PROGRESSIVE CORP/OH/, 10-K, 2000-03-30

PROGRESSIVE CORP/OH/
10-K, 2000-03-30
FIRE, MARINE & CASUALTY INSURANCE

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<PAGE> 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
-----------------------------------------------
1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________________ to _______________________

Commission file number 1-9518
-----------------------

THE PROGRESSIVE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

OHIO 34-0963169
- -------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6300 Wilson Mills Road, Mayfield Village, Ohio 44143
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(440) 461-5000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered

COMMON SHARES, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
- --------------------------------------- -----------------------------------

Securities registered pursuant to Section 12(g) of the Act:

None
- --------------------------------------------------------------------------------
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant at January 31, 2000: $3,945,195,528.75

The number of the registrant's Common Shares, $1.00 par value, outstanding as of
February 29, 2000: 72,993,722

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 1999 are incorporated by reference in Parts I, II and IV hereof.
Portions of the registrant's Proxy Statement dated March 16, 2000, for the
Annual Meeting of Shareholders to be held on April 21, 2000, are incorporated by
reference in Part III hereof.

<PAGE> 2

INTRODUCTION

The Progressive Corporation and subsidiaries' (collectively, the "Company") 1999
Annual Report to Shareholders (the "Annual Report") contains portions of the
information required to be included in this Form 10-K, which are incorporated
herein by reference. Cross references to relevant sections of the Annual Report
are included under the appropriate items of this Form 10-K.

Portions of the information included in The Progressive Corporation's Proxy
Statement dated March 16, 2000, for the Annual Meeting of Shareholders to be
held on April 21, 2000 (the "Proxy Statement") have also been incorporated by
reference herein and are identified under the appropriate items in this Form
10-K.

PART I
ITEM 1. BUSINESS

(a) General Development of Business

The Progressive insurance organization began business in 1937. The Progressive
Corporation, an insurance holding company formed in 1965, has 82 subsidiaries
and 1 mutual insurance company affiliate. The Progressive Corporation's
insurance subsidiaries and affiliate provide personal automobile insurance and
other specialty property-casualty insurance and related services throughout the
United States. The Company's property-casualty insurance products protect its
customers against collision and physical damage to their motor vehicles and
liability to others for personal injury or property damage arising out of the
use of those vehicles.

(b) Financial Information About Industry Segments

Incorporated by reference from Note 11, SEGMENT INFORMATION, on page 46
of the Company's Annual Report.

The Company offers a number of personal and commercial property-casualty
insurance products related to motor vehicles. Net premiums written were $6,124.7
million in 1999, compared to $5,299.7 million in 1998 and $4,665.1 million in
1997. The underwriting profit margin was 1.7% in 1999, compared to 8.4% in 1998
and 6.6% in 1997.

PERSONAL LINES

Of the approximately 230 United States insurance company groups writing private
passenger auto insurance, the Company estimates that it ranks fourth in size for
1999. For 1999, the estimated industry premiums written, which include personal
auto insurance in the United States and Ontario, Canada, were $123.8 billion,
and Progressive's share of this market was approximately 4.6%, compared to
$120.7 billion and 4.1%, respectively, in 1998, and $117.5 billion and 3.7% in
1997. Except as otherwise noted, all industry data and Progressive's market
share or ranking in the industry were derived either directly from data reported
by A.M. Best Company Inc. ("A.M. Best") or were estimated using A.M. Best data
as the primary source.

The Company's Personal Lines segment writes insurance for private passenger
automobiles and recreation vehicles. This business frequently offers more than
one program in a single state, with each targeted to a specific market segment.
Personal Lines accounted for 93% of the Company's 1999 and 1998 total net
premiums written, compared to 92% in 1997. The Company's strategy is to build
towards becoming a low-cost provider of a full line of auto insurance products
and related services, distributed through whichever channel the customer
prefers.

Private passenger automobile insurance is comprised of preferred, standard and
non-standard automobile risks. Standard and preferred automobile risks accounted
for between 45% and 50% of the Company's total Personal Lines premiums in 1999.
The Company's goal is to compete successfully in the standard and preferred
market, which comprises about 80% of the United States' personal automobile
insurance market.

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Nonstandard automobile insurance accounts for the remaining private passenger
automobile insurance written by the Company. The size of the nonstandard
automobile insurance market changes with the insurance environment and is
estimated to be about 20% of the United States' personal automobile insurance
market. Volume potential is influenced by the actions of direct competitors,
writers of standard and preferred automobile insurance and state-mandated
involuntary plans. Approximately 376 nonstandard insurance companies, many of
which are part of an affiliated group, compete for this business. The Company is
a leading writer in the nonstandard auto market.

The Company's specialty Personal Lines products include motorcycle, recreation
vehicle, mobile home, watercraft and snowmobile insurance. The Company's
competitors are specialty companies and large multi-line insurance carriers.
Although industry figures are not available, based on the Company's analysis of
this market, the Company believes that it is one of the largest participants in
the specialty personal lines market. In 1998, Progressive became the market
share leader in the motorcycle product.

The Company launched a homeowners product in Arizona in March 2000 and plans to
expand to a few additional states during the year. Initially, the Company will
sell its homeowners insurance through a select number of independent agents. The
Company recognizes that many consumers and agents prefer the convenience of
placing their home and auto insurance with the same company. The new product
line will also include condominium owners' and renters' insurance policies. To
minimize the overall exposure, the Company will reinsure this product through a
75% quota share agreement under which the Company has a 25% net retention.

The Personal Lines business is generated either by an Agent or written directly
by the Company. The Agent channel includes business written by the Company's
network of more than 30,000 Independent Insurance Agents, located throughout the
United States, and through Strategic Alliance business relationships. The
Independent Insurance Agents have the authority to bind the Company to specified
insurance coverages within prescribed underwriting guidelines, subject to
compliance with certain Company-mandated procedures. These guidelines prescribe
the kinds and amounts of coverage that may be written and the premium rates that
may be charged for specified categories of risk. The Agents do not have
authority on behalf of the Company to settle or adjust claims, establish
underwriting guidelines, develop rates or enter into other transactions or
commitments. The Strategic Alliances channel includes alliances with other
insurance companies, financial institutions, employers and national brokerage
agencies. In 1999, the total net premiums written through Independent Agents and
Strategic Alliance agency relationships represented 83% of the Personal Lines
volume, compared to 89% in 1998. Direct business includes business written
through 1-800-AUTO-PRO(R), the Internet (progressive.com) and the Strategic
Alliance business unit on behalf of affinity groups. Net premiums written on the
Direct business were 17% and 11% of the Personal Lines volume in 1999 and 1998,
respectively.

The Company introduced its local advertising campaign, which includes direct
mail, radio and television advertising, to 3 more states in 1999 , bringing the
total number of states in which the Company advertises to 35 plus Washington,
D.C. (107 markets). The Company expanded its television advertising campaign on
a national level in 1998.

Auto insurance differs greatly by community because regulations and legal
decisions vary by state and because traffic, law enforcement, cultural
attitudes, insurance agents, medical services and auto repair facilities vary by
community. The Company's matrix organization enables it to meet varied local
conditions under a cohesive set of policies and procedures designed to provide
consistency and control. The Company's 39 State and Community Managers run the
business in the markets they serve. They manage claims, distribution,
advertising budgets, price levels, agent development, regulation and community
relations for their territory. State Managers determine their state(s)
organization, and may appoint Community Managers with responsibilities similar
to their own for a large part of the state. Processing (such as customer service
calls, direct sales calls and claims processing) is performed at ten regional
sites in Albany, New York; Austin, Texas; Cleveland, Ohio; Colorado Springs,
Colorado; Richmond, Virginia; Sacramento, California; Tampa, Florida; Tempe,
Arizona; Tigard, Oregon and Toronto, Ontario.

State Managers report directly to the Company's senior officers and Distribution
Leaders, who are the Company's senior policy and decision makers. In 2000, the
senior officers include a Chief Executive Officer (CEO), a CEO-Insurance
Operations (who also serves as the Company's Chief Information Officer), a
CEO-Investments and Capital Management, a Chief Pricing/Product Officer, a Chief
Claim Officer, a Chief Financial Officer, a Chief Human Resources Officer and a
Chief Communications Officer. The Company also has three Distribution Leaders
(Independent Agent, 1-800-AUTO-PRO(R) and progressive.com). The Distribution
Leaders are challenged to develop and manage product offerings and customer

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service processes tailored to the unique requirements of customers who discover
and select Progressive through different distribution modes.

OTHER BUSINESSES

The Company's other lines of business include the commercial vehicle business
unit, United Financial Casualty Company (UFCC), Professional Liability Group
(PLG) and Motor Carrier business unit, which are organized by customer group and
headquartered in Cleveland, Ohio. These businesses accounted for 7% of total
revenue in 1999. The choice of distribution channel is driven by each customer
group's buying preference and service needs. Distribution channels include
independent agents, financial institutions, vehicle dealers and company-employed
sales forces. Distribution arrangements are individually negotiated between such
intermediaries and the Company and are tailored to the specific needs of the
customer group and the nature of the related financial or purchase transactions.
Most of these businesses operate in markets that are declining in size.

Monoline commercial vehicle insurance covers commercial vehicle risks for
primary liability, physical damage and other supplementary insurance coverages.
Based on the Company's analysis of this market, the Company competes for this
business on a nationwide basis with approximately 150 other companies. The
Company estimates itself to be one of the largest monoline commercial auto
carriers.

UFCC primarily provides physical damage insurance and related tracking services
to protect the commercial or retail lender's interest in collateral which is not
otherwise insured against these risks. The principal product offered is
collateral protection for automobile lenders, which is sold to financial
institutions and/or their customers. Commercial banks are UFCC's largest
customer group for these services. This business also serves savings and loan
institutions, finance companies and credit unions. According to the Company's
analysis of this market, numerous companies offer these products and none of
them has a dominant market share.

PLG's principal customers are community banks. Its principal products are
liability insurance for directors and officers and employee dishonesty
insurance. Progressive shares the risk and premium on these coverages with a
small mutual reinsurer controlled by its bank customers and various other
reinsurance entities. The program is sponsored by the American Bankers
Association. Additionally, the Company provides similar coverages for credit
unions and savings and loan institutions. The risk and premium on these
coverages are also reinsured by various reinsurance entities. PLG represented
less than one-half percent of the Company's total 1999 net premiums written.

The service operations of the other lines of business consist primarily of
processing business for Commercial Auto Insurance Procedures (CAIP), which are
state supervised plans serving the involuntary markets. The Motor Carrier
business unit processes CAIP in 26 states. As a CAIP servicing carrier, this
business unit processes over 50% of the premiums in the CAIP market and assumes
no indemnity risk. It competes with 2 other providers nationwide. Prior to
November 1999, service operations also provided claim services to fleet owners
and other insurance companies.

COMPETITIVE FACTORS

The automobile insurance and other property-casualty markets in which the
Company operates are highly competitive. Property-casualty insurers generally
compete on the basis of price, consumer recognition, coverages offered, claim
handling, financial stability, customer service and geographic coverage.
Vigorous competition is provided by large, well-capitalized national companies,
some of which have broad distribution networks of employed or captive agents,
and by smaller regional insurers. While the Company relies heavily on technology
and extensive data gathering and analysis to segment and price markets according
to risk potential, some competitors merely price their coverage at rates set
lower than the Company's published rates. By avoiding extensive data gathering
and analysis, these competitors incur lower underwriting expenses. The Company
has remained competitive by closely managing expenses and achieving operating
efficiencies, and by refining its risk measurement and price segmentation
skills. In addition, the Company offers prices for a wide spectrum of risks and
seeks to offer a wider array of payment plans, limits of liability and
deductibles than its competitors. Superior customer service, claim adjusting and
strong brand recognition are also important factors in the Company's competitive
strategy.

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<PAGE> 5

LICENSES

The Company operates under licenses issued by various state or provincial
insurance authorities. These licenses may be of perpetual duration or renewable
periodically, provided the holder continues to meet applicable regulatory
requirements. The licenses govern the kind of insurance coverages which may be
written in the issuing state. Such licenses are normally issued only after the
filing of an appropriate application and the satisfaction of prescribed
criteria. All licenses which are material to the Company's business are in good
standing.

INSURANCE REGULATION

The insurance subsidiaries are generally subject to regulation and supervision
by insurance departments of the jurisdictions in which they are domiciled or
licensed to transact business. At least one of the subsidiaries is licensed and
subject to regulation in each of the 50 states and certain U.S. possessions, in
three Canadian provinces and by Canadian federal authorities. The nature and
extent of such regulation and supervision varies from jurisdiction to
jurisdiction. Generally, an insurance company is subject to a higher degree of
regulation and supervision in its state of domicile. The Company's insurance
subsidiaries and affiliate are domiciled in the states of Arizona, California,
Colorado, Hawaii, Illinois, Florida, Louisiana, Michigan, Mississippi, Missouri,
New York, Ohio, Pennsylvania, Tennessee, Texas, Washington and Wisconsin. State
insurance departments have broad administrative power relating to licensing
insurers and agents, regulating premium rates and policy forms, establishing
reserve requirements, prescribing statutory accounting methods and the form and
content of statutory financial reports, and regulating the type and amount of
investments permitted. Rate regulation varies from "file and use" to prior
approval to mandated rates. Most jurisdictions prohibit rates that are
"excessive, inadequate or unfairly discriminatory."

Insurance departments are charged with the responsibility of ensuring that
insurance companies maintain adequate capital and surplus and comply with a
variety of operational standards. Insurance companies are generally required to
file detailed annual and other reports with the insurance department of each
jurisdiction in which they conduct business. Insurance departments are
authorized to make periodic and other examinations of regulated insurers'
financial condition, to ensure adherence to statutory accounting principles and
compliance with state insurance laws and regulations.

Insurance holding company laws enacted in many jurisdictions grant to insurance
authorities the power to regulate acquisitions of insurers and certain other
transactions involving insurers and to require periodic disclosure of certain
information. These laws impose prior approval requirements for certain
transactions between regulated insurers and their affiliates and generally
regulate dividend and other distributions, including loans and cash advances,
between regulated insurers and their affiliates. See the "Dividends" discussion
in Item 5(c) for further information on these dividend limitations.

Under state insolvency and guaranty laws, regulated insurers can be assessed or
required to contribute to state guaranty funds to cover policyholder losses
resulting from insurer insolvencies. Insurers are also required by many states,
as a condition of doing business in the state, to provide coverage to certain
risks which are not insurable in the voluntary market. These so-called "assigned
risk" plans generally specify the types of insurance and the level of coverage
which must be offered to such involuntary risks, as well as the allowable
premium. Many states also have involuntary market plans which hire a limited
number of servicing carriers to provide insurance to involuntary risks. These
plans, through assessments, pass underwriting and administrative expenses on to
insurers that write voluntary coverages in those states.

Insurance companies are generally required by insurance regulators to maintain
sufficient surplus to support their writings. Although the ratio of writings to
surplus that the regulators will allow is a function of a number of factors,
including the type of business being written, the adequacy of the insurer's
reserves, the quality of the insurer's assets, and the identity of the
regulator, as a general rule, the regulators prefer that annual net written
premiums be not more than three times the insurer's total policyholders'
surplus. Thus, the amount of an insurer's surplus may, in certain cases, limit
its ability to grow its business.

Many states have laws and regulations that limit an insurer's ability to exit a
market. For example, certain states limit an automobile insurer's ability to
cancel and non-renew policies. Furthermore, certain states prohibit an insurer
from withdrawing one or more lines of business from the state, except pursuant
to a plan that is approved by the state insurance

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department. The state insurance department may disapprove a plan that may lead
to market disruption. Laws and regulations that limit cancellation and
non-renewal and that subject program withdrawals to prior approval requirements
may restrict an insurer's ability to exit unprofitable markets.

Regulation of insurance constantly changes as real or perceived issues and
developments arise. Some changes may be due to technical factors, such as
changes in investment laws made to recognize new investment vehicles; other
changes result from such general pressures as consumer resistance to price
increases and concerns relating to insurer solvency. In recent years,
legislation and voter initiatives have been introduced which deal with use of
non-public consumer information, insurance rate development, rate determination
and the ability of insurers to cancel or renew insurance policies, reflecting
concerns about consumer privacy, coverage, availability, prices and alleged
discriminatory pricing.

In some states, the automobile insurance industry has been under pressure in
past years from regulators, legislators or special interest groups to reduce,
freeze or set rates to or at levels that are not necessarily related to
underlying costs, including initiatives to roll back automobile and other
personal lines rates. This kind of activity has adversely affected, and may in
the future adversely affect, the profitability and growth of the subsidiaries'
automobile insurance business in those jurisdictions, and may limit the
subsidiaries' ability to increase rates to compensate for increases in costs.
Adverse legislative and regulatory activity limiting the subsidiaries' ability
to adequately price automobile insurance may occur in the future. The impact of
these regulatory changes on the subsidiaries' businesses cannot be predicted.

The state insurance regulatory framework has come under increased federal
scrutiny, and certain state legislatures have considered or enacted laws that
alter and, in many cases, expand state authority to regulate insurance companies
and insurance holding company systems. Further, the National Association of
Insurance Commissioners (NAIC) and state insurance regulators are re-examining
existing laws and regulations, specifically focusing on insurance company
investments, issues relating to the solvency of insurance companies and further
limitations on the ability of regulated insurers to pay dividends. The NAIC also
developed a risk-based capital (RBC) program to enable regulators to take
appropriate and timely regulatory actions relating to insurers that show signs
of weak or deteriorating financial conditions. RBC is a series of dynamic
surplus-related formulas which contain a variety of factors that are applied to
financial balances based on a degree of certain risks, such as asset, credit and
underwriting risks. In addition, from time to time, the United States Congress
and certain federal agencies investigate the current condition of the insurance
industry to determine whether federal regulation is necessary.

In 1998, the NAIC adopted the Codification of Statutory Accounting Principles
guidance which will replace the current NAIC Accounting Practices and Procedures
manual as the NAIC's primary guidance on statutory accounting. The Codification
provides guidance for areas where statutory accounting has been silent and
changes current statutory accounting in some areas. The implementation date
established by the NAIC is January 1, 2001; however, the effective date will be
specified by each insurance company's state of domicile. The Company is
currently evaluating the potential effect of the Codification guidance, but does
not expect it to have a material impact on the Company's statutory surplus.

STATUTORY ACCOUNTING PRINCIPLES

The Company's results are reported in accordance with generally accepted
accounting principles (GAAP), which differ from amounts reported under statutory
accounting principles (SAP) prescribed by insurance regulatory authorities.
Specifically, under GAAP:

1. Commissions, premium taxes and other costs incurred in connection with
writing new and renewal business are capitalized and amortized on a pro
rata basis over the period in which the related premiums are earned,
rather than expensed as incurred, as required by SAP.

2. Certain assets are included in the consolidated balance sheets, which
for SAP are charged directly against statutory surplus. These assets
consist primarily of premium receivables that are outstanding over 90
days, furniture and equipment and prepaid expenses.

3. Amounts related to ceded reinsurance are shown gross as prepaid
reinsurance premiums and reinsurance recoverables, rather than netted
against unearned premium reserves and loss and loss adjustment expense
reserves, respectively, as required by SAP.

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4. Fixed maturities securities, which are classified as
available-for-sale, are reported at market values, rather than at
amortized cost, or the lower of amortized cost or market depending on
the specific type of security, as required by SAP. Equity securities
are reported at quoted market values which may differ from the NAIC
market values as required by SAP.

5. Costs for computer software developed or obtained for internal use are
capitalized and amortized over their useful life, rather then expensed
as incurred, as required by SAP.

The differing treatment of income and expense items results in a corresponding
difference in federal income tax expense.

INVESTMENTS

The Company employs a conservative approach to investment and capital management
intended to ensure that there is sufficient capital to support all the insurance
premium that can be profitably written. The Company's portfolio is invested
primarily in short-term and intermediate-term, investment-grade fixed-income
securities. The Company's investment portfolio, at market value, was $6,427.7
million at December 31, 1999, compared to $5,674.3 million at December 31, 1998.
Investment income is affected by shifts in the types of investments in the
portfolio, changes in interest rates and other factors. Investment income,
including net realized gains on security sales, before expenses and taxes, was
$387.9 million in 1999, compared to $306.2 million in 1998 and $373.4 million in
1997. See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, beginning on page 14 herein for additional discussion.

EMPLOYEES

The number of employees, excluding temporary employees, at December 31, 1999,
was 18,753.

LIABILITY FOR PROPERTY-CASUALTY LOSSES AND LOSS ADJUSTMENT EXPENSES

The consolidated financial statements include the estimated liability for unpaid
losses and loss adjustment expenses (LAE) of the Company's insurance
subsidiaries. Total loss reserves are established at a level that is intended to
represent the midpoint of the reasonable range of loss reserve estimates. The
liabilities for losses and LAE are determined using actuarial and statistical
procedures and represent undiscounted estimates of the ultimate net cost of all
unpaid losses and LAE incurred through December 31 of each year. These estimates
are subject to the effect of future trends on claim settlement. These estimates
are continually reviewed and adjusted as experience develops and new information
becomes known. Such adjustments, if any, are reflected in the current results of
operations.

The accompanying tables present an analysis of property-casualty losses and LAE.
The following table provides a reconciliation of beginning and ending estimated
liability balances for 1999, 1998 and 1997 on a GAAP basis.

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RECONCILIATION OF NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

<TABLE>
<CAPTION>
(millions) 1999 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $2,188.6 $2,146.6 $1,800.6
Less reinsurance recoverables on unpaid losses 242.8 279.1 267.7
------------------------------------------------------------------
Net balance at January 1 1,945.8 1,867.5 1,532.9
------------------------------------------------------------------
Net reserves of subsidiary purchased -- -- 82.2
------------------------------------------------------------------
Incurred related to:
Current year 4,286.2 3,560.5 3,070.8
Prior years (29.8) (184.2) (103.3)
------------------------------------------------------------------
Total incurred 4,256.4 3,376.3 2,967.5
------------------------------------------------------------------

Paid related to:
Current year 2,919.2 2,376.0 1,971.5
Prior years 1,082.8 922.0 743.6
------------------------------------------------------------------
Total paid 4,002.0 3,298.0 2,715.1
------------------------------------------------------------------
Net balance at December 31 2,200.2 1,945.8 1,867.5
Plus reinsurance recoverable on unpaid losses 216.0 242.8 279.1
------------------------------------------------------------------
Balance at December 31 $2,416.2 $2,188.6 $2,146.6
==================================================================
</TABLE>

The reconciliation above shows $29.8 million of positive development, which
emerged during 1999, in the 1999 liability and a positive emergence of $184.2
million shown in the 1998 liability, based on information known as of December
31, 1999 and December 31, 1998, respectively. The Company's reserves have
historically developed conservatively. In 1999, the Company experienced an
increase in severity trends which led to less favorable development on prior
accident years as compared to 1998 and 1997.

The anticipated effect of inflation is explicitly considered when estimating
liabilities for losses and LAE. While anticipated increases due to inflation are
considered in estimating the ultimate claim costs, the increase in average
severities of claims is caused by a number of factors that vary with the
individual type of policy written. Future average severities are projected based
on historical trends adjusted for anticipated changes in underwriting standards,
inflation, policy provisions and general economic trends. These anticipated
trends are monitored based on actual development and are modified if necessary.

The Company has not entered into any loss reserve transfers or similar
transactions having a material effect on earnings or reserves.

