<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
THE PROGRESSIVE CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
X X X X X X X X X X
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] 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:
================================================================================
<PAGE> 2
PROGRESSIVE LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 1998
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 24, 1998, at 10:00 a.m., Cleveland time, for the following
purposes:
1. To elect three directors, each to serve for a term of three years;
2. To approve an amendment to the Company's Amended Articles of
Incorporation to increase the number of authorized Common Shares, $1.00 par
value, from 200,000,000 to 300,000,000;
3. To approve The Progressive Corporation 1998 Directors' Stock Option
Plan; and
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on February 27, 1998,
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 , 1998
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 ("Company"), to be held at 10:00 a.m., Cleveland time, on
Friday, April 24, 1998, 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, 1997, will first be sent to shareholders on or about March 23,
1998.
The close of business on February 27, 1998, 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 72,427,300 Common Shares,
each of which will be entitled to one vote.
ITEM 1: ELECTION OF DIRECTORS
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 has been fixed at ten. The Code of Regulations provides that the
directors are to be divided into three classes as nearly equal in number as
possible and that the classes are to be elected for staggered terms of three
years each. Directors of one class are elected annually. At the meeting, the
shares represented by the proxies obtained hereby, unless otherwise specified,
will be voted for the election as directors of the three nominees hereinafter
named, each to serve for a three-year term and until his respective successor is
duly elected and qualified. One vacancy will remain on the Board. 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.
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. Vacancies in the Board may be filled for the remainder of the
unexpired term of the class of directors to which the new director is assigned.
Assignments will be made so that the directors are distributed among the several
classes as nearly equally as possible. No decision has been made to fill the
vacancy, nor have any candidates been considered and approved by the Board of
Directors. Proxies cannot be voted at the Annual Meeting for a greater number of
persons than the three nominees named in this proxy statement. No shareholder
nominations for the election of directors have been received within the time
period required by Section 13 of Article II of the Code of Regulations.
1
<PAGE> 4
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 three nominees named below as
possible.
The following information is set forth with respect to each person
nominated for election as a director and for those directors whose terms will
continue after the Annual Meeting. Unless otherwise indicated, each such nominee
and director has held the principal occupation indicated for more than the last
five years. Each such nominee is currently a director of the Company.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR TERM
NAME AGE LAST FIVE YEARS' BUSINESS EXPERIENCE SINCE EXPIRES
---- --- ------------------------------------ -------- -------
<S> <C> <C> <C> <C>
B. Charles Ames (1) 72 Principal, Clayton, Dubilier & Rice, 1983 2001
Inc., New York, New York (investment
banking)
Peter B. Lewis (2) 64 President and Chief Executive Officer 1965 2001
of the Company; Chairman of the Board
of the Company since April 1993;
President, Chairman of the Board and
Chief Executive Officer of Progressive
Casualty Insurance Company
Donald B. Shackelford (3) 65 Chairman of the Board, State Savings 1976 2001
Bank, Columbus, Ohio (savings bank)
</TABLE>
2
<PAGE> 5
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR TERM
NAME AGE LAST FIVE YEARS' BUSINESS EXPERIENCE SINCE EXPIRES
---- --- ------------------------------------ -------- -------
<S> <C> <C> <C> <C>
Milton N. Allen (4) 70 Director of various companies 1978 1999
Charles A. Davis (5) 49 Limited Partner, Goldman Sachs Group 1996 1999
L.P., New York, New York (investment
banking) since December 1994; Gen-
eral Partner, Goldman Sachs & Co.,
prior to December 1994
Paul B. Sigler 64 Professor, Yale University and 1981 1999
Investigator in the Howard Hughes
Medical Institute
Stephen R. Hardis (6) 62 Chairman of the Board of Eaton Corpo- 1988 2000
ration, Cleveland, Ohio (manufactur-
ing) since January 1996; Vice Chairman
of Eaton Corporation prior to January
1996; Chief Executive Officer of Eaton
Corporation since September 1995;
Chief Financial and Administrative
Officer of Eaton Corporation prior to
September 1995
Janet Hill (7) 50 President, Staubach Alexander Hill, 1995 2000
LLC, Washington, D.C. (commercial real
estate consulting) since January 1995
and Vice President, Alexander &
Associates, Inc., Washington,
D.C. (management consulting)
Norman S. Matthews (8) 65 Consultant, New York, New York 1981 2000
</TABLE>
- ---------------
(1) Mr. Ames is also a director of M.A. Hanna Company, Riverwood Holding, Inc.
and Lexmark Holding, Inc., which are publicly held, and WESCO Distribution,
Inc. and CDW Holding, Inc., which are privately held.
(2) Mr. Peter B. Lewis is also an officer and director of other subsidiaries of
the Company. Mr. Daniel R. Lewis, an executive officer of the Company, is
the brother of Mr. Peter Lewis.
(3) Mr. Shackelford is also a director of The Limited, Inc., Worthington Foods,
Inc., Abercrombie & Fitch Co. and Intimate Brands, Inc., which are publicly
held.
(4) Mr. Allen is also a director of Actron Manufacturing Company and The
Bradford Group, Inc., which are privately held.
3
<PAGE> 6
(5) Mr. Davis is also a director of Heilig-Meyers Company, Lechters, Inc. and
Media General, Inc., which are publicly held, and Merchants Bancshares,
Inc., which is privately held.
(6) Mr. Hardis is also a director of Nordson Corporation, Lexmark Holding, Inc.
and KeyCorp, all of which, as well as Eaton Corporation, are publicly held.
(7) Ms. Hill is also a director of Wendy's International, Inc. and Deans Foods
Company, which are publicly held, and the First Union Bank of Virginia,
Maryland and the District of Columbia, a wholly owned subsidiary of the
First Union Corporation, which is publicly held.
(8) Mr. Matthews is also a director of Lechters, Inc., Toys "R" Us, Loehmann's,
Inc. and Finlay Fine Jewelry, Inc., which are publicly held.
Five meetings of the Board of Directors were held during 1997, and the
Board adopted resolutions by written action pursuant to Ohio corporation law on
one occasion.
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 1997, the Executive Committee adopted resolutions by written action
pursuant to Ohio corporation law on eight occasions.
Messrs. Allen, Ames, Davis 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 six times during 1997.
Ms. Hill and Messrs. Matthews, Shackelford and Sigler are the current
members of the Board's Executive Compensation Committee. 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. If the proposal set forth in Item 3 is
approved by shareholders, this Committee will determine the awards under the
1998 Directors' Stock Option Plan. During 1997, the Executive Compensation
Committee met five times and adopted resolutions by written action pursuant to
Ohio corporation law on one occasion.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Charles A. Davis is a limited partner of the Goldman Sachs Group, L.P.
("GSG"). GSG is the 99% general partner of Goldman, Sachs & Co. ("GS"). GS is an
investment banking firm that regularly performs services such as acting as a
financial advisor and serving as principal or
4
<PAGE> 7
agent in the purchase and sale of securities. GS has performed such services for
the Company and may be called upon to provide similar or other services for the
Company in the future.
