<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A -- No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 1-9518
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THE PROGRESSIVE CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 34-0963169
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6300 Wilson Mills Road, Mayfield Village, Ohio 44143
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(Address of principal executive offices) (Zip Code)
(440) 461-5000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Shares, $1.00 Par Value New York Stock Exchange
- ------------------------------ -----------------------
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at January 31, 1998: $6,748,111,562.50
The number of the registrant's Common Shares, $1.00 par value, outstanding as of
February 27, 1998: 72,427,300
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 1997 are incorporated by reference in Parts I, II and IV hereof.
Portions of the registrant's Proxy Statement dated March 17, 1998, for the
Annual Meeting of Shareholders to be held on April 24, 1998, are incorporated by
reference in Part III hereof.
<PAGE> 2
This Form 10-K/A-No. 1 is being filed to replace, in its entirety, Exhibit
10(H), which was originally included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, filed with the Commission on
March 27, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE PROGRESSIVE CORPORATION
March 30, 1998 BY: /s/ David M. Schneider
---------------------------
David M. Schneider
Secretary of the Registrant
2
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<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K If Incorporated by Reference, Documents with Which
S-K, Item 601 Exhibit No. Description of Exhibit Exhibit was Previously Filed with SEC
<S> <C> <C> <C>
(3)(i) 3(A) Amended Articles of Incorporation Quarterly Report on Form 10-Q
of The Progressive Corporation (Filed with SEC on April 23, 1993; see
("Progressive"), as amended Exhibit 3 therein)
(3)(ii) 3(B) Code of Regulations of Progressive Quarterly Report on Form 10-Q (filed with
SEC on May 15, 1997; see Exhibit 3 therein)
(4) 4(A) Indenture dated as of November Annual Report on Form 10-K (Filed with SEC
15, 1988 between Progressive on March 29, 1994; see Exhibit 4(B) therein)
and State Street Bank and
Trust Company (successor in
interest to Rhode Island
Hospital Trust National Bank),
as Trustee ("Subordinated
Indenture") (including Table
of Contents and cross-reference
sheet)
(4) 4(B) Form of 10 1/8% Subordinated Notes Annual Report on Form 10-K (Filed with SEC
due 2000 issued in the aggregate on March 29, 1994; see Exhibit 4(C) therein)
principal amount of $150,000,000
under the Subordinated Indenture
(4) 4(C) Indenture dated as of November 15, Annual Report on Form 10-K (Filed with
1988 between Progressive and State SEC on March 29, 1994; see Exhibit 4(D) therein)
Street Bank and Trust Company (successor
in interest to The First National
Bank of Boston), as Trustee ("1988
Senior Indenture") (including Table
of Contents and cross-reference sheet)
(4) 4(D) Form of 10% Notes due 2000 issued in Annual Report on Form 10-K (Filed with SEC
the aggregate principal amount of on March 29, 1994; see Exhibit 4(E) therein)
$150,000,000 under the 1988 Senior
Indenture
(4) 4(E) Form of 8 3/4% Notes due 1999 issued in Annual Report on Form 10-K (Filed with SEC
the aggregate principal amount of on March 28, 1995; see Exhibit 4(F) therein)
$30,000,000 under the 1988 Senior
Indenture
</TABLE>
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. If Incorporated by Reference, Documents
Under Reg. Form 10-K with Which Exhibit was Previously Filed
S-K, Item 601 Exhibit No. Description of Exhibit with SEC
<S> <C> <C> <C>
(4) 4(F) $10,000,000 Unsecured Line of Credit Contained in Exhibit Binder
with National City Bank (dated May 23,
1990; renewed May 20, 1992; amended
February 1, 1994 and May 1, 1997)
(4) 4(G) Indenture dated as of September 15, 1993 Quarterly Report on Form 10-Q (Filed
between Progressive and State Street with SEC on November 5, 1993; see
Bank and Trust Company (successor in Exhibit 4(A) therein)
interest to The First National Bank of
Boston), as Trustee ("1993 Senior
Indenture") (including Table of Contents
and cross-reference sheet)