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ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT
(millions)
<TABLE>
<CAPTION>
YEAR ENDED 1989 1990 1991 1992 1993 1994(3) 1995 1996 1997 1998 1999

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITY FOR UNPAID
LOSSES AND LAE(1) $748.6 $791.6 $861.5 $956.4 $1,012.4 $1,098.7 $1,314.4 $1,532.9 $1,867.5$1,945.8 $2,200.2
- --------------

PAID (CUMULATIVE) AS OF:
- -----------------------
One year later 293.1 322.4 353.4 366.8 417.0 525.3 593.0 743.6 922.0 1,082.8
Two years later 446.8 490.8 518.8 520.0 589.8 706.4 838.9 1,034.5 1,289.6 --
Three years later 539.8 570.4 583.2 598.2 664.1 810.6 960.1 1,266.1 -- --
Four years later 588.2 600.0 617.6 632.8 709.9 857.1 1,057.1 -- -- --
Five years later 603.1 613.6 635.8 658.6 729.8 892.7 -- -- -- --
Six years later 608.1 624.7 651.2 669.7 742.2 -- -- -- -- --
Seven years later 614.7 631.1 656.2 676.0 -- -- -- -- -- --
Eight years later 619.2 634.7 659.7 -- -- -- -- -- -- --
Nine years later 620.9 638.6 -- -- -- -- -- -- -- --
Ten years later 623.9 -- -- -- -- -- -- -- -- --

LIABILITY RE-ESTIMATED
- ----------------------
AS OF:
- -----
One year later 685.4 748.8 810.0 857.9 869.9 1,042.1 1,208.6 1,429.6 1,683.3 1,916.0
Two years later 677.9 726.5 771.9 765.5 837.8 991.7 1,149.5 1,364.5 1,668.5 --
Three years later 668.6 712.7 718.7 737.4 811.3 961.2 1,118.6 1,432.3 -- --
Four years later 667.1 683.7 700.1 725.2 794.6 940.6 1,137.7 -- -- --
Five years later 654.7 666.3 695.1 717.3 782.9 945.5 -- -- -- --
Six years later 647.1 664.8 692.6 711.1 780.1 -- -- -- -- --
Seven years later 645.7 664.5 688.2 709.2 -- -- -- -- -- --
Eight years later 645.4 661.4 687.9 -- -- -- -- -- -- --
Nine years later 641.9 660.4 -- -- -- -- -- -- -- --
Ten years later 641.5 -- -- -- -- -- -- -- -- --

CUMULATIVE REDUNDANCY $107.1 $131.2 $173.6 $247.2 $232.3 $153.2 $176.7 $100.6 $199.0 $29.8
- ---------------------
PERCENTAGE(2) 14.3 16.6 20.2 25.8 22.9 13.9 13.4 6.6 10.7 1.5
</TABLE>

(1) Represents loss and LAE reserves net of reinsurance recoverables on unpaid
losses at the balance sheet date.
(2) Cumulative redundancy / liability for unpaid losses and LAE.
(3) In 1994, based on a review of its total loss reserves, the Company
eliminated its $71.0 million "supplemental reserve."

The above table presents the development of balance sheet liabilities for 1989
through 1998. The top line of the table shows the estimated liability for unpaid
losses and LAE recorded at the balance sheet date for each of the indicated
years for the property-casualty insurance subsidiaries only. This liability
represents the estimated amount of losses and LAE for claims that are unpaid at
the balance sheet date, including losses that had been incurred but not
reported.

The upper section of the table shows the cumulative amount paid with respect to
the previously recorded liability as of the end of each succeeding year. The
lower portion of the table shows the re-estimated amount of the previously
recorded liability based on experience as of the end of each succeeding year.
The estimate is increased or decreased as more information about the claims
becomes known for individual years. For example, as of December 31, 1999 the
companies had

9
<PAGE> 10

paid $638.6 million of the currently estimated $660.4 million of losses and LAE
that had been incurred through the end of 1990; thus an estimated $21.8 million
of losses incurred through 1990 remain unpaid as of the current financial
statement date.

The "Cumulative Redundancy" represents the aggregate change in the estimates
over all prior years. For example, the 1989 liability has developed
conservatively by $107.1 million over ten years. That amount has been reflected
in income over the ten years and did not have a significant effect on the income
of any one year. The effects on income during the past three years due to
changes in estimates of the liabilities for losses and LAE is shown in the
reconciliation table on page 8 as the "prior years" contribution to incurred
losses and LAE.

In evaluating this information, note that each cumulative redundancy amount
includes the effects of all changes in amounts during the current year for prior
periods. For example, the amount of the development related to losses settled in
1992, but incurred in 1989, will be included in the cumulative redundancy amount
for years 1989, 1990 and 1991. Conditions and trends that have affected
development of the liability in the past may not necessarily occur in the
future. Accordingly, it generally is not appropriate to extrapolate future
development based on this table.

The Analysis of Loss and Loss Adjustment Expenses Development table on page 9 is
constructed from Schedule P, Part-1, from the 1991 through 1999 Consolidated
Annual Statements, as filed with the state insurance departments, and Schedules
O and P filed for years prior to 1991. This development table differs from the
development displayed in Schedule P, Part-2 due to the fact Schedule P, Part-2
excludes Canadian operations and unallocated loss adjustment expenses and
reflects the change in the method of accounting for salvage and subrogation for
1994 and prior.

(d) Financial Information about Foreign and Domestic Operations

The Company operates throughout the United States. The Company ceased writing
new business in Canada in 1999. For 1999, the amount of Canadian revenues and
assets were less than 2% of the Company's consolidated revenues and assets. The
amount of operating income (loss) generated by its Canadian operations was
immaterial with respect to the Company's consolidated operating income.

10
<PAGE> 11

ITEM 2. PROPERTIES

The Company's 517,800 square foot corporate office complex is located on a
42-acre parcel in Mayfield Village, Ohio, owned by a subsidiary. The Company's
central data processing facility occupies a building containing an additional
107,000 square feet of office space, on this same parcel.

The Company also owns six other buildings in suburbs adjoining the corporate
office complex (excluding the buildings in the following paragraph), four
buildings in Tampa, Florida, and a building in each of the following cities:
Tempe, Arizona; Albany, New York; Tigard, Oregon; Plymouth Meeting,
Pennsylvania; and Austin, Texas. In total, these buildings contain 1,497,000
square feet of office, warehouse and training facility space and are owned by
subsidiaries of the Company. These locations are occupied by the Company's
business units or other operations and are not segregated by industry segment.
In addition, the Company owns two buildings in Tampa, Florida that are currently
for sale, which are partially leased to non-affiliates. The building in Plymouth
Meeting, Pennsylvania is also partially leased to non-affiliates.

In November 1997, the Company purchased 91 acres in Mayfield Village, Ohio to
construct an office complex near the site of its corporate headquarters. This
office complex is part of a five-year cooperative effort with Mayfield Village
to develop over 300 acres. Progressive will serve as the anchor corporate user
with additional business users and recreational facilities on the site. The
Company is constructing five buildings, containing a total of approximately
770,000 square feet, on the site, and a parking garage, at an estimated cost of
$132.5 million. As of December 31, 1999, $65.8 million has been paid. The first
building was completed in May 1999. The next two buildings were completed in the
first quarter of 2000. The parking garage and fourth building are scheduled to
be completed in October 2000. The fifth building is scheduled to be completed in
the first quarter of 2001. The construction projects are being funded through
operating cash flows.

The Company leases 703,000 square feet of office and warehouse space at various
locations throughout the United States for its other business units and staff
functions. In addition, the Company leases 347 claim offices, consisting of
1,431,000 square feet, at various locations throughout the United States. These
leases are generally short-term to medium-term leases of standard commercial
office space. Two offices totaling 16,000 square feet are leased in Canada.

As the Company continues to grow, it expects that it will need additional space
and is actively engaged in seeking out additional locations to meet its current
and anticipated needs.

ITEM 3. LEGAL PROCEEDINGS

Incorporated by reference from Note 2, LITIGATION, on page 39 of the Company's
Annual Report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference from information with respect to executive officers of
The Progressive Corporation and its subsidiaries set forth in Item 10 in Part
III of this Annual Report on Form 10-K.

11
<PAGE> 12

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information

The Company's Common Shares are traded on the New York Stock Exchange under the
symbol PGR. The high and low prices set forth below are as reported on the
consolidated transaction reporting system.

<TABLE>
<CAPTION>
Dividends
Year Quarter High Low Close Per Share
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1 $174 1/4 $115 7/16 $143 1/2 $.065
2 152 1/8 127 3/8 145 .065
3 144 15/16 81 1/2 81 11/16 .065
4 97 5/8 68 1/2 73 1/8 .065
-------------------------------------------------------------------------------------------
$174 1/4 $68 1/2 $ 73 1/8 $.260
===========================================================================================

1998 1 $135 1/2 $106 11/16 $134 11/16 $.060
2 150 126 1/2 141 .060
3 156 3/4 95 112 3/4 .065
4 172 94 169 3/8 .065
-------------------------------------------------------------------------------------------
$172 $94 $169 3/8 $.250
===========================================================================================
</TABLE>

The closing price of the Company's Common Shares on February 29, 2000 was $59
1/2.

(b) Holders

There were 3,858 shareholders of record on February 29, 2000.

Statutory policyholders' surplus was $2,258.9 million and $2,029.9 million at
December 31, 1999 and 1998, respectively. Generally, under state insurance laws,
the net admitted assets of insurance subsidiaries available for transfer to a
corporate parent are limited to those net admitted assets, as determined in
accordance with SAP, which exceed minimum statutory capital requirements. At
December 31, 1999, $278.5 million of consolidated statutory policyholders'
surplus represents net admitted assets of the insurance subsidiaries that are
required to meet minimum statutory surplus requirements in the subsidiaries'
states of domicile. Furthermore, state insurance laws limit the amount that can
be paid as a dividend or other distribution in any given year without prior
regulatory approval and adequate policyholders' surplus must be maintained to
support premiums written. Based on the dividend laws currently in effect, the
insurance subsidiaries may pay aggregate dividends to the corporate parent of
$200.3 million in 2000 out of statutory policyholders' surplus, without prior
approval by regulatory authorities.

12
<PAGE> 13

ITEM 6. SELECTED FINANCIAL DATA

(millions - except per share amounts)

<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $6,124.2 $5,292.4 $4,608.2 $3,478.4 $3,011.9
Operating income 266.7 449.3 336.0 309.1 220.1
Net income 295.2 456.7 400.0 313.7 250.5
Per share:
Operating income(1) 3.58 6.01 4.46 4.12 2.85
Net income(1) 3.96 6.11 5.31 4.14 3.26
Dividends .260 .250 .240 .230 .220
Total assets 9,704.7 8,463.1 7,559.6 6,183.9 5,352.5
Debt outstanding 1,048.6 776.6 775.9 775.7 675.9
</TABLE>

(1) Presented on a diluted basis. In 1997, the Company adopted Statement of
Financial Accounting Standards (SFAS) 128 "Earnings Per Share," and, as a
result, restated prior periods per share amounts, if applicable.

13
<PAGE> 14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION The Progressive Corporation is a holding company and does
not have any revenue producing operations of its own. It receives cash through
borrowings, equity sales, subsidiary dividends and other transactions, and may
use the proceeds to contribute to the capital of its insurance subsidiaries in
order to support premium growth, to repurchase its Common Shares, to retire its
outstanding indebtedness, to pay dividends and for other business purposes.

During 1999, the Company repurchased 6,044 of its Common Shares at a total cost
of $.6 million (average $93.25 per share) to satisfy obligations under the
Company's benefit plans. During the three-year period ended December 31, 1999,
the Company repurchased 440,316 of its Common Shares at a total cost of $46.0
million (average $104.57 per share). During the same period, The Progressive
Corporation made $82.5 million of capital contributions to its subsidiaries, net
of dividends received from these subsidiaries. The regulatory restrictions on
subsidiary dividends are described in Item 5(c) herein.

The Company has substantial capital resources and is unaware of any trends,
events or circumstances that are reasonably likely to affect its capital
resources in a material way. In March 1999, the Company issued $300 million of 6
5/8% Senior Notes due 2029 under an outstanding shelf registration, which became
effective in 1998. The net proceeds of $293.7 million will be used to repay
current outstanding debt upon its maturity. The Company also has available a
$10.0 million revolving credit agreement. The Company's debt to total capital
ratio is 28%; management believes the Company has substantial capital resources
and sufficient borrowing capacity to support current and anticipated growth.

The Company's insurance operations create liquidity by collecting and investing
premiums from new and renewal business in advance of paying claims. For the
three years ended December 31, 1999, operations generated positive cash flows of
$2,127.8 million, and cash flows are expected to be positive in both the
short-term and reasonably foreseeable future. The Company's investment portfolio
is highly liquid and consists substantially of readily marketable securities.

Total capital expenditures for the three years ended December 31, 1999,
aggregated $443.6 million. In December 1997, the Company purchased approximately
72 acres in Tampa, Florida to construct a three-building, 307,000 square foot,
regional call center. The final cost of the project was $45.5 million. The first
two buildings were completed during 1998. The third building was completed in
February 1999. In addition, in November 1997, the Company purchased 91 acres in
Mayfield Village, Ohio to construct an office complex, near the site of its
corporate headquarters. This office complex is part of a five-year cooperative
effort with Mayfield Village to develop over 300 acres. Progressive will serve
as the anchor corporate user, with additional business users and recreational
facilities on the site. The Company is constructing five buildings, containing a
total of approximately 770,000 square feet, on the site, and a parking garage,
at an estimated cost of $132.5 million. As of December 31, 1999, $65.8 million
has been paid. The first building was completed in May 1999. The next two
buildings were completed in the first quarter of 2000. The parking garage and
fourth building are scheduled to be completed in October 2000. The fifth
building is scheduled to be completed in the first quarter of 2001. The
construction projects are being funded through operating cash flows.

INVESTMENTS The Company invests in fixed-maturity, equity and short-term
securities. The Company's investment strategy recognizes its need to maintain
capital adequate to support its insurance operations. The Company evaluates the
risk/reward tradeoffs of investment opportunities, measuring their effects on
stability, diversity, overall quality and liquidity of the investment portfolio.
At December 31, 1999, the Company's portfolio was $6,427.7 million, compared to
$5,674.3 million in 1998.

As of December 31, 1999, the Company's portfolio had $5.4 million in unrealized
losses, compared to $174.3 million in unrealized gains in 1998. This decrease in
value was the result of widening credit spreads on non-treasury related products
and the portfolio's underperformance relative to the S&P 500, due to
underweighting in the technology sector. The weighted average fully taxable
equivalent book yield of the portfolio was 6.3% for the years ended December 31,
1999 and 1998 and 6.6% for 1997.

14
<PAGE> 15

The majority of the portfolio is invested in high-grade, fixed-maturity
securities, of which short- and intermediate-term securities represented
$4,417.7 million, or 68.7% of the portfolio, at the end of 1999, compared to
$4,439.4 million, or 78.3%, at the end of 1998. Long-term investment-grade
securities, including those principal paydowns from asset-backed securities that
are greater than 10-years, were $96.0 million, or 1.5% of the portfolio, at the
end of 1999, compared to $93.5 million, or 1.6%, at the end of 1998.
Non-investment-grade fixed-maturity securities were $248.0 million, or 3.9% of
the portfolio, at the end of 1999, compared to $128.0 million, or 2.3%, at the
end of 1998, and offer the Company higher returns and added diversification
without a significant adverse effect on the stability and quality of the
investment portfolio as a whole. Non-investment-grade securities may involve
greater risks often related to creditworthiness, solvency and relative liquidity
of the secondary trading market. The duration of the fixed-income portfolio was
3.0 years at December 31, 1999, compared to 2.8 years at December 31, 1998.

The quality distribution of the fixed-income portfolio is as follows:

Percentage at Percentage at
Rating December 31, 1999 December 31,
1998
-------------------------- --------------------- ---------------------
AAA 54.7% 57.7%
AA 14.2 14.3
A 20.0 20.4
BBB 5.1 4.1
Non Rated/Other 6.0 3.5
--------------------- ---------------------
100.0% 100.0%
===================== =====================

As of December 31, 1999, the Company held $1,831.1 million of asset-backed
securities, which represented 28.5% of the total investment portfolio. The
asset-backed portfolio included collateralized mortgage obligations (CMO) and
commercial mortgage-backed obligations (CMB) totaling $612.0 million and $649.7
million, respectively. The remainder of the asset-backed portfolio was invested
primarily in auto loan and other asset-backed securities. As of December 31,
1999, the CMO portfolio included sequential bonds, representing 68.3% of the CMO
portfolio ($417.7 million), and planned amortization class bonds, representing
31.7% of the CMO Portfolio ($194.3 million). At December 31, 1999, the CMO
portfolio had an average life of 3.88 years and a weighted average Moody's or
Standard & Poor's rating of AAA. The CMB portfolio had an average life of 5.75
years and a weighted average Moody's or Standard & Poor's rating of AA. At
December 31, 1999, the CMO and CMB portfolios had unrealized losses of $13.0
million and $45.1 million, respectively. The single largest unrealized loss in
any individual CMO security was $1.3 million and in any CMB security was $6.9
million, at December 31, 1999. The CMB portfolio includes $106.6 million of CMB
interest-only certificates, which had an average life of 6.45 years and a
weighted average Moody's or Standard & Poor's rating of AAA at December 31,
1999. Both the CMO and CMB portfolios are liquid with available market quotes
and contain no residual interests. During 1997, the Company sold $178.4 million
(proceeds of $200.8 million) of non-investment-grade CMB securities to a
third-party purchaser. The purchaser subsequently transferred the securities to
a trust as collateral in a resecuritized debt offering. The transaction was
accounted for as a sale under Statement of Financial Accounting Standards (SFAS)
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," resulting in a net gain of $22.4 million. A
bankruptcy remote subsidiary of the Company acquired $22.8 million of the
resecuritized debt, which was subsequently sold in 1998 for a net gain of $3.5
million. This portion of the transaction was not accounted for as a sale in 1998
in accordance with SFAS 125.

A portion of the investment portfolio is invested in marketable equity
securities. Common stocks represented $1,243.6 million, or 19.3% of the
portfolio, at the end of 1999, compared to $636.9 million, or 11.2%, a year
earlier. The majority of the common stock portfolio is invested in domestic
equities traded on nationally recognized securities exchanges. The common stock
portfolio also includes term trust certificates, the common shares of closed-end
bond funds, which have the risk and reward characteristics of the underlying
bonds and comprised $230.2 million of the common stock portfolio at the end of
1999; no term trust securities were held at the end of 1998. Foreign equities,
which may include stock index futures and foreign currency forwards, comprised
$84.2 million of the common stock portfolio at the end of 1999,

15
<PAGE> 16

compared to $130.7 million last year, and partnership investments comprised
$104.0 million of the common stock portfolio at the end of 1999, compared to
$63.7 million last year. Preferred stocks represented $422.4 million, or 6.6% of
the portfolio, at the end of 1999, compared to $376.5 million, or 6.6%, a year
earlier, and was comprised of over 89% of fixed-rate preferred stocks with
mechanisms that are expected to provide an opportunity to liquidate at par.

Investments in the Company's portfolio have varying degrees of risk. The primary
market risk exposure to the fixed-income portfolio is interest rate risk, which
is limited by managing duration to a defined range of 1.8 to 5 years. The
distribution of maturities and convexity are monitored on a regular basis.
Common stocks, excluding term trust certificates, and other risk assets, which
generally have greater risk and volatility of market value, may range from 0 to
25% of the total portfolio; at December 31, 1999, the Company held 16.5% of
these securities. Market values, along with industry and sector concentrations
of common stocks and similar investments, are monitored daily. Exposure to
foreign currency exchange risk is limited by Company restrictions and is
monitored quarterly for compliance. Exposures are evaluated individually and as
a whole, considering the effects of cross correlation. For the quantitative
market risk disclosures, see page 56 of the Company's Annual Report. The Company
quarterly examines its portfolio for evidence of impairment. In such cases,
changes in market value are evaluated to determine the extent to which such
changes are attributable to: (i) interest rates, (ii) market-related factors
other than interest rates and (iii) financial conditions, business prospects and
other fundamental factors specific to the issuer. Declines attributable to
issuer fundamentals are reviewed in further detail. Available evidence is
considered to estimate the realizable value of the investment. When a security
in the Company's investment portfolio has a decline in market value which is
other than temporary, the Company is required by GAAP to reduce the carrying
value of such security to its net realizable value.

Included in the Company's fixed-maturity and equity portfolios are $195.8
million, or 3.0%, of other risk assets. These include high yield and distressed
debt, private equities and warrants, and mezzanine investments. No individual
security in this category comprised more than 1% of the Company's total
investment portfolio. The total return on this asset class in 1999 was 7.1% with
a total net unrealized gain of $20.5 million.

Trading securities and derivative instruments held or issued for trading are
entered into for the purpose of near-term profit taking. During 1999, net
activity in the trading portfolio was not material to the Company's financial
position, cash flows or results of operations. At December 31, 1999, trading
positions had a net market value of $50.2 million, compared to $(.4) million at
December 31, 1998. Net gains and losses for the year ended December 31, 1999 and
1998, were $.8 million and $(1.2) million, respectively.

Derivative instruments are primarily used to manage the risks and enhance the
returns of the available-for-sale portfolio. This is accomplished by modifying
the basis, duration, interest rate or foreign currency characteristics of the
portfolio, hedged securities or hedged cash flows. During 1998, the Company
entered into two transactions, an interest rate swap hedge and a short futures
position, to hedge against possible rises in interest rates prior to the
issuance of debt under the $300 million shelf registration. During 1999, the
$300 million of debt was issued and the hedges were closed. The interest rate
swap performed as expected and was recorded as a deferred asset under SFAS 80,
"Accounting for Futures Contracts," as a qualified hedge. The deferred asset of
$4.8 million is recognized as an adjustment to interest expense over the life of
the debt. During 1998, the short futures position, driven by changing economic
conditions, did not meet the established criteria for hedging correlation and
was discontinued as a hedge, but the Company continued to hold it for risk
management of the anticipated debt offering. The Company recognized a net
realized gain of $8.1 million in 1999 and a net realized loss of $9.2 million in
1998, on the short futures position. Derivative instruments may also be used for
trading purposes. For all derivative positions, net cash requirements are
limited to changes in market values which may vary based upon changes in
interest rates and other factors. Exposure to credit risk is limited to the
carrying value; collateral is not required to support the credit risk.

RESULTS OF OPERATIONS Operating income, which excludes net realized gains and
losses from security sales and one-time items, was $266.7 million, or $3.58 per
share, in 1999, $449.3 million, or $6.01 per share, in 1998 and $336.0 million,
or $4.46 per share, in 1997. The GAAP combined ratio was 98.3 in 1999, 91.6 in
1998 and 93.4 in 1997.

Direct premiums written increased 16% to $6,305.3 million in 1999, compared to
$5,451.3 million in 1998 and $4,825.2 million in 1997. Net premiums written
increased 16% to $6,124.7 million in 1999, compared to $5,299.7 million in 1998

16
<PAGE> 17

and $4,665.1 million in 1997. The difference between direct and net premiums
written is attributable to premiums written under state-mandated involuntary
Commercial Auto Insurance Procedures, for which the Company retains no indemnity
risk, of $49.7 million in 1999, $60.7 million in 1998 and $78.4 million in 1997,
and reinsurance the Company maintains in its auto and non-auto programs and its
strategic alliance relationships. Premiums earned, which are a function of the
amount of premiums written in the current and prior periods, increased 15% in
1999, compared to 18% in 1998 and 31% in 1997.

