews is also a director of Lechters, Inc. and Hills Stores Company,
which are publicly held, and Loehmann's, Inc., Eye Care Centers of America
and Finlay Fine Jewelry, Inc., which are privately held.
(7) Mr. Shackelford is also a director of The Limited, Inc. and Worthington
Foods, Inc., which are publicly held.
</TABLE>
3
<PAGE> 6
Four meetings of the Board of Directors were held during 1994. Beginning in
1995, the Board will have six regularly scheduled meetings.
The Board has named an Executive Committee, an Audit Committee and an
Executive Compensation Committee, as described below. The Board has not
designated a nominating committee.
Messrs. Allen, Hardis and Lewis are the current members of the Board's
Executive Committee, which exercises all powers of the Board between Board
meetings, except the power to fill vacancies on the Board or its committees.
During 1994, the Executive Committee met one time and adopted resolutions by
written action pursuant to Ohio corporation law on eight occasions.
Messrs. Allen, Ames and Hardis are the current members of the Board's Audit
Committee, which assures that organization, policies, controls and systems are
in place to monitor performance; provides an independent channel to receive
appropriate communications from employees, auditors, legal counsel, bankers and
consultants; and monitors the public release of financial information. The Audit
Committee met four times during 1994.
Messrs. Matthews, Shackelford and Sigler are the current members of the
Board's Executive Compensation Committee. Mr. Sigler replaced Mr. Allen as a
member as of February 10, 1995. This committee monitors and directs the
administration of the Company's executive compensation program, including the
various cash and stock incentive programs in which officers and employees of the
Company participate. During 1994, the Executive Compensation Committee met four
times and adopted resolutions by written action pursuant to Ohio corporation law
on five occasions.
4
<PAGE> 7
<TABLE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners. The following information
is set forth with respect to persons known to management to be the beneficial
owners, as of February 10, 1995, of more than five percent of the Company's
Common Shares:
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
---------------------------------------------------------------------- --------
<S> <C> <C>
Peter B. Lewis................................. 10,026,444(2) 14.0%
6300 Wilson Mills Road
Mayfield Village, Ohio 44143
Ruane, Cunniff & Co., Inc...................... 9,448,210(3) 13.2%
767 Fifth Avenue
Suite 4701
New York, New York 10153-4789
Oppenheimer Group, Inc......................... 7,181,116(4) 10.1%
Oppenheimer Tower
World Financial Center
New York, New York 10281
The Equitable Companies Incorporated........... 5,648,641(5) 7.9%
787 Seventh Avenue
New York, New York 10019
<FN>
- ---------------
(1) Except as otherwise indicated, the persons listed as beneficial owners of
the Common Shares have sole voting and investment power with respect to
those shares. Certain of the information contained in this table, including
related footnotes, is based on the Schedule 13G filings made by the
beneficial owners identified herein.
(2) Includes 13,642 Common Shares held for Mr. Lewis by a trustee under the
Company's Retirement Security Program, 75,000 Common Shares subject to
currently exercisable stock options, 337,500 Common Shares held by Mr. Lewis
as trustee of a trust established for the benefit of his brother and 549,414
shares held by a charitable corporation of which Mr. Lewis serves as a
trustee and an officer. The amount does not include 1,579,929 Common Shares
held of record by National City Bank as trustee of a trust established by
Mr. Lewis for the benefit of his adult children, as to which shares he
disclaims any beneficial interest.
(3) The Common Shares are held in investment accounts maintained with Ruane,
Cunniff & Co., Inc., and it disclaims any beneficial interest in such
shares. Ruane, Cunniff & Co., Inc. has advised that it has sole voting power
as to 6,696,855 of these shares, no voting power as to the balance of these
shares, sole investment power as to 5,007,210 of these shares and shared
investment power as to 4,441,000 of these shares.
5
<PAGE> 8
(4) The Common Shares are held in investment accounts maintained with
Oppenheimer Group, Inc. or affiliates, and they disclaim any beneficial
interest in such shares. Oppenheimer Group, Inc. has advised that it has
shared voting and investment power as to all of these shares.
(5) The Common Shares are held in investment accounts maintained with The
Equitable Companies Incorporated or affiliates, and they disclaim any
beneficial interest in such shares. The Equitable Companies Incorporated has
advised that it has sole voting power as to 3,824,802 of these shares,
shared voting power as to 222,900 of these shares, no voting power as to the
balance of these shares and sole investment power as to all of these shares.
</TABLE>
<TABLE>
Security Ownership of Management. The following information is set forth
with respect to the Company's Common Shares beneficially owned as of February
10, 1995, by all directors and nominees for election as directors of the
Company, each of the named executive officers and by all directors and executive
officers of the Company as a group:
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP(1) OF CLASS
------ ------------------------- ----------
<S> <C> <C>
Milton N. Allen................................ 51,703(2) *
B. Charles Ames................................ 47,005(3) *
Charles B. Chokel.............................. 111,438(4) *
Allan W. Ditchfield............................ 56,326(5) *
Stephen R. Hardis.............................. 27,808(3) *
Janet Hill..................................... -- *
Peter B. Lewis................................. 10,026,444(6) 14.0%
Bruce W. Marlow................................ 90,516(7) *
Norman S. Matthews............................. 39,338(3) *
Michael C. Murr................................ 614,931(8) *
Donald B. Shackelford.......................... 82,171(3) *
Paul B. Sigler................................. 12,409(9) *
All 14 Executive Officers and Directors
as a Group................................... 11,512,882(10) 15.9%
<FN>
- ---------------
* Less than one percent of the outstanding Common Shares of the Company.
(1) Includes Common Shares held for executive officers under the Company's
Retirement Security Program (which includes the Long-Term Savings Plan) and
currently exercisable stock options held by directors and executive
officers under various plans. Unless otherwise indicated below, beneficial
ownership of the Common Shares held by the directors and executive officers
listed in the table is comprised of both sole voting power and sole
investment power, or voting power and investment power that is shared with
the spouse and/or minor children of the director or executive officer.
6
<PAGE> 9
(2) Includes 2,400 Common Shares owned by Mr. Allen's wife, as to which shares
he disclaims any beneficial interest, and 22,000 Common Shares subject to
currently exercisable stock options.
(3) Includes 22,000 Common Shares subject to currently exercisable stock
options.
(4) Includes 2,042 Common Shares held by Mr. Chokel as custodian for his minor
children, as to which shares he disclaims any beneficial interest, and
13,082 Common Shares subject to currently exercisable stock options.
(5) Includes 30,000 Common Shares subject to currently exercisable stock
options.
(6) See footnote 2 on page 5.
(7) Includes 45,000 Common Shares subject to currently exercisable stock
options.
(8) Includes 454,550 Common Shares subject to currently exercisable stock
options. From February 28, 1995 through March 2, 1995, Mr. Murr exercised
these options and sold 512,500 Common Shares.
(9) Includes 10,000 Common Shares subject to currently exercisable stock
options.
(10) Includes 985,632 Common Shares subject to currently exercisable stock
options.
</TABLE>
Section 16(a) Reporting. Under the Federal securities laws, the directors
and certain officers of the Company and holders of 10% or more of the Company's
Common Shares are required to report their ownership of the Company's Common
Shares, and any changes in such ownership, to the Securities and Exchange
Commission ("SEC") and New York Stock Exchange ("NYSE") within specified
timeframes. David M. Schneider inadvertently omitted to include in his Section
16(a) reports 8,697 Common Shares that were transferred in March 1990 from his
father's estate to a trust of which he is a co-trustee, and 1,500 Common Shares
with respect to which he had a beneficial interest that were sold by that trust
in April 1990. Corrective filings were made with the SEC and NYSE, on behalf of
both Mr. Schneider and the trust, promptly after this oversight was discovered.
The plan administrator of the Company's Long-Term Savings Plan (now part of the
Retirement Security Program) furnished erroneous information to Charles B.
Chokel and Jeffrey W. Basch concerning allocations of shares to their plan
accounts during 1993. As a result, the allocations reported in their Form 5s for
1993 were overstated by approximately 69 shares and 224 shares, respectively.
Both individuals filed amended Form 5s promptly after receiving revised
information from the plan administrator. Also, Mr. Basch's wife acquired 40
shares in an intraplan transfer to her Long-Term Savings Plan account, which Mr.
Basch inadvertently failed to report on Form 4. This transaction was later
reported on Mr. Basch's Form 5 for 1994. Tiona M. Thompson inadvertently
underreported by 13,000 shares the number of shares subject to stock options
granted to her on April 14, 1994 under the Company's 1989 Incentive Plan. She
filed an amended Form 4 for April 1994 promptly after this oversight was
discovered.
7
<PAGE> 10
<TABLE>
EXECUTIVE COMPENSATION
The following information is set forth with respect to the Company's Chief
Executive Officer and the other four most highly compensated executive officers,
each of whom was serving as an executive officer at December 31, 1994 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION ------------
------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ------------------------------------ ----- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Peter B. Lewis 1994 $ 800,000 $1,124,000 $139,295(2) 122,400 $ 3,030(3)
Chairman, President and 1993 1,000,000 1,400,000 127,646(2) 67,100 --
Chief Executive Officer 1992 1,023,077 946,000 162,703(2) 137,400 --
Michael C. Murr 1994 750,000 1,565,625 -- 81,900 4,072(3)
Chief Investment and 1993 1,001,226 892,800 -- 37,500 4,861
Capital Officer (hired 7/1/92) 1992 473,523 -- -- -- 7,162
Bruce W. Marlow 1994 558,040 673,219 -- 85,400 18,736(4)
Chief Operating 1993 558,040 892,800 -- 37,500 6,704
Officer 1992 551,286 465,300 -- 72,000 5,305
Charles B. Chokel 1994 292,948 337,792 -- 31,700 6,685(3)
Treasurer and Chief 1993 275,000 385,000 -- 11,500 6,558
Financial Officer 1992 261,539 252,120 -- 16,500 6,806
Allan W. Ditchfield 1994 412,004 191,005 -- 17,500 4,824(3)
Chief Information 1993 400,000 200,000 -- 10,500 6,923
Officer 1992 400,000 118,300 -- 16,500 6,200
<FN>
- ---------------
(1) The Company's 1985 Restricted Stock Plan expired on December 31, 1993, and
there were no restricted stock awards outstanding as of December 31, 1994.
(2) Other Annual Compensation includes $105,935, $96,588 and $130,523 in the
form of personal use of corporate aircraft by Mr. Lewis in 1994, 1993 and
1992, respectively.
(3) Represents employer contributions paid during 1994 under the Company's
Retirement Security Program.
(4) Includes $7,575 of employer contributions paid during 1994 under the
Company's Retirement Security Program and an $11,161 single lump sum payment
in lieu of a salary increase for exceeding specific performance objectives
during 1994.
</TABLE>
8
<PAGE> 11
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ------------------------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS TERM
OPTIONS GRANTED TO EXERCISE -------------------------
GRANTED EMPLOYEES PRICE EXPIRATION 5% 10%
NAME (#) IN 1994 ($/SHARE) DATE ($) ($)
- ---------------------- ---------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter B. Lewis 122,400(1) 10.7% $ 31.00 12/31/03 $2,312,699 $5,823,621
Michael C. Murr 81,900(1) 7.2 31.00 12/31/03 1,547,468 3,896,687
Bruce W. Marlow 85,400(1) 7.5 31.00 12/31/03 1,613,599 4,063,212
Charles B. Chokel 31,700(1) 2.8 31.00 12/31/03 598,959 1,508,242
Allan W. Ditchfield 17,500(1) 1.5 31.00 12/31/03 330,656 832,626
<FN>
---------------------
(1) Options become exercisable 1/1/99, subject to accelerated vesting and
a "cash-out" provision upon the occurrence of any "Change in Control"
of the Company or certain similar events described in the 1989
Incentive Plan.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/94 OPTIONS AT 12/31/94
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---------------------- ------------ ----------- ---------------------- --------------------------
<S> <C> <C> <C> <C>
Peter B. Lewis -- -- Exercisable -- Exercisable $ --
Unexercisable 476,900 Unexercisable 6,547,933
Michael C. Murr 35,450 $ 1,000,009 Exercisable 454,550 Exercisable 12,159,130
Unexercisable 134,400 Unexercisable 855,288
Bruce W. Marlow -- -- Exercisable -- Exercisable --
Unexercisable 284,900 Unexercisable 3,757,747
Charles B. Chokel -- -- Exercisable -- Exercisable --
Unexercisable 119,700 Unexercisable 1,716,096
Allan W. Ditchfield 30,000 $ 520,544 Exercisable -- Exercisable --
Unexercisable 104,500 Unexercisable 1,458,921
</TABLE>
9
<PAGE> 12
PENSION PLANS
Messrs. Peter B. Lewis, Marlow and Chokel, as well as substantially all
other full-time employees of the Company and its subsidiaries who were hired
before January 1, 1989 and satisfy certain other requirements, are eligible to
participate in The Progressive Pension Plan (the "Pension Plan"). The Pension
Plan is a defined benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), is a qualified plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and is subject to the minimum funding standards of Section 412 of the Code.
Benefits payable under the Pension Plan are determined pursuant to a
formula based upon a participant's years of service with the Company and its
subsidiaries, the participant's average annual compensation not in excess of the
Social Security taxable wage base during such years of service ("Average
Earnings") and Social Security benefits. For purposes of determining Average
Earnings, the Pension Plan recognizes base salary, overtime earnings, cash
bonuses and commissions. The benefit formula is 2% of Average Earnings times
years of service minus 50% of primary Social Security benefit for years of
service through December 31, 1988, plus 1.3% of Average Earnings times years of
service through December 31, 1993.
Participants accrue benefits under the Pension Plan formula over their
years of service with the Company and its subsidiaries, and become fully vested
in their accrued benefits under the Pension Plan upon (i) completion of five
years of service (subject to certain break-in-service rules); (ii) attainment of
age 65; or (iii) retirement on account of permanent and total disability.
The estimated net annual pensions (expressed as a life and 120-month
certain annuity) payable upon retirement at normal retirement age (65) under the
Pension Plan for each of the three named executive officers who participate in
the Pension Plan are as follows: Mr. Lewis, $10,188; Mr. Marlow, $8,983; and Mr.
Chokel, $9,042.
As of December 31, 1993, all benefit accruals under the Pension Plan were
frozen. Effective January 1, 1994, The Progressive Corporation Supplemental
Retirement Plan ("Supplemental Retirement Plan") was amended to include all
employees who previously participated in the Pension Plan and who meet
requirements as to age and length of service. The Supplemental Retirement Plan
is a defined contribution plan within the meaning of ERISA, and is a qualified
plan under the Code. All named executive officers now participate in the
Supplemental Retirement Plan and the contributions made by the Company in 1994
are included in "All Other Compensation" in the Summary Compensation Table on
page 8. Under the Supplemental Retirement Plan, contributions vary from 1% to 5%
of compensation up to the Social Security wage base, based on years of eligible
service.
SEPARATION PLANS
The named executive officers, as well as substantially all other regular,
non-temporary employees of the Company and its subsidiaries, are eligible to
participate in The Progressive
10
<PAGE> 13
Corporation Separation Allowance Plan (the "Separation Plan"). The Separation
Plan provides payments to eligible employees whose employment is involuntarily
terminated as a result of a reduction in force or a reorganization, as defined
in the Separation Plan. Payments are based on compensation in effect immediately
prior to termination and years of service and cannot exceed an aggregate of two
years of compensation. The Separation Plan is a welfare benefit plan within the
meaning of ERISA. All payments under the Separation Plan are made from the
general assets of the Company and its subsidiaries. Individual employment or
separation arrangements may supplement or supersede the Separation Plan in whole
or in part.
DIRECTORS' FEES AND PLANS
Each member of the Board of Directors who is not an employee of the Company
currently receives an annual director's fee of $8,000 ("Retainer Fee"). In
addition, each such director receives fees for attendance at meetings of the
Board and of those committees of the Board of which he or she is a member
("Meeting Fee"). Directors currently receive $3,000 for attendance at each
regular meeting of the Board and $1,000 for attendance at each special meeting,
unless attendance is by telephone, in which case the fee is $500. Each member of
a Board committee receives $750 for attendance at each meeting of the committee,
except that the committee chairman receives $1,000 for attendance at each such
meeting, unless attendance is by telephone, in which case the fee is $500.
Each director of the Company who is not an employee of the Company
participates in The Progressive Corporation Directors Deferral Plan, as amended
(the "Directors Deferral Plan"). Each participant in the Directors Deferral Plan
may elect, annually, to defer receipt of all or a portion of his or her Meeting
Fees for the following year until the date designated by the director in
accordance with the Directors Deferral Plan, which shall not be earlier than six
months and one day after the date on which such fees are credited to the
director's deferral account. A participating director may elect to have such
deferred fees credited to or allocated between (a) a cash account which will
earn interest at a rate equal to the rate of interest on new three-month
certificates of deposit, and (b) a stock account under which the deferred fees
are converted into units equivalent in value and dividend rights to the
Company's Common Shares. Account balances may not be transferred from one
account to another. All such accounts will be distributed in cash, in a lump sum
or installments, when and as designated by the participating director at the
time of election or, if earlier, upon the death of the director. All director's
Retainer Fees are deferred, credited to a stock account and distributed in cash
on any date designated by the participating director which is on or after the
later of (a) the date of the expiration of the director's then current term or
(b) the date which is six months and one day after the date such fees are
credited to the director's stock account ("Minimum Deferral Date") or, if no
such designation is made, the first day of the calendar quarter immediately
following the Minimum Deferral Date. All account balances of a director will be
distributed to his or her beneficiary, if he or she dies. However, if any
director ceases to serve as such for any reason other than death, disability or
removal without cause prior to the expiration of his or her term, all Retainer
Fees credited to his or her stock account during such term are forfeited.
11
<PAGE> 14
Each director who is not an employee of the Company is eligible to receive
awards under The Progressive Corporation 1990 Directors' Stock Option Plan, as
amended (the "Directors' Stock Plan"). The Directors' Stock Plan authorizes the
issuance of up to 450,000 Common Shares, subject to adjustment for stock splits
and similar events. Promptly after each Annual Meeting of Shareholders, each
participating director receives an option to purchase 2,000 Common Shares at an
exercise price equal to the fair market value of the Common Shares on the day of
such Annual Meeting. The term of each such stock option is ten years, commencing
on the date of grant. Options become exercisable six months and one day
following the date of grant and are not transferable. Upon death, to the extent
then otherwise exercisable, a stock option may be exercised for a period of one
year. During 1994, the Company granted stock options under this plan covering an
aggregate of 12,000 shares to six directors.
EXECUTIVE COMPENSATION COMMITTEE REPORT
EXECUTIVE COMPENSATION POLICY
The Company's executive compensation program is administered under the
direction of the Executive Compensation Committee of the Board of Directors (the
"Committee"). The Committee is comprised of three independent, nonemployee
directors. The executive compensation program is designed to promote the
following objectives:
- Attract, retain and motivate executives who can significantly contribute
to the success of the Company.
- Reward the achievement of corporate objectives that have been approved by
the Board.
- Provide a fair, rational and competitive executive compensation system.
The Committee believes that if these objectives are consistently achieved,
shareholder value will be enhanced over time.
EXECUTIVE COMPENSATION PROGRAM
For 1994, the Company's executive compensation program was designed to base
compensation on corporate, division and individual performance. Performance
objectives and related measurements, as well as the compensation awards that
would result from various levels of performance, were clearly defined in
advance.
The executive compensation program consists of three components: salary,
annual bonus and long-term incentives through equity-based awards. Variable
compensation (consisting of annual bonus and long-term incentive awards) is a
larger component of total compensation at more senior levels in the
organization. For each executive officer, a target amount is established for
each component of variable compensation. Target amounts are determined primarily
by reference to data contained in national compensation surveys. These surveys
include compensation data for a broad range of public companies in a variety of
industries. Since the Company competes for executive level personnel on a
nationwide basis with companies in a variety of
12
<PAGE> 15
industries, the compensation data utilized are not limited to companies included
in the P/C Group referred to on page 17. The Company's policy is to pay its
officers and employees competitive salaries (i.e., within 20% of the midpoint of
the survey range of salaries for their respective positions) and to provide
variable compensation which can take total direct compensation to or above the
high end of the market range when the Company and, in most cases, the employee's
division meet or exceed challenging performance goals.
A phase-out of many officer perquisites, such as company cars and extended
health care coverage, began in early 1992. In addition to the executive
compensation program, executive officers participate in the Company's health and
retirement plans which are available on the same basis to all regular employees
of the Company who satisfy minimum eligibility requirements.
Salary Component
Executive officers receive a salary based on their responsibilities and
potential at market levels indicated by compensation survey data. The Company's
objective is to set executive salaries to be within 20% of the midpoint of the
survey range of salaries for comparable positions. Salaries are reviewed
annually and adjusted for changes in those factors and the individual's
performance during the year. Better performance generally results in an
increased salary, subject to the limits of the salary range established by the
Company. For employees who exceed expectations, some part of the increase will
be paid in a single lump sum rather than becoming a part of future salary base.
Annual Bonus Component
In 1994, Messrs. Lewis, Marlow, Murr and Chokel and two other executive
officers of the Company participated in the 1994 Executive Bonus Plan. Mr.
Ditchfield, along with one other executive officer and all other full-time
employees of the Company, participated in the 1994 Gainsharing Plan. These Plans
were designed to reward participants appropriately for current corporate and/or
division performance.
Under the 1994 Executive Bonus Plan, a target annual bonus amount, which
varied by position, was established for each of the six participants. For Mr.
Lewis, the target annual bonus amount for 1994 equaled 100% of salary; for
Messrs. Marlow and Chokel, the target was 80% of salary; for Mr. Murr, the
target was 167% of salary; and for the other two executives, the target was 50%
of salary.