(4) 4(H) Form of 7% Notes due 2013 issued in the Quarterly Report on Form 10-Q (Filed
aggregate principal amount of with SEC on November 5, 1993; see
$150,000,000 under the 1993 Senior Exhibit 4(B) therein)
Indenture
(4) 4(I) Form of 6.60% Notes due 2004 issued in Annual Report on Form 10-K (Filed with
the aggregate principal amount of SEC on March 29, 1994; see Exhibit 4(L)
$200,000,000 under the 1993 Senior therein)
Indenture
(4) 4(J) First Supplemental Indenture dated March Registration Statement No. 333-0175 (Filed
15, 1996 between the Registrant and with SEC on March 15, 1996; see Exhibit
State Street Bank and Trust Company, 4.2 therein)
evidencing the designation of State
Street Bank and Trust Company, as
successor Trustee under the 1993 Senior
Indenture
(4) 4(K) Form of 7.30% Notes due 2006, issued in Quarterly Report on Form 10-Q (Filed
the aggregate principal amount of with SEC on July 31, 1996; see Exhibit 4
$100,000,000 under the Senior Indenture therein)
dated September 15, 1993, between the
Company and State Street Bank and Trust,
as amended and supplemented
(10)(i) 10(A) Construction Agreements dated November Contained in Exhibit Binder
3, 1997 between Progressive Casualty
Insurance Company, and HCB Contractors
</TABLE>
4
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. If Incorporated by Reference, Documents
Under Reg. Form 10-K with Which Exhibit was Previously Filed
S-K, Item 601 Exhibit No. Description of Exhibit with SEC
<S> <C> <C> <C>
(10)(iii) 10(B) The Progressive Corporation 1997 Annual Report on Form 10-K (Filed with SEC
Gainsharing Plan on March 31, 1997; see Exhibit 10(B) therein)
(10)(iii) 10(C) The Progressive Corporation 1997 Annual Report on Form 10-K (Filed with SEC
Executive Bonus Plan on March 31, 1997; see Exhibit 10(D) therein)
(10)(iii) 10(D) The Progressive Corporation 1996 Process Quarterly Report on Form 10-Q (Filed with SEC
Management Bonus Plan on May 1, 1996; see Exhibit 10(A) therein)
(10)(iii) 10(E) The Progressive Corporation Directors Quarterly Report on Form 10-Q (Filed
Deferral Plan (Amendment and with SEC on November 13, 1996; see
Restatement), as further amended on Exhibit 10 therein)
October 25, 1996
(10)(iii) 10(F) The Progressive Corporation 1989 Annual Report on Form 10-K (Filed with
Incentive Plan (amended and restated as SEC on March 30, 1993; see Exhibit 10(G)
of April 24, 1992, as further amended on therein)
July 1, 1992 and February 5, 1993)
(10)(iii) 10(G) Share Option Agreement dated March 17, Annual Report on Form 10-K (Filed with
1989, between Progressive and David M. SEC on March 28, 1995; see Exhibit 10(H)
Schneider therein)
(10)(iii) 10(H) The Progressive Corporation 1998 Contained in Exhibit Binder
Directors' Stock Option Plan
(10)(iii) 10(I) The Progressive Corporation 1990 Contained in Exhibit Binder
Directors' Stock Option Plan (Amended
and Restated as of April 24, 1992 and as
further amended on July 1, 1992)
(10)(iii) 10(J) Agreement dated March 11, 1996 with Annual Report on Form 10-K (Filed with SEC on
Bruce W. Marlow March 15, 1996; see Exhibit 10(H) therein)
</TABLE>
5
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. If Incorporated by Reference, Documents
Under Reg. Form 10-K with Which Exhibit was Previously Filed
S-K, Item 601 Exhibit No. Description of Exhibit with SEC
<S> <C> <C> <C>
(10)(iii) 10(K) Amending Agreement dated April 1, 1996 Quarterly Report on Form 10-Q (Filed
between the Company and Bruce W. Marlow with SEC on July 31, 1996; see Exhibit
relating to certain outstanding stock 10 therein)
options previously granted to Mr. Marlow
(10)(iii) 10(L) The Progressive Corporation 1995 Annual Report on Form 10-K (Filed with SEC on
Incentive Plan March 28, 1995; see Exhibit 10(L) therein)
(10)(iii) 10(M) The Progressive Corporation Executive Contained in Exhibit Binder
Deferred Compensation Plan (Amended and
Restated as of January 1, 1997), as
further amended December 1, 1997
(10)(iii) 10(N) Form of Non-Qualified Stock Option Quarterly Report on Form 10-Q (Filed
Agreement under The Progressive with SEC on May 1, 1996; see Exhibit
Corporation 1989 Incentive Plan (single 10(B) therein)
award)
(10)(iii) 10(O) Form of Non-Qualified Stock Option Quarterly Report on Form 10-Q (Filed