Mr. Davis owns, indirectly through an intermediary corporation, a 12%
equity interest in Visual Radio, Inc., a privately held company that provides
consulting, technology and training to companies that use the Internet. The
Company is engaged in discussions that will likely result in the Company
purchasing such services from Visual Radio during 1998. The Company expects that
total expenditures for these services will be approximately $150,000 in 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ms. Hill and Messrs. Matthews, Shackelford and Sigler are the members of
the Company's Executive Compensation Committee. There are no Compensation
Committee interlocks.
5
<PAGE> 8
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 January 31, 1998, of more than 5% of the Company's Common Shares:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
Peter B. Lewis.................................... 10,199,713(2) 14.0%
6300 Wilson Mills Road
Mayfield Village, Ohio 44143
Ruane, Cunniff & Co., Inc......................... 9,602,603(3) 13.3%
767 Fifth Avenue
Suite 4701
New York, New York 10153-4798
</TABLE>
- ---------------
(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 14,274 Common Shares held for Mr. Lewis by a trustee under the
Company's Retirement Security Program, 354,500 Common Shares subject to
currently exercisable stock options, 1,858,757 Common Shares held by Mr.
Lewis as trustee of two trusts established for the benefit of his brother,
532,354 shares held by a charitable corporation of which Mr. Lewis serves as
a trustee and an officer, and 298,000 Common Shares held by two limited
partnerships in each of which Mr. Lewis is a general partner. The amount
does not include 934,440 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. as of December 31, 1997, and it disclaims any beneficial
interest in such shares. Ruane, Cunniff & Co., Inc. has advised that it has
sole voting power as to 6,440,392 of these shares, no voting power as to the
balance of these shares, sole investment power as to 5,202,603 of these
shares and shared investment power as to 4,400,000 of these shares.
6
<PAGE> 9
Security Ownership of Management. The following information is set forth
with respect to the Company's Common Shares beneficially owned as of January 31,
1998, 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:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP(1) OF CLASS
---- ----------------------- --------
<S> <C> <C>
Milton N. Allen................................... 47,254(2) *
B. Charles Ames................................... 53,005(3) *
Alan R. Bauer..................................... 103,372(4) *
Charles B. Chokel................................. 119,874(5) *
Charles A. Davis.................................. 2,000(6) *
W. Thomas Forrester............................... 31,154(7) *
William H. Graves................................. 90,191(8) *
Stephen R. Hardis................................. 33,808(3) *
Janet Hill........................................ 6,500(9) *
Peter B. Lewis.................................... 10,199,713(10) 14.0%
Norman S. Matthews................................ 38,201(11) *
Robert J. McMillan................................ 111,824(12) *
Glenn M. Renwick.................................. 49,625(13) *
Donald B. Shackelford............................. 96,002(14) *
Paul B. Sigler.................................... 11,606(15) *
All 21 Executive Officers
and Directors as a Group........................ 11,691,699(16) 15.9%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Less than 1% of the outstanding Common Shares of the
Company.
(1) Includes Common Shares held for executive officers under The
Progressive Retirement Security Program and currently
exercisable stock options held by directors and executive
officers under various incentive plans maintained by the
Company. Unless otherwise indicated below, beneficial
ownership of the Common Shares reported 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.
(2) Includes 2,400 Common Shares owned by Mr. Allen's wife, as
to which shares he disclaims any beneficial interest, and
28,000 Common Shares subject to currently exercisable stock
options.
(3) Includes 28,000 Common Shares subject to currently
exercisable stock options.
</TABLE>
7
<PAGE> 10
<TABLE>
<C> <S>
(4) Includes 72,700 Common Shares subject to currently exercisable stock options and 853 Common Shares held
under The Progressive Corporation Executive Deferred Compensation Plan, as to which shares Mr. Bauer has
sole investment power but no voting power.
(5) Includes 19,974 Common Shares owned by Mr. Chokel's wife, as to which shares he disclaims any beneficial
interest, 28,000 Common Shares subject to currently exercisable stock options and 19,172 Common Shares held
by Mr. Chokel as trustee of a family trust.
(6) Consists of 2,000 Common Shares subject to currently exercisable stock options.
(7) Includes 10,100 Common Shares subject to currently exercisable stock options.
(8) Includes 56,900 Common Shares subject to currently exercisable stock options.
(9) Includes 6,000 Common Shares subject to currently exercisable stock options.
(10) See footnote 2 on page 6.
(11) Includes 22,000 Common Shares subject to currently exercisable stock options.
(12) Includes 57,000 Common Shares subject to currently exercisable stock options.
(13) Includes 25,100 Common Shares subject to currently exercisable stock options and 1,911 Common Shares held
under The Progressive Corporation Executive Deferred Compensation Plan, as to which shares Mr. Renwick has
sole investment but no voting power.
(14) Includes 28,000 Common Shares subject to currently exercisable stock options and 6,831 Common Shares held
by Mr. Shackelford as trustee of a trust established for the benefit of his daughter.
(15) Includes 10,000 Common Shares subject to currently exercisable stock options.
(16) Includes 1,052,500 Common Shares subject to currently exercisable stock options.
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance. Due to a
typographical error in Milton N. Allen's April 1997 Form 4, a sale of 155 shares
by Mr. Allen, as trustee of a charitable remainder trust, was incorrectly
reported as being the sale of 115 shares. An amended Form 4 was filed as soon as
this error was discovered. The November 1, 1996 sale of 200 shares by a trust of
which Daniel R. Lewis' wife is the beneficiary was reported in a Form 4 filed in
February 1998. A Form 4 reporting the January 31, 1997 sale of 10,000 shares by
Peter B. Lewis, as trustee of the D. R. Lewis Flint Trust, was filed 17 days
late.
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<PAGE> 11
EXECUTIVE COMPENSATION
The following information is set forth with respect to the Company's Chief
Executive Officer and the other six most highly compensated executive officers,
each of whom was serving as an executive officer at December 31, 1997 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION(3)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
------------------ ---- -------- ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Peter B. Lewis 1997 $830,769 $1,949,234 $141,976(2) 73,600 $ 7,770
Chairman, President and 1996 800,000 1,320,840 151,234(2) 108,200 7,635
Chief Executive Officer 1995 800,000 772,800 147,197(2) 93,200 294,018
Charles B. Chokel 1997 383,654 833,967 -- 28,200 16,378(4)
Treasurer and Chief 1996 321,889 496,844 -- 36,000 15,949
Financial Officer 1995 298,310 285,880 -- 26,000 123,162
William H. Graves 1997 325,385 581,161 -- 15,800 15,612(5)
Claims Process 1996 294,231 414,159 -- 22,100 5,631
Leader 1995 249,444 134,601 -- 13,100 79,786
Glenn M. Renwick 1997 325,385 581,161 -- 15,800 15,462(6)
Technology 1996 295,207 396,151 -- 22,100 12,818
Process Leader 1995 258,458 181,422 -- 13,100 80,613
Alan R. Bauer 1997 325,385 565,519 -- 15,800 35,136(7)
International/ 1996 294,231 384,736 -- 22,100 7,008
Internet Officer 1995 249,632 202,202 -- 13,100 6,663
W. Thomas Forrester 1997 325,385 565,519 -- 15,800 5,545
Ownership 1996 294,240 394,558 -- 22,100 13,243
Process Leader 1995 250,080 199,815 -- 13,100 11,338
Robert J. McMillan 1997 325,385 565,519 -- 15,800 32,966(8)
Consumer Marketing 1996 298,149 389,860 -- 22,100 7,008
Process Leader 1995 283,962 105,082 -- 13,100 12,627
</TABLE>
- ---------------
(1) Includes bonus amounts, if any, deferred under The Progressive Corporation
Executive Deferred Compensation Plan.