In 1994, awards under the 1994 Executive Bonus Plan were determined by
reference to three quantitative components. The Core Business Gainsharing
Component included a performance matrix ("Gainsharing Matrix") which assigned a
performance score to various combinations of profitability and growth outcomes
for the core business (profitability was measured by the combined ratio ("COR")
for continuing operations, determined in accordance with generally accepted
accounting principles ("GAAP"), while growth was measured in terms of the
year-to-year change in market share), and a factor which measured success in
reducing costs in the core
13
<PAGE> 16
business. The ROE Component measured the Company's return on average
shareholders' equity against pre-established objectives, and the Investment
Component measured the performance of the Company's investment activities
compared to appropriate indices. The weighting of these three components
differed depending on the nature and scope of the individual executive's
responsibilities. A performance score equal to the target bonus resulted if
designated goals were met. Actual awards could range from 0% to 200% of the
target annual bonus amount, depending on the extent to which performance was
better or worse than the goals.
All other officers and qualified employees (approximately 7,443) of the
Company, including Mr. Ditchfield and one other executive officer, participated
in the Company's 1994 Gainsharing Plan. The 1994 Gainsharing Plan was
substantially similar to the 1994 Executive Bonus Plan, but did not include
performance criteria for return on average shareholders' equity or investment
performance. Under the 1994 Gainsharing Plan, awards were based on performance
in achieving profitability and market share goals, as measured by the
Gainsharing Matrix, for both the Company as a whole and the individual
participant's division, and on the success of both the Company and such division
in reducing costs.
The 1995 Executive Bonus Plan, which will replace the 1994 Executive Bonus
Plan if approved by shareholders, is described on pages 18 through 23 hereof. It
is substantially similar to the 1994 plan, differing, materially, only in the
respects described on page 18. Messrs. Chokel, Lewis, Marlow, Murr and two other
executive officers will participate in the 1995 Executive Bonus Plan, if the
proposal set forth at Item 3 is approved by shareholders. Most other officers
and regular employees of the Company, including Mr. Ditchfield, will participate
in the Company's 1995 Gainsharing Plan, which is substantially similar to the
1994 Gainsharing Plan.
Long-Term Incentive Component
In 1994, the executive compensation program included long-term incentives
through the grant of nonqualified stock options. This component is designed to
encourage the long-term retention of key executives and to align executive
compensation directly with the long-term enhancement of shareholder value. Stock
option grants are intended to focus the executive on managing the Company from
the perspective of an owner. The named executive officers and approximately 220
other management employees of the Company currently participate in the long-term
incentive program.
The value of a stock option depends directly on the future performance of
the Company's Common Shares, since it has value to the recipient only if and to
the extent that the price of the Company's Common Shares increases above the
option exercise price. Stock option awards are normally made annually. A target
award value, which varies by position, is established for each participant in
order to bring total targeted compensation to the 90th percentile of the survey
range. In 1994, for the executive officers, these target award values ranged
from 49% to 175% of salary, depending on job classification. The target award
value is then divided by a value per share developed through the Black-Scholes
pricing model, to determine the number of option shares to be awarded. In 1994,
the pricing model valued the stock options at $11.44 per share, which is 37% of
the per share exercise price of $31. The following assumptions were used to
14
<PAGE> 17
derive the ratio: 10-year option term, .2 annualized volatility rate, 6.75% risk
free-rate of return and 1.1% dividend yield, and an assumed attrition factor of
3%. The stock options generally have an exercise price which is equal to the
market price of the Company's Common Shares on the date of grant, contain
provisions which defer vesting of the options for five years and may be
exercised at any time during the five years following vesting.
If approved by the shareholders, the 1995 Incentive Plan, which is
described on pages 28 through 39, will succeed the 1989 Incentive Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION
Peter B. Lewis, the Company's Chief Executive Officer, received cash
compensation in the amount of $1,924,000 for 1994, consisting of a salary of
$800,000 and an annual bonus award of $1,124,000, in addition to the non-cash
compensation disclosed in the Summary Compensation Table and related footnotes
on page 8.
Mr. Lewis' annual bonus target for 1994 was $800,000, an amount equal to
100% of his salary. For Mr. Lewis, 50% of his bonus target was based on the Core
Business Gainsharing Component, 30% was based on the ROE Component and 20% was
based on the Investment Component. In 1994, the Company's continuing operations
achieved a COR of 93 for its core business, with significant growth in market
share and improvement in cost structure, resulting in a performance score of
1.51. In addition, the ROE Component score was 1.5 compared to a target of 1.0
and the Investment Component score was 1.0 compared to a target of 1.0. Applying
the weighting factors to the performance scores for each of the several
components, and then combining the results, produced a Performance Factor of
1.405. Mr. Lewis therefore earned 140.5% of target, or $1,124,000, as his annual
bonus. It should be noted that Mr. Lewis' salary has been reduced from a high of
$1,198,077 in 1991, because the Committee wishes to place more emphasis on the
variable components of executive pay.
For the long-term incentive component of his compensation, on April 14,
1994, Mr. Lewis was awarded stock options to purchase 122,400 of the Company's
Common Shares at an exercise price of $31 per share. This award vests on January
1, 1999, and was determined in accordance with the stock option formula
described above.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
In 1993, the Internal Revenue Code was amended by the Omnibus Budget
Reconciliation Act of 1993 ("Budget Reconciliation Act"), which limits to $1
million per year the deduction allowed for Federal income tax purposes for
compensation paid to the chief executive officer and the four other most highly
compensated executive officers of a public company ("Deduction Limit"). This
Deduction Limit, which is contained in Section 162(m) of the Internal Revenue
Code and became effective in 1994, does not apply to compensation paid under a
plan that meets certain requirements for "performance-based compensation." To
qualify for this exception, (a) the compensation must be payable on account of
the attainment of one or more pre-established objective performance goals; (b)
the performance goals must be established by a compensation
15
<PAGE> 18
committee of the board of directors that is comprised solely of two or more
"outside directors"; (c) the material terms of the compensation and the
performance goals must be disclosed to and approved by shareholders before
payment; and (d) the compensation committee must certify in writing that the
performance goals have been satisfied before payment. It is the Company's policy
to structure its incentive compensation programs to satisfy the requirements for
the "performance-based compensation" exception to the Deduction Limit and, thus,
to preserve the full deductibility of all compensation paid thereunder, to the
extent practicable. Salaries and any perquisites are subject to approval of the
Committee, but will not be submitted to a vote of shareholders, and thus will
not be deductible if and to the extent that such compensation exceeds $1 million
per year for any such executive.
SUMMARY
The Committee believes that management compensation should be linked to the
creation of shareholder value. The Company's executive compensation program thus
includes significant long-term incentives, through equity-based awards, which
are tied to the long-term performance of the Company's Common Shares. The
Committee recognizes, however, that while stock prices may reflect management
performance over the long term, other factors, such as general economic
conditions and varying investors' attitudes toward the stock market in general,
and specific industries in particular, may significantly affect stock prices at
any point in time. Accordingly, the annual cash components of the program,
consisting of salary and annual bonus, emphasize individual performance and the
realization of defined business objectives, which are independent of short-range
fluctuations in the stock price.
The executive compensation program thus has been designed to align
executive compensation with both the Company's business goals and long-term
shareholder interests. The Committee believes that the program, as implemented,
is balanced and consistent with these objectives. The Committee will continue to
monitor the operation of the program and cause the program to be adjusted and
refined, as necessary, to ensure that it continues to support both corporate and
shareholder goals.
EXECUTIVE COMPENSATION COMMITTEE
Donald B. Shackelford, Chairman
Milton N. Allen
Norman S. Matthews
16
<PAGE> 19
<TABLE>
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
Common Shares ("PGR") to the Standard & Poor's 500 Index ("S & P Index") and the
Value Line Property/Casualty Industry Group ("P/C Group") for the last five
years.
CUMULATIVE FIVE-YEAR TOTAL RETURN*
PGR, S&P INDEX, P/C GROUP
(PERFORMANCE RESULTS THROUGH 12/31/94)
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) PGR S&P INDEX P/C GROUP
--------------------- ----- ----------- -----------
<S> <C> <C> <C>
1989 100.00 100.00 100.00
1990 134.61 96.83 99.96
1991 143.21 126.41 126.13
1992 233.90 136.25 160.89
1993 327.02 150.00 156.28
1994 284.40 151.98 155.05
<FN>
Assumes $100 invested at the close of trading on December 31, 1989 in PGR, S&P
Index and P/C Group.
*Assumes reinvestment of dividends.
Source: Value Line, Inc.
</TABLE>
17
<PAGE> 20
ITEM 3: PROPOSAL TO APPROVE THE PROGRESSIVE CORPORATION 1995 EXECUTIVE BONUS
PLAN
GENERAL
The Executive Compensation Committee of the Board of Directors (the
"Committee") adopted The Progressive Corporation 1995 Executive Bonus Plan (the
"1995 Bonus Plan") on February 10, 1995, subject to approval by the Company's
shareholders. The description herein is a summary of the 1995 Bonus Plan. The
complete text of the 1995 Bonus Plan is included as an exhibit to the Company's
Annual Report on Form 10-K for the calendar year ended December 31, 1994.
If approved by shareholders, the 1995 Bonus Plan will supersede and replace
The Progressive Corporation 1994 Executive Bonus Plan (the "1994 Bonus Plan")
for 1995 and subsequent years. The 1995 Bonus Plan is substantially similar to
the 1994 Bonus Plan, but includes a provision which permits any participant who
is then eligible to participate in The Progressive Corporation Executive
Deferred Compensation Plan, which is described on pages 23 through 28 hereof,
(the "Deferral Plan") to elect to defer receipt of some or all of his or her
annual bonuses pursuant to and in accordance with the Deferral Plan. The 1995
Bonus Plan also reflects the Target Percentages, and the mix and relative
weighting of Bonus Components, for each Plan participant, and the performance
targets and resulting scores, adopted by the Committee for the 1995 Plan year
and thereafter, unless and until changed by the Committee in accordance with the
terms of the 1995 Bonus Plan.
The Company has designed an executive compensation program consisting of
the following three components: salary, annual bonus and stock options or other
equity-based awards. The program is structured to reflect the market for
executive compensation and to promote both the achievement of corporate goals
and performance that is in the long-term interests of shareholders. While stock
options or other equity-based awards reflect the long-term value created for
shareholders, the annual bonus component focuses on current operating and
investment results. If approved by shareholders, the 1995 Bonus Plan will
provide the annual bonus component of total compensation for participants in the
Plan.
SHAREHOLDER APPROVAL REQUIREMENTS
The 1995 Bonus Plan is being submitted to the Company's shareholders for
approval pursuant to the requirements of Section 162(m) of the Internal Revenue
Code, as amended (the "Code"). Section 162(m) limits to $1 million per year the
deduction allowed for Federal income tax purposes for compensation paid to a
"covered employee" of a public company ("Deduction Limit"). Under Section
162(m), the term "covered employee" includes the chief executive officer and the
four other most highly compensated executive officers. The Deduction Limit,
which is effective beginning in 1994, applies to compensation which does not
qualify for any of the limited number of exceptions provided for in Section
162(m).
18
<PAGE> 21
Under Section 162(m), the Deduction Limit does not apply to compensation
paid under a plan that meets certain requirements for "performance-based
compensation." To qualify for this exception, the following requirements must be
met: (a) the compensation must be payable on account of the attainment of one or
more pre-established objective performance goals; (b) the performance goals must
be established by a compensation committee of the board of directors that is
comprised solely of two or more "outside directors"; (c) the material terms of
the compensation and performance goals must be disclosed to and approved by
shareholders before payment; and (d) the compensation committee must certify in
writing that the performance goals have been satisfied prior to payment.
It is the Company's policy to structure its incentive compensation programs
to satisfy the requirements for the "performance-based compensation" exception
to the Deduction Limit and, thus, to preserve the full deductibility of all
compensation paid thereunder, to the extent practicable. As a consequence, the
Committee has directed that the 1995 Bonus Plan be submitted to the Company's
shareholders for approval in accordance with the requirements for the
"performance-based compensation" exception to the Deduction Limit. If the 1995
Bonus Plan is approved by shareholders, the Plan will become effective as of
calendar year 1995, and compensation paid to "covered employees" under the Plan
will not be subject to the Deduction Limit. If the shareholders fail to approve
the 1995 Bonus Plan, the Plan will not become effective. However, if the
shareholders fail to approve the 1995 Bonus Plan, the Committee may consider
adopting an alternative bonus program without shareholder approval, even though
some or all of the payments made thereunder may be subject to the Deduction
Limit, in order to maintain the competitiveness of the Company's executive
compensation program.
ADMINISTRATION
The 1995 Bonus Plan will be administered by the Committee, which consists
of three Board members, all of whom are "outside directors," as defined under
Section 162(m). The Committee has full authority to determine the manner in
which the 1995 Bonus Plan will operate, to interpret the provisions of the Plan
and to make all determinations thereunder. In addition, the Committee has
authority to adopt, amend and repeal such rules, guidelines, procedures and
practices governing the 1995 Bonus Plan as it shall, from time to time, deem
advisable.
ELIGIBILITY FOR PARTICIPATION
Participation in the 1995 Bonus Plan is limited to executive officers of
the Company. The Committee has authority to select those executive officers who
will participate in the Plan. There are currently seven executive officers of
the Company. Six executive officers, including Peter B. Lewis, Bruce W. Marlow,
Charles B. Chokel, Michael C. Murr, David M. Schneider and Tiona M. Thompson,
have been selected to participate in the 1995 Bonus Plan.
19
<PAGE> 22
PLAN OPERATION
The 1995 Bonus Plan has been designed to link pay directly to performance.
Annual bonuses paid under the Plan ("Annual Bonuses") will be determined by
application of the following formula:
Annual Bonus = Salary Paid X Target Percentage X Performance Factor
Salaries are established by the Committee no later than 90 days after
commencement of the Plan year for which the Annual Bonuses are to be paid and
are determined by market analysis, based on data reported in national
compensation surveys.
For each participant, a Target Percentage is selected based on market data
and is intended to bring cash compensation to the high end of the market range
if specified performance goals are met. Total cash compensation can exceed the
market range if the specified performance goals are exceeded. For 1995, the
Target Percentages for the participants in the 1995 Bonus Plan range from 60% to
167%. The Target Percentages may be changed from year to year by the Committee,
consistent with the provisions of Section 162(m) and the regulations promulgated
thereunder.
Under the 1995 Bonus Plan, the performance of each participant is measured
by selected performance criteria, which may include Core Business Gainsharing,
Return on Average Shareholders' Equity ("ROE") and Investment Performance, as
described below ("Bonus Components"). For each participant, an appropriate
combination of Bonus Components is selected based on the nature and scope of
such participant's assigned responsibilities.
The selected Bonus Components are assigned various weights by the
Committee, which may vary among participants and may be changed from year to
year by the Committee. The sum of the weighted performance scores for each of
the Bonus Components assigned to a given participant equals the Performance
Factor for that participant. The Performance Factor will equal 1.0 if specified
performance goals are met, and can vary from 0 to 2.0 based on actual
performance versus the pre-established objectives.
The Core Business Gainsharing Component consists of a Profitability and
Growth Factor and a Cost Structure Improvement Factor and measures overall
operating performance for the Company's core personal and commercial automobile
insurance business ("Core Business") for the Plan year. With respect to the
Profitability and Growth Factor, performance is measured by a Gainsharing
Matrix, as established by the Committee for the Plan year, which assigns a
performance score to various combinations of profitability and growth outcomes.
Under the Gainsharing Matrix, profitability is measured by the GAAP combined
ratio, and growth is measured by the year-to-year change in market share. The
Cost Structure Improvement Factor measures success in achieving cost structure
improvement by comparing the sum of the GAAP underwriting expense ratio and the
loss adjustment expense ratio achieved for the Company's Core Business during a
given Plan year against expense targets which have been pre-established by the
Committee. For purposes of determining a performance score for the Core Business
Gainsharing Component, each Factor is assigned a different weight by the
Committee. For 1995, the Profitability and Growth Factor is weighted 70%, and
the Cost Structure Improvement
20
<PAGE> 23
Factor is weighted 30%. The relative weighting of such Factors, and the
profitability, growth and expense targets, may be changed from year to year by
the Committee.
The 1995 Bonus Plan contains an ROE Component, which measures the actual
return on average shareholders' equity achieved by the Company for a given Plan
year, net of inflation, against a series of pre-established performance targets.
For this Component, a specified ROE target must be met in order to achieve a
performance score of 1.0; a higher (or lower) ROE will result in a higher (or
lower) performance score for this Bonus Component. ROE performance targets and
resulting scores for the ROE Component may be revised from year to year by the
Committee.
The Investment Performance Component measures overall performance for the
Company's investment activities. Initially, investment results for the
individual segments of the Company's investment portfolio are compared against
pre-established benchmarks. The resulting performance scores for the various
segments are weighted by the amounts invested from time to time in each of the
respective segments, and the weighted performance scores are combined to produce
an Investment Performance Score that reflects the overall investment performance
of the portfolio. Segment classifications and benchmarks may be changed from
year to year by the Committee.
The Annual Bonus payable to any participant under the 1995 Bonus Plan with
respect to any Plan year may not exceed $2,000,000.
<TABLE>
For 1995, the maximum amount of benefits that may be paid under the 1995
Bonus Plan to the named executive officers who have been selected to participate
in such Plan, and to all participating executive officers as a group, are as
follows:
NEW PLAN BENEFITS
THE PROGRESSIVE CORPORATION 1995 EXECUTIVE BONUS PLAN
<CAPTION>
MAXIMUM BENEFIT
NAME AND POSITION FOR 1995 ($)
----------------- ---------------
<S> <C>
Peter B. Lewis
Chairman, President and Chief
Executive Officer............................................ $ 1,440,000
Michael C. Murr
Chief Investment and Capital Officer......................... 1,878,750
Bruce W. Marlow
Chief Operating Officer...................................... 1,116,080
Charles B. Chokel
Treasurer and Chief Financial Officer........................ 476,864
Executive Group,
consisting of six participants............................... 5,479,342
</TABLE>
21
<PAGE> 24
AMENDMENTS AND TERMINATION
The Committee, in its sole discretion, may at any time terminate, amend or
revise the 1995 Bonus Plan, in whole or in part, provided that any amendment or
revision to the Plan which requires shareholder approval pursuant to Section
162(m) of the Code shall be subject to approval by the Company's shareholders.
The Committee, without shareholder approval, may modify or change the Target
Percentages and the mix and relative weighting of Bonus Components for any
participant, and the performance targets and resulting scores for any Bonus
Component, or its constituent Factors, and may select the executive officers who
will participate in the Plan from year to year.
OTHER MATERIAL PROVISIONS
The Annual Bonus for any Plan year will be paid in two installments. The
first installment, in an amount equal to 90% of the Annual Bonus, calculated as
described above, will be paid to participants as soon as practicable after the
Committee has certified performance results for the Plan year, but no later than
the March 31 immediately following the end of the Plan year. The second
installment, in an amount equal to 10% of the Annual Bonus, will be paid to
participants on the September 30 immediately following the end of the Plan year.
Unless otherwise determined by the Committee, in order to be entitled to
receive any installment of the Annual Bonus for any Plan year, the participant
must be employed by the Company on the date such installment is paid. Annual
Bonus payments will be net of any legally required deductions for federal, state
and local taxes and other items.
Any participant in the 1995 Bonus Plan who is then eligible to participate
in the Deferral Plan may elect to defer receipt of all or a portion of his or
her Annual Bonus under the 1995 Bonus Plan, under and in accordance with the
provisions of the Deferral Plan.
The right to an Annual Bonus shall not be transferred, assigned or
encumbered by any participant.
The 1995 Bonus Plan has been adopted, and will be effective, as of January
1, 1995, subject to shareholder approval. If approved by shareholders, the 1995
Bonus Plan will be effective for 1995 and for each calendar year thereafter
unless and until terminated by the Committee.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1995 BONUS PLAN
Effective January 1, 1994, the Company will not be entitled to deduct
annual compensation in excess of $1 million paid to any "covered employee"
unless such compensation meets the requirements for "performance-based
compensation," as specified in Section 162(m) of the Code and the regulations
promulgated thereunder. To meet such requirements, the compensation must be
payable because of the attainment of pre-established objective performance goals
selected by a compensation committee of the board of directors that is comprised
solely of two or more "outside directors" and approved by the shareholders after
disclosure to them of the material terms of the performance goals and the
compensation payable under the plan. Further,
22
<PAGE> 25
before payment, the compensation committee must certify in writing that the
performance goals have been satisfied.
The 1995 Bonus Plan was established by the Committee, which is comprised
solely of three "outside directors," and is being submitted to shareholders for
approval. If the shareholders approve the 1995 Bonus Plan and the Committee
subsequently certifies the attainment of the performance goals applicable to any
Plan participant who is a "covered employee," the Company's deduction of
payments made to such participant under the 1995 Bonus Plan will not be subject
to the Deduction Limit.
VOTE REQUIRED FOR APPROVAL
Under applicable federal regulations, the affirmative vote required for
approval is a majority of the Company's Common Shares voting on this proposal,
treating as voting all ballots marked as abstentions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS
PROPOSAL.
ITEM 4: PROPOSAL TO APPROVE THE PROGRESSIVE CORPORATION EXECUTIVE DEFERRED
COMPENSATION PLAN
GENERAL
The Board of Directors adopted The Progressive Corporation Executive
Deferred Compensation Plan ("Deferral Plan") as of December 27, 1994, subject to
approval by the Company's shareholders. The description herein is a summary of
the Deferral Plan. The complete text of the Deferral Plan is included as an
exhibit to the Company's Annual Report on Form 10-K for the calendar year ended
December 31, 1994.
The Deferral Plan permits Eligible Executives (as defined below) to defer
receipt of some or all of their annual bonuses or other incentive awards payable
under The Progressive Corporation 1995 Gainsharing Plan, The Progressive
Corporation 1995 Executive Bonus Plan or any other plan or program designated by
the Committee ("Gainsharing Awards"). All deferred amounts will be deemed to
have been invested in one or more investment funds offered under the Deferral
Plan and selected by the participant ("Investment Funds"). Distribution from the
Deferral Plan may be made in cash or Common Shares of the Company, based on
investment elections made by Deferral Plan participants. Three Hundred Thousand
(300,000) Common Shares have been reserved for issuance by the Company in
connection with the Deferral Plan.