Agreement under The Progressive with SEC on May 1, 1996; see Exhibit
Corporation 1989 Incentive Plan 10(C) therein)
(multiple awards)
(11) 11 Computation of Earnings Per Share Contained in Exhibit Binder
(12) 12 Computation of Ratio of Earnings to Contained in Exhibit Binder
Fixed Charges
(13) 13 The Progressive Corporation 1997 Annual Contained in Exhibit Binder
Report
(21) 21 Subsidiaries of The Progressive Contained in Exhibit Binder
Corporation
(23) 23 Consent of Independent Accountants Incorporated herein by reference to page
28 of this Annual Report on Form 10-K
</TABLE>
6
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. If Incorporated by Reference, Documents
Under Reg. Form 10-K with Which Exhibit was Previously Filed
S-K, Item 601 Exhibit No. Description of Exhibit with SEC
<S> <C> <C> <C>
(24) 24 Powers of Attorney Contained in Exhibit Binder
(27) 27 Financial Data Schedule for current These exhibits are contained in the EDGAR filing of
period and Restated Financial the Annual Report on Form 10-K for the year ended
Data Schedules for other periods December 31, 1997 only
No other exhibits are required to be filed herewith pursuant to Item
601 of Regulation S-K.
</TABLE>
7
<PAGE> 1
Exhibit 10 (H)
THE PROGRESSIVE CORPORATION
1998 DIRECTORS' STOCK OPTION PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purposes of The Progressive Corporation 1998 Directors' Stock
Option Plan (the "Plan") are to enable The Progressive Corporation (the
"Company") to attract, retain and reward directors of the Company and to
strengthen the mutuality of interests between such directors and the Company's
shareholders by offering such directors options to purchase Common Shares of the
Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Award" means any award of Stock Options under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(d) "Committee" means the Committee referred to in Section 2
hereof.
(e) "Company" means The Progressive Corporation, an Ohio
corporation, or any successor corporation.
(f) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan, or in the absence
of the Committee, the Board.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "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.
(i) "Non-Qualified Stock Option" means any Stock Option that is
not an incentive stock option, within the meaning of Section 422 of the
Code or any successor section thereto.
(j) "Option Term" has the meaning given to such term in Section
4(b)(2).
(k) "Plan" means The Progressive Corporation 1998 Directors' Stock
Option Plan, as amended from time to time.
<PAGE> 2
(l) "Stock" means the Common Shares, $1.00 par value per share, of
the Company.
(m) "Stock Option" or "Option" means any option to purchase shares
of Stock granted pursuant to Section 4.
(n) "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 meanings set forth,
respectively, in Sections 5(b), (c) and (d) below.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than
three directors of the Company, all of whom shall be directors who are
"Non-Employee Directors", as defined in Section 16 of the Exchange Act or the
rules and 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 and authority to interpret and
administer the Plan and, subject to Section 4(a) below, full authority to select
the individuals to whom Awards will be granted, and to determine the number of
shares of Stock that may be purchased upon exercise of Awards granted under the
Plan, the consideration, if any, to be paid for such Awards, the timing of such
Awards, 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.
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 Committee in connection
with the Plan, shall be final, binding and conclusive on the Company, its
shareholders, 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.
<PAGE> 3
SECTION 3. STOCK SUBJECT TO THE PLAN.
(a) AGGREGATE STOCK SUBJECT TO THE PLAN. Subject to adjustment as
provided in Section 3(c) below, the total number of shares of Stock
reserved and available for Awards under the Plan is 200,000. 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 Award
granted hereunder is forfeited or an Award otherwise terminates or expires
without the issuance of Stock, the unissued Stock that is 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).