(2) Other Annual Compensation includes $108,124, $117,001 and $121,264, in the
form of personal use of corporate aircraft in 1997, 1996 and 1995,
respectively.
(3) Except as otherwise disclosed, amounts represent employer contributions made
during 1997 under the Company's Retirement Security Program.
(4) In addition to contributions made under the Company's Retirement Security
program, amount also includes a $9,750 single lump sum payment in lieu of
salary increase for exceeding specific performance objectives during 1996.
9
<PAGE> 12
(5) In addition to contributions made under the Company's Retirement Security
program, amount also includes a $9,000 single lump sum payment in lieu of
salary increase for exceeding specific performance objectives during 1996
and $311 as an anniversary award for 15 years of employment with the
Company.
(6) In addition to contributions made under the Company's Retirement Security
Program, amount also includes $9,000 single lump sum payment in lieu of
salary increase for exceeding specific performance objectives during 1996.
(7) In addition to contributions made under the Company's Retirement Security
Program, amount also includes a $28,020 relocation bonus.
(8) In addition to contributions made under the Company's Retirement Security
Program, amount also includes a $26,250 relocation bonus.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- --------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS FOR OPTION TERM
OPTIONS GRANTED TO EXERCISE -----------------------
GRANTED(1) EMPLOYEES PRICE EXPIRATION 5% 10%
NAME (#) IN 1997 ($/SHARE) DATE ($) ($)
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter B. Lewis 73,600 10.1% $68.375 12/31/06 $2,774,504 $6,833,736
Charles B. Chokel 28,200 3.9 68.375 12/31/06 1,063,057 2,618,361
William H. Graves 15,800 2.2 68.375 12/31/06 595,614 1,467,025
Glenn M. Renwick 15,800 2.2 68.375 12/31/06 595,614 1,467,025
Alan R. Bauer 15,800 2.2 68.375 12/31/06 595,614 1,467,025
W. Thomas Forrester 15,800 2.2 68.375 12/31/06 595,614 1,467,025
Robert J. McMillan 15,800 2.2 68.375 12/31/06 595,614 1,467,025
</TABLE>
---------------------
(1) Options become exercisable January 1, 2002, subject to accelerated
vesting and a "cash-out" provision upon the occurrence of any "change
in control" of the Company or certain similar events described in both
the 1989 Incentive Plan and the 1995 Incentive Plan.
10
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
SHARES AT 12/31/97 OPTIONS AT 12/31/97
ACQUIRED VALUE (#) ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ---------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter B. Lewis -- -- Exercisable 287,400 Exercisable $30,090,745
Unexercisable 464,500 Unexercisable 36,213,250
Charles B. Chokel 36,684 $2,930,855 Exercisable 16,500 Exercisable 1,722,880
Unexercisable 133,400 Unexercisable 10,050,762
William H. Graves -- -- Exercisable 52,200 Exercisable 5,455,955
Unexercisable 77,800 Unexercisable 5,886,461
Glenn M. Renwick 36,000 2,286,024 Exercisable 15,000 Exercisable 1,566,255
Unexercisable 78,600 Unexercisable 5,958,111
Alan R. Bauer -- -- Exercisable 63,000 Exercisable 6,583,287
Unexercisable 78,000 Unexercisable 5,904,236
W. Thomas Forrester 46,200 3,646,595 Exercisable -- Exercisable --
Unexercisable 78,600 Unexercisable 5,958,111
Robert J. McMillan 30,000 2,384,908 Exercisable 46,500 Exercisable 4,819,150
Unexercisable 84,000 Unexercisable 6,271,711
</TABLE>
11
<PAGE> 14
PENSION PLANS
Each of the named executive officers, 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 ("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 ("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 seven named executive officers are as follows: Mr.
Lewis, $10,188; Mr. Chokel, $9,042; Mr. Graves, $8,020; Mr. Renwick, $5,412; Mr.
Bauer, $8,905; Mr. Forrester, $6,263; and Mr. McMillan, $9,220.
As of December 31, 1993, all benefit accruals under the Pension Plan were
frozen. The Company now has a two-tiered Retirement Security Program ("RSP").
The RSP is a defined contribution pension plan with the meaning of ERISA and a
qualified plan under the Code and covers all employees who meet requirements as
to age and length of service. The first tier of the RSP provides employer
contributions of 1% to 5% of annual eligible compensation up to the Social
Security wage base, based on years of eligible service. The second tier is a
long-term savings plan under which the Company matches, into a company stock
account, amounts contributed to the Plan by each employee up to a maximum of 3%
of the employee's eligible compensation. All named executive officers are
eligible to participate in the RSP, and contributions made by the Company in
1995 are included in "All Other Compensation" in the Summary Compensation Table
on page 9.
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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 Corporation Separation Allowance Plan
("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 those committees of the Board of which he 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. Directors are also
compensated for attendance at certain meetings of the Company's senior managers,
which are typically attended by one or two directors, at rates equal to the fee
received for attendance at regular Board meetings.
Each director of the Company who is not an employee of the Company
participates in The Progressive Corporation Directors Deferral Plan, as amended
("Directors Deferral Plan"). Each participant in the Directors Deferral Plan may
elect, annually, to defer receipt of all or a portion of his Meeting Fees for
the following year until the date designated by the director in accordance with
the plan. 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 3-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 a date designated by the participating
director in accordance with the terms of the plan. All account balances of a
director will be distributed to his beneficiary, if he dies. However, if any
director ceases to serve as such for any reason other than death, disability or
removal without
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<PAGE> 16
cause prior to the expiration of his current term, all Retainer Fees credited to
his stock account during such term are forfeited.
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 ("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 with
an exercise price equal to the fair market value of the Common Shares on the
date 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 exercisable, a stock option may be exercised for a period of one
year. During 1997, the Company granted stock options under this plan covering an
aggregate of 16,000 shares to eight directors. The Directors' Stock Plan will be
replaced by The Progressive Corporation 1998 Directors' Stock Option Plan if the
proposal set forth in Item 3 is approved by shareholders.
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<PAGE> 17
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
("Committee"). The Committee is comprised of four 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 business objectives that have been approved by
the Board.
- Provide a rational, consistent and competitive executive compensation
system that is well understood by those to whom it applies.
- Tie a significant portion of executive compensation to the long-term
performance of the Company's Common Shares.
The Committee believes that if these objectives are consistently achieved,
shareholder value will be enhanced over time.
EXECUTIVE COMPENSATION PROGRAM
For 1997, the Company's executive compensation program was designed to base
compensation on corporate, business unit 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 equity-based awards) is a larger
part 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 industries, the compensation data utilized are not
limited to companies included in the P/C Group referred to on page 21. The
Company's objective is to pay its executives competitive salaries (i.e., at or
near the midpoint of the survey range of salaries for their respective
positions) and to provide variable compensation that can take total direct
compensation to or above the high end of the survey range for total direct
compensation when the Company and, if applicable, the executive's assigned
business unit meet or exceed challenging performance goals.