SHAREHOLDER APPROVAL REQUIREMENTS
The Deferral Plan is being submitted to the Company's shareholders for
approval pursuant to the requirements of Section 162(m) of the Code and Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act").
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Section 162(m), which is described in more detail at pages 18 and 19
hereof, limits to $1 million per year the deduction allowed for federal income
tax purposes for compensation paid to a "covered employee" of a public company
("Deduction Limit"). Under Section 162(m), the term "covered employee" includes
the chief executive officer and the four other most highly compensated executive
officers.
Under Section 162(m), the Deduction Limit does not apply to compensation
paid under a plan that meets certain requirements for "performance-based
compensation," including a requirement that shareholders approve the plan, after
disclosure to shareholders of the material terms of the plan and the
compensation that may be paid thereunder. The other requirements for the
"performance-based compensation" exception are described on page 19.
It is the Company's policy to structure its incentive compensation programs
to satisfy the requirements for the "performance-based compensation" exception
to the Deduction Limit and, thus, to preserve the full deductibility of all
compensation paid thereunder, to the extent practicable. As a consequence, the
Committee has directed that the Deferral Plan be submitted to the Company's
shareholders for approval in accordance with the requirements for the
"performance-based compensation" exception to the Deduction Limit. If the
Deferral Plan is approved by shareholders, distributions made to participants
thereunder will not be subject to the Deduction Limit, provided that such
distributions consist of amounts attributable to the deferral of annual bonuses
or incentive awards payable under bonus or incentive plans that meet the
requirements of Section 162(m) and amounts earned thereon under the Deferral
Plan. If the shareholders fail to approve the Deferral Plan, the Plan will be
treated as if it had never existed.
Generally, Section 16(b) of the 1934 Act provides for the forfeiture of any
profit realized by certain officers of a public company from any combination of
a purchase and sale of any of the company's equity securities within a six-month
period. An exemption from the application of Section 16(b) may be obtained for
certain stock transactions under employee benefit plans upon the satisfaction of
certain conditions set forth in Rule 16b-3. These conditions include, among
others, a requirement that the plan be approved by the company's shareholders.
It is the Company's policy to structure its stock-based compensation programs to
satisfy the conditions necessary to qualify for the exemption provided under
Rule 16b-3. The Deferral Plan currently satisfies all such conditions, subject
to the shareholder approval requirement. If the Deferral Plan is approved by
shareholders, credits to and distributions from each Deferral Plan participant's
Company Stock Fund account will be exempt from the provisions of Section 16(b).
ADMINISTRATION
The Deferral Plan will be administered by the Executive Compensation
Committee of the Board of Directors. The Committee consists of not less than
three members of the Board, all of whom are "outside directors," as defined in
Section 162(m), and "disinterested persons" for purposes of Rule 16b-3.
Committee members serve at the pleasure of the Board. The Committee has full
power to administer the Deferral Plan, including, but not limited to, the
authority to make and enforce rules and regulations, to interpret the Deferral
Plan, to compute amounts
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payable under the Deferral Plan to participants and beneficiaries and to
authorize disbursements from the Trust (as described below) or the Deferral
Plan.
ELIGIBILITY FOR PARTICIPATION
The Company's Chief Executive Officer, Chief Operating Officer, Chief
Investment and Capital Officer, Chief Financial Officer, Chief Information
Officer, Chief Legal Officer, Chief Human Resources Officer, Division Presidents
and any other employees of the Company or its subsidiaries designated by the
Committee are eligible to participate in the Deferral Plan. However, individuals
who live or work outside the United States are not eligible. Individuals who
meet these eligibility requirements are referred to in this summary as "Eligible
Executives." There are currently seven executive officers and fourteen other
employees eligible to participate in the Deferral Plan. Participation by
Eligible Executives is voluntary.
Eligible Executives may elect to participate in the Deferral Plan by
signing a deferral agreement and delivering it to the Company prior to the Plan
year for which the applicable Gainsharing Award will be earned.
The deferral agreement must meet all of the following requirements:
(i) it must be irrevocable;
(ii) it must apply to only one Gainsharing Award; however, if a
Gainsharing Award is paid in installments, the deferral agreement will
apply to each installment;
(iii) it must specify the percentage of the Eligible Executive's
Gainsharing Award to be deferred. The percentage may not be less than 10%.
The Committee is authorized to set minimum dollar amounts for deferrals;
and
(iv) it must contain such other provisions as may be required by the
Committee.
ESTABLISHMENT AND VALUATION OF DEFERRAL PLAN ACCOUNTS
An annual deferral account ("Annual Deferral Account" or "Account") will be
established for all deferrals that relate to the same Gainsharing Award earned
by a participant. The Account will be credited with an amount equal to the
initial amount(s) deferred as of the date(s) such amounts otherwise would have
been paid to the participant in cash. All amounts initially credited to each
Account shall be deemed to be invested in the Investment Funds selected by the
participant (see below). The gains and losses of each Investment Fund will be
allocated among the appropriate Accounts in accordance with such procedures as
the Committee shall establish from time to time.
INVESTMENT ELECTIONS
All deferrals credited to an Annual Deferral Account will be deemed to have
been invested in one or more of the Investment Funds available under the
Deferral Plan, in accordance with the participant's investment election. These
Investment Funds include a number of mutual funds and a fund which invests
principally in the Company's Common Shares ("Company Stock
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Fund"). Investment elections are irrevocable. Transfers among Investment Funds
are prohibited.
The Investment Funds available under the Deferral Plan are merely devices
used to calculate gains and losses in amounts deferred by participants under the
Deferral Plan. No participant will have any rights or interests in any
particular funds, securities or property of the Company or the trust maintained
in conjunction with the Deferral Plan ("Trust"), or in any investment vehicle in
which deferrals are deemed to be invested, by virtue of any election to invest
any portion of any Account balance in any Investment Fund. Each Annual Deferral
Account, however, shall be credited or charged in accordance with the Deferral
Plan with gains or losses as if the participant in fact had made a corresponding
actual investment.
DISTRIBUTION OF ACCOUNT BALANCES
The balance of each Annual Deferral Account of a participant will be
distributed within 30 days following the earlier of termination of employment,
death, disability, change in control of the Company, or the date on which the
fixed deferral period, if any, applicable to the Account expires.
Participants desiring to elect a fixed deferral period must do so at the
time the applicable deferral agreement is signed. The election cannot be
changed. The fixed deferral period must end no less than two years after the
year in which the applicable Gainsharing Award is earned. Participants may elect
different fixed deferral periods for deferred amounts that relate to separate
Gainsharing Awards.
Notwithstanding the distribution rules discussed above, the Company may
elect to accelerate distribution of all Accounts, if the Deferral Plan
terminates.
The participant's rights and interests under the Deferral Plan may not be
assigned, alienated, anticipated, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process under any
circumstances.
Distributions made on account of the participant's death will be paid to
the participant's beneficiary. All other distributions will be paid directly to
the participant.
Distributions made on account of the participant's death or disability,
termination of the Deferral Plan or change in control of the Company will be
paid in a lump sum. Distributions made on account of the participant's
termination of employment or expiration of a fixed deferral period will be paid
in either a lump sum or installments, as elected by the participant. This
election must be made at the time the applicable deferral agreement is signed
and may not be changed. If the participant elects the installment method,
installments will be paid annually for three years. If a participant elects to
receive payment of his distribution in installments and dies prior to payment of
all installments, the balance will be paid to his/her beneficiary in a lump sum.
All distributions will be made in cash, except that a distribution
representing amounts invested in the Company Stock Fund will be made in Common
Shares.
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NATURE OF PARTICIPANT'S RIGHTS
The rights of participants and their beneficiaries under the Deferral Plan
are unsecured contractual rights against the Company. Participants and their
beneficiaries will have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. All assets of the Trust are subject to the
claims of the Company's general creditors under federal and state law if the
Company becomes unable to pay its debts as they become due or becomes subject to
federal bankruptcy proceedings.
TRUST
The Company is required to establish and maintain a Trust to provide a
source of funds to assist the Company in meeting its liabilities under the
Deferral Plan. The Trust will become irrevocable, if and when the Internal
Revenue Service issues a favorable private letter ruling on the tax status of
the Deferral Plan and Trust. After the Trust has become irrevocable, the Company
is required to make annual deposits to the extent necessary to ensure that the
value of all Trust assets is sufficient to pay all Deferral Plan liabilities as
of the close of each plan year.
The trustee of the Trust is NBD Bank, N.A., 611 Woodward, Detroit, Michigan
48226. The trustee may resign or be removed, and a successor appointed, in
accordance with the Trust. The trustee is required to hold all Trust assets
exclusively for the benefit of Deferral Plan participants and beneficiaries and
general creditors of the Company.
DURATION OF DEFERRAL PLAN
The Deferral Plan was adopted by the Company effective as of January 1,
1995, subject to approval by the shareholders of the Company at the 1995 Annual
Meeting of Shareholders. If the shareholders do not approve the Deferral Plan,
it will be treated as if it had never been adopted. If the shareholders approve
the Deferral Plan, it will remain in effect indefinitely until terminated. The
Deferral Plan may be amended or terminated at any time for any reason by action
of the Committee.
If the Deferral Plan terminates, participants may not make any additional
deferrals, but any existing Accounts will continue to be administered as
provided in the Deferral Plan. However, at any time after termination, the
Company may elect to accelerate distribution of all Deferral Plan Accounts. Any
such accelerated distributions will be made in a lump sum.
Following termination of the Deferral Plan, the Trust will remain in
existence until all Trust assets have been disbursed.
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VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the Common Shares represented at the
meeting, in person or by proxy, is required for approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
ITEM 5: PROPOSAL TO APPROVE THE PROGRESSIVE CORPORATION
1995 INCENTIVE PLAN
GENERAL
The Board of Directors adopted The Progressive Corporation 1995 Incentive
Plan (the "1995 Stock Plan") on February 10, 1995, subject to approval by the
Company's shareholders. If approved by shareholders, the 1995 Stock Plan will
become effective and will succeed The Progressive Corporation 1989 Incentive
Plan, as amended ("1989 Stock Plan"), after the remaining Common Shares which
have been reserved for issuance under the 1989 Stock Plan have been awarded
through the grant of stock options or other stock-based incentives. The
description herein is a summary of the 1995 Stock Plan. The complete text of the
1995 Stock Plan is filed as an exhibit to the Company's Annual Report on Form
10-K for the calendar year ended December 31, 1994.
The Company's executive compensation program, which is described on pages
12 through 16, contemplates annual awards of stock options or other equity-based
incentives to officers and certain other key employees of the Company and its
subsidiaries. The Board believes that it is in the Company's best interests to
provide officers and other key employees with equity incentives in order to more
closely align their interests with those of shareholders. A total of 6,500,000
Common Shares have been authorized for issuance under the 1989 Stock Plan. As of
December 31, 1994, stock options with respect to an aggregate of 4,691,227
Common Shares had been exercised or were outstanding under the 1989 Stock Plan.
The Board believes that it is desirable to increase the number of Common Shares
available for future awards in order to carry out the Company's executive
compensation strategy. Therefore, the Board has adopted the 1995 Stock Plan,
subject to shareholder approval, in order to authorize the issuance of up to an
additional 5,000,000 Common Shares for future stock options or other stock-based
awards.
The 1995 Stock Plan provides for the grant to officers and other key
employees of the Company and its subsidiaries of options to purchase Common
Shares ("Stock Options"), rights to receive the appreciation in value of Common
Shares ("SARs"), awards of Common Shares subject to restrictions on transfer
("Restricted Stock"), awards of Common Shares issuable in the future upon
satisfaction of certain conditions ("Deferred Stock"), rights to purchase Common
Shares ("Stock Purchase Rights") and other awards based on Common Shares ("Other
Stock-Based Awards") (Stock Options, SARs, Restricted Stock, Deferred Stock,
Stock Purchase Rights and Other Stock-Based Awards are collectively referred to
herein as "Awards"). Under the terms of the 1995 Stock Plan, Awards may be
granted with respect to an aggregate of not more than 5,000,000 Common Shares,
and no participant may receive Awards with respect to
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more than 300,000 Common Shares during any calendar year, subject to adjustment
for future stock dividends and similar events. If any shares subject to an
outstanding Award are forfeited, or an Award terminates or expires without
issuance of the shares, the shares subject to such Award shall again be
available for the grant of future Awards, except under certain circumstances
described in the Plan. The Common Shares issuable under the 1995 Stock Plan will
be either authorized but unissued shares or treasury shares. The closing price
of the Common Shares on the New York Stock Exchange on March 7, 1995 was $39.25.
SHAREHOLDER APPROVAL REQUIREMENTS
The 1995 Stock Plan is being submitted to the Company's shareholders for
approval pursuant to the provisions of Section 162(m) of the Code and Rule 16b-3
under the 1934 Act.
The provisions of Section 162(m) are discussed on pages 18 and 19 hereof.
Section 162(m) limits to $1 million per year the deduction allowed for federal
income tax purposes for compensation paid to a "covered employee" of a public
company ("Deduction Limit"), and specifies the requirements that must be
satisfied so that compensation paid to a "covered employee" under a plan will
qualify for the "performance-based compensation" exception to the Deduction
Limit.
Stock options and stock appreciation rights with an exercise or base price
equal to the fair market value of the employer's stock on the date of grant
generally are treated as "performance-based compensation" which is exempt from
the Deduction Limit of Section 162(m), since the amount earned, if any, results
solely from an increase in the employer's stock price. While the requirements of
pre-established performance goals and compensation committee certification of
performance results do not apply to such stock options and stock appreciation
rights, the awards must be made by a board committee comprised solely of
"outside directors." Further, to qualify for the exemption, the material terms
of the plan must be disclosed to and approved by shareholders and the plan must
state the maximum number of shares that may be awarded to any employee under the
plan within a specified period.
It is the Company's policy to structure its incentive compensation programs
to satisfy the requirements for the "performance-based compensation" exception
to the Deduction Limit and, thus, to preserve the full deductibility of all
compensation paid thereunder, to the extent practicable. As a consequence, the
Board has directed that the 1995 Stock Plan be submitted to the Company's
shareholders for approval in order to satisfy the requirements for the
"performance-based compensation" exception to the Deduction Limit. If approved
by shareholders, the 1995 Stock Plan will become effective on the date of such
approval and compensation attributable to stock options and stock appreciation
rights with an exercise or base price equal to the fair market value of the
Company's Common Shares on the date of grant will not be subject to the
Deduction Limit.
Shareholder approval of the 1995 Stock Plan also is being sought so that
the grant of Awards under the Plan to certain officers will satisfy the
requirements of Rule 16b-3 and thus be exempt from the operation of Section
16(b) of the 1934 Act. Generally, Section 16(b) provides
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for the forfeiture of any profit realized by certain officers of a public
company from any combination of a purchase and sale of their company's equity
securities within a six-month period. Under Rule 16b-3, an exemption from the
application of Section 16(b) may be obtained for various stock transactions
under employee benefit plans upon the satisfaction of certain conditions,
including shareholder approval of the plan and any material amendment thereto.
All other conditions to the exemption are currently satisfied by the 1995 Stock
Plan.
If the shareholders fail to approve the 1995 Stock Plan, it will not become
effective. However, in such event, the Board may consider adopting a stock
incentive program without shareholder approval in order to maintain the
competitiveness of the Company's executive compensation program, even though
some or all of the compensation earned thereunder by "covered employees" may be
subject to the Deduction Limit and certain Plan transactions may be subject to
Section 16(b).
PURPOSE AND ELIGIBILITY
The purpose of the 1995 Stock Plan is to enable the Company to attract,
retain and reward key employees of the Company or its subsidiaries or other
related entities, and to strengthen the mutuality of interests between such
employees and the Company's shareholders, by offering such employees equity or
equity-based incentives. Officers and other key employees of the Company, its
subsidiaries and certain other related entities, who are responsible for or
contribute to the management, growth or profitability of the business of the
Company or such subsidiaries or other entities are eligible for Awards under the
1995 Stock Plan. As of March 7, 1995, there were seven executive officers and
approximately 220 other key employees eligible to participate in the 1995 Stock
Plan.
ADMINISTRATION
The 1995 Stock Plan is administered by the Executive Compensation Committee
of the Board of Directors. The Committee consists of not less than three Board
members, all of whom are "disinterested persons" within the meaning of Rule
16b-3 and "outside directors" for purposes of Section 162(m) of the Code. The
Committee members serve at the pleasure of the Board.
The Committee has full power and authority to interpret and administer the
1995 Stock Plan, to select the individuals to whom Awards will be granted
thereunder and to determine the type and amount of Awards to be granted to each
participant, the consideration, if any, to be paid for such Awards, the timing
of such Awards, the terms and conditions of such Awards and the terms and
conditions of the related agreements entered into with participants. As to the
selection of and grant of Awards to participants who are not subject to Section
16 of the 1934 Act, the Committee may delegate its authority to members of the
Company's management consistent with applicable law.
The Committee has the authority to adopt, alter and repeal such rules,
guidelines and practices governing the 1995 Stock Plan as it shall, from time to
time, deem advisable; to
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interpret the terms and provisions of the 1995 Stock Plan and any Award issued
under such Plan (and any agreements relating thereto); and to otherwise
supervise the administration of such Plan.
TERMS OF STOCK OPTIONS
The Committee may grant Stock Options that either qualify as incentive
stock options ("Incentive Stock Options") under Section 422 of the Code or do
not so qualify ("Non-Qualified Stock Options"). To qualify as an Incentive Stock
Option, an option must meet certain requirements set forth in the Code. Options
will be evidenced by the execution of a Stock Option Agreement in form or forms
approved by the Committee.
The option price per Common Share under a Non-Qualified Stock Option will
be determined by the Committee at the time of grant and may not be less than 50%
of the fair market value of the Common Shares on the date of grant. The option
price per Common Share under an Incentive Stock Option will be determined by the
Committee at the time of grant and may not be less than 100% of the fair market
value of the Common Shares on the date of grant (or 110% of the fair market
value of the Common Shares on the date of grant in the case of a participant
who, on the date of grant, owns shares possessing more than 10% of the total
combined voting power of all classes of stock of the Company). The Committee may
substitute new Stock Options for previously granted Stock Options, including
previously granted Stock Options having a higher option price.
The term of each Stock Option will be determined by the Committee and may
not exceed ten years from the date of grant (or, with respect to Incentive Stock
Options, five years in the case of a participant who, on the date of grant, owns
shares possessing more than 10% of the total combined voting power of all
classes of stock of the Company).
The Committee will determine the time or times at which, and the conditions
under which, each Stock Option may be exercised. The Committee may provide that
Stock Options may be exercisable only in installments or only after a specified
vesting date, and the Committee may accelerate or waive such installment
exercise provisions or vesting date at any time at or after the date of grant.
Generally, Stock Options will not be exercisable prior to six months and one day
following the date of grant.
Notice of exercise must be accompanied by payment in full of the option
price of the Common Shares for which the Stock Option is being exercised, in
cash or by check or such other instrument as the Committee may accept. Unless
otherwise determined by the Committee, but subject to certain limitations set
forth in the 1995 Stock Plan, payment of the option price may be made in the
form of unrestricted Common Shares of the Company then owned by the participant.
Stock Options are not transferable by the optionee other than by will or by
the laws of descent and distribution, and all Stock Options are exercisable,
during the optionee's lifetime, only by or on behalf of the optionee.
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If an optionee's employment terminates by reason of disability or death,
any Stock Option held by such optionee may be exercised (to the extent it was
then exercisable or would have become exercisable within one year thereafter)
for a period of one year from the date of death or termination due to disability
or on such accelerated basis as may be determined by the Committee. In the case
of termination due to disability, however, no Stock Option may be exercised
prior to six months and one day after the date of grant. The balance of the
Stock Option will be forfeited.
Unless otherwise determined by the Committee, if an optionee's employment
terminates for any reason other than disability or death, his unexercised Stock
Options shall terminate, except that if his employment is involuntarily
terminated by the Company or any subsidiary or affiliate without "Cause" (as
defined in the 1995 Stock Plan), his Stock Options may be exercised, to the
extent exercisable at the time of such termination, at any time during the
lesser of two months following the date of termination or the balance of such
Stock Option's term.
TERMS OF STOCK APPRECIATION RIGHTS
SARs may be granted alone, in addition to or in tandem ("Tandem SARs") with
other Awards granted under the 1995 Stock Plan or cash awards made outside the
Plan. The Committee shall determine the individuals to whom and the time or
times at which grants of SARs will be made and the other terms and conditions
thereof. Any SAR granted under the 1995 Stock Plan shall be in such form as the
Committee may from time to time approve. In the case of a Non-Qualified Stock
Option, an SAR may be granted either at or after the time of the grant of the
related Stock Option. In the case of an Incentive Stock Option, an SAR may be
granted in tandem with the Incentive Stock Option only at the time the Incentive
Stock Option is granted and exercised only when the fair market value of the
Common Shares subject to the Stock Option exceeds the exercise price of such
Stock Option.
SARs generally entitle the holder to receive an amount in cash or Common
Shares (as determined by the Committee) equal in value to the excess of the fair
market value of a Common Share on the date of exercise of the SAR over the per
share exercise price of the related Stock Option, if a Tandem SAR, or, in other
cases, the price per share specified in the related SAR agreement, which price
may not be less than 50% of the fair market value of a Common Share at the time
of grant, multiplied by the number of Common Shares in respect of which the SAR
shall be exercised. The Committee may unilaterally limit the appreciation in
value of any SAR at any time prior to exercise.
Upon exercise of a Tandem SAR, the related Stock Option is deemed to have
been exercised. Tandem SARs will terminate upon the termination or exercise of
the related Stock Option, subject to such provisions as the Committee may
specify at grant if an SAR is granted with respect to less than the full number
of Common Shares covered by a related Stock Option.
Tandem SARs will be exercisable only at such time or times and to the
extent that the Stock Options to which they relate are exercisable, and SARs
granted separately will be exercisable as the Committee may determine; provided
that an SAR granted to a participant who is subject to
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Section 16(b) of the 1934 Act will not be exercisable at any time prior to six
months and one day from the date of grant, except in the event of death of the
holder.