(c) ADJUSTMENT.
(1) If the Company (i) pays a dividend or makes a
distribution in shares of Stock, (ii) subdivides or splits its
outstanding Stock into a greater number of shares, or (iii)
combines its outstanding Stock into a smaller number of shares,
the aggregate number of shares of Stock reserved for issuance
pursuant to the Plan and the number and option price of shares of
Stock subject to outstanding Options granted pursuant to the Plan
immediately prior thereto shall be adjusted so that, assuming that
Options had been previously granted for all of the shares of Stock
so reserved, the participants would be entitled to receive for the
same aggregate price that number of shares of Stock which they
would have owned after the happening of any of the events
described above had they exercised all of such Options prior to
the happening of such event. An adjustment made pursuant to this
Section 3(c)(1) shall become effective immediately after the
record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case
of a subdivision or combination.
(2) If the Company reclassifies or changes the Stock
(except for splitting or combining, or changing par value, or
changing from par value to no par value, or changing from no par
value to par value) or participates in a consolidation or merger
(other than a merger in which the Company is the surviving
corporation and which does not result in any reclassification of
or change in the Stock except as stated above), the aggregate
number of shares of Stock reserved for issuance pursuant to the
Plan and the number and option price of shares of Stock subject to
outstanding Options granted pursuant to the Plan immediately prior
thereto shall be adjusted so that, assuming that Options had been
previously granted for all the shares of Stock so reserved, the
participants would be entitled to receive for the same aggregate
price that number and type of shares of capital stock which they
would have owned after the happening of any of the events
described above had they exercised all of such Options prior to
the happening of such event.
(3) No adjustment pursuant to this Section 3(c) shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such number or price; PROVIDED,
HOWEVER, that any adjustments which by reason of this Section
3(c)(3) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations
under this Section 3(c) shall be made to the nearest cent or to
<PAGE> 4
the nearest full share, as the case may be. Anything in this
Section 3(c) to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the option price, in addition
to those required by this Section 3(c), as it in its discretion
shall determine to be advisable in order that any stock dividends
or distributions, subdivisions or splits of shares, distribution
of rights to purchase stock or securities, or a distribution of
securities convertible into or exchangeable for stock hereafter
made by the Company to its stockholders shall not be taxable.
SECTION 4. STOCK OPTIONS.
(a) GRANT. All directors of the Company who are not full time
employees of the Company or any of its Subsidiaries are eligible to be
granted Stock Options under the Plan. The Committee shall determine the
individual directors 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 granted hereunder and the other terms and conditions of the
Stock Options in addition to those set forth in Sections 4(b). 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 will be
Non-Qualified Stock Options.
(b) TERMS AND CONDITIONS. Options granted under the Plan shall be
evidenced by Option agreements substantially in the form of Exhibit A
hereto (or such other form as the Committee may approve), 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 Stock Option shall be equal to the Fair Market
Value of the Stock on the date the Option is granted.
(2) OPTION TERM. The term of each Stock Option shall be
determined by the Committee and may not exceed ten (10) years from
the date the Option is granted ("Option Term").
(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, unless otherwise provided herein or 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,
if applicable, the six month and one day holding period set forth
in Section 4(b)(3), a Stock Option may be exercised, in whole or
in part, at
<PAGE> 5
any time during the related Option Term, by giving 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 being exercised, in cash or by check or such other
instrument as the Committee may accept. Unless otherwise
determined by the Committee, in its sole discretion, at or after
grant, payment, in full or in part, of the option price may be
made in the form of unrestricted Stock then owned by the
participant or Stock that is part of the Stock Option being
exercised. The value of each share of such Stock so 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 8(a) and such shares have been issued to such
participant.
(5) NON-TRANSFERABILITY OF OPTIONS. Stock Options shall not
be transferable by the participant, and all Stock Options shall be
exercisable during the participant's lifetime only by the
participant or, subject to Section 4(b)(7), 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. If any participant dies while
holding unexercised Stock Options, any Stock Option held by such
participant at the time of his or her death 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, 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, regardless of the term
of the Stock Option remaining at the date of the participant's
death. The balance of the Stock Option shall be forfeited.