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<PAGE> 18
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 at or near the midpoint of the survey
range of salaries for similar positions at other companies judged to be
comparable. Salaries are reviewed annually and adjusted upward or downward for
changes in those factors and the individual's performance. Better performance
generally results in an increased salary, subject to the limits of the salary
range established by the Company. For executives who exceed expectations, some
part of the increase will be paid in a single lump sum, as a merit cash award,
rather than becoming a part of the future salary base.
Annual Bonus Component
In 1997, Messrs. Lewis and Chokel participated in the 1997 Executive Bonus
Plan. Messrs. Graves, Renwick, Bauer, Forrester and McMillan, along with all
other full-time employees of the Company, participated in the 1997 Gainsharing
Plan. These Plans have been designed to reward participants appropriately for
current corporate and/or business unit performance.
Under the 1997 Executive Bonus Plan, a target annual bonus amount, which
varied by position, was established for each participant. In 1997, Mr. Lewis's
target annual bonus amount equaled 135% of salary; for Mr. Chokel, the target
was 125% of salary.
Awards under the 1997 Executive Bonus Plan were determined by reference to
two quantitative components: a Core Business Gainsharing Component and an
Investment Component.
The Core Business Gainsharing Component was based on a performance matrix
("Gainsharing Matrix") which assigned a performance score to various
combinations of profitability and growth outcomes for the Company's personal and
commercial automobile insurance business ("Core Business"). Under the
Gainsharing Matrix, profitability was measured by comparing the combined ratio
("CR") achieved by the Core Business, determined in accordance with generally
accepted accounting principles ("GAAP"), against a target combined ratio, while
growth was measured in terms of the year-to-year change in net written premiums
for the Core Business. The Investment Component compared the performance of
individual segments of the Company's investment portfolio against the range of
performance results achieved by a pre-selected group of comparable investment
funds.
The weighting of the two components differed for the participating
executives, depending on the nature and scope of their assigned
responsibilities. A bonus award equal to the target annual bonus resulted if
designated goals were met. Actual awards could range from 0% to 200%
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<PAGE> 19
of the target annual bonus amount, depending on the extent to which performance
fell short of or exceeded the designated goals.
All other officers and qualified employees (approximately 13,400) of the
Company, including Messrs. Graves, Renwick, Bauer, Forrester and McMillan,
participated in the Company's 1997 Gainsharing Plan. The 1997 Gainsharing Plan
is substantially similar to the 1997 Executive Bonus Plan, but does not include
an Investment Component. Under the 1997 Gainsharing Plan, awards were based on
performance in achieving profitability and growth targets, as measured by the
Gainsharing Matrix, for both the Core Business and the individual participant's
business unit or product. In 1997, the participating executive officers were
assigned target annual bonus amounts ranging from 60-100% of salary.
Long-Term Incentive Component
In 1997, the executive compensation program included long-term incentives
through the granting 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 350
other management employees of the Company currently participate in the long-term
incentive program.
The stock options 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. 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 executive officer in order to bring
total targeted compensation to the top of the survey range. In 1997, for the
Company's executive officers, these target award values ranged from 75-275% of
salary, depending on job classification. The target award value is then divided
by a value per share developed through a modified Black-Scholes pricing model,
to determine the number of option shares to be awarded. In 1997, the pricing
model valued the stock options awarded to executive officers at $29.892 per
share, which is 43.72% of the per share exercise price of $68.375. The following
assumptions were used to derive the ratio: 10-year option term, .2538 annualized
volatility rate, 6.35% risk free rate of return and .36% dividend yield, and an
assumed annual attrition factor of 3.0% for each of the five years prior to
vesting.
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<PAGE> 20
CHIEF EXECUTIVE OFFICER COMPENSATION
Peter B. Lewis, the Company's Chief Executive Officer, received cash
compensation in the amount of $2,780,003 for 1997, consisting of a salary of
$830,769 and an annual bonus award of $1,949,234, in addition to the non-cash
compensation disclosed in the Summary Compensation Table and related footnotes
on page 9. Mr. Lewis's salary has been reduced from a high of $1,198,077 in
1991, because the Committee desires to place more emphasis on the variable
components of executive pay.
Mr. Lewis's annual bonus target for 1997 was $1,121,538, an amount equal to
135% of his salary. For Mr. Lewis, 80% of his bonus target was based on the Core
Business Gainsharing Component and 20% was based on the Investment Component.
For 1997, the Core Business Gainsharing Component was determined by a
Gainsharing Matrix which measures profitability and growth in net written
premiums for the Company's Core Business. In 1997, the Company's Core Business
achieved a CR of 93.1, with 33% growth in net written premiums, resulting in a
performance score of 1.738 for the Core Business Gainsharing Component. In
addition, the Investment Component score was 1.740 compared to a target of 1.0.
Applying the weighting factors to the performance scores for each of the
components, and then combining the results, produced a Performance Factor of
1.738. Mr. Lewis therefore earned 173.8% of target, or $1,949,234, as his annual
bonus.
For the long-term incentive component of his compensation, on March 12,
1997, Mr. Lewis was awarded stock options to purchase 73,600 of the Company's
Common Shares at an exercise price of $68.375 per share. This award vests on
January 1, 2002, and was determined in accordance with the stock option formula
described above.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
In 1993, the Internal Revenue Code of 1986 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 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 solely 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 performance goals
must be disclosed to and approved by shareholders before payment; and (d) the
compensation committee must certify in writing prior to payment that the
performance goals and any other material terms have been satisfied.
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<PAGE> 21
Compensation attributable to a stock option award is deemed to satisfy the
requirements for "performance-based compensation" if the award is made by a
compensation committee comprised solely of two or more "outside directors," the
plan under which the award has been granted is approved by shareholders and
states the maximum number of shares with respect to which options may be granted
during a specified period to any employee and, under the terms of the option,
the amount of compensation the employee could receive is based solely on an
increase in the value of the stock after the date of the award. Generally, the
Deduction Limit does not apply to any compensation payable under a written
contract that was in effect on February 17, 1993, or pursuant to a plan or
arrangement approved by shareholders prior to December 20, 1993, provided
certain requirements are met.
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. The Company's stock
incentive plans, as well as the 1997 Executive Bonus Plan, have been submitted
to and approved by the Company's shareholders. Compensation awards under these
Plans are designed to satisfy the requirements of the "performance based
compensation" exception to the Deduction Limit. 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 executive 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 corporate
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.
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<PAGE> 22
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
Janet Hill
Norman S. Matthews
Paul B. Sigler
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<PAGE> 23
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 12/31/97)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) PGR S&P INDEX P/C GROUP
<S> <C> <C> <C>
1992 100 100 100
1993 140 110 102
1994 122 112 101
1995 171 154 142
1996 236 190 182
1997 422 253 280
</TABLE>
*Assumes reinvestment of dividends.
Source: Value Line, Inc.
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<PAGE> 24
ITEM 2: APPROVAL OF AMENDMENT TO THE COMPANY'S AMENDED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED COMMON
SHARES FROM 200,000,000 TO 300,000,000
The Board of Directors is submitting to shareholders for approval an
amendment to the Company's Amended Articles of Incorporation ("Amended
Articles") to increase the number of Common Shares, $1.00 par value, which the
Company is authorized to issue from 200,000,000 to 300,000,000 and recommends
that the Company's shareholders approve the amendment.