SARs are not transferable by the holder other than by will or by the laws
of descent and distribution, and all SARs are exercisable, during the holder's
lifetime, only by the holder or the holder's authorized legal representative, if
the holder is unable to exercise an SAR due to a disability.
Unless otherwise determined by the Committee, after any termination of
employment by reason of disability or death, an SAR may be exercised (to the
extent it was exercisable at the date of such termination of employment or would
have become exercisable within one year thereafter) for a period of one year
from the time of death or termination due to disability or during such other
period as may be determined by the Committee. In the case of a termination due
to disability, however, no SAR may be exercised prior to six months and one day
after the date of grant. The balance of the SAR shall be forfeited.
Unless otherwise determined by the Committee, if a holder's employment
terminates for any reason other than disability or death, his unexercised SARs
shall immediately terminate, except that if his employment is involuntarily
terminated by the Company or any subsidiary or affiliate without "Cause" (as
defined in the 1995 Stock Plan), his SARs may be exercised, to the extent then
exercisable, at any time during the lesser of two months following such
termination or the balance of such SARs' term.
The Committee may also grant "Limited" SARs that become exercisable only in
the event of a Change in Control or a Potential Change in Control (as defined in
the 1995 Stock Plan), subject to such terms and conditions as the Committee may
specify at grant. Such Limited SARs shall be settled solely in cash.
TERMS OF RESTRICTED STOCK
Restricted Stock Awards may be granted under the 1995 Stock Plan. The
Committee shall determine when and to whom such Awards will be made, the number
of shares of Restricted Stock to be awarded to each participant, the date or
dates upon which such Awards will vest, the period or periods within which such
Awards may be subject to forfeiture and all other terms and conditions of such
Awards. The Committee may condition awards of Restricted Stock on the attainment
of performance goals or such other factors as the Committee may determine.
Awards of Restricted Stock may be accepted only by executing a Restricted
Stock Award Agreement and by paying the purchase price (if any) therefor. The
purchase price for shares of Restricted Stock shall be determined by the
Committee at the time of grant and may be equal to their par value or zero.
Certificates representing the Restricted Stock shall be issued and held in
custody by the Company until the restrictions thereon have lapsed.
Subject to the provisions of the 1995 Stock Plan and the applicable
Restricted Stock Award Agreement, during a period set by the Committee
commencing with the date of the award (the "Restriction Period"), the
participant will not be permitted to sell, transfer, pledge, assign or
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otherwise encumber the shares of such Restricted Stock. The Restriction Period
shall not be less than six months and one day ("Minimum Restriction Period")
from the date of grant. Subject to the Minimum Restriction Period, the Committee
may permit such restrictions to lapse in installments within the Restriction
Period or may accelerate or waive such restrictions, in whole or in part, based
on service, performance or such other factors or criteria as the Committee may
determine. During the Restriction Period, the participant will have all rights
of a shareholder with respect to his shares of Restricted Stock, including
voting and dividend rights (except that the Committee may permit or require the
payment of cash dividends to be deferred and reinvested in additional Restricted
Stock or otherwise reinvested), subject to the conditions and restrictions on
transferability of the Restricted Stock and such other restrictions as are
enumerated specifically in the participant's Restricted Stock Award Agreement.
Stock dividends issued with respect to Restricted Stock shall be treated as
additional shares of Restricted Stock that are subject to the same restrictions
and other terms and conditions that apply to the Restricted Stock with respect
to which such dividends are issued.
Restricted Stock may not be transferred by a participant other than by will
or by the laws of descent and distribution.
If a participant's employment by the Company terminates by reason of death
or disability, any Restricted Stock held by such participant shall thereafter
vest, or any restriction shall lapse, to the extent such Restricted Stock would
have become vested or no longer subject to restriction within one year from the
time of death or termination due to disability had the participant continued to
fulfill all of the conditions of the Restricted Stock Award during such period
(or on such accelerated basis as the Committee may determine at or after grant).
In the case of a termination due to disability, however, no Restricted Stock
shall vest, nor shall any restriction lapse, unless the Minimum Restriction
Period has elapsed. The balance of the Restricted Stock Award shall be
forfeited.
Unless otherwise determined by the Committee, if a participant's employment
terminates for any reason other than death or disability, the Restricted Stock
held by the participant which is then unvested or subject to restriction shall
be forfeited.
TERMS OF DEFERRED STOCK AWARDS
The Committee may award Deferred Stock under the 1995 Stock Plan, which
shall be evidenced by an agreement between the Company and the participant. The
Committee shall determine the individuals to whom and the time or times at which
Deferred Stock shall be awarded, the number of shares of Deferred Stock to be
awarded to any participant, the price (if any) to be paid for such Deferred
Stock, and the duration of the period ("Deferral Period") during which, and the
conditions under which, receipt of the stock will be deferred, and may condition
an award of Deferred Stock upon such factors or criteria as the Committee may
determine, including the attainment of specified performance goals. The period
during which receipt of Deferred Stock will be deferred shall not be less than
six months and one day from the date of grant ("Minimum Deferral Period").
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The purchase price for shares of Deferred Stock shall be determined by the
Committee at the time of grant and may be equal to their par value or zero.
Deferred Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period, except by will or by the laws of descent
and distribution. At the expiration of the Deferral Period, share certificates
will be delivered to the participant for the number of shares covered by the
Deferred Stock Award. Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered by a Deferred Stock
Award will be paid to the participant currently, or deferred and deemed to be
reinvested in additional Deferred Stock, or otherwise reinvested, all as
determined by the Committee.
If a participant's employment by the Company terminates by reason of death
or disability, any Deferred Stock then held by such participant will thereafter
vest, or any restriction shall lapse, to the extent such Deferred Stock would
have become vested or no longer subject to restriction within one year from the
time of death or termination due to disability had the participant continued to
fulfill all of the conditions of the Deferred Stock Award during such period (or
on such accelerated basis as the Committee may determine at or after grant). In
the case of a termination due to disability, however, no Deferred Stock shall
vest, nor shall any restriction lapse, until the Minimum Deferral Period has
elapsed. The balance of the Deferred Stock Award will be forfeited.
Unless otherwise determined by the Committee, if a participant's employment
by the Company terminates for any reason other than death or disability, all
Deferred Stock awarded to the participant which is unvested or subject to
restriction shall thereupon be forfeited.
The vesting of any Deferred Stock Award may be accelerated, or any
applicable restrictions waived, by the Committee at any time, subject to the
Minimum Deferral Period.
TERMS OF STOCK PURCHASE RIGHTS AWARDS
The Committee may grant Stock Purchase Rights under the 1995 Stock Plan,
and shall determine the individuals to whom, and the time or times at which,
grants of Stock Purchase Rights will be made, the number of Common Shares which
may be purchased pursuant to such Stock Purchase Rights, and the other terms and
conditions of such Awards.
Common Shares subject to Stock Purchase Rights may be purchased, as
determined by the Committee at the time of grant: (i) at the fair market value
of such shares on the date of grant; (ii) at 50% of such fair market value on
such date; (iii) at a price equal to the book value of such shares on such date;
or (iv) at a price equal to the par value of such shares on such date. The
Committee may also impose such deferral, forfeiture or other terms and
conditions as it shall determine on such Stock Purchase Rights or the exercise
thereof. Each Stock Purchase Right award shall be confirmed by, and be subject
to the terms of, a Stock Purchase Rights Agreement, and payment upon exercise
shall be in such form as the Committee may specify.
Stock Purchase Rights may contain such additional terms and conditions as
the Committee shall deem desirable, and shall generally be exercisable during
such period as shall be determined by the Committee. Stock Purchase Rights
awarded to persons subject to Section 16 of the
35
<PAGE> 38
1934 Act, however, shall not become exercisable at any time earlier than six
months and one day after the grant date. Stock Purchase Rights shall not be
transferable by a participant other than by will or by the laws of descent and
distribution.
TERMS OF OTHER STOCK-BASED AWARDS
The Committee may grant other awards of Common Shares and other Awards that
are valued, in whole or in part, by reference to, or that are otherwise based
on, Common Shares (including, without limitation, performance shares,
convertible preferred stock, convertible debentures, exchangeable securities and
Common Share awards or options valued by reference to book value or subsidiary
performance). Other Stock-Based Awards may be granted either alone or in
addition to or in tandem with other Awards granted under the 1995 Stock Plan or
cash awards made outside of such Plan.
The Committee shall determine the individuals to whom and the time or times
at which such Other Stock-Based Awards shall be awarded, the number of Common
Shares to be awarded or used in computing an Award, the consideration (if any)
to be paid for such Awards and all other terms and conditions of such Awards.
Generally, Other Stock-Based Awards, including any Common Shares awarded
pursuant thereto, may not be sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued, or, if later, the
date on which any applicable restriction or any holding or deferral period
lapses or any applicable performance goal has been satisfied. All Other
Stock-Based Awards are subject to a minimum holding period of six months and one
day from the date of grant ("Minimum Holding Period"). In addition, the
recipient of such an Award may be entitled to receive, currently or on a
deferred basis, interest or dividends, or interest or dividend equivalents, with
respect to the number of shares covered by the Award, as determined at the time
of the Award by the Committee, and the Committee may provide that such amounts
(if any) shall be deemed to have been reinvested in additional Common Shares or
otherwise reinvested. Common Shares covered by any such Award shall vest or be
forfeited to the extent, at the times and subject to the conditions, if any, as
determined by the Committee. In the event of the participant's disability or
death, or in cases of special circumstances, the Committee, in its sole
discretion, may waive in whole or in part any or all of the remaining
limitations imposed with respect to any part or all of such Award; however, the
Minimum Holding Period may not be waived except in the case of a participant's
death.
Each Other Stock-Based Award shall be confirmed by, and subject to the
terms of, an agreement or other instrument between the Company and the
participant. Common Shares (including securities convertible into Common Shares)
issued on a bonus basis as an Other Stock-Based Award shall be issued for no
cash consideration. Common Shares (including securities convertible into Common
Shares) purchased pursuant to Other Stock-Based Awards shall bear a purchase
price of at least 50% of the fair market value of the Common Shares on the date
of grant. Any Other Stock-Based Award that constitutes a "derivative security"
under Section 16 of the 1934 Act, and the regulations promulgated thereunder,
shall not be transferred other than by will or the laws of descent and
distribution.
36
<PAGE> 39
CHANGE IN CONTROL
Certain acceleration and valuation provisions take effect with respect to
Awards granted under the 1995 Stock Plan upon the occurrence of a Change in
Control or a Potential Change in Control (as defined in the 1995 Stock Plan) of
the Company.
In the event of a Change in Control or a Potential Change in Control, any
Stock Options and SARs awarded under the 1995 Stock Plan that are not
exercisable and vested on the date of the Change in Control or Potential Change
in Control become fully exercisable and vested. All Restricted Stock, Deferred
Stock, Stock Purchase Rights and Other Stock-Based Awards awarded under the Plan
similarly become fully vested, and all Plan-imposed restrictions and deferrals
lapse, on such date. All outstanding Stock Options, SARs, Restricted Stock,
Deferred Stock, Stock Purchase Rights and Other Stock-Based Awards, in each case
to the extent vested, will be cashed out for the Change in Control Price (as
defined in the 1995 Stock Plan), unless otherwise determined by the Committee at
or after grant, but prior to any Change in Control or Potential Change in
Control. However, these provisions shall not apply to any Awards granted to a
participant who is subject to Section 16 of the 1934 Act which have been held by
such participant for less than six months and one day as of the date that the
Change in Control or Potential Change in Control is determined to have occurred.
ADJUSTMENTS FOR STOCK DIVIDENDS, MERGERS, ETC.
In the event of any merger, reorganization, consolidation,
recapitalization, stock split, stock dividend or other change in corporate
structure affecting the Common Shares, such substitution or adjustment shall be
made in the aggregate number of shares reserved for issuance under the 1995
Stock Plan, in the number and option price of shares subject to outstanding
Stock Options (and any related SARs) and in the number and purchase price of
shares subject to other outstanding Awards under the 1995 Stock Plan as may be
approved by the Committee in its sole discretion, provided that the number of
Common Shares subject to any Award shall always be a whole number. Any
fractional shares will be eliminated.
AMENDMENTS AND TERMINATION
The Board, in its sole discretion, may at any time amend the 1995 Stock
Plan in any respect or discontinue such Plan. No such action may be taken,
however, which would impair the rights of a participant with respect to any
outstanding Award without such participant's consent. The 1995 Stock Plan
further provides that the Company will submit to shareholders for approval any
amendments to the Plan which are required by Section 16 of the 1934 Act, or the
rules and regulations promulgated thereunder, to be approved by shareholders.
No Award may be granted under the 1995 Stock Plan on or after February 10,
2005, but Awards granted prior to that date may continue in effect in accordance
with their respective terms.
37
<PAGE> 40
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS GRANTED UNDER THE 1995 STOCK
PLAN
The following is a brief summary of the general federal income tax
consequences of transactions in Stock Options under the 1995 Stock Plan based on
federal income tax laws in effect as of March 7, 1995. This summary is not
intended to be exhaustive and does not describe foreign, state or local tax
consequences.
Incentive Stock Options. No taxable income is realized by the optionee upon
the grant or exercise of an Incentive Stock Option. If Common Shares are issued
to an optionee pursuant to the exercise of an Incentive Stock Option, and if no
disqualifying disposition of such Common Shares is made by such optionee within
two years after the date of grant or within one year after the transfer of such
shares to such optionee, then (a) upon the sale of such Common Shares, a
long-term capital gain or loss will be realized in an amount equal to the
difference between the option price and the amount realized by the optionee and
(b) no deduction will be allowed to the optionee's employer (i.e., the Company)
for federal income tax purposes.
If Common Shares acquired upon the exercise of an Incentive Stock Option
are disposed of prior to the expiration of either holding period described
above, generally (i) the optionee realizes ordinary income in the year of
disposition in an amount equal to the excess (if any) of the fair market value
of the shares on the date of exercise (or, if less, the amount realized on the
disposition of the shares) over the option price paid for such shares and (ii)
the optionee's employer will be entitled to deduct any such amount realized if
the Company satisfies certain federal withholding or reporting requirements. Any
further gain (or loss) realized (i.e., the difference between the amount
realized and the fair market value of the shares on the date of exercise, in the
case of a gain, or the option price, in the case of a loss) by the participant
will be taxed as short-term or long-term capital gain (or loss), as the case may
be, and will not result in any deduction for the employer.
For the purposes of computing an optionee's alternative minimum tax, the
excess of the fair market value of the Common Shares at the time of exercise
over the option price is an item of tax preference (unless there is a
disposition of the shares acquired upon exercise of an Incentive Stock Option in
the taxable year of exercise) which may, under certain circumstances, result in
an alternative minimum tax liability to the optionee.
With respect to the exercise of an Incentive Stock Option and the payment
of the option price by the delivery of Common Shares, to the extent that the
number of shares received does not exceed the number of shares surrendered, no
taxable income will be realized by the optionee at that time; the tax basis of
the Common Shares received will be the same as the tax basis of the Common
Shares surrendered and the holding period (except for purposes of the one-year
period referred to above) of the optionee in the Common Shares received will
include his holding period in the shares surrendered. To the extent that the
number of Common Shares received exceeds the number of Common Shares
surrendered, no taxable income will be realized by the optionee at that time,
such excess Common Shares will be considered incentive stock option stock with a
zero basis, and the holding period of the optionee in such shares will begin on
the date such shares are transferred to the optionee. If the Common Shares
surrendered were
38
<PAGE> 41
acquired as the result of the exercise of an Incentive Stock Option and the
surrender takes place within two years from the date of the option or one year
after the transfer of Common Shares to the optionee, the surrender will result
in the realization of ordinary income by the optionee at that time in the amount
of the excess, if any, of the fair market value on the date of exercise of the
Common Shares surrendered over the option price of such shares. If any of the
Common Shares received are transferred by the optionee, the optionee will be
treated as having first disposed of the Common Shares with a zero basis.
Non-Qualified Stock Options. With respect to Non-Qualified Stock Options
with an exercise price equal to the fair market value of the Common Shares on
the date of grant, generally, (a) no income is realized by the optionee at the
time the option is granted, (b) upon exercise of the option, the optionee
realizes ordinary income in an amount equal to the excess, if any, of the fair
market value of the shares on the date of exercise over the option price paid
for the shares, and the optionee's employer is entitled to a tax deduction in
the amount of ordinary income realized (provided that applicable withholding
requirements are satisfied), and (c) upon disposition of the Common Shares
received upon the exercise of the option, the optionee receives, as either
short-term or long-term capital gain (or loss), depending upon the length of
time that the optionee has held the shares, on the difference between the amount
realized and the fair market value of the shares on the date of exercise and no
corresponding deduction is available to the employer.
With respect to the exercise of a Non-Qualified Stock Option and the
payment of the option price by the delivery of Common Shares, to the extent that
the number of Common Shares received does not exceed the number of Common Shares
surrendered, no taxable income will be realized by the optionee at that time,
the tax basis of the Common Shares received will be the same as the tax basis of
the Common Shares surrendered, and the holding period of the optionee in the
Common Shares received will include his holding period in the Common Shares
surrendered. To the extent that the number of Common Shares received exceeds the
number of Common Shares surrendered, ordinary income will be realized by the
optionee at the time in the amount of the fair market value of such excess
Common Shares, the tax basis of such excess Common Shares will be such fair
market value, and the holding period of the optionee in such Common Shares will
begin on the date such Common Shares are transferred to the optionee.
VOTE REQUIRED FOR APPROVAL.
The affirmative vote of a majority of the Common Shares represented at the
meeting, in person or by proxy, is required for approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THIS PROPOSAL.
39
<PAGE> 42
INDEPENDENT ACCOUNTANTS
At the meeting of the Board of Directors of the Company held on February
10, 1995, the Board selected Coopers & Lybrand L.L.P. to serve as the
independent accountants for the Company and its subsidiaries for 1995.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
Annual Meeting with the opportunity to make a statement about the Company's
financial condition, if they desire to do so, and to respond to appropriate
questions.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the 1996 Annual
Meeting of Shareholders for inclusion in the proxy statement and form of proxy
relating to that meeting is advised that the proposal must be received by the
Secretary at the Company's principal executive offices located at 6300 Wilson
Mills Road, Mayfield Village, Ohio 44143, not later than November 27, 1995. The
Company will not be required to include in its proxy statement or form of proxy
any shareholder proposal which is received after that date or which otherwise
fails to meet requirements for shareholder proposals established by regulations
of the Securities and Exchange Commission.
SHAREHOLDER VOTE TABULATION
Votes will be tabulated by or under the direction of Inspectors of
Election, who may be regular employees of the Company. The Inspectors of
Election will certify the results of the voting at the Annual Meeting.
The proposal to fix the number of directors at nine will be adopted if
approved by the affirmative vote of a majority of the Company's outstanding
Common Shares. Abstentions and broker non-votes, which are included in the
number of shares outstanding, but not as affirmative votes, will have the same
effect as a vote against this proposal. The director nominees who receive the
greatest number of affirmative votes will be elected directors. Abstentions and
broker non-votes thus will not affect the results of the election.
The proposal to approve The Progressive Corporation 1995 Executive Bonus
Plan will be adopted if approved by the affirmative vote of the majority of the
Common Shares voting on the proposal, treating as voting all ballots marked as
abstentions. Broker non-votes are not counted as voting.
The proposals to approve The Progressive Corporation Executive Deferred
Compensation Plan and The Progressive Corporation 1995 Incentive Plan will be
adopted if approved by the affirmative vote of a majority of the Common Shares
represented at the meeting, in person or by proxy. Abstentions, which will be
considered to be represented at the meeting, but not as affirmative votes, will
have the same effect as a vote against the subject proposal. Broker non-votes
will not be counted as represented at the meeting and thus will not affect the
outcome of the vote.
40
<PAGE> 43
OTHER MATTERS
The solicitation of proxies is made by and on behalf of the Board of
Directors. The cost of the solicitation, including the reasonable expenses of
brokerage firms or other nominees for forwarding proxy materials to beneficial
owners, will be borne by the Company. In addition to solicitation by mail,
proxies may be solicited by telephone, telegraph or personally. The Company has
engaged the firm of Morrow & Co., New York, New York, to assist it in the
solicitation of proxies at an estimated cost of $13,000. Proxies may be
solicited by directors, officers and employees of the Company without additional
compensation.
If the enclosed proxy is executed and returned, the shares represented
thereby will be voted in accordance with any specifications made therein by the
shareholder. In the absence of any such specifications, the proxies will be
voted (a) FOR the proposal to fix the number of directors at nine; (b) to elect
the eight nominees named in Item 2 under "Election of Directors"; (c) FOR the
proposal to approve The Progressive Corporation 1995 Executive Bonus Plan; (d)
FOR the proposal to approve The Progressive Corporation Executive Deferred
Compensation Plan; and (e) FOR the proposal to approve The Progressive
Corporation 1995 Incentive Plan.
The presence of any shareholder at the meeting will not operate to revoke
his proxy. A proxy may be revoked at any time insofar as it has not been
exercised by giving written notice to the Company or in open meeting.
If any other matters shall properly come before the meeting, the persons
named in the proxy, or their substitutes, will vote thereon in accordance with
their judgment. The Board of Directors does not know at this time of any other
matters that will be presented for action at the meeting.
AVAILABLE INFORMATION
THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO EACH PERSON TO WHOM A PROXY
STATEMENT IS DELIVERED, UPON ORAL OR WRITTEN REQUEST, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR 1994 (OTHER THAN CERTAIN EXHIBITS) AND COPIES OF
THE PROGRESSIVE CORPORATION 1995 EXECUTIVE BONUS PLAN, THE PROGRESSIVE
CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN AND THE PROGRESSIVE CORPORATION
1995 INCENTIVE PLAN. REQUESTS FOR SUCH DOCUMENTS SHOULD BE SUBMITTED IN WRITING
TO CHARLES B. CHOKEL, TREASURER, THE PROGRESSIVE CORPORATION, 6300 WILSON MILLS
ROAD, MAYFIELD VILLAGE, OH 44143 OR BY TELEPHONE AT (216) 446-7260.
By Order of the Board of Directors.