(7) TERMINATION BY REASON OF DISABILITY. If a participant
is unable to serve as a director by reason of Disability, any
Stock Option then held by such participant may thereafter be
exercised, to the extent such Option was exercisable at the
inception of such Disability or would have become exercisable
within one year thereafter had the participant continued to
fulfill all conditions of the Option during such period, 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 his or her Disability, for a period of one year (or
such other period as the Committee may specify at or after grant)
from the date of the inception of such Disability; 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
<PAGE> 6
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 at the time of his or her death shall thereafter
be exercisable by the estate of the participant (acting through
its fiduciary) to the same extent to which it was exercisable
immediately prior to the time of death for a period of one year
(or such other period as the Committee may specify at or after
grant) from the date of the inception of such Disability. The
balance of the Stock Option shall be forfeited.
(c) BUYOUT PROVISIONS. The Committee may at any time buy out, for
a payment in cash or 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 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 5. CHANGE IN CONTROL PROVISIONS.
(a) IMPACT OF EVENT. In the event of: (1) a "Change in Control" as
defined in Section 5(b), or (2) a "Potential Change in Control" as defined
in Section 5(c), the value of all outstanding Awards shall be cashed out
on the basis of the "Change in Control Price" as defined in Section 5(d)
as of the date such Change in Control or such Potential Change in Control
is determined to have occurred.
(b) DEFINITION OF CHANGE IN CONTROL. For purposes of this Section
5, 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 twenty percent
(20%) 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 five percent (5%) or more 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 that 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;
<PAGE> 7
(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 either
actually (because they were directors at the beginning of such
24-month period) or by prior operation of this Section 5(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 had approved such change
prior to either (i) the occurrence of any of the events described in
Section 5(b)(1), (2), (3) or 5(c)(1), or (ii) the commencement by any
person other than the Company or a Subsidiary of a tender offer for Stock.
(c) DEFINITION OF POTENTIAL CHANGE IN CONTROL. For purposes of
this Section 5, 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 5(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 five percent (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 5,
"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).
SECTION 6. AMENDMENTS AND TERMINATION.
Subject to the following sentence, the Board may at any time, in
its sole discretion, amend, alter or discontinue the Plan, or amend the terms
of any outstanding Stock Option granted under 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
<PAGE> 8
consent. Notwithstanding the foregoing, no such amendment or alteration shall be
made which would make the exemption from Section 16(b) of the Exchange Act
provided by Rule 16b-3 thereunder unavailable to any participant holding an
Award or which would result in any liability on the part of any participant
under Section 16(b) of the Exchange Act.
SECTION 7. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive 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 8. GENERAL PROVISIONS.
(a) The Company may require each participant acquiring Stock
pursuant to an Option under the Plan (i) to represent and warrant to and
agree with the Company in writing that the participant is acquiring the
Stock for investment and without a view to the distribution thereof, and
(ii) to make such additional representations, warranties and agreements
with respect to the investment intent of such participant as the Company
may request. The certificates for such shares may include any legend which
the Company 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 Company may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed, and any applicable federal or state
securities law, and the Company 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) 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 Company
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 Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder, withholding obligations may be settled with
unrestricted Stock then owned by the participant or Stock that is issuable
upon the exercise of the Option which gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes or other
items from any payment of any kind otherwise due to the participant.
<PAGE> 9
(d) 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.
(e) All agreements entered into with participants pursuant to the
Plan shall be subject to the Plan.
(f) The provision of Awards need not be the same with respect to
each participant.
SECTION 9. EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board on February 6, 1998, subject to
approval by shareholders of the Company in accordance with applicable law. The
Plan will become effective on the date of such shareholder approval.
SECTION 10. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after April
24, 2008, but Awards granted prior to such date may extend beyond that date.