The full text of the first paragraph of Article FOURTH of the Amended
Articles reflecting this amendment is attached to this proxy statement as
Exhibit A. The following description of the amendment is qualified in its
entirety by reference to Exhibit A.
The additional Common Shares for which authorization is sought would have
the same rights and privileges as the Common Shares currently outstanding.
Holders of Common Shares have no preemptive rights to subscribe for or purchase
any additional shares of the Company.
As of February 27, 1998, 72,427,300 Common Shares were outstanding and
10,293,849 additional shares were reserved for issuance under various stock
option and other employee benefit plans maintained by the Company (although only
4,964,092 of such shares are currently subject to outstanding stock options or
other awards). As of that date, a balance of 106,629,832 Common Shares remained
authorized but unissued and not subject to reservation, and 10,649,019 shares
were held in treasury.
Although the Company currently has no plan or commitment that would result
in the sale or issuance of additional Common Shares (other than pursuant to
employee benefit plans) the Board believes that the number of Common Shares
currently available for issuance is insufficient to meet the future needs of the
Company.
REASON FOR AND EFFECTS OF PROPOSED AMENDMENT
The Board believes that it is desirable to have additional authorized but
unissued Common Shares available for possible future share dividends or splits,
employee benefit programs, financing and acquisition transactions and other
general corporate purposes. For example, the Company issued 38,453,952 Common
Shares pursuant to a 3-for-1 stock split effected in the form of a share
dividend in December 1992 and sold 4,950,000 Common Shares to the public in July
1993. The Company also issued 9,000,000 shares in December 1992 upon the
conversion of its $75,000,000 Floating Rate Convertible Subordinated Debentures
due 2008. While there can be no assurance that additional share distributions or
sales of Company securities will be made in the future, the Board wishes to have
sufficient Common Shares available for such purposes if conditions warrant such
distributions or sales. Such authorized but unissued Common Shares would be
available for issuance without further action by the shareholders, unless such
action is required by applicable law or the rules of any stock exchange on which
the Company's securities
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<PAGE> 25
may be listed. The Company's Common Shares are currently listed on the New York
Stock Exchange.
The Company's purpose in increasing the number of authorized Common Shares
available for issuance is described in the preceding paragraph. Nevertheless,
the existence of authorized and unissued Common Shares might be considered as
having the effect of discouraging an attempt by another person or entity,
through the acquisition of a substantial number of the Company's Common Shares,
to acquire control of the Company with a view to effecting a merger, sale of the
Company's assets or similar transaction, since the issuance of Common Shares
could be used to dilute the share ownership and voting rights of such person or
entity. Further, any of such authorized but unissued Common Shares could be
privately placed with purchasers who might support incumbent management, making
a change in control of the Company and removal of incumbent management more
difficult.
DESCRIPTION OF CAPITAL SHARES
The Company's Amended Articles currently authorize (a) 200,000,000 Common
Shares, $1.00 par value, of which 72,427,300 were issued and outstanding at
February 27, 1998; (b) 20,000,000 Serial Preferred Shares, without par value
("Serial Preferred Shares"), none of which are currently outstanding and (c)
5,000,000 Voting Preference Shares, without par value ("Voting Preference
Shares"), none of which are currently outstanding (the Serial Preferred Shares
and Voting Preference Shares are collectively referred to herein as "Preferred
Shares").
Because the Company is a holding company, its rights and the rights of its
creditors and shareholders to participate in the assets of any subsidiary upon
the latter's liquidation or recapitalization will be subject to the prior claims
of the subsidiary's creditors, except to the extent that the Company may itself
be a creditor with recognized claims against the subsidiary, other than as a
holder of the subsidiary's outstanding shares of capital stock.
In addition, insurance statutes in many states impose limitations on the
ability of regulated insurance companies to pay dividends and transfer assets to
their affiliates. Such statutes may require prior approval for the payment of
dividends by the Company's regulated insurance company subsidiaries to the
Company or its affiliates. Since a significant source of the Company's
internally generated cash flow is dividends paid to it by its subsidiaries, the
Company's ability to meet its obligations and pay dividends on its outstanding
shares may be affected by any such limitations or prior approval requirements.
COMMON SHARES
Subject to the rights of the Company's creditors and the holders of any
outstanding Preferred Shares, the holders of Common Shares are entitled to
receive such dividends as may be declared by the Board of Directors and to share
ratably in assets available for distribution upon liquidation. There are no
preemptive rights, conversion rights, redemption provisions or
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<PAGE> 26
sinking fund provisions with respect to the Common Shares. Holders of Common
Shares are entitled to one vote per share. Upon compliance by holders of Common
Shares with certain statutory notice provisions, such holders are entitled to
cumulate their votes in the election of directors.
PREFERRED SHARES
The Board of Directors of the Company is empowered to authorize the
issuance of Serial Preferred Shares and Voting Preference Shares, each of which
may be issued in one or more series. All series of Serial Preferred Shares and
Voting Preference Shares will rank equally and will be identical in all
respects, except that the rights of holders of Serial Preferred Shares and
Voting Preference Shares may differ as to voting rights and provisions for
certain consents, and that the Board of Directors may fix with respect to each
such series without further action by the shareholders, prior to issuance
thereof, the following terms: (a) the designation of the series; (b) the
authorized number of shares of the series, subject to certain increases and
decreases as determined by the Board of Directors from time to time; (c) the
dividend rate or rates of the series; (d) the date or dates from which dividends
shall accrue and (if applicable) be cumulative and the dates on which and the
period or periods for which dividends, if declared, shall be payable; (e) the
redemption rights and prices, if any; (f) the terms and amounts of the sinking
fund, if any; (g) the amount payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company; (h) whether the shares of the series shall be convertible into
Common Shares or shares of any other class and, if so, the conversion rate or
rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made and (i) the restrictions on
the issuance of shares of the same or any other class or series. All series of
Preferred Shares would rank, as to dividend and liquidation rights, senior to
Common Shares.
The holders of Serial Preferred Shares shall have no voting rights, except
as otherwise provided by law and specifically provided in the Amended Articles
with respect to certain matters. The holders of Voting Preference Shares shall
(x) be entitled to one vote per share, (y) vote as a class with the Common
Shares (except as otherwise provided by law or the Amended Articles) and (z)
have certain special voting rights substantially similar to those specifically
provided to holders of Serial Preferred Shares and special voting rights with
respect to certain extraordinary transactions involving the Company. Under the
Company's Amended Articles, the affirmative vote or consent of holders of at
least two-thirds of the Voting Preference Shares at the time outstanding would
be necessary to effect a merger or consolidation with the Company, the sale of
all or substantially all of the Company's assets and certain other transactions.
Holders of Preferred Shares will have no preemptive rights to purchase or
subscribe for any additional Preferred Shares or other securities of the
Company. Preferred Shares may be issued
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<PAGE> 27
by the Company if and when the Board of Directors deems it desirable without
further shareholder action. The Company has no present plan to issue any
Preferred Shares and no Preferred Shares are currently outstanding.