DAVID M. SCHNEIDER, Secretary
March 24, 1995
41
<PAGE> 44
APPENDIX A
THE PROGRESSIVE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS
The undersigned hereby appoints Charles B. Chokel, David M.
Schneider and Dane A. Shrallow, and each of them, with full power of
substitution, as proxies for the undersigned to attend the Annual
Meeting of Shareholders of The Progressive Corporation, to be held at
6671 Beta Drive, Mayfield Village, Ohio, at 10:00 a.m., Cleveland
time, on April 28, 1995, and thereat, and at any adjournment thereof,
to vote and act with respect to all Common Shares of the Company which
the undersigned would be entitled to vote, with all power the
undersigned would possess if present in person, as follows:
1. Proposal to fix the number of directors at nine.
/ / FOR / / AGAINST / / ABSTAIN
2. / / WITH or / / WITHOUT authority to vote (except as marked to the
contrary below) for the election as directors of all eight
nominees listed below for a term of one year.
Milton N. Allen, B. Charles Ames, Stephen R. Hardis, Janet Hill, Peter
B. Lewis, Norman S. Matthews, Donald B. Shackelford and Paul B. Sigler
(INSTRUCTION: To withhold authority to vote for any individual
nominee, print that nominee's name in the space
provided below.)
_____________________________________________________________________
3. Proposal to approve The Progressive Corporation 1995 Executive
Bonus Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve The Progressive Corporation Executive Deferred
Compensation Plan.
/ / FOR / / AGAINST / / ABSTAIN
(Continued, and to be dated and signed, on the other side)
(Continued from the other side)
5. Proposal to approve The Progressive Corporation 1995 Incentive
Plan.
/ / FOR / / AGAINST / / ABSTAIN
6. In their discretion, to vote upon such other business as may
properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BY
THE SHAREHOLDER. IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE
VOTED TO ELECT THE NOMINEES IDENTIFIED IN ITEM 2 ABOVE AND TO APPROVE
THE PROPOSALS DESCRIBED IN ITEMS 1, 3, 4 AND 5 ABOVE.
Receipt of Notice of Annual Meeting of Shareholders and the related
Proxy Statement dated March 24, 1995, is hereby acknowledged.
Date: ____________________ , 1995
__________________________________
__________________________________
__________________________________
Signature of Shareholder(s)
PLEASE SIGN AS YOUR NAME OR NAMES
APPEAR HEREON. IF SHARES ARE HELD
JOINTLY, ALL HOLDERS MUST SIGN.
WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE YOUR FULL
TITLE. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY
PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE
SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
<PAGE> 45
APPENDIX B
THE PROGRESSIVE CORPORATION
1995 EXECUTIVE BONUS PLAN
1. The Progressive Corporation and its subsidiaries ("Progressive") have
designed an executive compensation program consisting of three
components: salary, annual bonus and equity-based incentives in the
form of non-qualified stock options. These components have been
structured to reflect the market for executive compensation and to
promote both the achievement of corporate goals and performance that is
in the long-term interests of shareholders. The annual bonus component
is performance-based and focuses on current results.
2. The 1995 Executive Bonus Plan (the "Plan") shall be administered by or
under the direction of the Executive Compensation Committee (the
"Committee") of the Board of Directors. Executive officers of
Progressive may be selected by the Committee to participate in the Plan
for one or more Plan years. Plan years shall coincide with
Progressive's fiscal years.
3. The following executive officers have initially been selected for
participation in the Plan: Charles B. Chokel, Peter B. Lewis, Bruce W.
Marlow, Michael C. Murr, David M. Schneider and Tiona M. Thompson (the
"participants").
4. Subject to the following sentence, the amount of the annual bonus
earned by any participant under the Plan ("Annual Bonus") will be
determined by application of the following formula:
Annual Bonus = Paid Salary x Target Percentage x Performance
Factor
The Annual Bonus payable to any participant with respect to any Plan
year may not exceed $2,000,000.00.
5. The salary rate of each Plan participant for any Plan year shall be as
established by the Committee no later than ninety (90) days after
commencement of such Plan year. For purposes of the Plan, "salary" and
"Paid Salary" shall include regular, vacation, sick, holiday and
funeral pay received by the participant for work or services performed
by the participant as an officer or employee of Progressive and the
earnings replacement component of any worker's compensation award, but
shall not include any (a) short-term or long-term disability payments,
(b) lump sum merit adjustments or (c) discretionary bonus payments made
to the participant.
<PAGE> 46
6. The Target Percentages for the participants in the Plan are as follows:
<TABLE>
<CAPTION>
Participant Position Target Percentage
------------------ ----------------------------- -----------------
<S> <C> <C>
Charles B. Chokel Chief Financial Officer 80%
Peter B. Lewis Chief Executive Officer 100%
Bruce W. Marlow Chief Operating Officer 100%
Michael C. Murr Chief Investment Officer 167%
David M. Schneider Chief Legal Officer 60%
Tiona M. Thompson Chief Human Resources Officer 60%
</TABLE>
Target Percentages may be changed from year to year by the Committee.
7. The Performance Factor
A. General
The Performance Factor shall be determined by the performance
results achieved with respect to one or more of the following
components: Core Business Gainsharing, Return on Average
Equity ("ROE") and Investment Performance, as described below
(the "Bonus Components"). An appropriate combination of Bonus
Components will be designated for each participant, and the
designated Bonus Components will be weighted, based on such
participant's assigned responsibilities.
The combination of Bonus Components designated for each of the
participants, and the relative weighting of those Components,
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Core Business ROE Investment
Participant Gainsharing Component Performance
Component Component
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chokel 70% 30% 0%
- ------------------------------------------------------------------------------------
Lewis 50% 30% 20%
- ------------------------------------------------------------------------------------
Marlow 80% 20% 0%
- ------------------------------------------------------------------------------------
Murr 0% 50% 50%
- ------------------------------------------------------------------------------------
Schneider 70% 30% 0%
- ------------------------------------------------------------------------------------
Thompson 80% 20% 0%
- ------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 47
The relative weighting of the Bonus Components may vary among
Plan participants and may be changed from year to year by the
Committee.
Actual performance results achieved for any Plan year, as used
to calculate the performance score achieved for each of the
applicable Bonus Components, shall be as certified by the
Committee prior to payment of the Annual Bonus.
For purposes of computing the amount of the Annual Bonus, the
performance score achieved for each of the designated Bonus
Components will be multiplied by the applicable weighting
factor to produce a Weighted Component Score. The sum of the
Weighted Component Scores equals the Performance Factor. The
Performance Factor can vary from 0 to 2.0, based on actual
performance versus the pre-established objectives.
B. Core Business Gainsharing Component
The Core Business Gainsharing Component consists of the
following factors:
(i) Profitability and Growth Factor
The Profitability and Growth Factor measures overall
operating performance of Progressive's core personal
and commercial automobile insurance business ("Core
Business") for the Plan year in respect of which an
Annual Bonus is to be paid. For purposes of computing
a score for this Factor, results will be measured by
the Gainsharing Matrix, as established by the
Committee for the Plan year, which assigns a
performance score to various combinations of
profitability and growth outcomes. For this Factor,
profitability is measured by the GAAP combined ratio
and growth is measured by year-to-year change in
market share. Change in market share is measured in
terms of net written premium, based on industry data
(which may be estimated), as reported by A.M. Best
Company, Inc. in Best Week, or any successor
publication, upon conclusion of the Plan year for
which the Annual Bonus is to be paid. The
Profitability and Growth Factor is weighted 70% in
computing the Core Business Gainsharing Score.
3
<PAGE> 48
(ii) Cost Structure Improvement Factor
The Cost Structure Improvement Factor measures success in
achieving cost structure improvement for the Core
Business. Results are reflected in a Cost Structure
Improvement Score. For purposes of computing the Cost
Structure Improvement Score, cost structure improvement
is measured by comparing the sum of the GAAP Underwriting
Expense Ratio ("Underwriting Expense Ratio") and Loss
Adjustment Expense Ratio ("LAE Ratio") achieved in the
Core Business for the Plan year (collectively, "Actual
Expense Ratio") against the defined expense objectives
for that year, as established by the Committee ("Target
Expense Ratio"). For 1995 and thereafter unless and until
otherwise directed by the Committee, the Target Expense
Ratio shall be 33, based on a target LAE Ratio of 10 and
a target Underwriting Expense Ratio of 23. The Cost
Structure Improvement Factor is weighted 30% in computing
the Core Business Gainsharing Score.
The Cost Structure Improvement Score will be computed
in accordance with the following formula:
Cost Structure
Improvement=1+[Target Expense Ratio-Actual Expense Ratio]
Score
-----------------------------------------
4
Expense targets and the relative weighting of the above
Factors may be changed from year to year by the Committee.
C. Return on Average Equity Component
This Component is based on Progressive's Return on Average
Equity ("ROE") for the Plan year. The ROE will be calculated
for each month of the Plan year and such monthly results will
be averaged to determine the ROE for the Plan year. For
purposes of this Plan, ROE shall be calculated as follows:
ROE = net income - Preferred Share dividends
--------------------------------------
average common shareholders' equity
4
<PAGE> 49
In determining the ROE Performance Score, actual performance will be compared
to a scale which excludes the effect of inflation, in accordance with the
following scoring table:
<TABLE>
<CAPTION>
- --------------------------------------------------
ROE (excluding ROE Performance
effect of inflation, as Score
reflected in the CPI)
- --------------------------------------------------
<S> <C>
11% or lower 0.0
- --------------------------------------------------
12% 0.3
- --------------------------------------------------
13% 0.5
- --------------------------------------------------
14% 0.7
- --------------------------------------------------
15% 1.0
- --------------------------------------------------
16% 1.1
- --------------------------------------------------
17% 1.2
- --------------------------------------------------
18% 1.3
- --------------------------------------------------
19% 1.4
- --------------------------------------------------
20% 1.5
- --------------------------------------------------
21% 1.6
- --------------------------------------------------
22% 1.7
- --------------------------------------------------
23% 1.8
- --------------------------------------------------
24% 1.9
- --------------------------------------------------
25% or higher 2.0
==================================================
</TABLE>
To achieve a given ROE Performance Score for any Plan year, Progressive's ROE
for that year must equal or exceed the required ROE level set forth in the
above scoring table, without rounding, and ROE Performance Scores will not be
derived from or subject to an interpolative or similar process.
For purposes of this Plan, CPI shall mean the Consumer Price Index for all
Urban Consumers (CPI-U) for the U.S. City Average for All Items (1982-1984
equals 100) or such other index as the Committee shall designate prior to the
applicable Plan year.
5
<PAGE> 50
D. Investment Performance Component
The Investment Performance Component compares investment performance
against targets ("Benchmarks") established for the individual segments
of Progressive's investment portfolio. Investments are marked to market
in order to calculate total return, which is then compared against the
designated Benchmarks to produce a Performance Score for each segment of
the portfolio. The Performance Scores for the several segments are
weighted, based on the actual amounts invested in each segment (valued
monthly), and the weighted Performance Scores for the several segments
are then combined to produce the Investment Performance Score.
Investment expense is not included in determining investment performance
vs. benchmark.
The Portfolio Segments and Benchmark measures are as follows:
---------------------------------------------------------------
Portfolio Segment Investment Benchmark
---------------------------------------------------------------
Equities S&P 500 including dividends
---------------------------------------------------------------
High Yield Investments 70% of the average of Merrill Lynch
High Yield Index and Merrill Lynch
Bankruptcy Index
---------------------------------------------------------------
Short Term Fixed Income 3 Year Treasury Securities + 75 basis
points, tax equivalent basis
---------------------------------------------------------------
The scoring table for comparing Investment Performance against the
designated Benchmarks is as follows:
<TABLE>
<CAPTION>
-----------------------------------------
Investment Investment
Performance Performance
Versus Score
Benchmark
(weighted)
-----------------------------------------
<S> <C>
below 90% 0.00
-----------------------------------------
90 - 94.99% 0.75
-----------------------------------------
95 - 99.99% 0.90
-----------------------------------------
100% and above 1.00
-----------------------------------------
</TABLE>
6
<PAGE> 51
To achieve a given Investment Performance Score for any Plan year,
Investment Performance results must equal or exceed the required
performance level indicated in the above scoring table, without
rounding, and Investment Performance Scores will not be derived from or
subject to an interpolative or similar process.
8. The Annual Bonus for any Plan year shall be paid to participants in two
installments. The first installment, in an amount equal to 90% of the
Annual Bonus, determined in accordance with the formula set forth in
Paragraph 4 above, will be paid as soon as practicable after the
Committee has certified performance results for the Plan year, but no
later than March 31 of the immediately following year. The second
installment, in an amount equal to 10% of the Annual Bonus, will be
paid to participants on the September 30 immediately following the end
of the Plan year for which such Annual Bonus is to be paid. The
provisions of this Paragraph shall be subject to Paragraph 9 hereof.
Any Plan participant who is then eligible to participate in The
Progressive Corporation Executive Deferred Compensation Plan ("Deferral
Plan") may elect to defer all or a portion of the Annual Bonus
otherwise payable under this Plan, subject to and in accordance with
the terms of the Deferral Plan.
9. Unless otherwise determined by the Committee, in order to be entitled
to receive any installment of the Annual Bonus for any Plan year, the
participant must be employed by Progressive on the date designated for
payment thereof. Annual Bonus payments made to participants will be net
of any legally required deductions for federal, state and local taxes
and other items.
10. The right to any of the Annual Bonuses hereunder shall not be
transferred, assigned or encumbered by any participant. Nothing herein
shall prevent any participant's interest hereunder from being subject
to involuntary attachment, levy or other legal process.
11. The Plan shall be administered by or under the direction of the
Committee. The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines, procedures and practices governing the
Plan as it shall, from time to time, in its sole discretion deem
advisable.
The Committee shall have full authority to determine the manner in
which the Plan will operate, to interpret the provisions of the Plan
and to make all determinations thereunder. All such interpretations and
determinations shall be final and binding on Progressive, all Plan
participants and all other parties. No such interpretation or
determination shall be relied on as a precedent for any similar action
or decision.
7
<PAGE> 52
The Plan shall be administered by the Committee in accordance with the
requirements of Section 162(m) of the Internal Revenue Code, as
amended, and the rules and regulations promulgated thereunder (the
"Code").
12. The Plan shall be subject to approval by the holders of Progressive's
Common Shares, $1.00 par value ("shareholders") in accordance with the
requirements of Section 162(m) of the Code.
13. The Plan may be terminated, amended or revised, in whole or in part, at
any time and from time to time by the Committee, in its sole
discretion; provided that the Committee may not increase the amount of
compensation payable hereunder to any participant above the amount that
would otherwise be payable upon attainment of the applicable
performance goals, or accelerate the payment of any portion of the
Annual Bonus due to any participant under the Plan without discounting
the amount of such payment in accordance with Section 162(m) of the
Code, and further provided that any amendment or revision of the Plan
required to be approved by shareholders pursuant to Section 162(m) of
the Code shall not be effective until approved by Progressive's
shareholders in accordance with the requirements of Section 162(m).
14. The Plan will be unfunded and all payments due under the Plan shall be
made from Progressive's general assets.
15. Nothing in the Plan shall be construed as conferring upon any person
the right to remain a participant in the Plan or to remain employed by
Progressive, nor shall the Plan limit Progressive's right to discipline
or discharge any of its officers or employees or change their job
duties or compensation.
16. Progressive shall have the unrestricted right to set off against or
recover out of any bonuses or other sums owed to any participant under
the Plan any amounts owed by such participant to Progressive.
17. This Plan supersedes all prior plans, agreements, understandings and
arrangements regarding bonuses or other cash incentive compensation
payable or due to any participant from Progressive. Without limiting
the generality of the foregoing, this Plan supersedes and replaces The
Progressive Corporation 1994 Executive Bonus Plan, as heretofore in
effect (the "Prior Plan"), which is and shall be deemed to be
terminated as of December 31, 1994 (the "Termination Date"); provided,
that any bonuses or other sums earned under the Prior Plan prior to the
Termination Date shall be unaffected by such termination and shall be
paid to the appropriate participants when and as provided thereunder.
8
<PAGE> 53
18. This Plan is adopted and, subject to the provisions of Paragraph 12
hereof, is to be effective, as of January 1, 1995. Subject to the
provisions of Paragraph 12, this Plan shall be effective for 1995 and
for each year thereafter unless and until terminated by the Committee.
19. This Plan shall be interpreted and construed in accordance with the
laws of the State of Ohio.
9
<PAGE> 54
APPENDIX C
THE PROGRESSIVE CORPORATION EXECUTIVE
DEFERRED COMPENSATION PLAN
<PAGE> 55
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
ARTICLE 1
DEFINITIONS
<S> <C>
1.1 "Affiliated Company" 1
1.2 "Annual Deferral Account" or "Account" 1
1.3 "Beneficiary" 1
1.4 "Change in Control" 1
1.5 "Code" 1
1.6 "Committee" 1
1.7 "Company" 1
1.8 "Company Stock Fund" 1
1.9 "Deferral Agreement" 1
1.10 "Deferral" 1
1.11 "Disabled" and "Disability" 1
1.12 "Distribution Event" 2
1.13 "Eligible Executive" 2
1.14 "ERISA" 2
1.15 "Fixed Deferral Period" 2
1.16 "Fixed Income Fund" 2
1.17 "Gainsharing Award" 2
1.18 "Investment Fund" 2
1.19 "Participant" 2
1.20 "Plan" 2
1.21 "Plan Year" 2
1.22 "Termination of Employment" 2
1.23 "Stock" 2
1.24 "Trust" 2
1.25 "Trust Agreement" 2
1.26 "Trustee" 3
1.27 "Valuation Date" 3
ARTICLE 2
DEFERRAL OF GAINSHARING AWARDS
2.1 Method of Deferral 3
2.2 Deferral Agreement Provisions 3
2.3 Fixed Deferral Periods 3
ARTICLE 3
DISTRIBUTIONS
3.1 Date of Distribution 4
3.2 Method of Distribution 4
3.3 Amount of Distribution 4
3.4 Form of Distribution 4
4
ARTICLE 4
ACCOUNTS
4.1 Establishment of Annual Deferral Accounts 4
4.2 Initial Investment of Accounts 4
4.3 Valuation of Investment Funds 5
</TABLE>
i
<PAGE> 56
<TABLE>
<S> <C>
4.4 Valuation of Accounts 5
4.5 Nature of Accounts 5
4.6 Account Statements 5
ARTICLE 5
INVESTMENT FUNDS
5.1 Investment Funds 6
5.2 Investment Elections of Participants 6
5.3 Nature of Investment Funds 6
5.4 Liquidation of Investment Funds 6
ARTICLE 6
TRUST
6.1 Establishment of Trust 6
ARTICLE 7
PLAN OPERATION AND ADMINISTRATION
7.1 Powers of Committee 7
7.2 Nondiscriminatory Exercise of Authority 7
7.3 Reliance on Tables, etc 7
7.4 Indemnification 8
7.5 Notices to Committee 8
ARTICLE 8
CLAIMS PROCEDURES
8.1 Establishment of Claims Procedures 8
8.2 Claims Denials 8
8.3 Appeals of Denied Claims 8
8.4 Review of Appeals 9
ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
9.1 Amendment 9
9.2 Termination 9
9.3 Liquidation of the Trust 10
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Headings 10
10.2 Plan Not Contract of Employment 10
10.3 Severability 10
10.4 Prohibition on Assignment 10
10.5 Number and Gender 10
10.6 Governing Law 10
10.7 Satisfaction of Claims 11
10.8 No Warranties 11
10.9 Tax Withholding 11
10.10 Facility of Payment 11
10.11 Repayment of Gainsharing Awards 11
10.12 Stock Subject to the Plan 11
10.13 Conditions to Effectiveness of Plan 11
</TABLE>
ii
<PAGE> 57
THE PROGRESSIVE CORPORATION EXECUTIVE
DEFERRED COMPENSATION PLAN
The Progressive Corporation hereby establishes The Progressive Corporation
Executive Deferred Compensation Plan, effective as of January 1, 1995.
The Plan is established for the purposes of providing deferred compensation for
a select group of management and highly compensated employees within the meaning
of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
The Plan is intended to be an unfunded plan for purposes of ERISA and the Code
and is not intended to satisfy the qualification requirements of Section 401 of
the Code.
ARTICLE 1
DEFINITIONS
1.1 "Affiliated Company" means any corporation included in the affiliated
group of corporations as defined in Section 1504 of the Code
(determined without regard to 1504(b)) of which the Company is the
common parent corporation.
1.2 "Annual Deferral Account" or "Account" shall have the meaning set forth
in Section 4.1.
1.3 "Beneficiary" means such person(s) as the Participant has designated. A
Participant may change his Beneficiary designation at any time. All
Beneficiary designations (including changes) shall be made in writing
on such forms as the Committee shall prescribe, and shall become
effective only when received and accepted by the Committee; provided,
however, that a Beneficiary designation (including a change) received
by the Committee after the designating Participant's death shall be
disregarded. In the absence of a Beneficiary designation, or if the
designated Beneficiary is no longer living or in existence at the time
of the Participant's death, all distributions payable from the Plan
upon the Participant's death shall be paid to the Participant's estate.
1.4 "Change in Control" means a "Change in Control" or "Potential Change in
Control" within the meaning of The Progressive Corporation 1989
Incentive Plan (amended and restated as of April 24, 1992 and as
further amended as of July 1, 1992 and February 5, 1993).
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "Committee" means the Executive Compensation Committee of the Board of
Directors of the Company, or any successor committee.
1.7 "Company" means The Progressive Corporation, an Ohio corporation, or
its successors.
1.8 "Company Stock Fund" means an Investment Fund consisting of Stock.
1.9 "Deferral Agreement" means a written agreement entered into by an
Eligible Executive pursuant to Article 2.
1.10 "Deferral" means an amount credited to an Annual Deferral Account
pursuant to a Deferral Agreement.
1.11 "Disabled" and "Disability" means that a Participant is expected to be
unable to perform the duties of his usual occupation for at least
twelve (12) consecutive months, as determined by the Committee.