Net premiums written in the Company's Personal Lines business units, which write
insurance for private passenger automobiles and recreation vehicles and
represented 93% of the Company's 1999 total premiums written, grew 16%, 15% and
36% in 1999, 1998 and 1997, respectively, primarily reflecting an increase in
unit sales. The Company decreased rates an average of 1.3% during the first six
months of 1999, and increased rates 4.4% in the second half of the year, for
an annual rate increase of 3.1% in 1999, compared to rate decreases of 5.3% and
.9% in 1998 and 1997, respectively. The Company expects that these rate
increases will likely slow volume growth in 2000 and, since nearly two-thirds of
the Company's new auto policies are on an annual term, the Company does not
expect to see the full impact of these rate changes until the fourth
quarter of 2000.

The Personal Lines business is generated either by an Agent or written directly
by the Company. The Agent channel includes business written by the Company's
network of 30,000 Independent Insurance Agents and through Strategic Alliance
business relationships (other insurance companies, financial institutions,
employers and national brokerage agencies). Total net premiums written through
Independent Agents and Strategic Alliance agency relationships were $4,746.5
million in 1999, compared to $4,390.4 million in 1998 and $4,033.8 million in
1997. The combined ratios for the Agency channel were 96.5, 90.6 and 93.2 for
1999, 1998 and 1997, respectively. Direct business includes business written
through 1-800-AUTO-PRO(R), the Internet (progressive.com) and the Strategic
Alliance business unit on behalf of affinity groups. Net premiums written and
combined ratio on the Direct business were $955.9 million and 113.1,
respectively, in 1999, compared to $531.9 million and 107.5 in 1998 and $255.0
million and 103.8 in 1997. The sales generated via the Internet represented
approximately 7% and 2% of the Direct business net premiums written for 1999 and
1998, respectively; the Company started selling insurance directly over the
Internet in August 1997. Through these multiple distribution channels, the
Company continues to write standard and preferred risks, which represented
between 45% and 50% of total 1999 Personal Lines volume, compared to between 30%
and 35% in 1998 and between 20% and 25% in 1997, as well as its traditional
nonstandard auto products.

Claim costs, the Company's most significant expense, represent actual payments
made and changes in estimated future payments to be made to or on behalf of its
policyholders, including expenses required to settle claims and losses. These
costs include a loss estimate for future assignments and assessments, based on
current business, under state-mandated involuntary automobile programs. Claim
costs are influenced by inflation and loss severity and frequency, the impact of
which is mitigated by adequate pricing. Increases in the rate of inflation
increase loss payments, which are made after premiums are established.
Accordingly, anticipated rates of inflation are taken into account when the
Company establishes premium rates and loss reserves. Claim costs, expressed as a
percentage of premiums earned, were 75% in 1999, compared to 68% in 1998 and 71%
in 1997. The increase in the loss ratios was driven by the factors discussed
below.

Four factors contributed to the Company's underwriting losses during the second
half of 1999 and its inability to meet its traditional goals in 1999. The first
factor was that, during 1999, the Company reduced loss reserves relating to
prior accident years $29.8 million, or .5 points, compared to $184.2 million, or
3.7 points, and $103.3 million, or 2.5 points, for 1998 and 1997, respectively.
The second factor was continued strong growth in the Direct business in 1999. In
periods of rapid growth in the Direct business, the Company's earnings may be
lower as a result of higher up-front costs and higher loss costs traditionally
associated with new business. In response, the Company decided to return to
profit targets based on a calendar year measure rather than over the entire
retention period of a policyholder, with the intent to bring the combined ratio
back to the historic goal of 96 over the next few years. The Company's profit
and growth opportunities change from year to year; however, over every
consecutive 5-year period, the Company strives to produce a four percent
underwriting profit and to grow at 15 percentage points greater than the rate of
inflation. The third factor was that the Company lowered rates in 1998 and
during the first half of 1999, in an attempt to raise its combined ratio to 96
while achieving its growth target. Lastly, during 1999, loss trend accelerated
at an unanticipated pace; consequently, loss costs rose faster than expected.
The Company expects these loss costs trends to continue. In 1999, actual trend
for

17
<PAGE> 18

pricing exceeded estimates. Similarly, the emerging loss development is greater
than anticipated primarily for the 1999 losses, which led to the Company
experiencing approximately 6 points of adverse development during the first two
months of 2000. During March 2000, the Company undertook a comprehensive review
of those reserve segments that have shown the most development and intends to
adjust the reserves accordingly.

The Company's other lines of business include writing insurance for small fleets
of commercial vehicles, collateral protection and loan tracking for auto lenders
and financial institutions, directors' and officers' liability and fidelity
coverage for American Bankers Association member community banks and independent
credit unions, and providing related claim, underwriting and system services.
Revenues in these businesses were $437.0 million in 1999, compared to $405.5
million in 1998 and $402.1 million in 1997. Pretax operating profit was $41.8
million in 1999, compared to $61.9 million in 1998 and $36.6 million in 1997.

The Company writes directors and officers and other professional liability
coverage for community banks and credit unions and, therefore, could potentially
be exposed to liability for errors made by these institutions relating to the
year 2000 conversion. The Company has reinsurance to limit its potential
exposure to approximately 7% of the average policy limits in the event any of
the insured directors or officers are held liable for year 2000 noncompliance by
their financial institutions. It is currently unknown whether these financial
institutions have been able to completely avoid errors relating to year 2000
compliance and the Company is unable to predict to what extent such financial
institutions will incur losses as a result of noncompliance and whether their
directors and officers will be subject to individual liability for such
noncompliance. In the event of a claim, applicable factual and coverage issues
would have to be resolved. Based on information currently available and
management's best estimate, the Company does not believe that any losses
resulting from this exposure will have a material impact on the Company's
liquidity, financial condition, cash flows or results of operations.

Because the Company is primarily an insurer of motor vehicles, it has limited
exposure for environmental, product and general liability claims. The Company
has established reserves for these exposures, in amounts which it believes to be
adequate based on information currently known by it. Management does not believe
that these claims will have a material impact on the Company's liquidity,
financial condition, cash flows or results of operations.

Policy acquisition and other underwriting expenses as a percentage of premiums
earned were 23% in 1999, 1998 and 1997. The Company advertises locally in 35
states, plus Washington D.C. (107 markets), as compared to 32 states (83
markets) in 1998 and 19 states (40 markets) in 1997. The Company expanded its
television advertising campaign on a national level during 1998. During 1999,
the Company incurred advertising expenses of $124 million, compared to $70
million in 1998 and $23 million in 1997.

Recurring investment income (interest and dividends) increased 16% to $340.7
million in 1999, compared to $294.8 million in 1998 and $274.9 million in 1997,
primarily due to an increase in the size of the investment portfolio. Net
realized gains on security sales were $47.2 million in 1999, $11.4 million in
1998 and $98.5 million in 1997. Investment expenses were $9.5 million in 1999,
compared to $7.4 million in 1998 and $9.9 million in 1997.

YEAR 2000 COMPLIANCE The Company's five-year effort to achieve year 2000
compliance was successful. The Company successfully operated through the
rollover to year 2000 with only minor issues and has not experienced any
significant business outage or incurred any significant cost due to the year
2000 failure or errors of business partners to date. The total cost to modify
existing production systems, which includes both internal and external costs of
programming, coding and testing, was $9.3 million, of which $9.2 million had
been expensed through December 31, 1999. The Company also replaced some of its
systems. In addition to being year 2000 compliant, these new systems added
increased functionality to the Company. The majority of the projects were
completed in 1998, with remaining parallel testing completed during the first
half of 1999. As of December 31, 1999, $5.5 million, which include both internal
and external costs, had been paid for these systems. All costs were funded
through operating cash flows.

The Company continually evaluates computer hardware and software upgrades for
enhancements and, therefore, many of the costs to replace these items to be year
2000 compliant were not incremental costs to the Company.

18
<PAGE> 19

In preparing for the rollover to the 21st century, the Company's process teams
and business groups identified potential year 2000 scenarios. For those
scenarios deemed to be both probable and with a potentially significant business
impact, the Company developed contingency plans. These plans were reviewed by
the Company's chief financial and technology officers throughout 1999. It has
not been necessary to execute any of the contingency plans to date.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: CERTAIN MATTERS IN THIS ANNUAL REPORT ON FORM 10-K MAY BE CONSIDERED
FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL EVENTS AND RESULTS TO DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. THESE RISKS AND UNCERTAINTIES INCLUDE, WITHOUT LIMITATION,
UNCERTAINTIES RELATED TO ESTIMATES, ASSUMPTIONS AND PROJECTIONS GENERALLY;
CHANGES IN ECONOMIC CONDITIONS (INCLUDING CHANGES IN INTEREST RATES AND
FINANCIAL MARKETS); PRICING COMPETITION AND OTHER INITIATIVES BY COMPETITORS;
LEGISLATIVE AND REGULATORY DEVELOPMENTS; WEATHER CONDITIONS (INCLUDING THE
SEVERITY AND FREQUENCY OF STORMS, HURRICANES, SNOWFALLS, HAIL AND WINTER
CONDITIONS); CHANGES IN DRIVING PATTERNS AND LOSS TRENDS; COURT DECISIONS AND
TRENDS IN LITIGATION AND HEALTH CARE COSTS; UNFORESEEN TECHNOLOGICAL ISSUES
ASSOCIATED WITH THE YEAR 2000 COMPLIANCE EFFORTS AND THE EXTENT TO WHICH
VENDORS, PUBLIC UTILITIES, GOVERNMENTAL ENTITIES AND OTHER THIRD PARTIES THAT
INTERFACE WITH THE COMPANY MAY FAIL TO ACHIEVE YEAR 2000 COMPLIANCE; AND OTHER
MATTERS DESCRIBED FROM TIME TO TIME BY THE COMPANY IN OTHER DOCUMENTS FILED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE THE INFORMATION IN THIS ANNUAL REPORT.

19
<PAGE> 20

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are incorporated
by reference from the "Investments" section of MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS set forth in Item 7 of
the Company's Annual Report on Form 10-K for the year ended December 31, 1999,
and pages 56 and 57 of the Company's 1999 Annual Report to Shareholders, which
is included as Exhibit 13 to such Annual Report on Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of the Company, along with the related
notes, supplementary data and report of independent accountants, are
incorporated by reference from the Company's 1999 Annual Report, pages 33
through 47 and pages 51 through 58.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

20
<PAGE> 21

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to all of the directors and the individuals who have been
nominated for election as directors at the 2000 Annual Meeting of Shareholders
of the Registrant, is incorporated herein by reference from the section entitled
"Election of Directors" in the Proxy Statement, pages 2 through 4.

Information relating to executive officers of the Registrant and its
subsidiaries follows. Unless otherwise indicated, the executive officer has held
the position(s) indicated for at least the last five years.

<TABLE>
<CAPTION>
Offices Held and
Name Age Last Five Years' Business Experience
---- --- ------------------------------------
<S> <C> <C>
Peter B. Lewis 66 President and Chairman of the Board; Chief Executive Officer since
January 2000 and prior to January 1999; Chief Executive Officer -
Insurance Operations during 1999; President, Chairman of the Board and
Chief Executive Officer of Progressive Casualty Insurance Company, the
principal subsidiary of the Registrant

Alan R. Bauer 47 Internet Distribution Leader since January 1999;
International/Internet Officer from December 1996 to December 1998;
Independent Agent Marketing Process Leader from March 1996 to December
1996; West Division President prior to March 1996

Jeffrey W. Basch 41 Vice President since December 1999; Chief Accounting Officer

Charles B. Chokel 46 Chief Executive Officer - Investments and Capital Management since
January 1999; Chief Financial Officer and Treasurer prior to January
1999

Janet A. Dolohanty 46 Vice President since December 1999; Tax Director

W. Thomas Forrester 51 Chief Financial Officer and Treasurer since January 1999; Ownership
Process Leader from March 1996 to December 1998; Central States
Division President prior to April 1996

R. Steven Kestner 45 Chief Legal Officer and Secretary of the Registrant since January
2000; Partner at Baker & Hostetler LLP, which is the principal outside
law firm of the Registrant

Thomas A. King 40 Vice President since December 1999; Corporate Controller since March
1998; General Manager of Minnesota and Wisconsin from October 1995 to
February 1998; Pennsylvania Auto Product Manager prior to October 1995

Moira A. Lardakis 48 Chief Communications Officer since January 1999; Community Manager
Support Process Leader during 1998; General Manager of Ohio Business
Unit from March 1996 to December 1997; Ohio Division President prior to
March 1996

Daniel R. Lewis 53 Independent Agent Distribution Leader since January 1999; Independent
Agent Marketing Process Leader from December 1996 to December 1998;
General Manager of South Florida Community prior to January 1997

Brian J. Passell 43 Chief Claim Officer since January 1999; General Manager of
Pennsylvania from March 1996 to December 1998; New York Division Claim
Manager prior to March 1996
</TABLE>

21
<PAGE> 22

<TABLE>
<S> <C> <C>
Glenn M. Renwick 44 Chief Executive Officer - Insurance Operations since January 2000;
Chief Information Officer from January 1998; Consumer Marketing
Process Leader from March 1996 to December 1997; Director of Consumer
Marketing prior to March 1996

Tiona M. Thompson 49 Chief Human Resources Officer

Richard H. Watts 45 Direct Business Leader since January 2000; General Manager of
Northeast Ohio from January 1996 to December 1999; Direct Product
Manager of Ohio during 1995

Robert T. Williams 43 Chief Pricing/Product Officer since January 1999; Product Process
Leader during 1998; General Manager of New York Business Unit
from March 1996 to December 1997; New York Division President prior
to April 1996; Manager of Special Lines prior to March 1997
</TABLE>

Section 16(a) Beneficial Ownership Reporting Compliance. The February 16, 1999
purchase of 1,400 shares by a partnership organized for the benefit of B.
Charles Ames and members of his immediate family was reported in a Form 4 filed
on May 27, 1999.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference from the section of the Proxy Statement entitled
"Executive Compensation," pages 9 through 21.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Incorporated by reference from the section of the Proxy Statement entitled
"Security Ownership of Certain Beneficial Owners and Management," pages 6
through 8.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the section of the Proxy statement entitled
"Election of Directors - Certain Relationships and Related Transactions," page
5.

22
<PAGE> 23

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.

(a)(1) Listing of Financial Statements

The following consolidated financial statements of the
Registrant and its subsidiaries, included in the Registrant's
Annual Report, are incorporated by reference in Item 8:

Report of Independent Accountants

Consolidated Statements of Income - For the Years
Ended December 31, 1999, 1998 and 1997

Consolidated Balance Sheets - December 31, 1999
and 1998

Consolidated Statements of Changes in Shareholders'
Equity - For the Years Ended December 31, 1999, 1998
and 1997

Consolidated Statements of Cash Flows - For the Years
Ended December 31, 1999, 1998 and 1997

Notes to Consolidated Financial Statements

Supplemental Information*

*Not covered by Report of Independent Accountants.

(a)(2) Listing of Financial Statement Schedules

The following financial statement schedules of the Registrant
and its subsidiaries, Report of Independent Accountants and
Consent of Independent Accountants are included in Item 14(d):

SCHEDULES

Report of Independent Accountants

Consent of Independent Accountants

Schedule I - Summary of Investments -
Other than Investments in Related Parties

Schedule II - Condensed Financial
Information of Registrant

Schedule III - Supplementary Insurance
Information

23
<PAGE> 24

Schedule IV - Reinsurance

Schedule VI - Supplemental Information Concerning
Property-Casualty Insurance Operations

No other schedules are required to be filed herewith
pursuant to Article 7 of Regulation S-X.

(a)(3) Listing of Exhibits

See exhibit index contained herein at pages 39 through 43.
Management contracts and compensatory plans and arrangements
are identified in the Exhibit Index as Exhibit Nos. (10)(D)
through (10)(V).

(b) Reports on Form 8-K

On November 22, 1999, the Registrant filed a Current Report
on Form 8-K, dated November 18, 1999, discussing certain
changes in the senior management of the Registrant.

The exhibits in response to this portion of Item 14 are
submitted concurrently with this report.

(d) Financial Statement Schedules

The response to this portion of Item 14 is located at pages 30
through 38.

24
<PAGE> 25

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

THE PROGRESSIVE CORPORATION

March 30, 2000 BY: /S/ PETER B. LEWIS
--------------------------------
Peter B. Lewis
Director, Chairman, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.

<TABLE>
<S> <C> <C>
/S/ PETER B. LEWIS Director, Chairman, President and March 30, 2000
- -----------------------------------------
Peter B. Lewis Chief Executive Officer

/S/ CHARLES B. CHOKEL Director and Chief Executive Officer- March 30, 2000
- -----------------------------------------
Charles B. Chokel Investments and Capital Management

/S/ GLENN M. RENWICK Director and Chief Executive Officer- March 30, 2000
- -----------------------------------------
Glenn M. Renwick Insurance Operations

/S/ W. THOMAS FORRESTER Treasurer and Chief Financial Officer March 30, 2000
- -----------------------------------------
W. Thomas Forrester

/S/ JEFFREY W. BASCH Vice President and Chief Accounting Officer March 30, 2000
- -----------------------------------------
Jeffrey W. Basch

* Director March 30, 2000
- -----------------------------------------
Milton N. Allen

* Director March 30, 2000
- -----------------------------------------
B. Charles Ames

* Director March 30, 2000
- -----------------------------------------
James E. Bennett III

* Director March 30, 2000
- -----------------------------------------
Charles A. Davis
</TABLE>

25
<PAGE> 26

* Director March 30, 2000
- -----------------------------------------
Stephen R. Hardis

* Director March 30, 2000
- -----------------------------------------
Janet Hill

* Director March 30, 2000
- -----------------------------------------
Norman S. Matthews

* Director March 30, 2000
- -----------------------------------------
Donald B. Shackelford

* R. STEVEN KESTNER, by signing his name hereto, does sign this document on
behalf of the persons indicated above pursuant to a power of attorney duly
executed by such persons.

By /S/ R. STEVEN KESTNER March 30, 2000
------------------------------------------------------------------------------------------
R. Steven Kestner
Attorney-in-fact
</TABLE>

26
<PAGE> 27

ANNUAL REPORT ON FORM 10-K

ITEM 14(d)

FINANCIAL STATEMENT SCHEDULES

YEAR ENDED DECEMBER 31, 1999

THE PROGRESSIVE CORPORATION

MAYFIELD VILLAGE, OHIO

27
<PAGE> 28

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders,
The Progressive Corporation:

Our report on the consolidated financial statements of The Progressive
Corporation and subsidiaries has been incorporated by reference in this Form
10-K from page 33 of the 1999 Annual Report to Shareholders of The Progressive
Corporation. In connection with our audits of such financial statements, we have
also audited the related financial statement schedules listed in the index on
pages 23 and 24 of this Form 10-K.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.

PRICEWATERHOUSECOOPERS LLP

Cleveland, Ohio
January 25, 2000

28
<PAGE> 29

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders,
The Progressive Corporation:

We consent to the incorporation by reference in the Registration Statement of
The Progressive Corporation on Form S-8 (File No. 333-51613) filed May 1, 1998,
the Registration Statement on Form S-8 (File No. 333-25197) filed April 15,
1997, the Registration Statement on Form S-8 (File No. 33-57121) filed December
29, 1994, the Registration Statement on Form S-8 (File No. 33-64210) filed June
10, 1993, the Registration Statement on Form S-8 (File No. 33-51034) filed
August 20, 1992, the Registration Statement on Form S-8 (File No. 33-46944)
filed April 3, 1992, the Registration Statement on Form S-8 (File No. 33-38793)
filed February 4, 1991, the Registration Statement on Form S-8 (File No.
33-38107) filed December 6, 1990, the Registration Statement on Form S-8 (File
No. 33-37707) filed November 9, 1990, the Registration Statement on Form S-8
(File No. 33-33240) filed January 31, 1990, and the Registration Statement on
Form S-8 (File No. 33-16509) filed August 14, 1987, of our reports dated January
25, 2000, on our audits of the consolidated financial statements and financial
statement schedules of The Progressive Corporation and subsidiaries as of
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, which reports are included in this Annual Report on Form
10-K.

PRICEWATERHOUSECOOPERS LLP

Cleveland, Ohio
March 27, 2000

29
<PAGE> 30

SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER
THAN INVESTMENTS IN RELATED PARTIES

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
- --------------------------------------------
(millions)

<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------
Amount At Which Shown
In The
Type of Investment Cost Market Value Balance Sheet
-----------------------------------------------------------------
<S> <C> <C> <C>
Fixed Maturities:
Available-for-sale:
United States Government and
government agencies and
authorities $ 352.4 $ 345.6 $ 345.6
States, municipalities and political
subdivisions 1,352.9 1,332.2 1,332.2
Asset-backed securities 1,897.3 1,831.1 1,831.1
Foreign government obligations 60.4 59.0 59.0
Corporate and other debt securities 950.2 927.0 927.0
Redeemable preferred stock 37.7 37.8 37.8
-----------------------------------------------------------------
Total fixed maturities 4,650.9 4,532.7 4,532.7
-----------------------------------------------------------------

Equity securities:
Common stocks:
Public utilities 17.3 15.2 15.2
Banks, trust and insurance
companies 405.9 397.1 397.1
Industrial, miscellaneous and
all other 704.6 831.3 831.3
Nonredeemable preferred stocks 425.4 422.4 422.4
-----------------------------------------------------------------
Total equity securities 1,553.2 1,666.0 1,666.0
-----------------------------------------------------------------
Short-term investments 229.0 229.0 229.0
-----------------------------------------------------------------
Total investments $6,433.1 $6,427.7 $6,427.7
=================================================================
</TABLE>

The Company did not have any securities of one issuer with an aggregate cost or
market value exceeding 10% of total shareholders' equity at December 31, 1999.

30
<PAGE> 31

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF INCOME

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
- --------------------------------------------
(millions)

<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Revenues
Dividends from subsidiaries* $95.4 $151.0 $108.1
Intercompany investment income* 41.2 25.9 35.3
----------------------------------------------------
136.6 176.9 143.4
----------------------------------------------------

Expenses
Interest expense 79.5 64.5 64.5
Other operating costs and expenses .6 5.2 6.2
----------------------------------------------------
80.1 69.7 70.7
----------------------------------------------------

Operating income and income before income
taxes and other items below 56.5 107.2 72.7
Income tax benefit (14.2) (16.2) (12.7)
----------------------------------------------------
Income before equity in undistributed earnings of
subsidiaries 70.7 123.4 85.4
Equity in undistributed net income of consolidated
subsidiaries* 224.5 333.3 314.6
----------------------------------------------------

Net income $295.2 $456.7 $400.0
====================================================
</TABLE>

*Eliminated in consolidation.

See notes to condensed financial statements.