Because of its authority to create and issue any series of Preferred Shares
without shareholder approval, the Board of Directors could adversely affect the
voting power and other rights of the Common Shares. The issuance of Preferred
Shares could also have the effect of delaying, deferring or preventing a change
in control of the Company. The ability of the Board of Directors to issue
Preferred Shares, while providing flexibility in connection with financings,
acquisitions and other corporate purposes, nevertheless could have the effect of
discouraging an attempt by another person or entity, through the acquisition of
a substantial number of Common Shares, to acquire control of the Company with a
view to effecting a merger, sale of the Company's assets or similar transaction,
since the issuance of Preferred Shares could be used to dilute the share
ownership and voting rights of a person or entity seeking to obtain control of
the Company. Additionally, any issuance of Preferred Shares could result in
there being a class of shares with conversion features and preference over the
Common Shares with respect to dividends and distributions in liquidation and, in
the event of any such conversion, could also result in the dilution of net
income and book value per share of the Company. Moreover, an issuance or private
placement of Voting Preference Shares to or with persons supporting current
management of the Company could deter an unsolicited tender offer or other
attempt by others to acquire control of the Company with a view to effecting a
merger or consolidation with the Company, sale of all or a substantial part of
the Company's assets or similar transaction, because the terms of the Voting
Preference Shares require that the holders thereof approve all such transactions
by a two-thirds vote. As a result, a vote by the holders of such shares could
block a merger, sale of the Company's assets or similar transaction which a
majority of the Common Shareholders of the Company believes desirable.
PROVISIONS THAT COULD DISCOURAGE A CHANGE OF CONTROL; OHIO LAWS REGARDING
CONTROL SHARE ACQUISITIONS AND MERGER MORATORIUM
The proposed amendment could have the effect of discouraging a merger,
tender offer or other change in control of the Company or the replacement of its
directors and management. Certain other provisions of the Company's Amended
Articles and Code of Regulations, and of Ohio corporation law, could have a
similar effect.
The Company's Amended Articles contain requirements for approval of certain
business combinations involving the Company. These provisions require that,
unless a "fair price" requirement has been satisfied, any merger and certain
other business combination transactions involving the Company and any holder of
20% or more of the Company's Common Shares ("Related Person") cannot be
completed unless the transaction is approved either by a majority of the
Company's "Continuing Directors" (as defined in the Amended Articles) or by the
affirmative vote of the holders of 75% of the Common Shares having voting power
with respect
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<PAGE> 28
to any such proposal and by the affirmative vote of the holders of a majority of
the Common Shares having voting power with respect to any such proposal other
than the Common Shares owned by the Related Person. Under the "fair price"
provision, the cash or other consideration to be paid for each of the Company's
Common Shares acquired in the transaction cannot be less than the highest per
share price paid by the Related Person in acquiring any of the Company's Common
Shares. These provisions may not be amended or repealed except by the vote of
holders of 75% of the Common Shares having voting power with respect to any such
proposal. The directors and executive officers of the Company beneficially own
approximately 15.9% of the outstanding Common Shares.
On April 25, 1997, the Company's shareholders approved amendments to the
Company's Code of Regulations which classify the Board of Directors into three
classes of directors serving staggered three-year terms, increase the
shareholder vote necessary to increase or decrease the number of directors to
75% of the voting power of the Company, require advance written notice to the
Company of shareholder nominations for the election of directors and increase
the shareholder vote necessary to amend or repeal the foregoing provisions to
75% of the voting power of the Company.
The Code of Regulations of the Company currently provides that directors
may be removed without cause only by the affirmative vote of 75% of the voting
power of the Company with respect to the election of directors. This provision
would prevent a shareholder possessing a majority, but less than 75%, of the
voting power of the Company from unilaterally removing directors and replacing
them with its own representatives.
In addition, Ohio corporation law requires prior shareholder approval of
any "control share acquisition" of certain Ohio corporations, including the
Company. A "control share acquisition" is defined as the acquisition of
one-fifth, one-third or a majority of the voting power of the corporation in the
election of directors. Under these provisions, any person who proposes to make a
control share acquisition of the Company is required to notify the Company in
advance of the proposed transaction and upon receipt of such notice, the Company
must call a special meeting of shareholders to vote on the transaction. A
twofold quorum requirement would have to be met at the meeting; that is, both
the holders of a majority of the voting shares, and the holders of a majority of
the voting shares after excluding shares held by the acquiring person, certain
directors and officers of the Company, and certain other holders who have
acquired a large block of the Company's stock after public disclosure of the
proposed control share acquisition, would have to be present in person or by
proxy at the meeting. The proposed acquisition could proceed only if it is
approved by a majority of both of these quorums. The notice, special meeting and
shareholder approval requirements must be met each time a person's holdings,
after giving effect to the proposed share purchase, would exceed any of the
one-fifth, one-third or majority voting power thresholds.
Further, Ohio corporation law includes "merger moratorium" provisions that,
in general, prohibit certain Ohio corporations, including the Company (an
"issuing public corporation"),
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from entering into a merger, consolidation or other specified transaction
("Regulated Transaction") with any person who, together with related parties,
has the right to exercise 10% or more of the voting power of the issuing public
corporation in the election of directors ("interested shareholder"), for a
period of three years after the date on which such person became an interested
shareholder ("share acquisition date"), unless, prior to such share acquisition
date, the directors of the issuing public corporation approved either the
Regulated Transaction or the purchase of shares which resulted in such person
becoming an "interested shareholder." After the three-year period, the issuing
public corporation may engage in a Regulated Transaction with the interested
shareholder only if (a) the directors of such corporation had approved the
purchase of shares by the interested shareholder prior to such share acquisition
date, (b) the transaction is approved by the affirmative vote of the holders of
at least two-thirds of the voting power of the issuing public corporation (or
such other proportion as the articles may provide) and by at least a majority of
the disinterested shares or (c) certain "fair price" requirements are satisfied
with the respect to the consideration payable in the transaction to the holders
of disinterested shares.
The Company and its shareholders are subject to the "control share
acquisition" and "merger moratorium" laws whether or not the proposed amendment
is adopted. The proposed amendment is not part of a comprehensive plan of the
Board or management to implement a series of "anti-takeover" measures and
neither the Board nor management presently intends to propose any other or
additional amendments to the Company's Amended Articles of Incorporation or Code
of Regulations that may have such an effect.
VOTE REQUIRED FOR APPROVAL
Under Ohio corporation law and the Company's Amended Articles, the
affirmative vote of a majority of the outstanding Common Shares is required for
approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
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ITEM 3: PROPOSAL TO APPROVE THE PROGRESSIVE CORPORATION
1998 DIRECTORS' STOCK OPTION PLAN
GENERAL
The Progressive Corporation 1998 Directors' Stock Option Plan ("1998 Plan")
was adopted by the Board of Directors on February 6, 1998, subject to
shareholder approval as described below. The full text of the 1998 Plan will be
filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997. The following description is qualified in its entirety
by reference to the 1998 Plan.
The 1998 Plan is subject to approval by shareholders at the Annual Meeting.
Such approval is required by the rules of the New York Stock Exchange. If
approved by shareholders, the 1998 Plan will replace the 1990 Directors' Stock
Option Plan ("1990 Plan") with respect to future stock option awards for
directors. The termination of the 1990 Plan will not affect the rights of
directors with respect to any outstanding stock options previously granted
thereunder. The 1990 Plan is a "formula" plan, under which the decisions
concerning the timing, price and amount of all stock option awards granted to
participating directors are determined in advance and specified in the Plan.