1
<PAGE> 58
1.12 "Distribution Event" means, as to each Participant, the earliest of the
following events:
(i) the Participant's death;
(ii) the date that the Participant is determined by the Committee
to be Disabled;
(iii) the Participant's Termination of Employment; or
(iv) Change in Control.
1.13 "Eligible Executive" means the Company's Chief Executive Officer, Chief
Operating Officer, Chief Investment and Capital Officer, Chief Legal
Officer, Chief Financial Officer, Chief Information Officer, Chief
Human Resources Officer, Division Presidents and any other executive of
the Company or any Affiliated Company who is designated in writing as
an Eligible Executive by the Committee, excluding, however, any of the
foregoing individuals who are not residents of the United States or are
not working at a location in the United States.
1.14 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.15 "Fixed Deferral Period" shall have the meaning set forth in Section
2.3.
1.16 "Fixed Income Fund" means the Vanguard Investment Contract Trust or
such other Investment Fund as may be designated by the Committee as the
Fixed Income Fund within the meaning of the Plan.
1.17 "Gainsharing Award" means any bonus or other incentive award payable
with respect to a Plan Year under The Progressive Corporation 1994
Executive Bonus Plan, The Progressive Corporation 1994 Gainsharing Plan
or any other plan or program as may be designated by the Committee.
1.18 "Investment Fund" means a device established from time to time by the
Committee pursuant to Section 5.1 that is used to calculate gains and
losses in amounts deferred by Participants under the Plan.
1.19 "Participant" means an Eligible Executive who has deferred receipt of a
portion of any Gainsharing Award pursuant to a Deferral Agreement.
Participation shall begin on the date that a Deferral Account is
established in the name of the Participant and shall end on the date
that the Participant dies or receives a distribution of the balance of
all his Deferral Accounts.
1.20 "Plan" means The Progressive Corporation Executive Deferred
Compensation Plan, as set forth herein and as it may be amended from
time to time.
1.21 "Plan Year" means 1995 and each subsequent calendar year.
1.22 "Termination of Employment" means the voluntary or involuntary
cessation of a Participant's active employment with the Company and all
Affiliated Companies as a result of any reason other than death,
Disability and approved leave of absence.
1.23 "Stock" means the Common Shares, $1.00 par value, of the Company.
1.24 "Trust" shall mean the trust maintained pursuant to the Trust Agreement
and known as The Progressive Corporation Executive Deferred
Compensation Trust.
1.25 "Trust Agreement" shall mean the agreement of trust between the Company
and the Trustee executed in furtherance of the Plan, as the same may be
amended from time to time.
2
<PAGE> 59
1.26 "Trustee" shall mean the person selected from time to time by the
Company to serve as trustee under the Trust Agreement.
1.27 "Valuation Date" shall mean each day that the New York Stock Exchange
is open for trading.
ARTICLE 2
DEFERRAL OF GAINSHARING AWARDS
2.1 Method of Deferral.
Each Eligible Executive may elect to defer receipt of all or a portion
of his/her Gainsharing Award in respect of any Plan Year in excess of
applicable tax withholding and other deductions required to be made in
respect of the Gainsharing Award by signing a Deferral Agreement and
delivering it to the Committee. If a Gainsharing Award is payable in
installments, each installment, whether or not payable in the same Plan
Year, shall be subject to the same Deferral Agreement.
2.2 Deferral Agreement Provisions.
Each Deferral Agreement must satisfy all of the following requirements:
(a) it must be in writing and be in the form specified by the
Committee;
(b) it must be irrevocable;
(c) it must apply to only one Gainsharing Award;
(d) it must be signed by the Eligible Executive making the
Deferral and be delivered to the Committee prior to the Plan
Year in which the applicable Gainsharing Award will be earned;
(e) it must specify the percentage of the Eligible Executive's
Gainsharing Award to be deferred, which percentage shall not
be less than ten percent (10%). The same deferral percentage
shall apply to each installment of a Gainsharing Award covered
by the Deferral Agreement. However, a Deferral Agreement may
provide for the deferral of a percentage of that portion of a
Gainsharing Award that exceeds a specified gross dollar
amount, which percentage shall not be less than ten percent
(10%). Notwithstanding the preceding provisions of this
Section 2.2(e), no Deferral shall be less than such dollar
amount as the Committee may specify from time to time. All
Deferrals shall be reduced by applicable tax withholding and
other legally required deductions;
(f) it must specify whether the balance of the Annual Deferral
Account to be established pursuant to that Deferral Agreement
will be distributed in a lump sum or in three (3) annual
installments; and
(g) it must contain such other provisions, conditions and
limitations as may be required by the Company or the
Committee.
2.3 Fixed Deferral Periods.
If an Eligible Executive wishes to defer receipt of all or a portion of
any Gainsharing Award for a fixed period of time ("Fixed Deferral
Period"), then his/her Deferral Agreement relating to such Gainsharing
Award shall specify that Fixed Deferral Period, which shall not be less
than two (2) years following the end of the Plan Year in which the
Gainsharing Award will be earned.
3
<PAGE> 60
ARTICLE 3
DISTRIBUTIONS
3.1 Date of Distribution.
The balance of each Annual Deferral Account of a Participant shall be
distributed within thirty (30) days following the earlier of (i) the
date a Distribution Event occurs, (ii) the date on which the Fixed
Deferral Period, if any, applicable to such Account expires, or (iii)
the date, if any, selected by the Company, in its sole discretion,
pursuant to Section 9.2.
3.2 Method of Distribution.
Each distribution of the balance of an Annual Deferral Account made on
account of the Participant's death shall be made to the Participant's
Beneficiary. Each distribution made on account of the Participant's
death or Disability, termination of the Plan or a Change in Control
shall be paid in a lump sum. Each distribution made on account of the
Participant's Termination of Employment or expiration of a Fixed
Deferral Period shall be paid in either a lump sum or installments, as
specified in the applicable Deferral Agreement. If a Participant
elects to receive payment in installments and dies prior to payment of
all installments, the balance remaining unpaid at his/her death shall
be paid to his/her Beneficiary in a lump sum. Installment payments
shall be paid annually for three years.
3.3 Amount of Distribution.
The amount of each lump sum payment shall be equal to the balance of
the Annual Deferral Account, as of the Valuation Date immediately
preceding the date of distribution. The amount of each installment
payment shall be equal to the balance of the Annual Deferral Account as
of the Valuation Date immediately preceding the date of payment
multiplied by a fraction, the numerator of which is one and the
denominator of which is the number of years remaining in the period
over which installments are to be paid. Installment distributions to be
made in Stock shall be rounded to the nearest whole share.
3.4 Form of Distribution.
All distributions shall be made in cash, except that a distribution
representing amounts invested in the Company Stock Fund shall be made
in Stock.
ARTICLE 4
ACCOUNTS
4.1 Establishment of Annual Deferral Accounts.
The Committee shall establish an Annual Deferral Account in the name of
each Participant for each Gainsharing Award, or portion thereof, that
is the subject of a Deferral Agreement. Such Account shall be
established as of the first date that such Gainsharing Award or portion
otherwise would have been paid to the Participant. Each Annual Deferral
Account shall be credited with the deferred portion of such Gainsharing
Award. Thereafter, all Annual Deferral Accounts shall be valued and
administered as provided in this Article.
4.2 Initial Investment of Accounts.
All initial credits to an Annual Deferral Account of a Participant
shall be deemed to be invested in such Investment Funds as the
Participant shall elect in accordance with Article 5. The number of
shares of Stock to be credited to a Participant's Account by virtue of
a Participant's election to invest a portion of a Deferral in the
Company Stock Fund shall be
4
<PAGE> 61
determined on the date of the Deferral, based on the closing price of
Stock on the immediately preceding Valuation Date as quoted in the New
York Stock Exchange composite trading. However, the amount of a
Deferral otherwise elected by the Participant to be invested in the
Company Stock Fund shall be reduced to the extent necessary to insure
that only whole shares of Stock are credited and an amount
corresponding to any fractional shares shall be invested in the Fixed
Income Fund.
4.3 Valuation of Investment Funds.
As of each Valuation Date, the Trustee shall compute the value of each
Investment Fund from which shall be determined the net gain or loss of
such Investment Fund since the immediately preceding Valuation Date.
The net gain or loss shall include any unrealized and realized profits
and losses, and any dividends, interest or other income and any
expenses which are due or accrued, but shall not include distributions
from such Investment Fund or dividends transferred to the Fixed Income
Fund pursuant to the following sentence. Notwithstanding the preceding
provisions of this Section, any cash dividends paid in respect of Stock
shall not be considered part of the gain of the Company Stock Fund;
instead, those dividends shall be considered as having been transferred
to the Fixed Income Fund as of the date such dividends are paid. In
determining the value of each Investment Fund, the Trustee shall use
the following values: securities listed on any nationally recognized
securities exchange shall be valued at the closing price reported on
any such exchange on the Valuation Date, or, if there were no sales on
the Valuation Date, then at the quoted bid price on the Valuation Date.
Securities not listed on a recognized securities exchange shall be
valued at the quoted closing bid price on the Valuation Date. A unit of
participation in a common trust fund maintained by the Trustee or a
share in a mutual fund shall be valued at the unit value, or share
price respectively, in effect at the close of business on the Valuation
Date. Securities with respect to which there were no available sale
prices or bid prices on the Valuation Date, and any other investments,
shall be valued at prices deemed by the Trustee to represent the fair
market value thereof on the Valuation Date.
4.4 Valuation of Accounts.
As of each Valuation Date, the net gain or loss of each Investment Fund
shall be allocated among the appropriate Annual Deferral Accounts in
accordance with such procedures as the Committee shall establish, which
procedures shall apply uniformly to all Participants.
4.5 Nature of Accounts.
All credits to each Annual Deferral Account of each Participant shall
be recorded as a liability on the books of the Company. However, no
Participant or Beneficiary shall have any proprietary rights of any
nature with respect to any Account of any Participant or with respect
to any funds, securities or other property owned by the Company or any
Affiliated Company that is held in the Trust or that otherwise may be
represented from time to time by Investment Funds. All payments under
the Plan shall be made from the Trust or from the Company's general
funds and in no event shall any Participant or Beneficiary have any
claims or rights to any payment hereunder that are superior to any
claims or rights of any general creditor of the Company.
4.6 Account Statements.
The Committee will furnish each Participant with quarterly statements
of the value of each of his/her Annual Deferral Accounts.
5
<PAGE> 62
ARTICLE 5
INVESTMENT FUNDS
5.1 Investment Funds.
The Committee shall establish and maintain the Company Stock Fund and
such other Investment Funds as are specified from time to time by the
Company. In this regard, the Company may choose to offer as Investment
Funds any investment vehicles, including without limitation: (i)
securities issued by investment companies advised by affiliates of the
Trustee, (ii) guaranteed investment contracts recommended by the
Trustee, and (iii) collective investment trusts maintained by the
Trustee.
5.2 Investment Elections of Participants.
Each Participant shall make an investment election in the manner
prescribed by the Committee, directing the manner in which his/her
Deferrals shall be deemed to be invested. Each investment election must
be made at the time the applicable Deferral Agreement is signed and may
not be revoked or changed. Each Participant may make a separate
investment election for each of his/her Annual Deferral Accounts. Each
investment election shall specify that Deferrals shall be deemed to be
deposited in one or more of the Investment Funds in percentages that
are each an integral multiple of 1% and that in the aggregate equal
100% of the Deferral. Except as expressly provided in Section 4.3,
amounts deemed to be invested in an Investment Fund pursuant to this
Section may not be transferred to another Investment Fund.
5.3 Nature of Investment Funds.
Notwithstanding anything in the Plan, Trust or any Deferral Agreement
to the contrary, no Participant shall have any rights or interests in
any particular funds, securities or property of the Company, any
Affiliated Company or the Trust, or in any investment vehicle in which
Deferrals are deemed to be invested, by virtue of any investment
election made by the Participant under the Plan or any transactions
engaged in by the Trust. Each Annual Deferral Account, however, shall
be credited/charged in accordance with Article 4 with gains/losses as
if the Participant in fact had made a corresponding actual investment.
5.4 Liquidation of Investment Funds.
If any Investment Fund is liquidated or otherwise ceases to exist
without a successor, then that portion of each Account balance that
previously has been deemed to have been invested in that Investment
Fund shall be deemed to have been transferred to an Investment Fund
consisting of guaranteed investment contracts issued by banks and/or
insurance companies or, if none, such other Investment Fund selected by
the Committee.
ARTICLE 6
TRUST
6.1 Establishment of Trust.
The Company shall establish and maintain a Trust to provide a source of
funds to assist the Company in meeting its liabilities under the Plan.
Within thirty (30) days following the end of each Plan Year ending
after the Trust has become irrevocable pursuant to the Trust Agreement,
the Company shall be required to irrevocably deposit additional cash or
other property to the Trust in an amount sufficient to pay each
Participant or Beneficiary the benefits payable pursuant to the terms
of the Plan as of the close of that Plan year.
6
<PAGE> 63
The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of Plan Participants and general
creditors of the Company as set forth herein and in the Trust
Agreement. Plan Participants and their Beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets
of the Trust. Any rights created under the Plan and the Trust Agreement
shall be mere unsecured contractual rights of Plan Participants and
their Beneficiaries against Company. Any assets held by the Trust will
be subject to the claims of the Company's general creditors under
federal and state law in the event of Insolvency, as defined in the
Trust Agreement. All assets deposited in the Trust shall be held,
administered and distributed by the Trustee in accordance with the
Trust Agreement. The Company shall pay directly, or reimburse the
Trustee for, all taxes due in respect of any income or gains on Trust
assets.
ARTICLE 7
PLAN OPERATION AND ADMINISTRATION
7.1 Powers of Committee.
The Committee will have full power to administer the Plan. Such power
includes, but is not limited to, the following authority:
(a) to make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the
Plan;
(b) to interpret the Plan and to decide all matters arising
thereunder, including the right to resolve or remedy any
ambiguities, inconsistencies or omissions. All such
interpretations shall be final and binding on all parties;
(c) to compute the amounts payable to any Participant or
Beneficiary or other person in accordance with the provisions
of the Plan;
(d) to authorize disbursements from the Trust or the Plan;
(e) to keep such records and submit such filings, elections,
applications, returns or other documents or forms as may be
required under ERISA, the Code or other applicable law;
(f) to appoint such agents, counsel, accountants and consultants
as may be desirable to assist in administering the Plan;
(g) To exercise the other powers that are expressly granted to it
herein, or that are impliedly necessary for it to carry out
any of its responsibilities hereunder; and
(h) by written instrument, to delegate any of the foregoing
powers.
7.2 Nondiscriminatory Exercise of Authority.
The Committee shall exercise its authority in a nondiscriminatory
manner so that all persons similarly situated will receive
substantially the same treatment.
7.3 Reliance on Tables, etc.
The Committee will be entitled, to the extent permitted by law, to rely
conclusively on all tables, valuations, certificates, opinions and
reports which are furnished by any accountant, Trustee, counsel or
other expert retained by the Committee to assist it in administering
the Plan.
7
<PAGE> 64
7.4 Indemnification.
In addition to whatever rights of indemnification to which employees,
officers and directors of the Company and the Affiliated Companies may
be entitled under the articles of incorporation, regulations or bylaws
of the Company or the Affiliated Companies, under any provision of law,
or under any other agreement, the Company shall satisfy any liabilities
actually and reasonably incurred by any such employee, officer or
director, including expenses, attorneys' fees, judgments, fines and
amounts paid in settlement, in connection with any threatened, pending,
or completed action, suit, or proceeding which is related to the
exercise or failure to exercise by such person or persons of any of the
powers, authority, responsibilities, or discretion of the Company, the
Affiliated Companies or the Committee provided under the Plan or the
Trust Agreement, or reasonably believed by such person or persons to be
provided thereunder, and any action taken by such person or persons in
connection therewith.
7.5 Notices to Committee.
The Committee shall designate one or more addresses to which notices
and other communications to the Committee shall be sent. No notice or
other communication shall be considered to have been given to or
received by the Committee until it has been delivered to the
Committee's attention at one of such designated addresses.
ARTICLE 8
CLAIMS PROCEDURES
8.1 Establishment of Claims Procedures.
The Committee shall establish reasonable procedures under which a
claimant, who may be a Participant or Beneficiary, may present a claim
for benefits under this Plan.
8.2 Claims Denials.
Unless such claim is allowed in full by the Committee, written notice
of the denial shall be furnished to the claimant within ninety (90)
days (which may be extended by a period not to exceed an additional
ninety (90) days if special circumstances so require and proper written
notice to the claimant is given prior to the expiration of the initial
ninety (90) day period) setting forth the following in a manner
calculated to be understood by the claimant:
(a) The specific reason(s) for the denial;
(b) Specific reference(s) to any pertinent provision(s) of the
Plan or rules promulgated pursuant thereto on which the denial
is based;
(c) A description of any additional information or material as may
be necessary to perfect the claim, together with an
explanation of why it is necessary; and
(d) An explanation of the steps to be taken if the claimant wishes
to resubmit his/her claim for review.
8.3 Appeals of Denied Claims.
Within a reasonable period of time after the denial of the claim, but
in any event not to be more than sixty (60) days, the claimant or
his/her duly authorized representative may make written application to
the Committee for a review of such denial. The claimant or his/her
representative may review documents held by the Committee and pertinent
to the denial of
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such claim, and may submit a written statement of issues and comments
together with such application for review.
8.4 Review of Appeals.
If an appeal is timely filed, the Committee shall conduct a full and
fair review of the claim and mail or deliver to the claimant its
written decision within sixty (60) days after the claimant's request
for review (which may be extended by a period not to exceed an
additional sixty (60) days if special circumstances or a hearing so
require and proper written notice to the claimant is given prior to the
expiration of the initial sixty (60) day period). Such decision shall:
(i) Be written in a manner calculated to be
understandable by the claimant;
(ii) State the specific reason(s) for the decision;
(iii) Make specific reference to pertinent provision(s) of
the Plan upon which such decision is based; and
(iv) Be final and binding on all parties.
ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
9.1 Amendment.
The Company may amend the Plan and Trust Agreement in any respect at
any time for any reason by action of the Committee without liability to
any Participant, Beneficiary or other person for any such amendment or
for any other action taken pursuant to this Section 9.1, provided that
any amendment required to be approved by the Company's shareholders
pursuant to Section 162(m) of the Code shall not be effective until
approved by the Company's shareholders in accordance with the
requirements of Section 162(m) and further provided that no such
amendment shall be made retroactively in a manner that would deprive
any Participant of any rights or benefits which have accrued to his/her
benefit under the Plan as of the date such amendment is proposed to be
effective, unless such amendment is necessary to comply with applicable
law.
9.2 Termination.
The Company may terminate the Plan at any time for any reason by action
of the Committee without any liability to any Participant, Beneficiary
or other person for any such termination or for any other action taken
pursuant to this Section 9.2. Following termination of the Plan, and
notwithstanding the provisions of any Deferral Agreement entered into
prior to such termination, no additional Deferrals may be made
hereunder, but all existing Accounts shall continue to be administered
in accordance with the Plan, as in effect immediately prior to
termination, and shall be distributed in accordance with such terms of
the Plan and the applicable Deferral Agreements, unless and until the
Company elects to accelerate distribution as provided below. At any
time on or after the effective date of termination of the Plan, the
Company, in its sole discretion, may elect to accelerate the
distribution of the entire balance of each Participant's Accounts. Such
accelerated distributions shall be made in accordance with Article 3,
except that all distributions shall be made in a lump sum based on the
value of the Accounts, determined as of the Valuation Date immediately
preceding the date of distribution. Upon the completion of
distributions to all Participants or Beneficiaries, as the case may be,
no Participant, Beneficiary or person claiming under or through them,
will have any claims in respect of the Plan.
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9.3 Liquidation of the Trust.
The Trust shall continue in existence after the termination of the Plan
for such period of time as may be required to complete the liquidation
thereof in accordance with the terms of this Article 9.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Headings.
The headings of the Plan have been inserted for convenience of
reference only and are not to be deemed controlling in any
constructions of the provisions herein (other than with respect to
defined terms).
10.2 Plan Not Contract of Employment.
The existence of the Plan shall not create, evidence or change any
contract of employment with any Participant. The right of the Company
and all Affiliated Companies to take corrective, disciplinary or other
action with respect to their employees, including terminating their
respective employment at any time for any reason, shall not be affected
by any provision of this Plan, and the Company and the Affiliated
Companies will not be deemed responsible to provide continuing
employment for any reason, at any time solely by reason of this Plan.
10.3 Severability.
If any provision of the Plan shall be invalid, such provision shall be
fully severable, and the remainder of the Plan and the application
thereof shall not be affected thereby.
10.4 Prohibition on Assignment.
No right or interest under the Plan of any Participant or Beneficiary
shall be subject at any time or in any manner to anticipation,
alienation, assignment (either at law or in equity), encumbrance (as
security or otherwise), garnishment, levy, execution, or other legal or
equitable process, and no Participant or Beneficiary shall have the
power at any time or in any manner to anticipate, transfer, assign
(either at law or in equity), alienate, or subject to attachment,
garnishment, levy, execution or other legal or equitable process, or in
any way encumber, such Participant's or Beneficiary's rights or
interests under the Plan, and any attempt to do so shall be void;
provided, however, that the Company shall have the unrestricted right
to set off against or recover out of any payments due a Participant or
Beneficiary at the time such payments would have otherwise been payable
hereunder, any amounts owed the Company or any Affiliated Company by
such Participant or Beneficiary.
10.5 Number and Gender.
Any use of the singular shall be interpreted to include the plural and
the plural the singular. Any use of the masculine, feminine or neuter
shall be interpreted to include the masculine, feminine and neuter, as
the context shall require.
10.6 Governing Law.
To the extent not preempted by Federal law, the provisions of the Plan
shall be construed, regulated and administered under the laws of the
State of Ohio.
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10.7 Satisfaction of Claims.
Any payment to any Participant or Beneficiary in accordance with the
terms of the Plan shall, to the extent thereof, be in full satisfaction
of all claims hereunder, whether they be against the Company, the
Committee, or the Trustee, any of whom may require the Participant or
Beneficiary (or legal representative), as a condition precedent to such
payment to execute a release and receipt therefor.