31
<PAGE> 32

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

CONDENSED BALANCE SHEETS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
- --------------------------------------------
(millions)
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------------------------------
<S> <C> <C>
ASSETS

Investment in non-consolidated affiliates $ .4 $ .4
Investment in subsidiaries* 3,076.0 2,882.9
Receivable from subsidiary* 745.7 441.1
Intercompany receivable* -- 9.9
Income taxes 12.9 19.7
Other assets 18.5 12.6
-----------------------------------------------
TOTAL ASSETS $3,853.5 $3,366.6
===============================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accrued expenses $ 39.3 $ 32.9
Intercompany payable* 20.5 --
Debt 1,040.9 776.6
-----------------------------------------------
Total liabilities 1,100.7 809.5
-----------------------------------------------
Shareholders' equity:
Common Shares, $1.00 par value, authorized 300.0
shares, issued 83.1, including treasury
shares of 10.0 and 10.6 73.1 72.5
Paid-in capital 481.6 448.3
Accumulated other comprehensive income:
Net unrealized appreciation (depreciation)
of investment in equity securities
of consolidated subsidiaries (3.4) 113.3
Other (9.0) (9.6)
Retained earnings 2,210.5 1,932.6
-----------------------------------------------
Total shareholders' equity 2,752.8 2,557.1
-----------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,853.5 $3,366.6
===============================================
</TABLE>

*Eliminated in consolidation.

See notes to condensed financial statements.

32
<PAGE> 33

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
- --------------------------------------------
(millions)

<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $295.2 $456.7 $400.0
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in income of consolidated subsidiaries (319.9) (484.3) (422.7)
Changes in:
Intercompany receivable or payable 30.4 (37.8) 34.5
Accounts payable and accrued expenses 6.4 9.3 1.4
Income taxes 6.8 9.2 (15.9)
Other, net 3.4 (4.7) (3.5)
--------------------------------------------------
Net cash provided by (used in) operating 22.3 (51.6) (6.2)
activities

CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investments in equity securities of
consolidated subsidiaries (90.2) (124.1) (219.3)
Purchase of consolidated subsidiaries -- -- (100.5)
Dividends received from consolidated subsidiaries 95.4 151.0 108.1
--------------------------------------------------
Net cash provided by (used in) investing 5.2 26.9 (211.7)
activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 12.6 11.5 14.1
Proceeds from exercise of stock options
Tax benefits from exercise of stock options 20.4 25.6 17.6
Proceeds from Debt 293.7 -- --
Payments of Debt (30.0) -- --
Receivable from subsidiary (304.6) 48.3 206.4
Dividends paid to shareholders (19.0) (18.1) (17.3)
Acquisition of treasury shares (.6) (42.6) (2.9)
--------------------------------------------------
Net cash provided by (used in) financing
activities (27.5) 24.7 217.9
--------------------------------------------------
Change in cash -- -- --
Cash, beginning of year -- -- --
--------------------------------------------------
Cash, end of year $ -- $ -- $ --
==================================================
</TABLE>

See notes to condensed financial statements.

33
<PAGE> 34

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

NOTES TO CONDENSED FINANCIAL STATEMENTS

The accompanying condensed financial statements of The Progressive Corporation
(the "Registrant") should be read in conjunction with the consolidated financial
statements and notes thereto of The Progressive Corporation and subsidiaries
included in the Registrant's 1999 Annual Report.

STATEMENTS OF CASH FLOWS -- For the purpose of the Statements of Cash Flows,
cash includes only bank demand deposits. The Registrant paid income taxes of
$116.5 million in 1999, and $235.9 million, and $166.9 million in 1998 and 1997,
respectively. Total interest paid was $72.4 million for 1999 and $63.8 million
for 1998 and 1997.

DEBT -- Debt at December 31 consisted of:

<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
(millions) Market Market
Cost Value Cost Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999) $293.7 $254.1 $ -- $ --
7.30% Notes due 2006 (issued: $100.0, May 1996) 99.7 98.0 99.7 109.5
6.60% Notes due 2004 (issued: $200.0, January 1994) 199.3 193.7 199.1 199.4
7% Notes due 2013 (issued: $150.0, October 1993) 148.5 138.8 148.4 157.2
8 3/4% Notes due 1999 (issued: $30.0, May 1989) -- -- 29.9 30.4
10% Notes due 2000 (issued: $150.0, December 1988) 149.9 154.3 149.8 162.7
10 1/8% Subordinated Notes due 2000 (issued: 149.8 154.5 149.7 162.4
$150.0, December 1988)
------------------------------------------------------------
$1,040.9 $ 993.4 $776.6 $821.6
============================================================
</TABLE>

Debt includes amounts the Registrant has borrowed and contributed to the capital
of its insurance subsidiaries or borrowed for other long-term purposes. During
1999, there were no bank borrowings outstanding. Market values are obtained from
publicly quoted sources.

All debt is noncallable, except for the 6 5/8% Senior Notes which may be
redeemed all or in part at any time, subject to a "make whole" provision;
interest is payable semiannually.

In May 1990, the Registrant entered into a revolving credit arrangement with
National City Bank, which is reviewed by the bank annually. Under this
agreement, the Registrant has the right to borrow up to $10.0 million. By
selecting from available credit options, the Registrant may elect to pay
interest at rates related to the London interbank offered rate, the bank's base
rate or at a money market rate. A commitment fee is payable on any unused
portion of the committed amount at the rate of .125% per annum. The Registrant
had no borrowings under this arrangement at December 31, 1999 and 1998.

Aggregate principal payments on debt outstanding at December 31, 1999 are $300.0
for 2000, $0 million for 2001, 2002 and 2003, $200.0 for 2004 and $550.0 million
thereafter.

34
<PAGE> 35

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

NOTES TO CONDENSED FINANCIAL STATEMENTS

INCOME TAXES -- The Registrant files a consolidated Federal income tax return
with all eligible subsidiaries. The Federal income taxes in the accompanying
Condensed Balance Sheets represent amounts recoverable from the Internal Revenue
Service by the Registrant as agent for the consolidated tax group. The
Registrant and its subsidiaries have adopted, pursuant to a written agreement, a
method of allocating consolidated Federal income taxes. Amounts allocated to the
subsidiaries under the written agreement are included in Intercompany Receivable
from Subsidiaries in the accompanying Condensed Balance Sheets.

INVESTMENTS IN CONSOLIDATED SUBSIDIARIES -- The Registrant, through its
investment in consolidated subsidiaries, recognizes the changes in unrealized
gains (losses) on available-for-sale securities of the subsidiaries. These
amounts were:

<TABLE>
<CAPTION>
(millions) 1999 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains (losses):
Available-for-sale: fixed maturities $ (165.6) $ (7.2) $ 29.5
equity securities (14.1) (6.9) 44.8
Deferred income taxes 63.0 5.1 (26.0)
-----------------------------------------------------------------
$ (116.7) $ (9.0) $ 48.3
=================================================================
</TABLE>

OTHER MATTERS -- The information relating to incentive compensation plans is
incorporated by reference from Note 9, EMPLOYEE BENEFIT PLANS, "Incentive
Compensation Plans" on pages 44 and 45 of the Registrant's 1999 Annual Report.

35
<PAGE> 36

SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
- --------------------------------------------
(millions)
<TABLE>
<CAPTION>
Future
policy Other
benefits, policy Benefits,
Deferred losses, claims claims,
policy claims and and losses and
acquisition loss Unearned benefits Premium Investment settlement
Segment costs(1) expenses(1) premiums(1) payable(1) revenue income(1)(2) expenses
------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Personal Lines $5,294.1 $4,002.7
Other 389.5 253.7
------------------------------------------------------------------------------------
Total $343.4 $2,416.2 $2,781.4 $ -- $5,683.6 $340.7 $4,256.4
====================================================================================

Year ended December 31, 1998:
Personal Lines $4,580.7 $3,164.4
Other 367.3 211.9
------------------------------------------------------------------------------------
Total $299.1 $2,188.6 $2,329.7 $ -- $4,948.0 $294.8 $3,376.3
====================================================================================

Year ended December 31, 1997:
Personal Lines $3,832.7 $2,743.3
Other 356.8 224.2
------------------------------------------------------------------------------------
Total $259.6 $2,146.6 $1,980.1 $ -- $4,189.5 $274.9 $2,967.5
====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Amortization
of deferred
policy Other Net
acquisition operating premiums
Segment costs(3) expenses written
--------------------------------------

<S> <C> <C> <C>
Year ended December 31, 1999:
Personal Lines $693.9 $534.3 $5,702.4
Other 51.1 49.5 422.3

--------------------------------------
Total $745.0 $583.8 $6,124.7
======================================

Year ended December 31, 1998:
Personal Lines $610.9 $443.9 $4,922.3
Other 49.0 51.9 377.4

--------------------------------------
Total $659.9 $495.8 $5,299.7
======================================

Year ended December 31, 1997:
Personal Lines $556.0 $290.4 $4,288.8
Other 51.8 45.6 376.3

--------------------------------------
Total $607.8 $336.0 $4,665.1
======================================
</TABLE>

(1) The Company does not allocate assets or investment income to operating
segments.

(2) Excluding investment expenses of $9.5 million in 1999, $7.4 million in 1998
and $9.9 million in 1997.

(3) Since the Company does not allocate deferred policy acquisition costs to
operating segments, amounts were allocated based on premium revenue.

36
<PAGE> 37

SCHEDULE IV -- REINSURANCE

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
- --------------------------------------------
(millions)

YEAR ENDED Assumed Percentage
- ---------- Ceded to From of Amount
Gross Amount Other Other Assumed
Companies Companies Net Amount to Net
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
- ----------------
Premiums earned:
Property and liability $5,853.5 $169.9 $-- $5,683.6 --
===================================================================================
DECEMBER 31, 1998
- -----------------
Premiums earned:
Property and liability $5,100.5 $152.5 $-- $4,948.0 --
===================================================================================

DECEMBER 31, 1997
- -----------------
Premiums earned:
Property and liability $4,382.9 $193.4 $-- $4,189.5 --
===================================================================================
</TABLE>

37
<PAGE> 38

SCHEDULE VI -SUPPLEMENTAL INFORMATION CONCERNING PROPERTY - CASUALTY INSURANCE
OPERATIONS

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
- --------------------------------------------
(millions)

<TABLE>
<CAPTION>
Paid Losses and
Losses and Loss Adjustment Expenses Loss Adjustment
Incurred Related to Expenses
--------------------------------------------------- -------------------
Current Prior
YEAR ENDED Year Years
- ----------
-------------------------- ----------------------

<S> <C> <C> <C>
December 31, 1999 $4,286.2 $(29.8) $4,002.0
========================== ====================== ===================

December 31, 1998 $3,560.5 $(184.2) $3,298.0
========================== ====================== ===================

December 31, 1997 $3,070.8 $(103.3) $2,715.1
========================== ====================== ===================
</TABLE>

Pursuant to Rule 12-18 of Regulation S-X. See Schedule III, page 36, for the
additional information required in Schedule VI.

38
<PAGE> 39

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K
S-K, Item 601 Exhibit No. Description of Exhibit

<S> <C> <C>
(3)(i) 3(A) Amended Articles of Incorporation, as amended, of The Progressive
Corporation

(3)(ii) 3(B) Code of Regulations of Progressive

(4) 4(A) Indenture dated as of November 15, 1988 between
Progressive and State Street Bank and Trust Company (successor in
interest to Rhode Island Hospital Trust National Bank), as Trustee
("Subordinated Indenture") (including Table of Contents
and cross-reference sheet)

(4) 4(B) Form of 10 1/8% Subordinated Notes due 2000 issued in
the aggregate principal amount of $150,000,000 under the
Subordinated Indenture

(4) 4(C) Indenture dated as of November 15, 1988 between
Progressive and State Street Bank and Trust Company (successor in
interest to The First National Bank of Boston), as Trustee
("1988 Senior Indenture") (including Table of Contents
and cross-reference sheet)

(4) 4(D) Form of 10% Notes due 2000 issued in the aggregate
principal amount of $150,000,000 under the 1988 Senior Indenture

(4) 4(E) $10,000,000 Unsecured Line of Credit with National City
Bank (dated May 23, 1990; renewed May 20, 1992; amended February
1, 1994 and May 1, 1997)
</TABLE>

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K If Incorporated by Reference, Documents with Which
S-K, Item 601 Exhibit No. Exhibit was Previously Filed with SEC

<S> <C> <C>
(3)(i) 3(A) Registration Statement No. 333-51613 (Filed with SEC on
May 1, 1998; see Exhibit 4(C) therein)

(3)(ii) 3(B) Quarterly Report on Form 10-Q (filed with SEC on May 15,
1997; see Exhibit 3 therein)

(4) 4(A) Contained in Exhibit Binder

(4) 4(B) Contained in Exhibit Binder

(4) 4(C) Contained in Exhibit Binder

(4) 4(D) Contained in Exhibit Binder

(4) 4(E) Annual Report on Form 10-K (Filed with SEC on March 27,
1998; see Exhibit 4(F) therein)
</TABLE>

39
<PAGE> 40

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K
S-K, Item 601 Exhibit No. Description of Exhibit

<S> <C> <C>
(4) 4(F) Indenture dated as of September 15, 1993 between
Progressive and State Street Bank and Trust Company (successor in
interest to The First National Bank of Boston),
as Trustee ("1993 Senior Indenture") (including Table of Contents
and cross-reference sheet)

(4) 4(G) Form of 7% Notes due 2013 issued in the aggregate principal amount
of $150,000,000 under the 1993 Senior Indenture

(4) 4(H) Form of 6.60% Notes due 2004 issued in the aggregate principal
amount of $200,000,000 under the 1993 Senior Indenture

(4) 4(I) First Supplemental Indenture dated March 15, 1996 between
Progressive and State Street Bank and Trust Company, evidencing
the designation of State Street Bank and Trust Company as
successor Trustee under the 1993 Senior Indenture

(4) 4(J) Form of 7.30% Notes due 2006, issued in the aggregate principal
amount of $100,000,000 under the 1993 Senior Indenture, as amended
and supplemented

(4) 4(K) Second Supplemental Indenture dated February 26, 1999 between
Progressive and State Street Bank and Trust Company, as Trustee,
supplementing and amending the 1993 Senior Indenture

(4) 4(L) Form of 6 5/8% Senior Notes due 2029, issued in the aggregate
principal amount of $300,000,000 under the 1993
Senior Indenture, as amended and supplemented
</TABLE>

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K If Incorporated by Reference, Documents with Which
S-K, Item 601 Exhibit No. Exhibit was Previously Filed with SEC

<S> <C> <C>
(4) 4(F) Registration Statement No. 333-48935 (Filed with SEC on
March 31, 1998; see Exhibit 4.1 therein)

(4) 4(G) Annual Report on Form 10-K (Filed with SEC on March 27,
1999; see Exhibit 4(H) therein)

(4) 4(H) Contained in Exhibit Binder

(4) 4(I) Registration Statement No. 333-0175 (Filed with SEC on
March 15, 1996; see Exhibit 4.2 therein)

(4) 4(J) Quarterly Report on Form 10-Q (Filed with SEC on July
31, 1996; see Exhibit 4 therein)

(4) 4(K) Current Report on Form 8-K (Filed with SEC on February
26, 1999; see Exhibit 4.4 therein)

(4) 4(L) Current Report on Form 8-K (Filed with SEC on February
26, 1999; see Exhibit 4.5 therein)

</TABLE>

40
<PAGE> 41

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K
S-K, Item 601 Exhibit No. Description of Exhibit

<S> <C> <C>
(10)(i) 10(A) Construction Agreements dated November 3, 1997 between Progressive
Casualty Insurance Company and HCB Contractors

(10)(i) 10(B) Construction Agreement dated April 6, 1998 between Progressive
Casualty Insurance Company and the Whiting-Turner Construction
Company for the Corporate Office Complex in Mayfield Village, Ohio

(10)(i) 10(C) Development Agreement by and between G.P. Ohio, L.L.C. (as
"Developer") and Progressive Casualty Insurance Company (as
"Progressive")

(10)(ii) 10(D) Aircraft Purchase Agreement

(10)(ii) 10(E) Aircraft Management Agreement

(10)(iii) 10(F) The Progressive Corporation 1997 Gainsharing Plan

(10)(iii) 10(G) The Progressive Corporation 1999 Gainsharing Plan

(10)(iii) 10(H) The Progressive Corporation 2000 Gainsharing Plan

(10)(iii) 10(I) The Progressive Corporation 1997 Executive Bonus Plan

(10)(iii) 10(J) The Progressive Corporation 1999 Executive Bonus Plan
</TABLE>

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K If Incorporated by Reference, Documents with Which
S-K, Item 601 Exhibit No. Exhibit was Previously Filed with SEC

<S> <C> <C>
(10)(i) 10(A) Annual Report on Form 10-K (Filed with SEC on March 27,
1998; see Exhibit 10(A) therein)

(10)(i) 10(B) Quarterly Report on Form 10-Q (Filed with SEC on August
14, 1998; see Exhibit 10 therein)

(10)(i) 10(C) Contained in Exhibit Binder

(10)(ii) 10(D) Contained in Exhibit Binder

(10)(ii) 10(E) Contained in Exhibit Binder

(10)(iii) 10(F) Annual Report on Form 10-K (Filed with SEC on March 31,
1997; see Exhibit 10(B) therein)

(10)(iii) 10(G) Annual Report on Form 10-K (filed with SEC on March 27,
1999; see Exhibit 10(D) therein)

(10)(iii) 10(H) Contained in Exhibit Binder

(10)(iii) 10(I) Annual Report on Form 10-K (Filed with SEC on March 31,
1997; see Exhibit 10(D) therein)

(10)(iii) 10(J) Annual Report on Form 10-K (filed with SEC on March 27,
1999; see Exhibit 10(F) therein)
</TABLE>

41
<PAGE> 42

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K
S-K, Item 601 Exhibit No. Description of Exhibit

<S> <C> <C>
(10)(iii) 10(K) The Progressive Corporation Directors Deferral Plan (Amendment and
Restatement), as further amended on October 25, 1996

(10)(iii) 10(L) The Progressive Corporation 1989 Incentive Plan (amended and
restated as of April 24, 1992, as further amended on July 1, 1992
and February 5, 1993)

(10)(iii) 10(M) The Progressive Corporation 1998 Directors' Stock Option Plan

(10)(iii) 10(N) The Progressive Corporation 1990 Directors'
Stock Option Plan (Amended and Restated
as of April 24, 1992 and as further amended on
July 1, 1992)

(10)(iii) 10(O) Agreement dated March 11, 1996 with Bruce W. Marlow

(10)(iii) 10(P) The Progressive Corporation 1995 Incentive Plan

(10)(iii) 10(Q) The Progressive Corporation Executive Deferred
Compensation Plan (Amended and Restated as of January 1, 1997), as
further amended December 1, 1997

(10)(iii) 10(R) Third Amendment to The Progressive Corporation Executive Deferred
Compensation Plan dated December 1, 1998

(10)(iii) 10(S) The Progressive Corporation Executive Deferred Compensation Trust
(December 1, 1998 Amendment and Restatement)
</TABLE>

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K If Incorporated by Reference, Documents with Which
S-K, Item 601 Exhibit No. Exhibit was Previously Filed with SEC

<S> <C> <C>
(10)(iii) 10(K) Quarterly Report on Form 10-Q (Filed with SEC on
November 13, 1996; see Exhibit 10 therein)

(10)(iii) 10(L) Annual Report on Form 10-K (Filed with SEC on March 27,
1999; see Exhibit 10(H) therein)

(10)(iii) 10(M) Annual Report on Form 10-K/A-No. 1 (Filed with SEC on
March 30, 1998; see Exhibit 10(H) therein)

(10)(iii) 10(N) Annual Report on Form 10-K (Filed with SEC on March 27,
1998; see Exhibit 10(I) therein)

(10)(iii) 10(O) Annual Report on Form 10-K (Filed with SEC on March 15,
1996; see Exhibit 10(H) therein)

(10)(iii) 10(P) Contained in Exhibit binder

(10)(iii) 10(Q) Annual Report on Form 10-K (Filed with SEC on March 27,
1998; see Exhibit 10(M) therein)

(10)(iii) 10(R) Annual Report on Form 10-K (Filed with SEC on March 27,
1999; see Exhibit 10(O) therein)

(10)(iii) 10(S) Annual Report on Form 10-K (Filed with SEC on March 27,
1999; see Exhibit 10(P) therein)
</TABLE>

42
<PAGE> 43

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K
S-K, Item 601 Exhibit No. Description of Exhibit

<S> <C> <C>
(10)(iii) 10(T) Form of Non-Qualified Stock Option Agreement under The Progressive
Corporation 1989 Incentive Plan (single award)

(10)(iii) 10(U) Form of Non-Qualified Stock Option Agreement under The Progressive
Corporation 1989 Incentive Plan (multiple awards)

(10)(iii) 10(V) The Progressive Corporation 1999 Information Services Incentive
Plan

(11) 11 Computation of Earnings Per Share

(13) 13 The Progressive Corporation 1999 Annual Report

(21) 21 Subsidiaries of The Progressive Corporation

(23) 23 Consent of Independent Accountants

(24) 24 Powers of Attorney

(27) 27 Financial Data Schedule

</TABLE>

<TABLE>
<CAPTION>
Exhibit No.
Under Reg. Form 10-K If Incorporated by Reference, Documents with Which
S-K, Item 601 Exhibit No. Exhibit was Previously Filed with SEC

<S> <C> <C>
(10)(iii) 10(T) Quarterly Report on Form 10-Q (Filed with SEC on May 1,
1996; see Exhibit 10(B) therein)

(10)(iii) 10(U) Quarterly Report on Form 10-Q (Filed with SEC on May 1,
1996; see Exhibit 10(C) therein)

(10)(iii) 10(V) Annual Report on Form 10-K (filed with SEC on March 27,
1999; see Exhibit 10(S) therein)

(11) 11 Contained in Exhibit Binder

(13) 13 Contained in Exhibit Binder

(21) 21 Contained in Exhibit Binder

(23) 23 Incorporated herein by reference to page 29 of this
Annual Report on Form 10-K

(24) 24 Contained in Exhibit Binder

(27) 27 These exhibits are contained in the EDGAR filing
of the Annual Report on Form 10-K for the year ended
December 31, 1999 only
</TABLE>

No other exhibits are required to be filed herewith pursuant to Item 601 of
Regulation S-K.

<PAGE> 1
EXHIBIT NO. 4(A)

================================================================================

THE PROGRESSIVE CORPORATION

AND

RHODE ISLAND HOSPITAL TRUST
NATIONAL BANK,
Trustee

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

INDENTURE

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

Dated as of November 15, 1988

================================================================================

<PAGE> 2

CROSS REFERENCE SHEET*

-------
Between

Provisions of Trust Indenture Act of 1939 and Indenture to be dated as
of November 15, 1988 between THE PROGRESSIVE CORPORATION and RHODE ISLAND
HOSPITAL TRUST NATIONAL BANK, Trustee:

Section of the Act Section of Indenture
- - - - ------------------- --------------------
310(a)(1) and (2) . . . . . . . . . . . . . . . . . . 6.9
310(a)(3) and (4) . . . . . . . . . . . . . . . . . . Inapplicable
310(b) . . . . . . . . . . . . . . . . . . . . . . . 6.8 and 6.10(a), (b)
and (d)
310(c) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
311(a) . . . . . . . . . . . . . . . . . . . . . . . 6.13(a) and (c)(1)
and (2)
311(b) . . . . . . . . . . . . . . . . . . . . . . . 6.13(b)
311(c) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
312(a) . . . . . . . . . . . . . . . . . . . . . . . 4.1 and 4.2(a)
312(b) . . . . . . . . . . . . . . . . . . . . . . . 4.2(a) and (b)(i)
and (ii)
312(c) . . . . . . . . . . . . . . . . . . . . . . . 4.2(c)
313(a) . . . . . . . . . . . . . . . . . . . . . . . 4.4(a)(i), (ii), (iii),
(iv), (v) and (vi)
313(b)(1) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
313(b)(2) . . . . . . . . . . . . . . . . . . . . . . 4.4
313(c) . . . . . . . . . . . . . . . . . . . . . . . 4.4
313(d) . . . . . . . . . . . . . . . . . . . . . . . 4.4
314(a) . . . . . . . . . . . . . . . . . . . . . . . 4.3
314(b) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(c)(1) and (2) . . . . . . . . . . . . . . . . . . 11.5
314(c)(3) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(d) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(e) . . . . . . . . . . . . . . . . . . . . . . . 11.5
314(f) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
315(a), (c) and (d) . . . . . . . . . . . . . . . . . 6.1
315(b) . . . . . . . . . . . . . . . . . . . . . . . 5.11
315(e) . . . . . . . . . . . . . . . . . . . . . . . 5.12
316(a)(1) . . . . . . . . . . . . . . . . . . . . . . 5.9
316(a)(2) . . . . . . . . . . . . . . . . . . . . . . Not required
316(a) (last sentence) . . . . . . . . . . . . . . . 7.4
316(b) . . . . . . . . . . . . . . . . . . . . . . . 5.7
317(a) . . . . . . . . . . . . . . . . . . . . . . . 5.2
317(b) . . . . . . . . . . . . . . . . . . . . . . . 3.4(a) and (b)
318(a) . . . . . . . . . . . . . . . . . . . . . . . 11.7

* This Cross Reference Sheet is not part of the Indenture.