<PAGE> 10
EXHIBIT A
---------
DIRECTORS' STOCK OPTION AGREEMENT
---------------------------------
This Agreement (the "Agreement") is made as of the _____ day of
______________, ____ between The Progressive Corporation, an Ohio corporation
(the "Company"), and _____________ (the "Optionee"). The Company hereby grants
Optionee an option (the "Option") to purchase _____________ Common Shares, $1.00
par value (the "Common Shares"), of the Company for a purchase price of
____________ ($________) per share (the "Option Price"). The Option has been
granted pursuant to The Progressive Corporation 1998 Directors' Stock Option
Plan (the "Plan") and shall include and be subject to all provisions of the
Plan, which are hereby incorporated herein by reference, and shall be subject to
the following provisions of this Agreement:
1. TERM. The Option shall be exercisable, in whole or part, on and after
______________, _____ but not after 5:00 o'clock p.m., Cleveland time, on
_______________________, _______.
2. METHOD OF EXERCISE. The Option shall be exercisable from time to time
by written notice (in form acceptable to the Company) which shall:
(a) state that the Option is thereby being exercised, the number of Common
Shares with respect to which the Option is being exercised, each person in
whose name any certificates for the Common Shares should be registered and
his or her address and social security number;
(b) be signed by the person or persons entitled to exercise the Option
and, if the Option is being exercised by anyone other than the Optionee,
be accompanied by proof satisfactory to counsel for the Company of the
right of such person or persons to exercise the Option under the Plan and
all applicable laws and regulations; and
(c) be accompanied by such representations, warranties or agreements with
respect to the investment intent of such person or persons exercising the
Option as the Company may request, in form and substance satisfactory to
counsel for the Company.
3. PAYMENT OF PRICE. Upon exercise of the Option, the Company shall
deliver a certificate or certificates for such Common Shares to the specified
person or persons at the specified time upon receipt of the full purchase price
for such Common Shares: (i) by certified or bank cashier's check, or (ii) by
delivery of unrestricted Stock with a Fair Market Value equal to the Option
Price, or (iii) by any other method of payment or combination thereof authorized
by the Plan.
4. TRANSFERABILITY. The Option shall not be transferable by the Optionee.
The Option shall be exercisable (subject to any other applicable restrictions on
exercise) only by the Optionee for his or her own account, except in the event
of the death or Disability of the Optionee, in either of which events the Option
shall be exercisable (subject to any other applicable restrictions on exercise)
only by the Optionee's estate (acting through its fiduciary) or, if the Optionee
is unable to exercise the Option as a result of such Disability, by the
Optionee's duly authorized legal representative, respectively.
5. RESTRICTIONS ON EXERCISE. The Option is subject to all restrictions set
forth in this Agreement or in the Plan. As a condition of any exercise of the
Option, the Company may require the Optionee or his successor to make any
representation and warranty to comply with any applicable law or regulation or
to confirm any factual matters reasonably requested by counsel for the Company.
6. TAXES. The Optionee hereby agrees to pay to the Company, in cash or
unrestricted Stock or by any other method authorized under the Plan, any
federal, state or local taxes or other items of any kind required by law to be
withheld with respect to the Option granted hereunder or its exercise. If the
Optionee does not make such payment
<PAGE> 11
to the Company, the Company shall have the right to deduct from any payment of
any kind otherwise due to the Optionee from the Company, any federal, state or
local taxes or other items of any kind required by law to be withheld with
respect to the Option, its exercise or the Common Shares to be purchased by the
Optionee under this Agreement. The Option shall not be treated as an incentive
stock option under Section 422 or any successor Section thereto of the Internal
Revenue Code of 1986, as amended.
7. DEFINITIONS. Unless otherwise defined in this Agreement, capitalized
terms will have the same meanings given them in the Plan.
THE PROGRESSIVE CORPORATION
DATE OF GRANT: By:
---------- --------------------------------------
ACCEPTANCE OF AGREEMENT
-----------------------
The Optionee hereby: (a) acknowledges receiving a copy of the Plan
Description relating to the Plan, and represents that he/she is familiar with
all provisions of the Plan; (b) accepts this Agreement and the Option granted to
him/her under this Agreement subject to all provisions of the Plan and this
Agreement; and (c) agrees to accept as binding, conclusive and final all
decisions or interpretations of the Company.
Date:
-------------------- -----------------------------------
Optionee