10.8 No Liability.
Participation in the Plan is entirely at the risk of each Participant.
Neither the Company, any Affiliated Company, the Committee, the Trustee
nor any other person associated with the Plan shall have any liability
for any loss or diminution in the value of Accounts, or for any failure
of the Plan to effectively defer recognition of income or to achieve
any Participant's desired tax treatment or financial results.
10.9 Tax Withholding.
All payments under the Plan shall be subject to federal, state and
local income tax withholding and other legally required deductions.
10.10 Facility of Payment.
If the Committee determines that a Participant or Beneficiary entitled
to receive a payment under this Plan is (at the time such payment is to
be made) a minor or physically, mentally or legally incompetent to
receive such payment and that another person or an institution has
legal custody of such minor or incompetent individual, the Committee
may cause payment to be made to such person or institution having
custody of such Participant or Beneficiary. Such payment, to the extent
made, shall operate as a complete discharge of obligation by the
Committee, the Company, the Trustee and the Trust.
10.11 Repayment of Gainsharing Awards.
If any amount credited to an Annual Deferral Account represents a
portion of a Gainsharing Award that is subsequently found to be
repayable by the Participant to the Company or any Affiliated Company
pursuant to the plan pursuant to which the Gainsharing Award was made,
the amount of that credit shall nevertheless remain unaffected by that
repayment obligation, and the Participant shall make the required
repayment out of his/her own funds.
10.12 Stock Subject to the Plan.
Subject to adjustment as provided below, the total number of shares of
Stock reserved and available for issuance in connection with the Plan
is Three Hundred Thousand (300,000). Any Stock issued hereunder may
consist, in whole or in part, of authorized and unissued shares or
treasury shares. If there is a merger, reorganization, consolidation,
recapitalization, share dividend, share split, combination of shares or
other change in corporate structure of the Company affecting the Stock,
such substitution or adjustment shall be made in the aggregate number
of shares of Stock reserved for issuance under the Plan as may be
approved by the Committee in its sole discretion; provided that the
number of shares of Stock to be issued in connection with the Plan
shall always be a whole number. Any fractional shares shall be
eliminated and the value of such fractional shares shall be deemed to
have been transferred to the Fixed Income Fund as of the effective date
of such substitution or adjustment.
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10.13 Conditions to Effectiveness of Plan.
Notwithstanding anything in this Plan, the Trust or any Deferral
Agreement to the contrary, the effectiveness of the Plan, the Trust and
all Deferral Agreements is conditioned on the Plan being approved by
the Company's shareholders at the 1995 Annual Meeting of Shareholders
in accordance with Section 162(m) of the Code, Rule 16b-3 under the
Securities Exchange Act of 1934 and other applicable law. If the Plan
is not so approved, the Plan, the Trust and all Deferral Agreements
shall be considered void ab initio and all amounts previously deferred
pursuant to those Deferral Agreements shall be paid forthwith to the
appropriate Participants as if those Deferral Agreements had never
existed.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
duly authorized officers as of this _____ day of ____________________, 1994.
THE PROGRESSIVE CORPORATION
By:
-------------------------------
Title:
----------------------------
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APPENDIX D
THE PROGRESSIVE CORPORATION
1995 INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of The Progressive Corporation 1995 Incentive
Plan (the "Plan") is to enable The Progressive Corporation (the "Company") to
attract, retain and reward key employees of the Company and its Subsidiaries and
Affiliates and strengthen the mutuality of interests between such key employees
and the Company's shareholders by offering such key employees equity or
equity-based incentives.
For purposes of the Plan, the following terms shall be defined
as set forth below:
(a) "Affiliate" means any entity (other than the Company and
its Subsidiaries) that is designated by the Board as a participating
employer under the Plan.
(b) "Award" means any award of Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase
Rights and Other Stock-Based Awards under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Book Value" means, as of any given date, on a per share
basis (1) the shareholders' equity in the Company as of the end of the
immediately preceding fiscal year as reflected in the Company's audited
consolidated balance sheet as of such year-end date, subject to such
adjustments as the Committee shall specify at or after grant, divided
by (2) the number of outstanding shares of Stock as of such year-end
date, subject to such adjustments as the Committee shall specify for
events subsequent to such year-end date.
(e) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
(f) "Committee" means the Committee referred to in
Section 2 of the Plan.
(g) "Company" means The Progressive Corporation, an
Ohio corporation, or any successor corporation.
(h) "Deferred Stock" means an award of the right to
receive Stock at the end of a specified deferral period granted
pursuant to Section 8.
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(i) "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.
(j) "Disinterested Person" shall have the meaning set
forth in Rule 16b-3(c)(2)(i) as promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor definition
adopted by the Commission.
(k) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(l) "Fair Market Value" means, as of any given date, the
mean between the highest and lowest quoted selling price, regular way,
of the Stock on such date on the New York Stock Exchange or, if no such
sale of the Stock occurs on the New York Stock Exchange on such date,
then such mean price on the next preceding day on which the Stock was
traded. If the Stock is no longer traded on the New York Stock
Exchange, then the Fair Market Value of the Stock shall be determined
by the Committee in good faith.
(m) "Incentive Stock Option" means any Stock Option
intended to be and designated as an "Incentive Stock Option", within
the meaning of Section 422 of the Code or any successor section
thereto.
(n) "Non-Qualified Stock Option" means any Stock Option
that is not an Incentive Stock Option.
(o) "Other Stock-Based Award" means an award granted
pursuant to Section 10 that is valued, in whole or in part, by
reference to, or is otherwise based on, Stock.
(p) "Plan" means The Progressive Corporation 1995
Incentive Plan, as amended from time to time.
(q) "Restricted Stock" means an award of shares that is
granted pursuant to Section 7 and is subject to restrictions.
(r) "Section 16 participant" means a participant under
the Plan who is then subject to Section 16 of the Exchange Act.
(s) "Stock" means the Common Shares, $1.00 par value
per share, of the Company.
(t) "Stock Appreciation Right" means an award of
rights that is granted pursuant to Section 6.
(u) "Stock Option" or "Option" means any option to
purchase shares of Stock (including Restricted Stock and Deferred
Stock, if the Committee so determines) that is granted pursuant to
Section 5.
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(v) "Stock Purchase Right" means an award of the right to
purchase Stock that is granted pursuant to Section 9.
(w) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company if each of the corporations (other than the last corporation in
the unbroken chain) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
In addition, the terms "Change in Control," "Potential Change
in Control" and "Change in Control Price" shall have the meanings set forth,
respectively, in Sections 11(b), (c) and (d) and the term "Cause" shall have the
meaning set forth in Section 5(b)(8) below.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Executive Compensation
Committee of the Board (the "Committee"). The Committee shall consist of not
less than three directors of the Company, all of whom shall be Disinterested
Persons and "outside directors", as defined in Section 162(m) of the Code and
the regulations promulgated thereunder. Such directors shall be appointed by the
Board and shall serve as the Committee at the pleasure of the Board. The
functions of the Committee specified in the Plan shall be exercised by the Board
if and to the extent that no Committee exists which has the authority to so
administer the Plan.
The Committee shall have full power to interpret and
administer the Plan and full authority to select the individuals to whom Awards
will be granted and to determine the type and amount of Award(s) to be granted
to each participant, the consideration, if any, to be paid for such Award(s),
the timing of such Award(s), the terms and conditions of Awards granted under
the Plan and the terms and conditions of the related agreements which will be
entered into with participants. As to the selection of and grant of Awards to
participants who are not Section 16 participants, the Committee may delegate its
responsibilities to members of the Company's management consistent with
applicable law.
The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines and practices governing the Plan as it shall, from
time to time, deem advisable; to interpret the terms and provisions of the Plan
and any Award issued under the Plan (and any agreements relating thereto); to
direct employees of the Company or other advisors to prepare such materials or
perform such analyses as the Committee deems necessary or appropriate; and
otherwise to supervise the administration of the Plan.
Any interpretation and administration of the Plan by the
Committee, and all actions and determinations of the Commit-
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tee, shall be final, binding and conclusive on the Company, its shareholders,
Subsidiaries, Affiliates, all participants in the Plan, their respective legal
representatives, successors and assigns, and upon all persons claiming under or
through any of them. No member of the Board or of the Committee shall incur any
liability for any action taken or omitted, or any determination made, in good
faith in connection with the Plan.
SECTION 3. STOCK SUBJECT TO THE PLAN.
(a) Aggregate Stock Subject to the Plan. Subject to
adjustment as provided below in Section 3(c), the total number of
shares of Stock reserved and available for Awards under the Plan is
5,000,000. Any Stock issued hereunder may consist, in whole or in part,
of authorized and unissued shares or treasury shares.
(b) Forfeiture or Termination of Awards of Stock. If
any Stock subject to any Award granted hereunder is forfeited or an
Award otherwise terminates or expires without the issuance of Stock,
the Stock subject to such Award shall again be available for
distribution in connection with future Awards under the Plan as set
forth in Section 3(a), unless the participant who had been awarded such
forfeited Stock or the expired or terminated Award has theretofore
received dividends or other benefits of ownership with respect to such
Stock. For purposes hereof, a participant shall not be deemed to have
received a benefit of ownership with respect to such Stock by the
exercise of voting rights or the accumulation of dividends which are
not realized due to the forfeiture of such Stock or the expiration or
termination of the related Award without issuance of such Stock.
(c) Adjustment. In the event of any merger,
reorganization, consolidation, recapitalization, share dividend, share
split, combination of shares or other change in corporate structure
of the Company affecting the Stock, such substitution or adjustment
shall be made in the aggregate number of shares of Stock reserved for
issuance under the Plan, in the number and option price of shares
subject to outstanding Options granted under the Plan, in the number
and purchase price of shares subject to outstanding Stock Purchase
Rights granted under the Plan, and in the number of shares subject to
Restricted Stock Awards, Deferred Stock Awards and any other
outstanding Awards granted under the Plan as may be approved by the
Committee, in its sole discretion; provided that the number of
shares subject to any Award shall always be a whole number. Any
fractional shares shall be eliminated.
(d) Annual Award Limit. No participant may be granted
Stock Options or other Awards under the Plan with respect to
an aggregate of more than 300,000 shares of Stock (subject
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to adjustment as provided in Section 3(c) hereof) during any
calendar year.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company and its
Subsidiaries and Affiliates (but excluding members of the Committee and any
person who serves only as a director) who are responsible for or contribute to
the management, growth or profitability of the business of the Company or its
Subsidiaries or Affiliates are eligible to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS.
(a) Grant. Stock Options may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside of the Plan. However, no Incentive Stock Option shall be
issued in tandem with any other Award other than a Stock Appreciation
Right as provided for in Section 6. The Committee shall determine the
individuals to whom, and the time or times at which, grants of Stock
Options will be made, the number of shares purchasable under each
Stock Option and the other terms and conditions of the Stock Options
in addition to those set forth in Sections 5(b) and 5(c). Any Stock
Option granted under the Plan shall be in such form as the Committee
may from time to time approve.
Stock Options granted under the Plan may be of two types which
shall be indicated on their face: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options. Subject to Section 5(c) hereof, the
Committee shall have the authority to grant to any participant
Incentive Stock Options, Non-Qualified Stock Options or both types of
Stock Options.
(b) Terms and Conditions. Options granted under the Plan shall
be evidenced by Option Agreements, shall be subject to the following
terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(1) Option Price. The option price per share of Stock
purchasable under a Non-Qualified Stock Option shall be
determined by the Committee at the time of grant and shall not
be less than fifty percent of the Fair Market Value of the
Stock at the date of grant. The option price per share of
Stock purchasable under an Incentive Stock Option shall be
determined by the Committee at the time of grant and shall be
not less than 100% of the Fair Market Value of the Stock at
the date of grant (or 110% of the Fair Market Value of the
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Stock at the date of grant in the case of a participant who at
the date of grant owns shares possessing more than ten percent
of the total combined voting power of all classes of stock of
the Company or its parent or subsidiary corporations (as
determined under Section 424(d), (e) and (f) of the Code)).
(2) Option Term. The term of each Stock Option shall
be determined by the Committee and may not exceed ten years
from the date the Option is granted (or, with respect to
Incentive Stock Options, five years in the case of a
participant who at the date of grant owns shares possessing
more than ten percent of the total combined voting power of
all classes of stock of the Company or its parent or
subsidiary corporations (as determined under Section 424(d),
(e) and (f) of the Code)).
(3) Exercise. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as
shall be determined by the Committee at or after grant;
provided, however, that, except as provided in Section 5(b)(6)
and Section 11, unless otherwise determined by the Committee
at or after grant, no Stock Option shall be exercisable prior
to six months and one day following the date of grant. If any
Stock Option is exercisable only in installments or only after
a specified vesting date, the Committee may accelerate or
waive, in whole or in part, such installment exercise
provisions or vesting date, at any time at or after grant
based on such factors as the Committee shall determine, in its
sole discretion.
(4) Method of Exercise. Subject to whatever
installment exercise provisions apply with respect to such
Stock Option, and the six month and one day holding period
set forth in Section 5(b)(3), Stock Options may be exercised
in whole or in part, at any time during the option period, by
giving to the Company written notice of exercise specifying
the number of shares of Stock to be purchased.
Such notice shall be accompanied by payment
in full of the option price of the shares of Stock for which
the Option is exercised, in cash or by check or such other
instrument as the Committee may accept. Subject to the
following sentence, unless otherwise determined by the
Committee, in its sole discretion, at or after grant, payment,
in full or in part, of the option price of (i) Incentive Stock
Options may be made in the form of unrestricted Stock then
owned by the participant and (ii) Non-Qualified Stock Options
may be made in the form of unrestricted Stock then owned by
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the participant or Stock that is part of the Non-Qualified
Stock Option being exercised. Notwithstanding the foregoing,
any election by a Section 16 participant to satisfy such
payment obligation, in whole or in part, with Stock that is
part of the Non-Qualified Stock Option being exercised shall
be subject to approval by the Committee, in its sole
discretion. The value of each such share surrendered or
withheld shall be 100% of the Fair Market Value of the Stock
on the date the Option is exercised.
No Stock shall be issued pursuant to an
exercise of an Option until full payment has been made. A
participant shall not have rights to dividends or any other
rights of a shareholder with respect to any Stock subject to
an Option unless and until the participant has given written
notice of exercise, has paid in full for such shares, has
given, if requested, the representation described in Section
14(a) and such shares have been issued to him.
(5) Non-Transferability of Options. No Stock Option
shall be transferable by the participant other than by will or
by the laws of descent and distribution, and all Stock
Options shall be exercisable, during the participant's
lifetime, only by the participant or, subject to Sections
5(b)(3) and 5(c), by the participant's authorized legal
representative if the participant is unable to exercise an
Option as a result of the participant's Disability.
(6) Termination by Death. Subject to Section 5(c), if
any participant's employment by the Company or any Subsidiary
or Affiliate terminates by reason of death, any Stock Option
held by such participant may thereafter be exercised, to the
extent such Option was exercisable at the time of death or
would have become exercisable within one year from the time of
death had the participant continued to fulfill all conditions
of the Option during such period (or on such accelerated basis
as the Committee may determine at or after grant), by the
estate of the participant (acting through its fiduciary), for
a period of one year (or such other period as the Committee
may specify at or after grant) from the date of such death.
The balance of the Stock Option shall be forfeited.
(7) Termination by Reason of Disability. Subject to
Sections 5(b)(3) and 5(c), if a participant's employment by
the Company or any Subsidiary or Affiliate terminates by
reason of Disability, any Stock Option held by such
participant may thereafter be exercised, to the extent such
Option was exercisable at the time of termination or would
have become exercisable within
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one year from the time of termination had the participant
continued to fulfill all conditions of the Option during such
period (or on such accelerated basis as the Committee may
determine at or after grant), by the participant or by the
participant's duly authorized legal representative if the
participant is unable to exercise the Option as a result of
the participant's Disability, for a period of one year (or
such other period as the Committee may specify at or after
grant) from the date of such termination of employment;
provided, however, that in no event may any such Option be
exercised prior to six months and one day from the date of
grant; and provided, further, that if the participant dies
within such one-year period (or such other period as the
Committee shall specify at or after grant), any unexercised
Stock Option held by such participant shall thereafter be
exercisable by the estate of the participant (acting through
its fiduciary) to the same extent to which it was exercisable
at the time of death for a period of one year from the date
of such termination of employment. The balance of the Stock
Option shall be forfeited.
(8) Other Termination. Unless otherwise determined
by the Committee at or after the time of granting any Stock
Option, if a participant's employment by the Company or any
Subsidiary or Affiliate terminates for any reason other than
death or Disability, all Stock Options held by such
participant shall thereupon immediately terminate, except
that if the participant is involuntarily terminated by the
Company or any Subsidiary or Affiliate without Cause, any
such Stock Option may be exercised, to the extent otherwise
exercisable at the time of such termination, at any time
during the lesser of two months from the date of such
termination or the balance of such Stock Option's term. For
purposes of this Plan, "Cause" means a felony conviction of
a participant or the failure of a participant to contest
prosecution for a felony, or a participant's willful
misconduct or dishonesty, any of which, in the judgment of the
Committee, is harmful to the business or reputation of the
Company or any Subsidiary or Affiliate.
(c) Incentive Stock Options. Notwithstanding Section 4, only
key employees of the Company or any Subsidiary shall be eligible to
receive Incentive Stock Options. Notwithstanding Sections 5(b)(6) and
(7), an Incentive Stock Option shall be exercisable by (i) a
participant's authorized legal representative (if the participant is
unable to exercise the Incentive Stock Option as a result of the
participant's Disability) only if, and to the extent, permitted by
Section 422 of the Code and Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder and (ii) by the
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participant's estate, in the case of death, or authorized legal
representative, in the case of Disability, no later than 10 years from
the date the Incentive Stock Option was granted (in addition to any
other restrictions or limitations which may apply). Anything in the
Plan to the contrary notwithstanding, no term or provision of the
Plan relating to Incentive Stock Options shall be interpreted, amended
or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code, or, without the consent of the participant(s) affected, to
disqualify any Incentive Stock Option under such Section 422 or any
successor Section thereto.
(d) Buyout Provisions. The Committee may at any time buy out
for a payment in cash, Stock, Deferred Stock or Restricted Stock an
Option previously granted, based on such terms and conditions as the
Committee shall establish and agree upon with the participant, provided
that no such transaction involving a Section 16 participant shall be
structured or effected in a manner that would violate, or result in any
liability on the part of the participant under, Section 16 of the
Exchange Act or the rules and regulations promulgated thereunder.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant. Stock Appreciation Rights may be granted alone, in
addition to or in tandem with other Awards granted under the Plan or
cash awards made outside of the Plan. The Committee shall determine
the individuals to whom, and the time or times at which, grants of
Stock Appreciation Rights will be made and the other terms and
conditions of the Stock Appreciation Rights in addition to those set
forth in Section 6(b). Any Stock Appreciation Right granted under the
Plan shall be in such form as the Committee may from time to time
approve. In the case of Non-Qualified Stock Options, such rights may
be granted either at or after the time of the grant of the related
Non-Qualified Stock Options. In the case of Incentive Stock Options,
such rights may be granted in tandem with Incentive Stock Options only
at the time of the grant of such Incentive Stock Options and exercised
only when the Fair Market Value of the Stock subject to the Option
exceeds the option price of the Option.
Stock Appreciation Rights issued in tandem with Stock
Options ("Tandem SARs") shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, subject
to such provisions as the Committee may specify at grant if a Stock
Appreciation Right is granted with respect to less than the full number
of shares of Stock subject to the related Stock Option.
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All Stock Appreciation Rights granted hereunder shall
be exercised, subject to Section 6(b), in accordance with the
procedures established by the Committee for such purpose. Upon such
exercise, the participant shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b).
(b) Terms and Conditions. Stock Appreciation Rights granted
under the Plan shall be subject to the following terms and conditions
and shall contain such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall
deem desirable:
(1) Tandem SARs shall be exercisable only at such time or
times and to the extent that the Stock Options to which they
relate shall be exercisable in accordance with the provisions
of Section 5 and this Section 6, and Stock Appreciation Rights
granted separately ("Freestanding SARs") shall be exercisable
as the Committee shall determine; provided, however, that any
Stock Appreciation Right granted to a Section 16 participant
shall not be exercisable at any time prior to six months and
one day from the date of the grant of such Stock Appreciation
Right, except that this limitation shall not apply in the
event of the death of the participant prior to the expiration
of the six-month and one-day period.
(2) Upon the exercise of a Stock Appreciation Right,
a participant shall be entitled to receive an amount in cash
or shares of Stock, as determined by the Committee, equal in
value to the excess of the Fair Market Value of one share of
Stock on the date of exercise of the Stock Appreciation Right
over (i) the option price per share specified in the related
Stock Option in the case of Tandem SARs, which price shall be
fixed no later than the date of grant of the Tandem SARs, or
(ii) the price per share specified in the related Stock
Appreciation Rights Agreement in the case of Freestanding
SARs, which price shall be fixed at the date of grant and
shall be not less than fifty percent of the Fair Market Value
of the Stock on the date of grant, multiplied by the number of
shares of Stock in respect of which the Stock Appreciation
Right shall have been exercised. The Committee, in its sole
discretion, shall have the right to determine the form of
payment (i.e. cash, Stock or any combination thereof) and to
approve any election by the participant to receive cash, in
whole or in part, upon exercise of the Stock Appreciation
Right. When payment is to be made in Stock, the number of
shares of Stock to be paid shall be calculated on the basis of
the Fair Market Value of the Stock on the date of exercise.
Notwithstanding the foregoing, the Committee may
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unilaterally limit the appreciation in value of any Stock
Appreciation Right at any time prior to exercise.
(3) Upon the exercise of a Tandem SAR, the Stock
Option or part thereof to which such Tandem SAR is related
shall be deemed to have been exercised.
(4) In its sole discretion, the Committee may grant
"Limited" Stock Appreciation Rights under this Section 6; that
is, Freestanding SARs that become exercisable only in the
event of a Change in Control or a Potential Change in Control,
subject to such terms and conditions as the Committee may
specify at grant. Such Limited Stock Appreciation Rights shall
be settled solely in cash.