<PAGE> 3

TABLE OF CONTENTS
-----------------

PAGE
----

PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS:

Authorization of Indenture . . . . . . . . . . . . . . . . . . . . . . 1
Compliance with Legal Requirements 1
Purpose of and Consideration for Indenture . . . . . . . . . . . . . . 1

ARTICLE ONE

DEFINITIONS

SECTION 1.1. Certain Terms Defined . . . . . . . . . . . . . . . . 1
Authorized Newspaper . . . . . . . . . . . . . . . . 2
Board of Directors . . . . . . . . . . . . . . . . . 2
Business Day . . . . . . . . . . . . . . . . . . . . 2
Commission . . . . . . . . . . . . . . . . . . . . . 2
Corporate Trust Office . . . . . . . . . . . . . . . 2
Coupon . . . . . . . . . . . . . . . . . . . . . . . 2
ECU . . . . . . . . . . . . . . . . . . . . . . . . . 3
European Communities . . . . . . . . . . . . . . . . 3
Event of Default . . . . . . . . . . . . . . . . . . 3
Foreign Currency . . . . . . . . . . . . . . . . . . 3
Holder, holder of Securities, Securityholder . . . . 3
Indebtedness . . . . . . . . . . . . . . . . . . . . 3
Indenture . . . . . . . . . . . . . . . . . . . . . . 4
Interest . . . . . . . . . . . . . . . . . . . . . . 4
Issuer . . . . . . . . . . . . . . . . . . . . . . . 4
Officers' Certificate . . . . . . . . . . . . . . . . 4
Opinion of Counsel . . . . . . . . . . . . . . . . . 4
Original issue date . . . . . . . . . . . . . . . . . 4
Original Issue Discount Security . . . . . . . . . . 4
Outstanding . . . . . . . . . . . . . . . . . . . . . 4
Person . . . . . . . . . . . . . . . . . . . . . . 5
principal . . . . . . . . . . . . . . . . . . . . . . 5
Registered Security . . . . . . . . . . . . . . . . . 5
Responsible Officer . . . . . . . . . . . . . . . . . 5
Security or Securities . . . . . . . . . . . . . . . 6
Senior Indebtedness . . . . . . . . . . . . . . . . . 6
Subordinated Indebtedness . . . . . . . . . . . . . . 6
Subsidiary . . . . . . . . . . . . . . . . . . . . . 6
Trustee . . . . . . . . . . . . . . . . . . . . . . . 6
Trust Indenture Act of 1939 . . . . . . . . . . . . . 6
Unregistered Security . . . . . . . . . . . . . . . . 6

<PAGE> 4

PAGE
----

U.S. Government Obligations . . . . . . . . . . . . . . . 6
vice president . . . . . . . . . . . . . . . . . . . . . 6
Yield to Maturity . . . . . . . . . . . . . . . . . . . . 7

ARTICLE TWO

SECURITIES

SECTION 2.1. Forms Generally . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.2. Form of Trustee's Certificate of Authentication . . . . . 7
SECTION 2.3. Amount Unlimited; Issuable in Series . . . . . . . . . . 8
SECTION 2.4. Authentication and Delivery of Securities . . . . . . . . 10
SECTION 2.5. Execution of Securities . . . . . . . . . . . . . . . . . 11
SECTION 2.6. Certificate of Authentication . . . . . . . . . . . . . . 12
SECTION 2.7. Denomination and Date of Securities; Payments of
Interest . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.8. Registration, Transfer and Exchange . . . . . . . . . . . 14
SECTION 2.9. Mutilated, Defaced, Destroyed Lost and Stolen
Securities . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.10. Cancellation of Securities; Destruction Thereof . . . . . 18
SECTION 2.11. Temporary Securities . . . . . . . . . . . . . . . . . . 18

ARTICLE THREE

COVENANTS OF THE ISSUER

SECTION 3.1. Payment of Principal and Interest . . . . . . . . . . . . 19
SECTION 3.2. Offices for Payments, etc . . . . . . . . . . . . . . . . 20
SECTION 3.3. Appointment to Fill a vacancy in Office of Trustee . . . 21
SECTION 3.4. Paying Agents . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.5. Written Statement to Trustee . . . . . . . . . . . . . . 22
SECTION 3.6. Luxembourg Publications . . . . . . . . . . . . . . . . . 22

ARTICLE FOUR

SECURITYHOLDERS' LISTS AND REPORTS BY THE
ISSUER AND THE TRUSTEE

SECTION 4.1. Issuer to Furnish Trustee Information as to Names and
Addresses of Securityholders . . . . . . . . . . . . . 23
SECTION 4.2. Preservation and Disclosure of Securityholders'
Lists . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.3. Reports by the Issuer . . . . . . . . . . . . . . . . . . 25
SECTION 4.4. Reports by the Trustee . . . . . . . . . . . . . . . . . 26

<PAGE> 5

iii

PAGE
----

ARTICLE FIVE

REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT

SECTION 5.1. Event of Default Defined; Acceleration of Maturity;
Waiver of Default . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.2. Collection of Indebtedness by Trustee; Trustee May
Prove Debt . . . . . . . . . . . . . . . . . . . . . . . .. 31
SECTION 5.3. Application of Proceeds . . . . . . . . . . . . . . . . . . . 34
SECTION 5.4. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.5. Restoration of Rights on Abandonment of
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.6. Limitations on Suits by Securityholders . . . . . . . . . . . 36
SECTION 5.7. Unconditional Right of Securityholders to Institute
Certain Suits . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.8. Powers and Remedies Cumulative; Delay or Omission
Not Waiver of Default . . . . . . . . . . . . . . . . . . . 37
SECTION 5.9. Control by Securityholders . . . . . . . . . . . . . . . . . 37
SECTION 5.10. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . 38
SECTION 5.11. Trustee to Give Notice of Default, But May Withhold
in Certain Circumstances . . . . . . . . . . . . . . . . . 39
SECTION 5.12. Right of Court to Require Filing of Undertaking to Pay
Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

ARTICLE SIX

CONCERNING THE TRUSTEE

SECTION 6.1. Duties and Responsibilities of the Trustee; During
Default; Prior to Default . . . . . . . . . . . . . . . . . 40
SECTION 6.2. Certain Rights of the Trustee . . . . . . . . . . . . . . . . 41
SECTION 6.3. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof . . . . . . . 43
SECTION 6.4. Trustee and Agents May Hold Securities or Coupons;
Collections, etc . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.5. Moneys Held by Trustee . . . . . . . . . . . . . . . . . . . 43
SECTION 6.6. Compensation and Indemnification of Trustee and Its
Prior Claim . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.7. Right of Trustee to Rely on Officers' Certificate, etc. . . . 44
SECTION 6.8. Qualification of Trustee; Conflicting Interests . . . . . . . 45
SECTION 6.9. Persons Eligible for Appointment as Trustee . . . . . . . . . 51

<PAGE> 6

PAGE
----

SECTION 6.10. Resignation and Removal; Appointment of Successor
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 6.11. Acceptance of Appointment by Successor Trustee . . . . . . 53
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee . . . . . . . . . . . . . . . . . . . 55
SECTION 6.13. Preferential Collection of Claims Against the
Issuer . . . . . . . . . . . . . . . . . . . . . . . . 55

ARTICLE SEVEN

CONCERNING THE SECURITYHOLDERS

SECTION 7.1. Evidence of Action Taken by Securityholders . . . . . . . . 60
SECTION 7.2. Proof of Execution of Instruments and of Holding of
Securities . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 7.3. Holders to be Treated as Owners . . . . . . . . . . . . . . 61
SECTION 7.4. Securities Owned by Issuer Deemed Not Outstanding . . . . . 62
SECTION 7.5. Right of Revocation of Action Taken . . . . . . . . . . . . 63

ARTICLE EIGHT

SUPPLEMENTAL INDENTURES

SECTION 8.1. Supplemental Indentures Without Consent of Security-
holders . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 8.2. Supplemental Indentures With Consent of
Securityholders . . . . . . . . . . . . . . . . . . . . . 65
SECTION 8.3. Effect of Supplemental Indenture . . . . . . . . . . . . . 66
SECTION 8.4. Documents to Be Given to Trustee . . . . . . . . . . . . . 67
SECTION 8.5. Notation on Securities in Respect of Supplemental
Indentures . . . . . . . . . . . . . . . . . . . . . . . 67

ARTICLE NINE

CONSOLIDATION, MERGER, SALE OR CONVEYANCE

SECTION 9.1. Issuer May Consolidate, etc., on Certain Terms . . . . . . 67
SECTION 9.2. Successor Corporation Substituted . . . . . . . . . . . . . 68
SECTION 9.3. Opinion of Counsel to Trustee . . . . . . . . . . . . . . . 69

<PAGE> 7

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ARTICLE TEN

SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS

<S> <C>
SECTION 10.1. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . 69
SECTION 10.2. Application by Trustee of Funds Deposited for Payment of Securities . 72
SECTION 10.3. Repayment of Moneys Held by Paying Agent . . . . . . . . . . . . . . 72
SECTION 10.4. Return of Moneys Held by Trustee and Paying Agent Unclaimed
for Two Years . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.5. Indemnity for U.S. Government Obligations . . . . . . . . . . . . . . 73

ARTICLE ELEVEN

MISCELLANEOUS PROVISIONS

SECTION 11.1. Incorporators, Shareholders, Officers and Directors of
Issuer Exempt from Individual Liability . . . . . . . . . . . . . . 73
SECTION 11.2. Provisions of Indenture for the Sole Benefit of Parties
and Securityholders . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.3. Successors and Assigns of Issuer Bound by Indenture . . . . . . . . . 74
SECTION 11.4. Notices and Demands on Issuer, Trustee and Securityholders . . . . . 74
SECTION 11.5. Officers' Certificates and Opinions of Counsel; Statements to Be
Contained Therein . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11.6. Payments Due on Saturdays, Sundays and Holidays . . . . . . . . . . 76
SECTION 11.7. Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939 . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.8. New York Law to Govern . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 11.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 11.10. Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 11.11. Securities in Foreign Currencies or in ECU . . . . . . . . . . . . . 77

ARTICLE TWELVE

REDEMPTION OF SECURITIES AND SINKING FUNDS

SECTION 12.1. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 12.2. Notice of Redemption; Partial Redemptions . . . . . . . . . . . . . . 78
SECTION 12.3. Payment of Securities Called for Redemption . . . . . . . . . . . . . 79
SECTION 12.4. Exclusion of Certain Securities from Eligibility for
Selection for Redemption . . . . . . . . . . . . . . . . . . . . . 80
SECTION 12.5. Mandatory and Optional Sinking Funds . . . . . . . . . . . . . . . . 81

</TABLE>

<PAGE> 8

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ARTICLE THIRTEEN

SUBORDINATION; SENIORITY

SECTION 13.1. Securities Subordinated to Senior Indebtedness . . . . . . 84
SECTION 13.2. Issuer Not to Make Payments with Respect to Securities
in Certain Circumstances . . . . . . . . . . . . . . . . 84
SECTION 13.3. Subrogation of Securities . . . . . . . . . . . . . . . . . 87
SECTION 13.4. Authorization by Holders of Securities . . . . . . . . . . 88
SECTION 13.5. Notices to Trustee . . . . . . . . . . . . . . . . . . . . 88
SECTION 13.6. Trustee's Relation to Senior Indebtedness . . . . . . . . . 89
SECTION 13.7. No Impairment of Subordination . . . . . . . . . . . . . . 89
SECTION 13.8. Article 13 Not to Prevent Events of Default . . . . . . . . 90
SECTION 13.9. Paying Agents other than the Trustee . . . . . . . . . . . 90
SECTION 13.10. Securities Senior to Subordinated Indebtedness . . . . . . 90

TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

<PAGE> 9

THIS INDENTURE, dated as of November 15, 1988, between THE PROGRESSIVE
CORPORATION, an Ohio corporation (the "Issuer"), and RHODE ISLAND HOSPITAL TRUST
NATIONAL BANK, a national banking association (the "Trustee"),

WITNESSETH:

WHEREAS, the Issuer has duly authorized the issue from time to time of
its unsecured debentures, notes or other evidences of indebtedness to be issued
in one or more series (the "Securities") up to such principal amount or amounts
as may from time to time be authorized in accordance with the terms of this
Indenture and to provide, among other things, for the authentication, delivery
and administration thereof, the Issuer has duly authorized the execution and
delivery of this Indenture; and

WHEREAS, all things necessary to make this Indenture a valid indenture
and agreement according to its terms have been done;

Now, THEREFORE:

In consideration of the premises and the purchases of the Securities by
the holders thereof, the Issuer and the Trustee mutually covenant and agree for
the equal and proportionate benefit of the respective holders from time to time
of the Securities and of the Coupons, if any, appertaining thereto as follows:

ARTICLE ONE

DEFINITIONS

SECTION 1.1 Certain Terms Defined. The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All other terms
used in this Indenture that are defined in the Trust Indenture Act of 1939 or
the definitions of which in the Securities Act of 1933 are referred to in the
Trust Indenture Act of 1939, including terms defined therein by reference to the
Securities Act of 1933 (except as herein otherwise expressly provided or unless
the context otherwise clearly requires), shall have the meanings assigned to
such terms in said Trust Indenture Act and in said Securities Act as in force at
the date of this Indenture. All accounting terms used herein and not expressly
defined shall have the meanings assigned to such terms in accordance with
generally accepted accounting principles, and the term "generally accepted
accounting principles" means such accounting principles as

<PAGE> 10

are generally accepted at the time of any computation. The words "herein",
"hereto" and "hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision. The terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular.

"Authorized Newspaper" means a newspaper (which, in the case of the
United Kingdom, will, if practicable, be the Financial Times (London Edition)
and, in the case of Luxembourg, will, if practicable, be the Luxemburger Wort)
published in English or an official language of the country of publication
customarily published at least once a day for at least five days in each
calendar week and of general circulation in the United Kingdom or in Luxembourg,
as applicable. If it shall be impractical in the opinion of the Trustee to make
any publication of any notice required hereby in an Authorized Newspaper, any
publication or other notice in lieu thereof which is made or given with the
approval of the Trustee shall constitute a sufficient publication of such
notice.

"Board of Directors" means either the Board of Directors of the Issuer
or any committee of such Board duly authorized to act hereunder.

"Business Day" means, with respect to any Security, a day that in the
city (or in any of the cities, if more than one) in which amounts are payable,
as specified in the form of such Security, is not a day on which banking
institutions are authorized by law or regulation to close or a day on which
transactions in the currency in which the Securities are payable are not
conducted.

"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution and delivery of this Indenture such Commission is
not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties on such date.

Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date as of which this
Indenture is dated, located at 15 Westminster Street, Room 737W, Providence,
Rhode Island 02903, Attn: Corporate Trust Administration.

"Coupon" means any interest coupon appertaining to a Security.

<PAGE> 11

"ECU" means the European Currency Unit as defined and revised from time
to time by the council of European Communities.

"European Communities" means the European Economic Community (the
"EEC"), the European Coal and Steel Community and Euratom.

"Event of Default" means any event or condition specified as such in
Section 5.1.

"Foreign Currency" means a currency issued by the government of a
country other than the United States.

"Holder," "Holder of Securities," "Securityholder" or other similar
terms mean (a) in the case of any Registered Security, the Person in whose name
such Security is registered in the security register kept by the Issuer for that
purpose in accordance with the terms hereof, and (b) in the case of any
Unregistered Security, the bearer of such Security, or any Coupon appertaining
thereto, as the case may be.

"Indebtedness" with respect to any Person means:

(1) any debt (i) for borrowed money, or (ii) evidenced by a
bond, note, debenture, or similar instrument (including purchase money
obligations) given in connection with the acquisition of any business,
property or assets, whether by purchase, merger, consolidation or
otherwise, but shall not include any account payable or other
obligation created or assumed by a Person in the ordinary course of
business in connection with the obtaining of materials or services, or
(iii) which is a direct or indirect obligation which arises as a result
of banker's acceptances or drawings under bank letters of credit issued
to secure obligations of such person, whether contingent or otherwise;

(2) any debt of others described in the preceding clause (1)
which such Person has guaranteed or for which it is otherwise liable;

(3) the obligation of such Person as lessee under any lease of
property which is reflected on such Person's balance sheet as a
capitalized lease; and

(4) any deferral, amendment, renewal, extension, supplement or
refunding of any liability of the kind described in any of the
preceding clauses (1), (2) and (3) provided, however, that, in
computing the "Indebtedness" of any Person, there shall be excluded any
particular

<PAGE> 12

indebtedness if, upon or prior to the maturity thereof, there shall
have been deposited with the depository in trust money (or evidences of
indebtedness if permitted by the instrument creating such indebtedness)
in the necessary amount to pay, redeem or satisfy such indebtedness as
it becomes due, and the amount so deposited shall not be included in
any computation of the assets of such Person.

"Indenture" means this instrument as originally executed and delivered
or, if amended or supplemented as herein provided, as so amended or supplemented
or both, and shall include the forms and terms of particular series of
Securities established as contemplated hereunder.

"Interest" means, when used with respect to non-interest bearing
Securities, interest payable after maturity.

"lssuer" means (except as otherwise provided in Article Six) THE
PROGRESSIVE CORPORATION, an Ohio corporation, and, subject to Article Nine, its
successors and assigns.

"Officers' Certificate" means a certificate signed by the chairman of
the Board of Directors or the president or any vice president or by the
treasurer and by the secretary or any assistant secretary of the Issuer and
delivered to the Trustee. Each such certificate shall include the statements
provided for in Section 11.5.

"Opinion of Counsel" means an opinion in writing signed by legal
counsel who may be an employee of or counsel to the Issuer or other counsel who
shall be satisfactory to the Trustee. Each such opinion shall include the
statements provided for in Section 11.5, if and to the extent required hereby.

"Original Issue Date" of any Security (or portion thereof) means the
earlier of (a) the date of such Security or (b) the date of any Security (or
portion thereof) for which such Security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.

"Original Issue Discount Security" means any Security that provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to Section 5.1.

"Outstanding" (except as otherwise provided in Section 6.8), when used
with reference to Securities, shall, subject to the provisions of Section 7.4,
means, as of any particular time, all Securities authenticated and delivered by
the Trustee under this Indenture, except

<PAGE> 13

(a) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;

(b) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall have been
deposited in trust with the Trustee or with any paying agent (other
than the Issuer) or shall have been set aside, segregated and held in
trust by the Issuer for the holders of such Securities (if the Issuer
shall act as its own paying agent), provided that if such Securities,
or portions thereof, are to be redeemed prior to the maturity thereof,
notice of such redemption shall have been given as herein provided, or
provision satisfactory to the Trustee shall have been made for giving
such notice; and

(c) Securities in substitution for which other Securities shall
have been authenticated and delivered, or which shall have been paid,
pursuant to the terms of Section 2.9 (except with respect to any such
Security as to which proof satisfactory to the Trustee is presented
that such Security is held by a person in whose hands such Security is
a legal, valid and binding obligation of the Issuer).

In determining whether the holders of the requisite principal amount of
Outstanding Securities of any or all series have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, the principal
amount of all Original Issue Discount Security that shall be deemed to be
Outstanding for such purposes shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a declaration
of acceleration of the maturity thereof pursuant to Section 5.1.

"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

"principal" whenever used with reference to the Securities or any
Security or any portion thereof, shall be deemed to include "and premium, if
any."

"Registered Security" means any Security registered on the Security
Register of the Issuer.

"Responsible Officer" when used with respect to the Trustee means any
officer or assistant officer assigned by the Trustee to administer its corporate
trust matters.

<PAGE> 14

"Security" or "Securities" (except as otherwise provided in Section
6.8) has the meaning stated in the first recital of this Indenture, or, as the
case may be, Securities that have been authenticated and delivered under this
Indenture.

"Senior Indebtedness" means the principal and unpaid interest on
Indebtedness of the Company outstanding at any time, other than (1) the
Securities, (2) Indebtedness of the Issuer to a Subsidiary for money borrowed or
advanced from any Subsidiary, except for such Indebtedness which the Subsidiary
has borrowed from a third party other than a Subsidiary and advanced to the
Company, (3) the Company's Floating Rate Convertible Subordinated Debentures due
2008 issued in the aggregate principal amount of $75,000,000 ("Floating Rate
Convertible Subordinated Debentures"), and (4) any other Indebtedness which by
its terms expressly provides that it is not superior in right of payment to the
Securities.

"Subordinated Indebtedness" means the principal and interest on any
Indebtedness of the Company which by its terms is expressly subordinated in
right of payment to the Securities (including without limitation the Floating
Rate Convertible Subordinated Debentures).

"Subsidiary" means a corporation the majority of whose voting stock is
owned by the Company or a Subsidiary. Voting stock is capital stock having
voting power under the ordinary circumstances to elect directors.

"Trustee" means the Person identified as "Trustee" in the first
paragraph hereof and, subject to the provisions of Article Six, shall also
include any successor trustee.

"Trust Indenture Act of 1939" (except as otherwise provided in Sections
8.1 and 8.2) means the Trust Indenture Act of 1939 as in force at the date as of
which this Indenture was originally executed.

"Unregistered Security" means any Security other than a Registered
Security.

"U.S. Government Obligations" means direct obligations of the United
States of America, backed by its full faith and credit.

"vice president" when used with respect to the Issuer, means any vice
president, whether or not designated by a number or a word or words added before
or after the title of "vice president".

<PAGE> 15

"Yield to Maturity" means the yield to maturity on a series of
securities, calculated at the time of issuance of such series, or, if
applicable, at the most recent redetermination of interest on such series, and
calculated in accordance with accepted financial practice.

ARTICLE TWO

SECURITIES

SECTION 2.1 Forms Generally. The Securities of each series and the
Coupons, if any, to be attached thereto shall be substantially in such form (not
inconsistent with this Indenture) as shall be established by or pursuant to a
resolution of the Board of Directors or in one or more indentures supplemental
hereto, in each case with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture and may have
imprinted or otherwise reproduced thereon such legend or legends, not
inconsistent with the provisions of this Indenture, as may be required to comply
with any law or with any rules or regulations pursuant thereto, or with any
rules of any securities exchange or to conform to general usage, all as may be
determined by the officers executing such Securities and Coupons, as evidenced
by their execution of the Securities and Coupons.