Under the 1990 Plan, after each Annual Meeting of Shareholders, each
non-employee director of the Company receives a stock option to purchase 2,000
Common Shares at a per share exercise price equal to the fair market value of
the Common Shares on the date of such Annual Meeting. This formula ensured that
the grant of such options would qualify for the exemption from the forfeiture
provisions of Sections 16(b) of the Securities Exchange Act of 1934 ("1934 Act")
provided by Rule 16b-3 of the Securities and Exchange Commission. Generally,
Section 16(b) provides for the forfeiture of any profit realized by officers,
directors and 10% shareholders of a public company from any combination of a
purchase and sale of the company's equity securities within any six-month period
("short-swing liability"). Rule 16b-3 provides an exemption from Section 16(b)
for certain transactions under employee stock plans, provided specified
conditions are met.
Rule 16b-3 was amended in 1996. Prior to these amendments, the exemption
afforded by the Rule was conditioned, among other things, upon shareholder
approval of the plan. Under the 1996 amendments, shareholder approval of a
stock-based plan is no longer required as a condition to the exemption provided
by the Rule; instead individual stock option awards may now be approved by
either shareholders, the full board of directors or a board committee consisting
of not less than two "non-employee" directors. These amendments allow companies
to replace their rigid formula plans with new plans that offer the flexibility
to structure the size and value of individual stock option awards in light of
competitive conditions, while retaining the exemption from short-swing liability
provided by Rule 16b-3, as amended. The Board believes that it is in the best
interest of the Company to replace the 1990 Plan with the 1998 Plan in order to
provide the Company with the flexibility to determine the size and value of
individual awards in light of trends in director compensation and to help ensure
that the
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Company's compensation program for Board members remains both fair and
competitive. If shareholders fail to approve the 1998 Plan, the 1990 Plan will
remain in effect until April 27, 2000, and the Company may adopt a cash-based
plan or provide other alternative means to attract, retain and reward directors.
The purposes of the 1998 Plan are to enable the Company to attract, retain
and reward directors of the Company and to strengthen the mutuality of interest
between such directors and the Company's shareholders by offering such directors
options to purchase Common Shares of the Company.
The 1998 Plan provides for the granting to eligible directors of the
Company of options ("Stock Options") to purchase Common Shares, $1.00 par value,
of the Company. All directors of the Company who are not full-time employees of
the Company or any of its subsidiaries are eligible to participate in the 1998
Plan. There are currently eight non-employee directors of the Company. Under the
terms of the 1998 Plan, Stock Options may be granted with respect to an
aggregate of not more than 200,000 Common Shares, subject to adjustment for
stock splits and similar events. The Common Shares issuable under the 1998 Plan
will be either authorized but unissued or treasury shares. Common Shares subject
to Stock Options under the 1998 Plan which are forfeited or terminated or expire
unexercised shall be again available for distribution in connection with future
awards of Stock Options under the Plan. The closing price of the Common Shares
on the New York Stock Exchange on March 3, 1998 was $117 5/16.
ADMINISTRATION
The 1998 Plan will be 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 "non-employee directors" within the meaning of Rule
16b-3. The Committee members serve at the pleasure of the Board.
The Committee has full power and authority to interpret and administer the
1998 Plan, to select the individuals to whom awards will be granted under the
1998 Plan and to determine the number of shares that may be purchased under
awards 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 stock option agreements entered into
with participants.
The Committee has the authority to adopt, alter and repeal such rules,
guidelines and practices governing the 1998 Plan as it shall deem advisable from
time to time; to interpret the terms and provisions of the plan and any award
issued under the plan (and any agreements relating thereto); and to otherwise
supervise the administration of the plan.
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TERMS OF STOCK OPTIONS
Each Stock Option granted under the 1998 Plan will be evidenced by the
execution of a stock option agreement in form approved by the Committee. The
option exercise price per Common Share under a Stock Option will be equal to the
Fair Market Value (as defined in the 1998 Plan) of the Common Shares on the date
of grant. The Committee may substitute new Stock Options for previously granted
Stock Options, including previously granted Stock Options having a higher option
exercise price.
The term of each Stock Option will be determined by the Committee and may
not exceed 10 years from the date of grant.
The Committee will determine the time or times at which, and the conditions
under which, each Stock Option may be exercised. Unless otherwise determined by
the Committee at or after grant, no Stock Option may be exercisable prior to six
months and one day following the date of grant. 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.
Stock Options may be exercised, in whole or in part, by giving written
notice of exercise to the Company specifying the number of Common Shares to be
purchased. Such notice must be accompanied by payment in full of the purchase
price for such Common Shares, either in cash or by check or such other
instrument as the Company may accept. Unless otherwise determined by the
Committee, the option exercise price may be paid in full or in part by delivery
of unrestricted Common Shares or Common Shares that are part of the Stock Option
being exercised. In each case, the Common Shares so delivered will be valued at
Fair Market Value on the exercise date.
Stock Options shall not be transferable by the participant. All Stock
Options may be exercised only by the participant, by his estate in the event of
his death, or by his authorized legal representative if the participant is
unable to exercise an option as a result of disability.
If a participant dies while holding an unexercised Stock Option, such Stock
Option may thereafter be exercised, to the extent such option was exercisable at
the time of death or would have become exercisable within one year thereafter
had the participant continued to fulfill all conditions of the award during such
period, by the participant's estate (acting through its fiduciary) for a period
of one year from the date of death, regardless of the term of the Stock Option
remaining after the participant's death. The balance of the Stock Option will be
forfeited.
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 Stock 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 award during such period, by the
participant or by the participant's duly authorized legal representative if the
participant
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is unable to exercise the Stock Option as a result of his 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 Stock Option be exercised prior to six
months and one day from the date of grant. The balance of the Stock Option will
be forfeited.
The Company may at any time buy out, for a payment in cash or Common
Shares, a Stock Option previously granted, on such terms and conditions as shall
be agreed upon by the Company and the participant.
CHANGE IN CONTROL
Certain acceleration and valuation provisions take effect with respect to
outstanding Stock Options upon the occurrence of a Change in Control or a
Potential Change in Control (as such terms are defined in the 1998 Plan) of the
Company. In the event of a Change in Control or a Potential Change in Control,
any Stock Options then outstanding will be cashed out for the Change in Control
Price (as defined in the 1998 Plan), unless the Change in Control is approved by
the Board of Directors prior thereto.
ADJUSTMENTS FOR STOCK DIVIDENDS, MERGERS, ETC.
In the event of any consolidation or merger, stock split or combination,
stock dividend or other change in the Common Shares, such adjustment will be
made in the aggregate number of shares reserved for issuance under the 1998
Plan, and in the number and option price of shares subject to outstanding Stock
Options as shall be necessary to prevent dilution of the participants'
interests.