(5) Stock Appreciation Rights shall not be
transferable by the participant other than by will or by the
laws of descent and distribution, and all Stock Appreciation
Rights shall be exercisable, during the participant's
lifetime, only by the participant or, subject to Section
6(b)(6), by the participant's authorized legal representative
if the participant is unable to exercise a Stock Appreciation
Right as a result of the participant's Disability.
(6) Unless varied by the Committee, Stock
Appreciation Rights shall be subject to the terms and
conditions specified for Stock Options in Sections 5(b)(6),
(7) and (8) and 5(d), except that the terms and conditions
applicable to any Stock Appreciation Right held by a Section
16 participant shall not be varied in a manner that would
cause the exercise or cancellation of such Stock Appreciation
Right to fail to qualify for any applicable exemption from
Section 16(b) of the Exchange Act provided by Rule 16b-3
thereunder.
SECTION 7. RESTRICTED STOCK.
(a) Grant. Shares of Restricted Stock may be issued alone, in
addition to or in tandem with other Awards under the Plan or cash
awards made outside of the Plan. The Committee shall determine the
individuals to whom, and the time or times at which, grants of
Restricted Stock will be made, the number of shares of Restricted Stock
to be awarded to each participant, the price (if any) to be paid by the
participant (subject to Section 7(b)), the date or dates upon which
Restricted Stock Awards will vest and the period or periods within
which such Restricted Stock Awards may be subject to forfeiture, and
the other terms and conditions of such Awards in addition to those set
forth in Section 7(b).
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The Committee may condition the grant of Restricted Stock
upon the attainment of specified performance goals or such other
factors as the Committee may determine in its sole discretion.
(b) Terms and Conditions. Restricted Stock awarded under the
Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem desirable. A
participant who receives a Restricted Stock Award shall not have any
rights with respect to such Award, unless and until such participant
has executed an agreement evidencing the Award in the form approved
from time to time by the Committee and has delivered a fully executed
copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such Award.
(1) The purchase price for shares of Restricted Stock
shall be determined by the Committee at the time of grant and
may be equal to their par value or zero.
(2) Awards of Restricted Stock must be accepted by
executing a Restricted Stock Award agreement and paying
whatever price (if any) is required under Section 7(b)(1).
(3) Each participant receiving a Restricted Stock
Award shall be issued a stock certificate in respect of such
shares of Restricted Stock. Such certificate shall be
registered in the name of such participant, and shall bear an
appropriate legend referring to the terms, conditions and
restrictions applicable to such Award.
(4) The Committee shall require that the stock
certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed, and
that, as a condition of any Restricted Stock Award, the
participant shall have delivered to the Company a stock power,
endorsed in blank, relating to the Stock covered by such
Award.
(5) Subject to the provisions of this Plan and the
Restricted Stock Award agreement, during a period set by the
Committee commencing with the date of such Award (the
"Restriction Period"), the participant shall not be permitted
to sell, transfer, pledge, assign or otherwise encumber the
shares of Restricted Stock awarded under the Plan. The
Restriction Period shall not be less than six months and one
day in duration ("Minimum Restriction Period"). Subject to
these limitations and the Minimum Restriction Period
requirement, the Committee, in its sole discretion, may
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provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions, in whole or in
part, based on service, performance or such other factors and
criteria as the Committee may determine, in its sole
discretion.
(6) Except as provided in this Section 7(b)(6),
Section 7(b)(5) and Section 7(b)(7), the participant shall
have, with respect to the shares of Restricted Stock awarded,
all of the rights of a shareholder of the Company, including
the right to vote the Stock, and the right to receive any
dividends. The Committee, in its sole discretion, as
determined at the time of award, may permit or require the
payment of cash dividends to be deferred and, if the Committee
so determines, reinvested, subject to Section 14(f), in
additional Restricted Stock to the extent shares are available
under Section 3, or otherwise reinvested. Stock dividends
issued with respect to Restricted Stock shall be treated as
additional shares of Restricted Stock that are subject to the
same restrictions and other terms and conditions that apply to
the shares with respect to which such dividends are issued.
(7) No Restricted Stock shall be transferable by
a participant otherwise than by will or by the laws of
descent and distribution.
(8) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of death, any
Restricted Stock held by such participant shall thereafter
vest or any restriction lapse, to the extent such Restricted
Stock would have become vested or no longer subject to
restriction within one year from the time of death had the
participant continued to fulfill all of the conditions of the
Restricted Stock Award during such period (or on such
accelerated basis as the Committee may determine at or after
grant). The balance of the Restricted Stock shall be
forfeited.
(9) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of
Disability, any Restricted Stock held by such participant
shall thereafter vest or any restriction lapse, to the extent
such Restricted Stock would have become vested or no longer
subject to restriction within one year from the time of
termination had the participant continued to fulfill all of
the conditions of the Restricted Stock Award during such
period (or on such accelerated basis as the Committee may
determine at or after grant), subject in all cases to the
Minimum Restriction Period requirement. The balance of the
Restricted Stock shall be forfeited.
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(10) Unless otherwise determined by the Committee at
or after the time of granting any Restricted Stock, if a
participant's employment by the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, the Restricted Stock held by such participant
which is unvested or subject to restriction at the time of
termination shall thereupon be forfeited.
(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other award designed to
guarantee a minimum value, payable in cash or Stock to the recipient of
a Restricted Stock Award, subject to such performance, future service,
deferral and other terms and conditions as may be specified by the
Committee.
SECTION 8. DEFERRED STOCK.
(a) Grant. Deferred Stock may be awarded alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside of the Plan. The Committee shall determine the individuals
to whom, and the time or times at which, Deferred Stock shall be
awarded, the number of shares of Deferred Stock to be awarded to any
participant, the duration of the period (the "Deferral Period") during
which, and the conditions under which, receipt of the Stock will be
deferred, and the other terms and conditions of the Award in addition
to those set forth in Section 8(b).
The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals or such other
factors as the Committee shall determine, in its sole discretion.
(b) Terms and Conditions. Deferred Stock Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable:
(1) The purchase price for shares of Deferred Stock
shall be determined at the time of grant and may be equal to
their par value or zero, as determined by the Committee.
Subject to the provisions of the Plan and the Award agreement
referred to in Section 8(b)(9), Deferred Stock Awards may not
be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period. At the expiration of
the Deferral Period (or the Elective Deferral Period referred
to in
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Section 8(b)(8), where applicable), share certificates shall
be delivered to the participant, or his legal representative,
for the shares covered by the Deferred Stock Award. The
Deferral Period applicable to any Deferred Stock Award shall
not be less than six months and one day ("Minimum Deferral
Period").
(2) Unless otherwise determined by the Committee at
grant, amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered
by a Deferred Stock Award will be paid to the participant
currently, or deferred and deemed to be reinvested in
additional Deferred Stock, or otherwise reinvested, all as
determined at or after the time of the Award by the Committee,
in its sole discretion.
(3) No Deferred Stock shall be transferable by a
participant otherwise than by will or by the laws of descent
and distribution.
(4) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of death, any
Deferred Stock held by such participant shall thereafter vest
or any restriction lapse, to the extent such Deferred Stock
would have become vested or no longer subject to restriction
within one year from the time of death had the participant
continued to fulfill all of the conditions of the Deferred
Stock Award during such period (or on such accelerated basis
as the Committee may determine at or after grant). The balance
of the Deferred Stock shall be forfeited.
(5) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of
Disability, any Deferred Stock held by such participant shall
thereafter vest or any restriction lapse, to the extent such
Deferred Stock would have become vested or no longer subject
to restriction within one year from the time of termination
had the participant continued to fulfill all of the conditions
of the Deferred Stock Award during such period (or on such
accelerated basis as the Committee may determine at or after
grant), subject in all cases to the Minimum Deferral Period
requirement. The balance of the Deferred Stock shall be
forfeited.
(6) Unless otherwise determined by the Committee at
or after the time of granting any Deferred Stock Award, if a
participant's employment by the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, all Deferred Stock held by such participant which
is unvested or subject to restriction shall thereupon be
forfeited.
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(7) Based on service, performance or such other
factors or criteria as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting of
all or any part of any Deferred Stock Award or waive a portion
of the Deferral Period for all or any part of such Award,
subject in all cases to the Minimum Deferral Period
requirement.
(8) A participant may elect to further defer receipt
of a Deferred Stock Award (or an installment of an Award) for
a specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's
approval and the terms of this Section 8 and such other terms
as are determined by the Committee, all in its sole
discretion. Subject to any exceptions approved by the
Committee, such election must be made at least 12 months prior
to completion of the Deferral Period for such Deferred Stock
Award (or such installment).
(9) Each such Award shall be confirmed by, and
subject to the terms of, a Deferred Stock Award agreement
evidencing the Award in the form approved from time to time by
the Committee.
(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other Award designed to
guarantee a minimum value, payable in cash or Stock to the recipient of
a Deferred Stock Award, subject to such performance, future service,
deferral and other terms and conditions as may be specified by the
Committee.
SECTION 9. STOCK PURCHASE RIGHTS.
(a) Grant. Stock Purchase Rights may be granted alone, in
addition to or in tandem with other Awards granted under the Plan or
cash awards made outside the Plan. The Committee shall determine the
individuals to whom, and the time or times at which, grants of Stock
Purchase Rights will be made, the number of shares of Stock which may
be purchased pursuant to the Stock Purchase Rights, and the other terms
and conditions of the Stock Purchase Rights in addition to those set
forth in Section 9(b). The Stock subject to the Stock Purchase Rights
may be purchased, as determined by the Committee at the time of grant:
(1) at the Fair Market Value of such Stock on
the date of grant;
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(2) at 50% of the Fair Market Value of such Stock
on the date of grant;
(3) at an amount equal to the Book Value of such
Stock on the date of grant; or
(4) at an amount equal to the par value of such
Stock on the date of grant.
Subject to Section 9(b) hereof, the Committee may
also impose such deferral, forfeiture or other terms and conditions as
it shall determine, in its sole discretion, on such Stock Purchase
Rights or the exercise thereof.
Each Stock Purchase Right Award shall be confirmed
by, and be subject to the terms of, a Stock Purchase Rights Agreement
which shall be in form approved by the Committee.
(b) Terms and Conditions. Stock Purchase Rights may contain
such additional terms and conditions not inconsistent with the terms of
the Plan as the Committee shall deem desirable, and shall generally be
exercisable for such period as shall be determined by the Committee.
However, Stock Purchase Rights granted to Section 16 participants shall
not become exercisable earlier than six months and one day after the
grant date. Stock Purchase Rights shall not be transferable by a
participant other than by will or by the laws of descent and
distribution.
SECTION 10. OTHER STOCK-BASED AWARDS.
(a) Grant. Other Awards of Stock and other Awards that are
valued, in whole or in part, by reference to, or are otherwise based
on, Stock, including, without limitation, performance shares,
convertible preferred stock, convertible debentures, exchangeable
securities and Stock Awards or options valued by reference to Book
Value or subsidiary performance, may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside of the Plan.
At the time the Stock or Other Stock-Based Award is
granted, the Committee shall determine the individuals to whom and the
time or times at which such Stock or Other Stock-Based Awards shall be
awarded, the number of shares of Stock to be used in computing an Award
or which are to be awarded pursuant to such Awards, the consideration,
if any, to be paid for such Stock or Other Stock-Based Awards, and all
other terms and conditions of the Awards in addition to those set forth
in Section 10(b).
The provisions of Other Stock-Based Awards need not
be the same with respect to each participant.
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(b) Terms and Conditions. Other Stock-Based Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable:
(1) Subject to the provisions of this Plan and the
Award agreement referred to in Section 10(b)(5) below, Stock
awarded or subject to Awards made under this Section 10 may
not be sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the Stock is issued, or,
if later, the date on which any applicable restriction,
performance, holding or deferral period or requirement is
satisfied or lapses. All Stock or Other Stock Based Awards
granted under this Section 10 shall be subject to a minimum
holding period (including any applicable restriction,
performance and/or deferral periods) of six months and one day
("Minimum Holding Period").
(2) Subject to the provisions of this Plan and the
Award agreement and unless otherwise determined by the
Committee at the time of grant, the recipient of an Other
Stock-Based Award shall be entitled to receive, currently or
on a deferred basis, interest or dividends or interest or
dividend equivalents with respect to the number of shares of
Stock covered by the Award, as determined at the time of the
Award by the Committee, in its sole discretion, and the
Committee may provide that such amounts (if any) shall be
deemed to have been reinvested in additional Stock or
otherwise reinvested.
(3) Subject to the Minimum Holding Period, any Other
Stock-Based Award and any Stock covered by any such Award
shall vest or be forfeited to the extent, at the times and
subject to the conditions, if any, provided in the Award
agreement, as determined by the Committee, in its sole
discretion.
(4) In the event of the participant's Disability or
death, or in cases of special circumstances, the Committee
may, in its sole discretion, waive, in whole or in part, any
or all of the remaining limitations imposed hereunder or under
any related Award agreement (if any) with respect to any part
or all of any Award under this Section 10, provided that the
Minimum Holding Period requirement may not be waived, except
in case of a participant's death.
(5) Each Award shall be confirmed by, and subject to
the terms of, an agreement or other instrument evidencing the
Award in the form approved from time to time by the Committee,
the Company and the participant.
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(6) Stock (including securities convertible into
Stock) issued on a bonus basis under this Section 10 shall be
issued for no cash consideration. Stock (including securities
convertible into Stock) purchased pursuant to a purchase right
awarded under this Section 10 shall bear a price of at least
50% of the Fair Market Value of the Stock on the date of
grant. The purchase price of such Stock, and of any Other
Stock Based Award granted hereunder, or the formula by which
such price is to be determined, shall be fixed by the
Committee at the time of grant.
(7) In the event that any "derivative security", as
defined in Rule 16a-1(c) (or any successor thereto)
promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, is awarded pursuant to this
Section 10 to any Section 16 participant, such derivative
security shall not be transferrable other than by will or by
the laws of descent and distribution.
SECTION 11. CHANGE IN CONTROL PROVISION.
(a) Impact of Event. In the event of: (1) a "Change
in Control" as defined in Section 11(b) or (2) a "Potential Change in
Control" as defined in Section 11(c), the following acceleration and
valuation provisions shall apply:
(1) Any Stock Appreciation Rights and any Stock
Options awarded under the Plan not previously exercisable and
vested shall become fully exercisable and vested;
(2) The restrictions and deferral limitations
applicable to any Restricted Stock, Deferred Stock, Stock
Purchase Rights and Other Stock-Based Awards shall lapse and
such shares and awards shall be deemed fully vested; and
(3) The value of all outstanding Awards, in each case
to the extent vested, shall, unless otherwise determined by
the Committee in its sole discretion at or after grant but
prior to any Change in Control or Potential Change in Control,
be cashed out on the basis of the "Change in Control Price" as
defined in Section 11(d) as of the date such Change in Control
or such Potential Change in Control is determined to have
occurred;
provided, however, that the provisions of Sections 11(a)(1)-(3) shall
not apply with respect to Awards granted to any Section 16 participant
which have been held by such participant for less than six months and
one day as of the
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date that such Change in Control or Potential Change in Control is
determined to have occurred.
(b) Definition of Change in Control. For purposes of
Section 11(a), a "Change in Control" means the happening of any of the
following:
(1) When any "person" as defined in Section 3(a)(9)
of the Exchange Act and as used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) of
the Exchange Act, but excluding the Company and any Subsidiary
and any employee benefit plan sponsored or maintained by the
Company or any Subsidiary (including any trustee of such plan
acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, as amended from time to time), of securities of
the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
provided, however, that the terms "person" and "group" shall
not include any "Excluded Director", and the term "Excluded
Director" means any director who, on the effective date of the
Plan, is the beneficial owner of or has the right to acquire
an amount of Stock equal to or greater than five percent of
the number of shares of Stock outstanding on such effective
date; and further provided that, unless otherwise determined
by the Board or any committee thereof, the terms "person" and
"group" shall not include any entity or group of entities
which has acquired Stock of the Company in the ordinary course
of business for investment purposes only and not with the
purpose or effect of changing or influencing the control of
the Company, or in connection with or as a participant in any
transaction having such purpose or effect, ("Investment
Intent"), as demonstrated by the filing by such entity or
group of a statement on Schedule 13G (including amendments
thereto) pursuant to Regulation 13D under the Exchange Act, as
long as such entity or group continues to hold such Stock with
an Investment Intent;
(2) When, during any period of 24 consecutive months
during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to
constitute at least a majority thereof; provided, however,
that a director who was not a director at the beginning of
such 24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors
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either actually (because they were directors at the beginning
of such 24-month period) or by prior operation of this Section
11(b)(2); or
(3) The occurrence of a transaction requiring
shareholder approval for the acquisition of the Company by an
entity other than the Company or a Subsidiary through purchase
of assets, by merger or otherwise;
provided, however, a change in control shall not be deemed to be a
Change in Control for purposes of the Plan if the Board approves such
change prior to either (i) the commencement of any of the events
described in Section (b)(l), (2), or (3) or (c)(l) or (ii) the
commencement by any person other than the Company of a tender offer for
Stock.
(c) Definition of Potential Change in Control. For
purposes of Section 11(a), a "Potential Change in Control" means the
happening of any one of the following:
(1) The approval by shareholders of an agreement
by the Company, the consummation of which would result in a
Change in Control of the Company as defined in Section 11(b);
or
(2) The acquisition of beneficial ownership, directly
or indirectly, by any entity, person or group (other than the
Company or a Subsidiary or any Company employee benefit plan
(including any trustee of such plan acting as such trustee))
of securities of the Company representing 5% or more of the
combined voting power of the Company's outstanding securities
and the adoption by the Board of a resolution to the effect
that a Potential Change in Control of the Company has occurred
for purposes of this Plan.
(d) Change in Control Price. For purposes of this Section
11, "Change in Control Price" means the highest price per share paid in
any transaction reported on the New York Stock Exchange Composite
Index, or paid or offered in any bona fide transaction related to a
Change in Control or Potential Change in Control of the Company, at any
time during the 60-day period immediately preceding the occurrence of
the Change in Control (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the
Committee, except that, in the case of Incentive Stock Options and
Stock Appreciation Rights relating to Incentive Stock Options, such
price shall be based only on transactions reported for the date on
which the participant exercises such Stock Appreciation Rights or,
where applicable, the date on which a cashout occurs under Section
11(a)(3).
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SECTION 12. AMENDMENTS AND TERMINATION.
The Board may at any time, in its sole discretion, amend,
alter or discontinue the Plan, but no such amendment, alteration or
discontinuation shall be made which would impair the rights of a participant
under an Award theretofore granted, without the participant's consent. The
Company shall submit to the shareholders of the Company for their approval any
amendments to the Plan which are required by Section 16 of the Exchange Act, or
the rules and regulations thereunder, to be approved by the shareholders.
The Committee may at any time, in its sole discretion, amend
the terms of any Award, but no such amendment shall be made which would impair
the rights of a participant under an Award theretofore granted, without the
participant's consent; nor shall any such amendment be made which would make the
applicable exemptions provided by Rule 16b-3 under the Exchange Act unavailable
to any Section 16 participant holding the Award without the participant's
consent. The Committee may also substitute new Stock Options for previously
granted Stock Options (on a one-for-one or other basis), including previously
granted Stock Options having a higher option price.
Subject to the above provisions, the Board shall have all
necessary authority to amend the Plan to take into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
SECTION 13. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payments not yet made
to a participant by the Company, nothing contained herein shall give any such
participant any rights that are greater than those of a general creditor of the
Company.
SECTION 14. GENERAL PROVISIONS.
(a) The Committee may require each participant acquiring Stock
pursuant to an Award under the Plan to represent to and agree with the
Company in writing that the participant is acquiring the Stock without
a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All shares of Stock or other securities delivered under
the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the
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Securities and Exchange Commission, any stock exchange upon which the
Stock is then listed, and any applicable federal or state securities
laws, and the Committee may cause a legend or legends to be put on any
certificates for such shares to make appropriate reference to such
restrictions.
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) Neither the adoption of the Plan, nor its operation, nor
any document describing, implementing or referring to the Plan, or any
part thereof, shall confer upon any participant under the Plan any
right to continue in the employ, or as a director, of the Company or
any Subsidiary or Affiliate, or shall in any way affect the right and
power of the Company or any Subsidiary or Affiliate to terminate the
employment, or service as a director, of any participant under the Plan
at any time with or without assigning a reason therefor, to the same
extent as the Company or any Subsidiary or Affiliate might have done if
the Plan had not been adopted.
(d) For purposes of this Plan, a transfer of a participant
between the Company and its Subsidiaries and Affiliates shall not be
deemed a termination of employment.
(e) No later than the date as of which an amount first becomes
includable in the gross income of the participant for federal income
tax purposes with respect to any Award under the Plan, the participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any federal, state or local taxes
or other items of any kind required by law to be withheld with respect
to such amount. Subject to the following sentence, unless otherwise
determined by the Committee, withholding obligations may be settled
with Stock, including unrestricted Stock previously owned by the
participant or Stock that is part of the Award that gives rise to the
withholding requirement. Notwithstanding the foregoing, any election by
a Section 16 participant to settle such tax withholding obligation with
Stock that is part of such Award shall be subject to approval by the
Committee, in its sole discretion. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements and the
Company and its Subsidiaries and Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
(f) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Stock (or in
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Deferred Stock or other types of Awards) at the time of any dividend
payment shall only be permissible if sufficient shares of Stock are
available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options, Stock Purchase Rights and other Plan
Awards).
(g) The Plan, all Awards made and actions taken thereunder and
any agreements relating thereto shall be governed by and construed in
accordance with the laws of the State of Ohio.
(h) All agreements entered into with participants pursuant to
the Plan shall be subject to the Plan.
(i) The provisions of Awards need not be the same with respect
to each participant.
SECTION 15. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board on February 10, 1995 and is
subject to approval by the holders of the Company's outstanding Stock, in
accordance with applicable law. The Plan will become effective on the date of
such approval.
SECTION 16. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after
February 10, 2005, but Awards granted prior to such date may extend beyond that
date.
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