The definitive Securities and Coupons shall be printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the officers executing such Securities and Coupons, as
evidenced by their execution of such Securities and Coupons.

SECTION 2.2 Form of Trustees Certificate of Authentication. The
Trustee's certificate of authentication on all Securities shall be in
substantially the following form:

This is one of the Securities, of the series designated herein,
referred to in the within-mentioned Indenture.

TRUSTEE,
as Trustee

By ____________________________________________________
Authorized Signatory

<PAGE> 16

SECTION 2.3 Amount Unlimited; Issuable in Series. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited.

The Securities may be issued in one or more series. There shall be
established in or pursuant to a resolution of the Board of Directors and set
forth in an Officers' Certificate, or established in one or more indentures
supplemental hereto, prior to the issuance of Securities of any series,

(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other Securities);

(2) any limit upon the aggregate principal amount of the
Securities of the series that may be authenticated and delivered under
this Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of the series pursuant to Section 2.8, 2.9, 2.11 or 12.3);

(3) the date or dates on which the principal of the Securities
of the series is payable or the method by which such date or dates
shall be determined;

(4) the rate or rates at which the Securities of the series
shall bear interest, if any, or the method by which such rate shall be
determined, the date or dates from which such interest shall accrue,
the interest payment dates on which such interest shall be payable and
the record dates for the determination of Holders to whom interest is
payable;

(5) the place or places where the principal and any interest
on Securities of the series shall be payable;

(6) the price or prices at which, the period or periods within
which and the terms and conditions upon which Securities of the series
may be redeemed, in whole or in part, at the option of the Issuer,
pursuant to any sinking fund or otherwise;

(7) the obligation, if any, of the Issuer to redeem, purchase
or repay Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof and the price
or prices at which and the period or periods within which and the terms
and conditions upon which Securities of the series shall be redeemed,
purchased or repaid, in whole or in part, pursuant to such obligation;

<PAGE> 17

(8) if other than denominations of U.S. $1,000 and any
integral multiple thereof, in the case of Registered Securities, or
U.S. $1,000 in the case of Unregistered Securities, the denominations
in which Securities of the series shall be issuable;

(9) if other than the principal amount thereof, the portion of
the principal amount of Securities of the series which shall be payable
upon declaration of acceleration of the maturity thereof pursuant to
Section 5.1 or provable in bankruptcy pursuant to Section 5.2;

(10) any authenticating or paying agents, transfer agents or
registrars or any other agents with respect to the Securities of such
series;

(11) if other than such coin or currency of the United States
of America as at the time of payment is legal tender for payment of
public or private debts, the coin or currency or units based on or
relating to currencies (including ECU) in which payment of the
principal of and interest, if any, on the Securities of that series
shall be payable;

(12) if the principal of or interest, if any, on the Securities
of that series are to be payable, at the election of the Issuer or a
holder thereof, in a coin or currency or units based on or relating to
currencies (including ECU) other than that in which the Securities are
stated to be payable, the period or periods within which, and the terms
and conditions upon which, such election may be made;

(13) if the amount of payments of principal of or interest, if
any, on the Securities of the series may be determined with reference
to an index, formula or other method based on a coin or currency or
units based on or relating to currencies (including ECU) other than
that in which the Securities are stated to be payable, the manner in
which such amounts shall be determined;

(14) whether the Securities of the series will be issuable as
Registered Securities or Unregistered Securities (with or without
Coupons), or both, any restrictions applicable to the offer, sale or
delivery of Unregistered Securities and, if other than as provided in
Section 2.8, the terms upon which Unregistered Securities of any series
may be exchanged for Registered Securities of such series and vice
versa;

<PAGE> 18

(15) whether and under what circumstances the Issuer will pay
additional amounts on the Securities of the series held by a Person who
is not a U.S. person in respect of any tax, assessment or governmental
charge withheld or deducted and, if so, whether the Issuer will have
the option to redeem such Securities rather than pay such additional
amounts;

(16) if the Securities of such series are to be issuable in
definitive form (whether upon original issue or upon exchange of a
temporary Security of such series) only upon receipt of certain
certificates or other documents or satisfaction of other conditions not
otherwise set forth herein, then the form and terms of such
certificates, documents or conditions;

(17) the degree to which such Securities shall be subordinated
to any other securities of the Issuer; and

(18) any other terms of the series, including provisions for
payment by wire transfers, if any, or modifications of the definition
of Business Day (which terms shall not adversely affect the interests
of the Holders of the Securities).

All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided in or pursuant
to such resolution of the Board of Directors or in any such indenture
supplemental hereto.

SECTION 2.4 Authentication and Delivery of Securities. At any time and
from time to time after the execution and delivery of this Indenture, the Issuer
may deliver Securities of any series (having attached thereto appropriate
Coupons, if any), executed by the Issuer to the Trustee for authentication, and
the Trustee shall thereupon authenticate and deliver such Securities and
Coupons, if any, to or upon the written order of the Issuer, signed by both (a)
the chairman of its Board of Directors, or any vice chairman of its Board of
Directors, or its president or any vice president or its treasurer or any
assistant treasurer and (b) by its secretary or any assistant secretary, without
any further action by the Issuer. In authenticating such Securities and Coupons,
if any, and accepting the additional responsibilities under this Indenture in
relation to such Securities and Coupons, if any, the Trustee shall be entitled
to receive, and (subject to Section 6.1) shall be fully protected in relying
upon:

<PAGE> 19

(1) a copy of any resolution or resolutions of the Board of
Directors by or pursuant to which the form and term of such series were
established in each case certified by the Secretary or an Assistant
Secretary of the Issuer;

(2) an executed supplemental indenture, if any;

(3) an Officers' Certificate setting forth the form and terms
of the Securities and Coupons, if any, as required pursuant to Section
2.3, and prepared in accordance with Section 11.5;

(4) an Opinion of Counsel, prepared in accordance with
Section 11.5, which shall state

(a) that the form or forms and terms of such
Securities and Coupons, if any, have been established by or
pursuant to a resolution of the Board of Directors or by a
supplemental indenture as permitted by Section 2.1 and 2.3 in
conformity with the provisions of this Indenture;

(b) that such Securities and Coupons, if any, when
authenticated and delivered by the Trustee and issued by the
issuer in the manner and subject to any conditions specified in
such Opinion of Counsel, will constitute valid and binding
obligations of the Issuer;

(c) that all laws and requirements in respect of the
execution and delivery by the Issuer of the Securities and
Coupons, if any, have been complied with; and

(d) such other matters as the Trustee may reasonably
request.

The Trustee shall have the right to decline to authenticate and deliver
any Securities and Coupons, if any, under this Section if the Trustee, being
advised by counsel, determines that such action may not lawfully be taken by the
Issuer or if the Trustee in good faith by its board of directors or board of
trustees, executive committee, or a trust committee of directors, trustees or
Responsible Officers shall determine that such action would expose the Trustee
to personal liability to existing Holders.

SECTION 2.5 Execution of Securities. The Securities and, if applicable,
each Coupon appertaining thereto, shall be signed on behalf of the Issuer by
both (a) the chairman of its Board of Directors or any vice chairman of its
Board of Directors or its president or any vice president or its treasurer or
any assistant treasurer and (b) by its secretary or any

<PAGE> 20

assistant secretary, under its corporate seal which may, but need not, be
attested. Such signatures may be the manual or facsimile signatures of the
present or any future such officers. The seal of the Issuer may be in the form
of a facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Securities. Typographical and other minor errors or defects in
any such reproduction of the seal or any such signature shall not affect the
validity or enforceability of any Security or Coupon that has been duly
authenticated and delivered by the Trustee.

In case any officer of the Issuer who shall have signed any of the
Securities or Coupons shall cease to be such officer before the Security or
Coupon so signed (or the Security to which the Coupon so signed appertains)
shall be authenticated and delivered by the Trustee or disposed of by the
Issuer, such Security or Coupon nevertheless may be authenticated and delivered
or disposed of as though the person who signed such Security or Coupon had not
ceased to be such officer of the Issuer; and any Security or Coupon may be
signed on behalf of the Issuer by such persons as, at the actual date of the
execution of such Security or Coupon, shall be the proper officers of the
Issuer, although at the date of the execution and delivery of this Indenture any
such person was not such an officer.

SECTION 2.6 Certificate of Authentication. Only such Securities as
shall bear thereon a certificate of authentication substantially in the form
hereinbefore recited, executed by the Trustee by the manual signature of one of
its authorized signatories, shall be entitled to the benefits of this Indenture
or be valid or obligatory for any purpose. Such certificate by the Trustee upon
any Security executed by the Issuer shall be conclusive evidence that the
Security so authenticated has been duly authenticated and delivered hereunder
and that the holder is entitled to the benefits of this Indenture. No Coupon
shall be entitled to the benefits of this Indenture or shall be valid or
obligatory for any purpose until such certificate by the Trustee shall have
become duly executed on the Security to which such Coupon appertains.

SECTION 2.7 Denomination and Date of Securities; Payments of Interest.
The Securities shall be issuable as Registered Securities or Unregistered
Securities in such denominations as shall be specified as contemplated by
Section 2.3. In the absence of any such specification with respect to the
Registered Securities of any series, the Registered Securities of such series
shall be issuable in denominations of U.S. $1,000 and any integral multiple
thereof. In the absence of any such specification

<PAGE> 21

with respect to the Unregistered Securities, Unregistered Securities shall be
issued in the denomination of U.S. $1,000. The Securities shall be numbered,
lettered, or otherwise distinguished in such manner or in accordance with such
plan as the officers of the Issuer executing the same may determine with the
approval of the Trustee as evidenced by the execution and authentication
thereof.

Each Registered Security shall be dated the date of its authentication.
Each Unregistered Security shall be dated as provided in the resolution or
resolutions of the Board of Directors of the Issuer or the supplemental
indenture referred to in Section 2.3. The Securities of each series shall bear
interest, if any, from the date, and such interest shall be payable on the
dates, established as contemplated by Section 2.3.

The person in whose name any Registered Security of any series is
registered at the close of business on any record date applicable to a
particular series with respect to any interest payment date for such series
shall be entitled to receive the interest, if any, payable on such interest
payment date notwithstanding any transfer or exchange of such Registered
Security subsequent to the record date and prior to such interest payment date,
except if and to the extent the Issuer shall default in the payment of the
interest due on such interest payment date for such series, in which case such
defaulted interest shall be paid to the persons in whose names Outstanding
Registered Securities for such series are registered at the close of business on
a subsequent record date (which shall be not less than five Business Days prior
to the date of payment of such defaulted interest) established by notice given
by mail by or on behalf of the Issuer to the holders of Registered Securities
not less than 15 days preceding such subsequent record date. The term "record
date" as used with respect to any interest payment date (except a date for
payment of defaulted interest) shall mean the date specified as such in the
terms of the Registered Securities of any particular series, or, if no such date
is so specified, if such interest payment date is the first day of a calendar
month, the fifteenth day of the next preceding calendar month or, if such
interest payment date is the fifteenth day of a calendar month, the first day of
such calendar month, whether or not such record date is a Business Day.

Any defaulted interest payable in respect of any Unregistered Security
shall be payable pursuant to such procedures as are satisfactory to the Trustee
and in such manner so that there is no discrimination as between the holders of
Registered Securities and Unregistered Securities

<PAGE> 22

of the same series and notice of the payment date therefore shall be given by
the Trustee in the name and at the expense of the Company by publication at
least once in an Authorized Newspaper. In case an Unregistered Security is
surrendered in exchange for a Registered Security after the close of business on
any record date for the payment of defaulted interest and before the opening of
business on the proposed date of payment of such defaulted interest, the Coupon
appertaining to such surrendered Unregistered Security and due for payment on
such proposed date of payment will not be surrendered with such surrendered
Unregistered Security and interest payable on such proposed date of payment will
be made only to the holder of such Coupon on such proposed date.

SECTION 2.8. Registration, Transfer and Exchange. The Issuer will keep
or cause to be kept at each office or agency to be maintained for the purpose as
provided in Section 3.2 a register or registers for each series of Registered
Securities issued hereunder (collectively, the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, it will register,
and will register the transfer of, or cause the registration of transfer of,
Registered Securities as in this Article provided. Such register shall be in
written form in the English language or in any other form capable of being
converted into such form within a reasonable time. At all reasonable times such
register or registers shall be open for inspection by the Trustee.

Upon due presentation for registration of transfer of any Registered
Security of any series at any such office or agency to be maintained for the
purpose as provided in Section 3.2, the Issuer shall execute and the Trustee
shall authenticate and deliver in the name of the transferee or transferees a
new Registered Security or Registered Securities of the same series in
authorized denominations for a like aggregate principal amount.

Unregistered Securities (except for any temporary Unregistered
Securities) and Coupons (except for Coupons attached to any temporary
Unregistered Securities) shall be transferable by delivery.

Any Registered Security or Registered Securities of any series may be
exchanged for a Registered Security or Registered Securities of the same series
in other authorized denominations, in an equal aggregate principal amount.
Registered Securities of any series to be exchanged shall be surrendered at any
office or agency to be maintained by the Issuer

<PAGE> 23

for the purpose as provided in Section 3.2, and the Issuer shall execute and the
Trustee shall authenticate and deliver in exchange therefore the Registered
Security or Registered Securities of the same series which the Securityholder
making the exchange shall be entitled to receive, bearing numbers not
contemporaneously outstanding. If the Securities of any series are issued in
both registered and unregistered form, except as otherwise specified pursuant to
Section 2.3, at the option of the Holder thereof, Unregistered Securities of any
series may be exchanged for Registered Securities of such series, maturity date,
and interest rate of any authorized denominations and of a like aggregate
principal amount, upon surrender of such Unregistered Securities to be exchanged
at the agency of the Issuer that shall be maintained for such purpose in
accordance with Section 3.2, with, in the case of Unregistered Securities that
have Coupons attached, all unmatured Coupons and all matured Coupons in default
thereto appertaining, and upon payment, if the Issuer shall so require, of the
charges hereinafter provided. At the option of the Holder thereof, if
Unregistered Securities of any series, maturity date, interest rate and original
issue date are issued in more than one authorized denomination, except as
otherwise specified pursuant to Section 2.3, such Unregistered Securities may be
exchanged for Unregistered Securities of such series, maturity date, interest
rate and original issue date of other authorized denominations and of a like
aggregate principal amount, upon surrender of such Unregistered Securities to be
exchanged at the agency of the Issuer that shall be maintained for such purpose
in accordance with Section 3.2 or as specified pursuant to Section 2.3, with, in
the case of Unregistered Securities that have Coupons attached, all unmatured
Coupons and all matured Coupons in default thereto appertaining, and upon
payment, if the Issuer shall so require, of the charges hereinafter provided.
Unless otherwise specified pursuant to Section 2.3, Registered Securities of any
series may not be exchanged for Unregistered Securities of such series. Whenever
any Securities, and the Coupons appertaining thereto, if any, are so surrendered
for exchange, the Issuer shall execute, and the Trustee shall authenticate and
deliver, the Securities, and the Coupons appertaining thereto, if any, which the
Holder making the exchange is entitled to receive. Notwithstanding the
foregoing, if an Unregistered Security of any series is surrendered at any such
office or agency in exchange for a Registered Security of the same series after
the close of business at such office or agency on any record date and before the
opening of business at such office or agency on the applicable interest payment
date, such Unregis-

<PAGE> 24

tered Security shall be surrendered without the Coupon, if any, relating to such
interest payment date. All Securities and Coupons surrendered upon any exchange
or transfer provided for in this Indenture shall be promptly cancelled and
disposed of by the Trustee and the Trustee will deliver a certificate of
disposition thereof to the Issuer.

All Registered Securities presented for registration of transfer,
exchange, redemption or payment shall (if so required by the Issuer or the
Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer and the Trustee duly
executed by, the holder or his attorney duly authorized in writing.

The Issuer may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities and shall not be required to exchange or
register a transfer of any Securities until such payment is made. No service
charge shall be made for any such transaction.

The Issuer shall not be required to exchange or register a transfer of
(a) any Securities of any series for a period of 15 days next preceding the
first mailing of notice of redemption of Securities of such series to be
redeemed, or (b) any Securities selected, called or being called for redemption
except, in the case of any Security where public notice has been given that such
Security is to be redeemed in part, the portion thereof not so to be redeemed
and except that an Unregistered Security may be exchanged for a Registered
Security of the same series being called for redemption.

All Securities issued upon any transfer or exchange of Securities shall
be valid obligations of the Issuer, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.

Notwithstanding anything herein or in the terms of any series of
Securities to the contrary, neither the Issuer nor the Trustee (which shall rely
on an Officers' Certificate and an Opinion of Counsel) shall be required to
exchange any Unregistered Security for a Registered Security if such exchange
would result in adverse Federal income tax consequences to the Issuer
(including, without limitation the inability of the Issuer to deduct from its
income, as computed for Federal income tax purposes, the interest payable on the
Unregistered Securities) under then applicable United States Federal income tax
laws.

<PAGE> 25

SECTION 2.9 Mutilated, Defaced, Destroyed, Lost and Stolen Securities.
In case any temporary or definitive Security or any Coupon appertaining to any
Security shall become mutilated, defaced or be destroyed, lost or stolen, the
Issuer in its discretion may execute, and upon the written request of any
officer of the Issuer, the Trustee shall authenticate and deliver, a new
Security of the same series, bearing a number not contemporaneously outstanding,
in exchange and substitution for the mutilated or defaced Security, or in lieu
of and substitution for the Security so destroyed, lost or stolen with Coupons
corresponding to the Coupons appertaining to the Security so mutilated, defaced,
destroyed, lost or stolen, or in exchange or substitution for the Security to
which such mutilated, defaced, destroyed, lost or stolen Coupons appertained,
with Coupons appertaining thereto corresponding to the Coupons so mutilated,
defaced, destroyed, lost or stolen. In every case the applicant for a substitute
Security or Coupon shall furnish to the Issuer and to the Trustee and any agent
of the Issuer or the Trustee such security or indemnity as may be required by
them to indemnify and defend and to save each of them harmless and, in every
case of destruction, loss or theft, evidence to their satisfaction of the
destruction, loss or theft of such Security and of the ownership thereof.

Upon the issuance of any substitute Security or Coupon, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith. In case any Security
or Coupon which has matured or is about to mature or has been called for
redemption in full shall become mutilated or defaced or be destroyed, lost or
stolen, the Issuer may, at its sole discretion, instead of issuing a substitute
Security or Coupon, pay or authorize the payment of the same (without surrender
thereof except in the case of a mutilated or defaced Security or Coupon), if the
applicant for such payment shall furnish to the Issuer and to the Trustee and
any agent of the issuer or the Trustee such security or indemnity as any of them
may require to save each of them harmless, and, in every case of destruction,
loss or theft, the applicant shall also furnish to the Issuer and the Trustee
and any agent of the Issuer or the Trustee evidence to their satisfaction of the
destruction, loss or theft of such Security or Coupon and of the ownership
thereof.

Every substitute Security or Coupon of any series issued pursuant to
the provisions of this Section by virtue of the fact that any such

<PAGE> 26

Security or Coupon is destroyed, lost or stolen shall constitute an additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Security or Coupon shall be at any time enforceable by anyone and shall
be entitled to all the benefits of (but shall be subject to all the limitations
of rights set forth in) this Indenture equally and proportionately with any and
all other Securities or Coupons of such series duly authenticated and delivered
hereunder. All Securities or Coupons shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated, defaced or
destroyed, lost or stolen Securities or Coupons and shall preclude any and all
other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.

SECTION 2.10 Cancellation of Securities; Destruction Thereof. All
Securities and Coupons surrendered for payment, redemption, registration of
transfer or exchange, or for credit against any payment in respect of a sinking
or analogous fund, if surrendered to the Issuer or any agent of the Issuer or
the Trustee, shall be delivered to the Trustee for cancellation or, if
surrendered to the Trustee, shall be cancelled by it; and no Securities or
Coupons shall be issued in lieu thereof except as expressly permitted by any of
the provisions of this Indenture. The Trustee shall destroy cancelled Securities
and Coupons held by it and deliver a certificate of destruction to the Issuer.
If the Issuer shall acquire any of the Securities or Coupons, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities or Coupons unless and until the same are
delivered to the Trustee for cancellation.

SECTION 2.11 Temporary Securities. Pending the preparation of
definitive Securities for any series, the Issuer may execute and the Trustee
shall authenticate and deliver temporary Securities for such series (printed,
lithographed, typewritten or otherwise reproduced, in each case in form
satisfactory to the Trustee). Temporary Securities of any series shall be
issuable as Registered Securities without Coupons, or as Unregistered Securities
with or without Coupons attached thereto, of any authorized denomination, and
substantially in the form of the definitive Securities of such series but with
such omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be

<PAGE> 27

determined by the Issuer with the concurrence of the Trustee. Temporary
Securities may contain such reference to any provisions of this Indenture as may
be appropriate. Every temporary Security shall be executed by the Issuer and be
authenticated by the Trustee upon the same conditions and in substantially the
same manner, and with like effect, as the definitive Securities. Without
unreasonable delay the Issuer shall execute and shall furnish definitive
Securities of such series and thereupon temporary Securities of such series may
be surrendered in exchange therefore without charge at each office or agency to
be maintained by the Issuer for that purpose pursuant to Section 3.2, and in the
case of Unregistered Securities, together with any unmatured Coupons and any
matured Coupons in default appertaining thereto, at any agency maintained by the
Issuer for such purpose as specified pursuant to Section 2.3, and the Trustee
shall authenticate and deliver in exchange for such temporary Securities of such
series a like aggregate principal amount of definitive Securities of the same
series of authorized denominations. Until so exchanged, the temporary Securities
and any unmatured Coupons appertaining thereto of any series shall be entitled
to the same benefits under this Indenture as definitive Securities and any
unmatured Coupons appertaining thereto of such series. The provisions of this
Section are subject to any restrictions or limitations on the issue and delivery
of temporary Unregistered Securities of any series that may be established
pursuant to Section 2.3 (including any provision that Unregistered Securities of
such series initially be issued in the form of a single global Unregistered
Security to be delivered to a depositary or agency of the Issuer located outside
the United States and the procedures pursuant to which definitive Unregistered
Securities of such series would be issued in exchange for such temporary global
Unregistered Security).

ARTICLE THREE

COVENANTS OR THE ISSUER

SECTION 3.1 Payment of Principal and Interest. The Issuer covenants and
agrees for the benefit of each series of Securities that it will duly and
punctually pay or cause to be paid the principal of, and interest on, each of
the Securities of such series at the place or places, at the respective times
and in the manner provided in such Securities. Except as specified in Section
2.3, the interest on Securities with Coupons attached (together with any
additional amounts payable pursuant to the terms of such Securities) shall be
payable only upon presentation and

<PAGE> 28

surrender of the several Coupons for such interest installments as are evidenced
thereby as they severally mature. Except as specified in Section 2.3, the
interest on any temporary Unregistered Securities (together with any additional
amounts payable pursuant to the terms of such Securities) shall be paid, as to
the installments of interest evidenced by Coupons attached thereto, if any, only
upon presentation and surrender thereof, and, as to the other installments of
interest, if any, only upon presentation of such Securities for notation thereon
of the payment of such interest. Each installment of interest on the Registered
Securities of any series may be paid by mailing checks for such interest payable
to or upon the written order of the holders of Registered Securities entitled
thereto as they shall appear on the registry books of the Issuer.