AMENDMENT AND TERMINATION
The Board may at any time, in its sole discretion, amend, alter or
discontinue the 1998 Plan, or amend the terms of any outstanding Stock Option
granted thereunder. No such action shall be taken, however, which would impair
the rights of a participant under a Stock Option previously granted without the
participant's consent. The Company's shareholders will be asked to approve any
amendment to the 1998 Plan required to be submitted for shareholder approval
under Section 16 of the 1934 Act or the rules and regulations promulgated
thereunder or under the rules of the New York Stock Exchange.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following is a brief summary of the general federal income tax
consequences of transactions under the 1998 Plan based on federal income tax
laws in effect as of the date hereof. This summary is not intended to be
exhaustive and does not describe foreign, state or local tax consequences.
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Stock Options granted under the 1998 Plan do not qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), and are therefore deemed to be non-qualified stock options for federal
income tax purposes. Generally, therefore, (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
exercise price paid for the shares, and the Company is entitled to a tax
deduction in the amount of ordinary income realized (provided that applicable
reporting requirements are satisfied); and (c) upon disposition of the shares
received upon the exercise of the option, the optionee recognizes, as either
short-term, mid-term or long-term capital gain (loss), depending upon the length
of time that the optionee has held the shares, gain (loss) equal to the
difference between the amount realized and the fair market value of the shares
on the date of exercise.
With respect to the exercise of a Stock Option and the payment of the
option exercise price by the delivery of 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
shares received will be the same as the tax basis of the shares surrendered, and
the holding period of the optionee in the shares received will include his
holding period in the shares surrendered. To the extent that the number of
shares received upon the exercise of the option exceeds the number of shares
surrendered, ordinary income will be realized by the optionee at that time in
the amount of the fair market value of such excess shares, the tax basis of such
excess shares will be such fair market value, and the holding period of the
optionee in such shares will begin on the date such shares are transferred to
the optionee.
Upon a subsequent sale of any shares acquired pursuant to the exercise of a
Stock Option, an optionee will have capital gain (loss) equal to the difference
between the amount realized upon such sale and the optionee's basis in the
shares. The optionee's basis is equal to the sum of the purchase price of such
shares and the amount of income, if any, recognized upon the exercise of such
Stock Option. Whether any such capital gain (loss) is short-term, mid-term or
long-term will depend on the optionee's holding period with respect to the
shares.
CAPITAL GAINS
Under current law, long-term capital gains of individuals are subject to a
maximum tax rate of 20% (or 10% for individuals in the 15% ordinary income tax
bracket). Mid-term capital gains of individuals are subject to a maximum tax
rate of 28%. Short-term capital gains of individuals are subject to the same tax
rates as those applicable to ordinary income. Capital losses must be offset
against any capital gains, and only the lesser of the excess of such capital
losses over such capital gains or $3,000 ($1,500 in the case of a married
individual filing a separate return) is deductible against other income.
Long-term capital gain or loss treatment is applicable if the holding
period is more than 18 months. Mid-term capital gain or loss treatment is
applicable if the holding period is more than
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one year but not more than 18 months. Short-term capital gain or loss treatment
is applicable if the holding period is one year or less.
OTHER BENEFIT PLANS FOR DIRECTORS
In voting on this proposal, shareholders should consider the provisions
that the Company has already made to compensate and reward directors. The
Company pays retainer and meeting fees to directors, maintains the Directors
Deferral Plan and has granted stock options to participating directors under the
1990 Plan. These fees and plans are described above under "Executive
Compensation," beginning on page 9.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the votes cast on this proposal,
provided the total number of votes cast represents a majority of the outstanding
Common Shares, is required for the approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
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INDEPENDENT ACCOUNTANTS
At the meeting of the Board of Directors of the Company held on February 6,
1998, the Board selected Coopers & Lybrand L.L.P. to serve as the independent
accountants for the Company and its subsidiaries for 1998. 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 1999 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 25, 1998. 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 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 amend the Company's Amended Articles of Incorporation to
increase the number of authorized Common Shares from 200,000,000 to 300,000,000
will be adopted if approved by the affirmative vote of a majority of the
outstanding Common Shares. Abstentions and broker non-votes will not be counted
as affirmative votes and thus will have the same effect as a vote against this
proposal.
The proposal to approve The Progressive Corporation 1998 Directors' Stock
Option Plan will be adopted if approved by the affirmative vote of the majority
of the votes cast on the proposal, provided a majority of the outstanding Common
Shares are voted on the proposal. Abstentions and broker non-votes will not be
counted as cast votes.
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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 $16,000. 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) to elect the three nominees named under "Election of Directors" above;
(b) FOR the proposal to amend the Company's Amended Articles of Incorporation to
increase the number of authorized Common Shares from 200,000,000 to 300,000,000
and (c) FOR the proposal to approve The Progressive Corporation 1998 Directors'
Stock Option 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.
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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 1997 (OTHER THAN CERTAIN EXHIBITS). REQUESTS FOR
SUCH DOCUMENT SHOULD BE SUBMITTED IN WRITING TO JEFFREY W. BASCH, CHIEF
ACCOUNTING OFFICER, THE PROGRESSIVE CORPORATION, 6300 WILSON MILLS ROAD,
MAYFIELD VILLAGE, OH 44143, OR BY TELEPHONE AT (440) 446-2851.
By Order of the Board of Directors.
David M. Schneider, Secretary
March , 1998
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EXHIBIT A
The following is the full text of the first paragraph of Article FOURTH of
the Amended Articles of Incorporation of The Progressive Corporation
("Company"), reflecting the amendment described in Item 2 of the Company's Proxy
Statement dated March , 1998.
FOURTH. The authorized number of shares of the corporation is
325,000,000, consisting of 20,000,000 Serial Preferred Shares, without
par value (hereinafter called "Serial Preferred Shares"), 5,000,000
Voting Preference Shares, without par value (hereinafter called "Voting
Preference Shares"), and 300,000,000 Common Shares, $1.00 par value
(hereinafter called "Common Shares").
A-1
<PAGE> 40
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.
(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.
<PAGE> 41
(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
<PAGE> 42
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 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
<PAGE> 43
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
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 any time during the related Option Term, by giving
<PAGE> 44
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 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
<PAGE> 45
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;
(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
<PAGE> 46
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 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.
<PAGE> 47
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.
(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.
<PAGE> 48
(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> 49
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.
<PAGE> 50
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 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
<PAGE> 51
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 24, 1998, 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. [ ] WITH or [ ] WITHOUT authority to vote (except as marked to the
contrary below) for the election as directors of all three
nominees listed below, each to serve for a term of three (3)
years.
B. Charles Ames, Peter B. Lewis and Donald B. Shackelford
(INSTRUCTION: To withhold authority to vote for any individual
nominee, print that nominee's name on the space
provided below.)
----------------------------------------------------------------------
2. Proposal to approve an amendment to the Company's Amended Articles
of Incorporation to increase the number of authorized Common
Shares, $1.00 par value, from 200,000,000 to 300,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve The Progressive Corporation 1998 Directors'
Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued, and to be dated and signed, on the other side)
(Continued from the other side)
4. 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 1 ABOVE AND TO APPROVE
THE PROPOSALS DESCRIBED IN ITEMS 2 AND 3 ABOVE.
Receipt of Notice of Annual Meeting of Shareholders and the related
Proxy Statement dated March , 1998, is hereby acknowledged.
Date: , 1998
----------------------------------
----------------------------------
----------------------------------
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.
Proxy Card