SECTION 3.2 Offices for Payments, etc. So long as any of the Securities
remain outstanding, the Issuer will maintain the following for each series: an
office or agency (a) where the Registered Securities may be presented for
payment, (b) where the Registered Securities may be presented for registration
of transfer and for exchange as in this Indenture provided and (c) where notices
and demands to or upon the Issuer in respect of the Registered Securities or of
this Indenture may be served.

The Issuer will maintain one or more agencies in a city or cities
located outside the United States (including any city in which such an agency is
required to be maintained under the rules of any stock exchange on which the
Securities of such series are listed) where the Unregistered Securities, if any,
of each series and Coupons, if any, appertaining thereto may be presented for
payment. No payment on any Unregistered Security or Coupon will be made upon
presentation of such Unregistered Security or Coupon at an agency of the Issuer
within the United States nor will any payment be made by transfer to an account
in, or by mail to an address in, the United States unless pursuant to applicable
United States laws and regulations then in effect such payment can be made
without adverse tax consequences to the Issuer. Notwithstanding the foregoing,
payments in U.S. dollars on Unregistered Securities of any series and Coupons
appertaining thereto which are denominated in U.S. dollars may be made at an
agency of the Issuer maintained in the Borough of Manhattan, The City of New
York if such payment in U.S. dollars at each agency maintained by the Issuer
outside the United States for payment on such Unregistered Securities is illegal
or effectively precluded by exchange controls or other similar restrictions.

<PAGE> 29

The Issuer will give to the Trustee written notice of the location of
any such office or agency and of any change of location thereof. With respect to
each series of Securities and Coupons whose terms are established pursuant to
Section 2.3, the Issuer hereby designates the Corporate Trust Office as the
initial office to be maintained by it for each such purpose. In case the Issuer
shall fail to so designate or maintain any such office or agency or shall fail
to give such notice of the location or of any change in the location thereof,
presentations and demands may be made and notices may be served at the Corporate
Trust Office.

SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee. The
Issuer, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 6.10, a Trustee, so that there
shall at all times be a Trustee with respect to each series of Securities
hereunder.

SECTION 3.4 Paying Agents. Whenever the Issuer shall appoint a paying
agent other than the Trustee with respect to the Securities of any series, it
will cause such paying agent to execute and deliver to the Trustee an instrument
in which such agent shall agree with the Trustee, subject to the provisions of
this Section,

(b) that it will give the Trustee notice of any failure by the
Issuer (or by any other obligor on the Securities of such series) to
make any payment of the principal of or interest on the Securities of
such series when the same shall be due and payable.

The Issuer will, on or prior to each due date of the principal of or
interest on the Securities of such series, deposit with the paying agent a sum
sufficient to pay such principal or interest so becoming due, and (unless such
paying agent is the Trustee) the Issuer will promptly notify the Trustee of any
failure to take such action.

If the Issuer shall act as its own paying agent with respect to the
Securities or the Coupons appertaining thereto of any series, it will, on

<PAGE> 30

or before each due date of the principal of or interest on the Securities or the
Coupons appertaining thereto of such series, set aside, segregate and hold in
trust for the benefit of the holders of the Securities or the Coupons
appertaining thereto of such series a sum sufficient to pay such principal or
interest so becoming due. The Issuer will promptly notify the Trustee of any
failure to take such action.

Anything in this Section to the contrary notwithstanding, the Issuer
may at any time, for the purpose of obtaining a satisfaction and discharge with
respect to one or more or all series of Securities hereunder, or for any other
reason, pay or cause to be paid to the Trustee all sums held in trust for any
such series by the Issuer or any paying agent hereunder, as required by this
Section, such sums to be held by the Trustee upon the trusts herein contained.

Anything in this Section to the contrary notwithstanding, the agreement
to hold sums in trust as provided in this Section is subject to the provisions
of Sections 10.3 and 10.4.

SECTION 3.5 Written Statement to Trustee. The Issuer will deliver to
the Trustee on or before April 30 in each year (beginning with April 30, 1989) a
written statement, signed by two of its officers (which need not comply with
Section 11.5), stating that in the course of the performance of their duties as
officers of the Issuer they would normally have knowledge of any default by the
Issuer in the performance or fulfillment of any covenant, agreement or condition
contained in this Indenture, stating whether or not they have knowledge of any
such default and, if so, specifying each such default of which the signers have
knowledge and the nature thereof.

SECTION 3.6 Luxembourg Publications. In the event of the publication of
any notice pursuant to Section 5.11, 6.10(a), 6.11, 8.2, 10.4 or 12.2, the party
making such publication in London shall also, to the extent that notice is
required to be given to Holders of Securities of any series by applicable
Luxembourg law or stock exchange regulation, as evidenced by an Officers'
Certificate delivered to such party, make a similar publication in Luxembourg.

<PAGE> 31

ARTICLE FOUR

SECURITYHOLDERS' LISTS AND REPORTS BY THE
ISSUER AND THE TRUSTEE

SECTION 4.1 Issuer to Furnish Trustee Information as to Names and
Addresses of Securityholders. The Issuer covenants and agrees that it will
furnish or cause to be furnished to the Trustee a list in such form as the
Trustee may reasonably require of the names and addresses of the holders of the
Securities of each series:

(a) semiannually and not more that 15 days after each record
date for the payment of interest on such Securities, as hereinabove
specified, as of such record date and on dates to be determined
pursuant to Section 2.3 for not-interest bearing securities in each
year, and

(b) at such other times as the Trustee may request in writing,
within 30 days after receipt by the Issuer of any such request as of a
date not more than 15 days prior to the time such information is
furnished,

provided that if and so long as the Trustee shall be the Security registrar for
such series and all of the Securities of such series are Registered Securities,
such list shall not be required to be furnished. The Trustee shall, at the
request of the Issuer, provide such list to the Issuer for so long as the
Trustee shall be the Security registrar.

SECTION 4.2 Preservation and Disclosure of Securityholders' Lists. (a)
The Trustee shall preserve, in as current a form as is reasonably practicable,
all information as to the names and addresses of the holders of each series of
Securities (i) contained in the most recent list furnished to it as provided in
Section 4.1, (ii) received by it in the capacity of Security registrar for such
series, if so acting and (iii) filed with it within the preceding two years
pursuant to Section 4.4(c)(ii). The Trustee may destroy any list furnished to it
as provided in Section 4.1 upon receipt of a new list so furnished.

(b) In case three or more holders of Securities (hereinafter
referred to as "applicants") apply in writing to the Trustee and
furnish to the Trustee reasonable proof that each such applicant has
owned a Security for a period of at least six months preceding the date
of such application, and such application states that the applicants
desire to communicate with other holders of Securities of a particular
series (in which case the applicants must all hold Securities of such
series) or with Holders of all

<PAGE> 32

Securities with respect to their rights under this Indenture or under
such Securities and such application is accompanied by a copy of the
form of proxy or other communication which such applicants propose to
transmit, then the Trustee shall, within five Business Days after the
receipt of such application, at its election, either

(i) afford to such applicants access to the
information preserved at the time by the Trustee in accordance
with the provisions of subsection (a) of this Section, or

(ii) inform such applicants as to the approximate
number of holders of Securities of such series or all
Securities, as the case may be, whose names and addresses
appear in the information preserved at the time by the Trustee,
in accordance with the provisions of subsection (a) of this
Section, and as to the approximate cost of mailing to such
Securityholders the form of proxy or other communication, if
any, specified in such application.

If the Trustee shall elect not to afford to such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to each Securityholder of such series or all Securities, as the
case may be, whose name and address appears in the information preserved at the
time by the Trustee in accordance with the provisions of subsection (a) of this
Section a copy of the form of proxy or other communication which is specified in
such request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after such tender, the
Trustee shall mail to such applicants and file with the Commission together with
a copy of the material to be mailed, a written statement to the effect that, in
the opinion of the Trustee, such mailing would be contrary to the best interests
of the holders of Securities of such series or all Securities, as the case may
be, or would be in violation of applicable law. Such written statement shall
specify the basis of such opinion. If the Commission, after opportunity for a
hearing upon the objections specified in the written statement so filed, shall
enter an order refusing to sustain any of such objections or if, after the entry
of an order sustaining one or more of such objections, the Commission shall
find, after notice and opportunity for hearing, that all the objections so
sustained have been met, and shall enter an order so declaring, the Trustee
shall mail copies of such material to all such Securityholders with reasonable
promptness after the entry of such order and the renewal of such tender;
otherwise the Trustee shall

<PAGE> 33

be relieved of any obligation or duty to such applicants respecting their
application.

(c) Each and every holder of Securities and Coupons, by
receiving and holding the same, agrees with the Issuer and the Trustee
that neither the Issuer nor the Trustee nor any agent of the Issuer or
the Trustee shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the holders of
Securities in accordance with the provisions of subsection (b) of this
Section, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason
of mailing any material pursuant to a request made under such
subsection (b).

SECTION 4.3 Reports by the Issuer. The Issuer covenants:

(a) to file with the Trustee, within 15 days after the Issuer
is required to file the same with the Commission, copies of the annual
reports and of the information, documents, any other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Issuer may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, if the Issuer is
not required to file information, documents, or reports pursuant to
either of such Sections, then to file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
information, documents, and reports which may be required pursuant to
Section 13 of the Securities Exchange Act of 1934, or in respect of a
security listed and registered on a national securities exchange as may
be prescribed from time to time in such rules and regulations;

(b) to file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such additional information, documents, and reports with
respect to compliance by the Issuer with the conditions and covenants
provided for in this Indenture as may be required from time to time by
such rules and regulations; and

(c) to transmit by mail to the holders of Securities. within 30
days after the filing thereof with the Trustee, such summaries of any
information, documents and reports required to be filed by the Issuer
pursuant to subsections (a) and (b) of this Section as may be required

<PAGE> 34

to be transmitted to such Holders by rules and regulations prescribed
from time to time by the Commission.

SECTION 4.4 Reports by the Trustee. (a) On or before July 15 in each
year following the date hereof, so long as any Securities are Outstanding
hereunder, the Trustee shall transmit by mail as provided below to the
Securityholders of each series, as hereinafter in this Section provided, a brief
report dated as of the preceding May 15 with respect to:

(i) its eligibility under Section 6.9 and its
qualification under Section 6.8, or in lieu thereof, if to the
best of its knowledge it has continued to be eligible and
qualified under such Sections, a written statement to such
effect;

(ii) the character and amount of any advances (and if
the Trustee elects so to state, the circumstances surrounding
the making thereof) made by the Trustee (as such) which remain
unpaid on the date of such report and for the reimbursement of
which it claims or may claim a lien or charge, prior to that of
the Securities of any series, on any property or funds held or
collected by it as Trustee, except that the Trustee shall not
be required (but may elect) to report such advances if such
advances so remaining unpaid aggregate not more than 1/2 of 1%
of the principal amount of the securities of any series
Outstanding on the date of such report;

(iii) the amount, interest rate, and maturity date of
all other indebtedness owing by the Issuer (or by any other
obligor on the Securities) to the Trustee in its individual
capacity on the date of such report, with a brief description
of any property held as collateral security therefore, except
any indebtedness based upon a creditor relationship arising in
any manner described in Section 6.13(b)(2), (3), (4) or (6);

(iv) the property and funds, if any, physically in
the possession of the Trustee (as such) on the date of such
report;

(v) any additional issue of Securities which the
Trustee has not previously reported; and

(vi) any action taken by the Trustee in the
performance of its duties under this Indenture which it has not
previously reported and which in its opinion materially affects
the Securities, except action in respect of a default, notice
of which has been or is to be withheld by it in accordance with
the provisions of Section 5.11.

<PAGE> 35

(b) The Trustee shall transmit to the Securityholders of each
series, as provided in subsection (c) of this Section, a brief report
with respect to the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee, as such, since the date of the last
report transmitted pursuant to the provisions of subsection (a) of this
Section (or if no such report has yet been so transmitted, since the
date of this Indenture) for the reimbursement of which it claims or may
claim a lien or charge prior to that of the Securities of such series
on property or funds held or collected by it as Trustee and which it
has not previously reported pursuant to this subsection (b), except
that the Trustee shall not be required (but may elect) to report such
advances if such advances remaining unpaid at any time aggregate 10% or
less of the principal amount of Securities of such series outstanding
at such time, such report to be transmitted within 90 days after such
time.

(i) to all registered Holders of Securities, as the
names and addresses of such Holders appear upon the registry
books of the Issuer;

(ii) to such other Holders of Securities as have,
within two years preceding such transmission, filed their names
and addresses with the Trustee for that purpose; and

(iii) except in the case of reports pursuant to
subsection (b), to each Holder of a Security whose name and
address are preserved at the time by the Trustee as provided in
Section 4.2(a).

(d) A copy of each such report shall, at the time of such
transmission to Securityholders, be furnished to the Issuer and be
filed by the Trustee with each stock exchange upon which the Securities
of any applicable series are listed and also with the Commission. The
Issuer agrees to notify the Trustee with respect to any series when and
as the Securities of such series become admitted to trading on any
national securities exchange.

<PAGE> 36

ARTICLE FIVE

REMEDIES OR THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT

SECTION 5.1 Event of Default Defined; Acceleration of Maturity; Waiver
of Default. "Event of Default with respect to Securities of any series wherever
used herein, means each one of the following events which shall have occurred
and be continuing (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):

(a) default in the payment of any installment of interest upon
any of the Securities of such series as and when the same shall become
due and payable, and continuance of such default for a period of 30
days; or

(b) default in the payment of all or any part of the principal
on any of the Securities of such series as and when the same shall
become due and payable either at maturity, upon redemption, by
declaration or otherwise; or

(c) default in the payment of any sinking fund installment as
and when the same shall become due and payable by the terms of the
Securities of such series; or

(d) default in the performance, or breach, of any covenant or
warranty of the Issuer in respect of the Securities of such series
(other than a covenant or warranty in respect of the Securities of such
series a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default
or breach for a period of 90 days after there has been given, by
registered or certified mail, to the Issuer by the Trustee or to the
Issuer and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities of all series affected thereby, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or

(e) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Issuer in all involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or similar official) of
the

<PAGE> 37

Issuer or for any substantial part of its property or ordering the
winding up or liquidation of its affairs, and such decree or order
shall remain unstayed and in effect for a period of 90 consecutive
days; or

(f) the Issuer shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the Issuer or for any
substantial part of its property, or make any general assignment for
the benefit of creditors; or

(g) any other Event of Default provided in the supplemental
indenture or resolution of the Board of Directors under which such
series of Securities is issued or in the form of Security for such
series.

If an Event of Default described in clauses (a), (b), (c) or (d) above (if the
Event of Default under clause (d) is with respect to less than all series of
Securities then Outstanding) occurs and is continuing, then, and in each and
every such case, unless the principal of all of the Securities of such series
shall have already become due and payable, either the Trustee or the holders of
not less than 25% in aggregate principal amount of the Securities of such series
then Outstanding hereunder (each such series voting as a separate class) by
notice in writing to the Issuer (and to the Trustee if given by
Securityholders), may declare the entire principal (or, if the Securities of
such series are Original Issue Discount Securities, such portion of the
principal amount as may be specified in the terms of such series) of all
Securities of such series and the interest accrued thereon, if any, to be due
and payable immediately, and upon any such declaration the same shall become
immediately due and payable. If an Event of Default described in clause (d) (if
the Event of Default under clause (d) is with respect to all series of
Securities then Outstanding), (e) or (f) occurs and is continuing, then and in
each and every such case, unless the principal of all the Securities shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in

<PAGE> 38

aggregate principal amount of all the Securities then Outstanding hereunder
(treated as one class), by notice in writing to the Issuer (and to the Trustee
if given by Securityholders), may declare the entire principal (or, if any
Securities are Original Issue Discount Securities, such portion of the principal
as may be specified in the terms thereof) of all the Securities then Outstanding
and interest accrued thereon, if any, to be due and payable immediately, and
upon any such declaration the same shall become immediately due and payable.

The foregoing provisions, however, are subject to the condition that
if, at any time after the principal (or, if the Securities are Original Issue
Discount Securities, such portion of the principal as may be specified in the
terms thereof) of the Securities of any series (or of all the Securities, as the
case may be) shall have been so declared due and payable, and before any
judgment or decree for the payment of the moneys due shall have been obtained or
entered as hereinafter provided, the Issuer shall pay or shall deposit with the
Trustee a sum sufficient to pay all matured installments of interest upon all
the Securities of such series (or of all the Securities, as the case may be) and
the principal of any and all Securities of such series (or of all the
Securities, as the case may be) which shall have become due otherwise than by
acceleration (with interest upon such principal and, to the extent that payment
of such interest is enforceable under applicable law, on overdue installments of
interest, at the same rate as the rate of interest or Yield to Maturity (in the
case of Original Issue Discount Securities) specified in the Securities of such
series (or at the respective rates of interest or Yields to Maturity of all the
Securities, as the case may be, to the date of such payment or deposit) and such
amount as shall be sufficient to cover reasonable compensation to the Trustee,
its agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee except as a result of negligence
or bad faith, and all other amounts due to the Trustee or any predecessor
Trustee pursuant to Section 6.6, and if any and all Events of Default under the
Indenture, other than the non-payment of the principal of Securities which shall
have become due by acceleration, shall have been cured, waived or otherwise
remedied as provided herein---then and in every such case the holders of a
majority in aggregate principal amount of all the Securities of such series,
each series voting as a separate class (or of all the Securities, as the case
may be, voting as a single class) then outstanding, by written notice to the
Issuer and to the Trustee, may waive all defaults with respect to such series
(or with respect to all the

<PAGE> 39

Securities, as the case may be) and rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or shall impair any right consequent
thereon.

For all purposes under this Indenture, if a portion of the principal of
any Original Issue Discount Securities shall have been accelerated and declared
due and payable pursuant to the provisions hereof, then, from and after such
declaration, unless such declaration has been rescinded and annulled, the
principal amount of such Original Issue Discount Securities shall be deemed, for
all purposes hereunder, to be such portion of the principal thereof as shall be
due and payable as a result of such acceleration, and payment of such portion of
the principal thereof as shall be due and payable as a result of such
acceleration, together with interest, if any, thereon and all other amounts
owing thereunder, shall constitute payment in full of such Original Issue
Discount Securities.

SECTION 5.2 Collection of Indebtedness by Trustee; Trustee May Prove
Debt. The Issuer covenants that (a) in case default shall be made in the payment
of any installment of interest on any of the Securities of any series when such
interest shall have become due and payable, and such default shall have
continued for a period of 30 days or (b) in case default shall be made in the
payment of all or any part of the principal of any of the Securities of any
series when the same shall have become due and payable, whether upon maturity of
the Securities of such series or upon any redemption or by declaration or
otherwise--then upon demand of the Trustee, the Issuer will pay to the Trustee
for the benefit of the Holders of the Securities of such series the whole amount
that then shall have become due and payable on all Securities of such series,
and Coupons appertaining thereto, for principal or interest, as the case may be
(with interest to the date of such payment upon the overdue principal and, to
the extent that payment of such interest is enforceable under applicable law, on
overdue installments of interest at the same rate as the rate of interest or
Yield to Maturity (in the case of Original Issue Discount Securities) specified
in the Securities of such series); and in addition thereto, such further amount
as shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to the Trustee and each predecessor Trustee, their
respective agents, attorneys and counsel, and any expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of its negligence or bad faith, and all other amounts due to
the Trustee or any predecessor Trustee pursuant to Section 6.6.

<PAGE> 40

Until such demand is made by the Trustee, the Issuer may pay the
principal of and interest on the Securities of any series to the holders,
whether or not the principal of and interest on the Securities of such series be
overdue.

In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against the Issuer or other obligor upon such
Securities and collect in the manner provided by law out of the property of the
Issuer or other obligor upon such Securities, wherever situated, the moneys
adjudged or decreed to be payable.

In case there shall be pending proceedings relative to the Issuer or
any other obligor upon the Securities under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor, or in case
of any other comparable judicial proceedings relative to the Issuer or other
obligor upon the Securities of any series, or Coupons appertaining thereto, or
to the creditors or property of the Issuer or such other obligor, the Trustee,
irrespective of whether the principal of any Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand pursuant to the provisions of
this Section, shall be entitled and empowered, by intervention in such
proceedings or otherwise:

(a) to file and prove a claim or claims for the whole amount of
principal and interest (or, if the Securities of any series are
Original Issue Discount Securities, such portion of the principal
amount as may be specified in the terms of such series) owing and
unpaid in respect of the Securities of any series, and to file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for reasonable
compensation to the Trustee and each predecessor Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities incurred, and all advances made, by the
Trustee and

<PAGE> 41

each predecessor Trustee, except as a result of negligence or bad
faith, and all other amounts due to the Trustee or any predecessor
Trustee pursuant to Section 6.6) and of the Securityholders allowed in
any judicial proceedings relative to the Issuer or other obligor upon
the Securities of any series, or to the creditors or property of the
Issuer or such other obligor,

(b) unless prohibited by applicable law and regulations, to
vote on behalf of the holders of the Securities of any series in any
election of a trustee or a standby trustee in arrangement,
reorganization, liquidation or other bankruptcy or insolvency
proceedings or person performing similar functions in comparable
proceedings, and

(c) to collect and receive any moneys or other property payable
or deliverable on any such claims, and to distribute all amounts
received with respect to the claims of the Securityholders and of the
Trustee on their behalf; and any trustee, receiver, or liquidator,
custodian or other similar official is hereby authorized by each of the
Securityholders to make payments to the Trustee, and, in the event that
the Trustee shall consent to the making of payments directly to the
Securityholders, to pay to the Trustee such amounts as shall be
sufficient to cover reasonable compensation to the Trustee, each
predecessor Trustee and their respective agents, attorneys and counsel,
and all other expenses and liabilities incurred, and all advances made,
by the Trustee and each predecessor Trustee except as a result of
negligence or bad faith and all other amounts due to the Trustee or any
predecessor Trustee pursuant to Section 6.6.

Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any
Securityholder any plan or reorganization, arrangement, adjustment or
composition affecting the Securities or Coupons appertaining thereto of any
series or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Securityholder in any such proceeding except, as
aforesaid, to vote for the election of a trustee in bankruptcy or similar
person.

All rights of action and of asserting claims under this Indenture, or
under any of the Securities, or Coupons appertaining thereto may be enforced by
the Trustee without the possession of any of the Securities, or Coupons
appertaining thereto, or the production thereof on any trial or other
proceedings relative thereto, and any such action or proceedings

<PAGE> 42

instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements, compensation and all other amounts due pursuant to
Section 6.6 to the Trustee, each predecessor Trustee and their respective agents
and attorneys, shall be for the ratable benefit of the holders of the
Securities, or Coupons appertaining thereto, in respect of which such action was
taken.

In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Securities in respect to which such action was taken, and it shall not be
necessary to make any holders of such Securities parties to any such
proceedings.

SECTION 5.3 Application of Proceeds. Any moneys collected by the
Trustee pursuant to this Article in respect of any series shall be applied in
the following order at the date or dates fixed by the Trustee and, in case of
the distribution of such moneys on account of principal or interest, upon
presentation of the several Securities, and Coupons appertaining thereto, in
respect of which monies have been collected and stamping (or otherwise noting)
thereon the payment, or issuing Securities of such series in reduced principal
amounts in exchange for the presented Securities of like series if only
partially paid, or upon surrender thereof if fully paid:

FIRST: To the payment of costs and expenses applicable to such
series in respect of which monies have been collected, including
reasonable compensation to the Trustee and each predecessor Trustee and
their respective agents and attorneys and of all expenses and
liabilities incurred, and all advances made, by the Trustee and each
predecessor Trustee except as a result of negligence or bad faith, and
all other amounts due to the Trustee or any predecessor Trustee
pursuant to Section 6.6;

SECOND: To the Holders of Senior Indebtedness to the extent
required by Article 13;

THIRD: In case the principal of the Securities of such series
in respect of which moneys have been collected shall not have become
and be then due and payable, to the payment of interest on the
Securities of such series in default in the order of the maturity of
the installments of such interest, with interest (to the extent that
such

<PAGE> 43

interest has been collected by the Trustee) upon the overdue
installments of interest at the same rate as the rate of interest or
Yield to Maturity (in the case of Original Issue Discount Securities)
specified in such Securities, such payments to be made ratably to the
persons entitled thereto, without discrimination or preference;

FOURTH: In case the principal of the Securities of such series
in respect of which moneys have been collected shall have become and
shall be then due and payable, to the payment of the whole amount then
owing and unpaid upon all the Securities of such series for principal
and interest, with interest upon the overdue principal, and (to the
extent that such interest has been collected by the Trustee) upon
overdue installments of interest at the same rate as the rate of
interest or Yield to Maturity (in the case of Original Issue Discount
Securities) specified in the Securities of such series; and in case
such moneys shall be insufficient to pay in full the whole amount so
due and unpaid upon the Securities of such series, then to the payment
of such principal and interest or yield to maturity, without preference
or priority of principal over interest or yield to maturity, or of
interest or yield to maturity over principal, or of any installment of
interest over any other installment of interest, or of any Security of
such series over any other Security of such series, ratably to the
aggregate of such principal and accrued and unpaid interest or yield to
maturity; and

FIFTH: To the payment of the remainder, if any, to the Issuer
or any other person lawfully entitled thereto.

SECTION 5.4 Suits for Enforcement. In case an Event of Default has
occurred, has not been waived and is continuing, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the exercise
of any power granted in this Indenture or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.

SECTION 5.5 Restoration of Rights on Abandonment of Proceedings. In
case the Trustee shall have proceeded to enforce any right under this Indenture
and such proceedings shall have been discontinued

<PAGE> 44

or abandoned for any reason, or shall have been determined adversely to the
Trustee, then and in every such case the Issuer and the Trustee shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Issuer, the Trustee and the Securityholders
shall continue as though no such proceedings had been taken.

SECTION 5.6 Limitations on Suits by Securityholders. No holder of any
Security of any series or of any Coupon appertaining thereto shall have any
right by virtue or by availing of any provision of this Indenture to institute
any action or proceeding at law or in equity or in bankruptcy or otherwise upon
or under or with respect to this Indenture, or for the appointment of a trustee,
receiver, liquidator, custodian or other similar official or for any other
remedy hereunder, unless such holder previously shall have given to the Trustee
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the holders of not less than 25% in aggregate
principal amount of the Securities of such series then outstanding shall have
made written request upon the Trustee to institute such action or proceedings in
its own name as trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby and the Trustee for 60 days after
its receipt of such notice, request and offer of indemnity shall have failed to
institute any such action or proceeding and no direction inconsistent with such
written request shall have been given to the Trustee pursuant to Section 5.9; it
being understood and intended, and being expressly covenanted by the taker and
Holder of every Security or Coupon with every other taker and Holder and the
Trustee, that no one or more Holders of Securities of any series or of any
Coupon appertaining thereto shall have any right in any manner whatever by
virtue or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of any other such Holder of Securities or Coupons, or to
obtain or seek to obtain priority over or preference to any other such Holder or
to enforce any right under this Indenture, except in the manner herein provided
and for the equal, ratable and common benefit of all Holders of Securities of
the applicable series or of any Coupon appertaining thereto. For the protection
and enforcement of the provisions of this Section, each and every Securityholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.

<PAGE> 45

SECTION 5.7 Unconditional Rights of Securityholders to Institute
Certain Suits. Notwithstanding any other provision in this Indenture and any
provision of any Security, the right of any holder of any Security or Coupon to
receive payment of the principal of an interest on such Security or Coupon on or
after the respective due dates expressed in such Security or Coupon, or in any
Coupon appertaining thereto, or to institute suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.

SECTION 5.8 Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default. Except as provided in Section 2.9, no right or remedy herein
conferred upon or reserved to the Trustee or to the Securityholders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

No delay or omission of the Trustee or of any Securityholder to
exercise any right or power accruing upon any Event of Default occurring and
continuing as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and, subject to Section 5.6, every power and remedy given by this
Indenture or by law to the Trustee or to the Securityholders may be exercised
from time to time, and as often as shall be deemed expedient, by the Trustee or
by the Securityholders.

SECTION 5.9 Control by Securityholders. The Holders of a majority in
aggregate principal amount of the Securities of each series affected (with each
series voting as a separate class) at the time outstanding shall have the right
to direct the time, method, and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee with respect to the Securities of such series by this Indenture;
provided that such direction shall not be otherwise than in accordance with law
and the provisions of this Indenture and provided further that (subject to the
provisions of Section 6.1) the Trustee shall have the right to decline to follow
any such direction if the Trustee, being advised by counsel shall determine that
the action or proceeding so directed may not lawfully be

<PAGE> 46

taken or if the Trustee in good faith by its board of directors, the executive
committee, or a trust committee of directors or Responsible Officers of the
Trustee shall determine that the action or proceedings so directed would involve
the Trustee in personal liability or if the Trustee in good faith shall so
determine that the actions or forebearances specified in or pursuant to such
direction would be unduly prejudicial to the interests of Holders of the
Securities of all series so affected not joining in the giving of said
direction, it being understood that (subject to Section 6.1) the Trustee shall
have no duty to ascertain whether or not such actions or forebearances are
unduly prejudicial to such Holders.

Nothing in this Indenture shall impair the right of the Trustee in its
discretion to take any action deemed proper by the Trustee and which is not
inconsistent with such direction or directions by Securityholders.

SECTION 5.10 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Securities of any series as provided in
Section 5.1, the Holders of a majority in aggregate principal amount of the
Securities of such series at the time Outstanding may on behalf of the Holders
of all the Securities of such series waive any past default or Event of Default
described in clause (d) of Section 5.1 (or, in the case of an event specified in
clause (d) of Section 5.1 which relates to less than all series of Securities
then Outstanding, the Holders of a majority in aggregate principal amount of the
Securities then Outstanding affected thereby (each series voting as a separate
class)) may waive any such default or Event of Default, or, in the case of an
event specified in clause (d) (if the Event of Default under clause (d) relates
to all series of Securities then Outstanding), (e) or (f) of Section 5.1 the
Holders of Securities of a majority in principal amount of all the Securities
then Outstanding (voting as one class) may waive any such default or Event of
Default), and its consequences except a default in respect of a covenant or
provision hereof which cannot be modified or amended without the consent of the
Holder of each Security affected. In the case of any such waiver, the Issuer,
the Trustee and the Holders of the Securities of such series shall be restored
to their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other default or impair any right consequent
thereon.

Upon any such waiver, such default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of

<PAGE> 47

Default arising therefrom shall be deemed to have been cured, and not to have
occurred for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other default or Event of Default or impair any right
consequent thereon.

SECTION 5.11 Trustee to Give Notice of Default, But May Withhold in
Certain Circumstances. The Trustee shall, within 90 days after the occurrence of
a default with respect to the Securities of any series known to a Responsible
Officer of the Trustee, provide notice to the Holders of Securities of such
series and Coupons appertaining thereto, if any, (i) if any Unregistered
Securities of that series are then Outstanding, to the Holders thereof, by
publication at least once in an Authorized Newspaper in London (and, if required
by Section 3.6, at least once in an Authorized Newspaper in Luxembourg), (ii) if
any Unregistered Securities of that series are then Outstanding, to all Holders
thereof who have filed their names and addresses with the Trustee pursuant to
Section 4.4(c)(ii), by mailing such notice to such Holders at such addresses and
(iii) to all Holders of then Outstanding Registered Securities of that series,
by mailing such notice to such Holders at their addresses as they shall appear
in the registry books, unless such defaults shall have been cured before the
giving of such notice (the term "default" or "defaults" for the purposes of this
Section being hereby defined to mean any event or condition which is, or with
notice or lapse of time or both would become, an Event of Default); provided
that, except in the case of default in the payment of the principal of or
interest on any of the Securities of such series, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee, or a trust committee of directors or trustees and/or
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interests of the Securityholders of such
series.

SECTION 5.12 Right of Court to Require Filing of Undertaking to Pay
Costs. All parties to this Indenture agree, and each Holder of any Security or
Coupon by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any

<PAGE> 48

party litigant in such suit, having due regard to the merits and good faith of
the claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Securityholder or group of Securityholders of any series
holding in the aggregate more than 10% in aggregate principal amount of the
Securities of such series, or, in the case of any suit relating to or arising
under clause (d) of Section 5.1 (if the suit relates to Securities of more than
one but less than all series), 10% in aggregate principal amount of Securities
Outstanding affected thereby, or in the case of any suit relating to or arising
under clause (d) (if the suit under clause (d) relates to all the Securities
then Outstanding), (e) or (f) of Section 5.1, 10% in aggregate principal amount
of all Securities Outstanding, or to any suit instituted by any Securityholder
for the enforcement of the payment of the principal of or interest on any
Security or Coupon on or after the due date expressed in such Security or
Coupon.

ARTICLE SIX

CONCERNING THE TRUSTEE

SECTION 6.1 Duties and Responsibilities of the Trustee; During Default;
Prior to Default. With respect to the Holders of any series of Securities issued
hereunder, the Trustee, prior to the occurrence of an Event of Default with
respect to the Securities of a particular series and after the curing or waiving
of all Events of Default which may have occurred with respect to such series,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default with respect to the
Securities of a series has occurred (which has not been cured or waived) the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.

No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own wilful misconduct, except that

(a) prior to the occurrence of an Event of Default with respect
to the Securities of any series and after the curing or waiving of all
such Events of Default with respect to such series which may have
occurred:

(i) the duties and obligations of the Trustee with
respect to the Securities of any series shall be determined
solely by the

<PAGE> 49

express provisions of this Indenture, and the Trustee shall not
be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture,
and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and

(ii) in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any statements, certificates or opinions
furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such statements,
certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this
Indenture;

(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts; and

(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the holders pursuant to Section 5.9 relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture.

None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.

SECTION 6.2 Certain Rights of the Trustee. Subject to Section 6.1:

(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate or
any other certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, note, coupon, security or

<PAGE> 50

other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;

(b) any request, direction, order or demand of the Issuer
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate or order of the Issuer (unless other evidence in respect
thereof be herein specifically prescribed); and any resolution of the
Board of Directors may be evidenced to the Trustee by a copy thereof
certified by the secretary or an assistant secretary of the Issuer;

(c) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be
taken by it hereunder in good faith and in accordance with such advice
or Opinion of Counsel;

(d) the Trustee shall be under no obligation to exercise any of
the trusts, rights or powers vested in it by this Indenture at the
request, order or direction of any of the Securityholders pursuant to
the provisions of this Indenture, unless such Securityholders shall
have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred therein or
thereby;

(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this
Indenture;

(f) prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default, the Trustee
shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or document unless
requested in writing so to do by the holders of not less than a
majority in aggregate principal amount of the Securities of all series
affected then outstanding; provided that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in
the opinion of the Trustee, not reasonably assured to the Trustee by
the security afforded to it by the terms of this Indenture, the Trustee
may require reasonable indemnity against such expenses or liabilities
as a

<PAGE> 51

condition to proceeding; the reasonable expenses of every such
investigation shall be paid by the Issuer or, if paid by the Trustee or
any predecessor Trustee, shall be repaid by the Issuer upon demand;

(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys not regularly in its employ and the Trustee
shall not be responsible for any misconduct or negligence on the part
of any such agent or attorney appointed with due care by it hereunder;
and

(h) the Trustee shall not be deemed to have knowledge or notice
of any default or Event of Default unless a Responsible Officer has
actual knowledge thereof or unless the holders of not less than 25% of
the aggregate principal amount of the then outstanding Securities of
any affected series have notified the Trustee thereof.

SECTION 6.3 Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof. The recitals contained herein and
in the Securities, except the Trustee's certificates of authentication, shall be
taken as the statements of the Issuer, and the Trustee assumes no responsibility
for the correctness of the same. The Trustee makes no representation as to the
validity or sufficiency of this Indenture or of the Securities or Coupons. The
Trustee shall not be accountable for the use or application by the Issuer of any
of the Securities or of the proceeds thereof.

SECTION 6.4 Trustee and Agents May Hold Securities or Coupons;
Collections, etc. The Trustee or any agent of the Issuer or the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
or Coupons with the same rights it would have if it were not the Trustee or such
agent and, subject to Sections 6.8 and 6.13, if operative, may otherwise deal
with the Issuer and receive, collect, hold and retain collections from the
Issuer with the same rights it would have if it were not the Trustee or such
agent.

SECTION 6.5 Moneys Held by Trustee. Subject to the provisions of
Section 10.4 hereof, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except

<PAGE> 52

to the extent required by mandatory provisions of law. Neither the Trustee nor
any agent of the Issuer or the Trustee shall be under any liability for interest
on any moneys received by it hereunder.

liability in the premises. The obligations of the Issuer under this Section to
compensate and indemnify the Trustee and each predecessor Trustee and to pay or
reimburse the Trustee and each predecessor Trustee for expenses, disbursements
and advances shall constitute additional indebtedness hereunder and shall
survive the satisfaction and discharge of this Indenture. Such additional
indebtedness shall be a senior claim to that of the Securities and Coupons upon
all property and funds held or collected by the Trustee as such, except funds
held in trust for the benefit of the holders of particular Securities or
Coupons, and the Securities and Coupons are hereby subordinated to such senior
claim, but such senior claim shall not be subordinate to any Senior
Indebtedness.

SECTION 6.7 Right of Trustee to Rely on Officers' Certificate, etc.
Subject to Sections 6.1 and 6.2, whenever in the administration of the trusts of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may in the absence of negligence or bad faith on the
part of the Trustee, be deemed

<PAGE> 53

to be conclusively proved and established by an Officers' Certificate delivered
to the Trustee, and such certificate, in the absence of negligence or bad faith
on the part of the Trustee, shall be full warrant to the Trustee for any action
taken, suffered or omitted by it under the provisions of this Indenture upon the
faith thereof.

SECTION 6.8 Qualification of Trustee; Conflicting Interests. (a) If the
Trustee has or shall acquire any conflicting interest, as defined in this
Section, it shall, within 90 days after ascertaining that it has such
conflicting interest, either eliminate such conflicting interest or resign in
the manner and with the effect specified in this Indenture.

(b) In the event that the Trustee shall fail to comply with the
provisions of subsection (a) of this Section, the Trustee shall, within
10 days after the expiration of such 90 day period, provide notice of
such failure to the Securityholders in the manner and to the extent
required by Section 4.4(c).

(c) For the purposes of this Section, the Trustee shall be
deemed to have a conflicting interest with respect to Securities of any
series if

(i) the Trustee is trustee under this Indenture with
respect to the Outstanding Securities of any other series or is
a trustee under another indenture under which any other
securities, or certificates of interest or participation in any
other securities, of the Issuer are outstanding, unless such
other indenture is a collateral trust indenture under which the
only collateral consists of Securities issued under this
Indenture and this Indenture with respect to the Securities of
any other series and there shall also be so excluded any other
indenture or indentures under which other securities, or
certificates of interest or participation in other securities,
of the Issuer are outstanding if (i) this Indenture is and, if
applicable, this Indenture and any series issued pursuant to
this Indenture and such other indenture or indentures are
wholly unsecured, and such other indenture or indentures are
hereafter qualified under the Trust Indenture Act of 1939,
unless the Commission shall have found and declared by order
pursuant to Section 305(b) or Section 307(c) of such Trust
Indenture Act of 1939 that differences exist between the
provisions of this Indenture with respect to Securities of such
series and one or more other series, or the provisions of this
Indenture and the provisions of such other indenture or
indentures which are so likely to involve a material conflict
of interest as to make it necessary

<PAGE> 54

in the public interest or for the protection of investors to
disqualify the Trustee from acting as such under this Indenture
with respect to Securities of such series and such other
series, or under this Indenture or such other indenture or
indentures, or (ii) the Issuer shall have sustained the burden
of proving, on application to the Commission and after
opportunity for hearing thereon, that trusteeship under this
Indenture with respect to Securities of such series and such
other series, or under this Indenture and such other indenture
or indentures is not so likely to involve a material conflict
of interest as to make it necessary in the public interest or
for the protection of investors to disqualify the Trustee from
acting as such under this Indenture with respect to Securities
of such series and such other series, or under this Indenture
and such other indentures;

(ii) the Trustee or any of its directors or executive
officers is an obligor upon the Securities of any series issued
under this Indenture or an underwriter for the Issuer;

(iii) the Trustee directly or indirectly controls or
is directly or indirectly controlled by or is under direct or
indirect common control with the Issuer or an underwriter for
the Issuer;

(iv) the Trustee or any of its directors or executive
officers is a director, officer, partner, employee, appointee,
or representative of the Issuer, or of an underwriter (other
than the Trustee itself) for the Issuer who is currently
engaged in the business of underwriting, except that (x) one
individual may be a director or an executive officer, or both,
of the Trustee and a director or an executive officer, or both,
of the Issuer, but may not be at the same time an executive
officer of both the Trustee and the Issuer; (y) if and so long
as the number of directors of the Trustee in office is more
than nine, one additional individual may be a director or an
executive officer, or both, of the Trustee and a director of
the Issuer; and (z) the Trustee may be designated by the Issuer
or by any underwriter for the Issuer to act in the capacity of
transfer agent, registrar, custodian, paying agent, fiscal
agent, escrow agent, or depositary, or in any other similar
capacity, or, subject to the provisions of subsection (c)(i) of
this Section, to act as trustee, whether under an indenture or
otherwise;

(v) 10% or more of the voting securities of the
Trustee is beneficially owned either by the Issuer or by any
director, partner or executive officer thereof, or 20% or more
of such voting securities

<PAGE> 55

is beneficially owned, collectively, by any two or more of such
persons; or 10% or more of the voting securities of the Trustee
is beneficially owned either by an underwriter for the Issuer
or by any director, partner, or executive officer thereof, or
is beneficially owned, collectively, by any two or more such
persons;

(vi) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is in default,
(x) 5% or more of the voting securities or 10% or more of any
other class of security of the Issuer, not including the
Securities issued under this Indenture and securities issued
under any other indenture under which the Trustee is also
trustee, or (y) 10% or more of any class of security of an
underwriter for the Issuer;

(vii) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is in default,
5% or more of the voting securities of any person who, to the
knowledge of the Trustee, owns 10% or more of the voting
securities of, or controls directly or indirectly or is under
direct or indirect common control with, the Issuer;

(viii) the Trustee is the beneficial owner of, or
holds as collateral security for an obligation which is in
default, 10% or more of any class of security of any person
who, to the knowledge of the Trustee, owns 50% or more of the
voting securities of the Issuer; or

(ix) the Trustee owns on May 15 in any calendar year,
in the capacity of executor, administrator, testamentary or
inter vivos trustee, guardian, committee or conservator, or in
any other similar capacity, an aggregate of 25% or more of the
voting securities, or of any class of security, of any person
the beneficial ownership of a specified percentage of which
would have constituted a conflicting interest under Section
6.8(c)(vi), (vii) or (viii). As to any such securities of which
the Trustee acquired ownership through becoming executor,
administrator, or testamentary trustee of an estate which
included them, the provisions of the preceding sentence shall
not apply, for a period of two years from the date of such
acquisition, to the extent that such securities included in
such estate do not exceed 25% of such voting securities or 25%
of any such class of security. Promptly after May 15 in each
calendar year the Trustee shall make a check of its holdings of
such securities in any of the above-mentioned capacities as of
such May 15. If the Issuer

<PAGE> 56

fails to make payment in full of principal of or interest on
any of the Securities when and as the same becomes due and
payable, and such failure continues for 30 days thereafter, the
Trustee shall make a prompt check of its holdings of such
securities in any of the above-mentioned capacities as of the
date of the expiration of such 30-day period, and after such
date, notwithstanding the foregoing provisions of this
paragraph, all such securities so held by the Trustee, with
sole or joint control over such securities vested in it, shall,
but only so long as such failure shall continue, be considered
as though beneficially owned by the Trustee for the purposes of
subsections (c)(vi), (vii) and (viii) of this Section.

The specification of percentages in subsections (c)(v) to (ix)
inclusive of this Section shall not be construed as indicating that the
ownership of such percentages of the securities of a person is or is not
necessary or sufficient to constitute direct or indirect control for the
purposes of subsections (c)(iii) or (vii) of this Section.

For the purposes of subsections (c)(vi), (vii), (viii) and (ix), of
this Section, only,

(i) the terms "security" and "securities" shall include only
such securities as are generally known as corporate securities, but
shall not include any note or other evidence of indebtedness issued to
evidence an obligation to repay moneys lent to a person by one or more
banks, trust companies, or banking firms, or any certificate of
interest or participation in any such note or evidence of indebtedness;

(ii) an obligation shall be deemed to be in default when a
default in payment of principal shall have continued for 30 days or
more and shall not have been cured; and

(iii) the Trustee shall not be deemed to be the owner or holder
of (x) any security which it holds as collateral security, as trustee
or otherwise, for an obligation which is not in default as defined in
clause (ii) above, or (y) any security which it holds as collateral
security under this Indenture, irrespective of any default hereunder,
or (z) any security which it holds as agent for collection, or as
custodian, escrow agent, or depositary, or in any similar
representative capacity.

Except as provided above, the word "security" or "securities" as used
in this Section shall mean any note, stock, treasury stock, bond,

<PAGE> 57

debenture, evidence of indebtedness, certificate of interest or participation in
any profit-sharing agreement, collateral trust certificate, preorganization
certificate or subscription, transferable share, investment contract, voting
trust certificate, certificate of deposit for a security, fractional undivided
interest in oil, gas or other mineral rights, or, in general, any interest or
instrument commonly known as a "security", or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, or warrant or right to subscribe to or purchase, any of the foregoing.

(d) For purposes of this Section:

(i) the term "underwriter" when used with reference to the
issuer shall mean every person who, within three years prior to the
time as of which the determination is made, has purchased from the
Issuer with a view to, or has offered or sold for the Issuer in
connection with, the distribution of any security of the Issuer
outstanding at such time, or has participated or has had a direct or
indirect participation in any such undertaking, or has participated or
has had a participation in the direct or indirect underwriting of any
such undertaking, but such term shall not include a person whose
interest was limited to a commission from an underwriter or dealer not
in excess of the usual and customary distributors' or sellers'
commission;

(ii) the term "director" shall mean any director of a
corporation or any individual performing similar functions with respect
to any organization whether incorporated or unincorporated;

(iii) the term "person" shall mean an individual, a
corporation, a partnership, an association, a joint-stock company, a
trust, an unincorporated organization, or a government or political
subdivision thereof; as used in this paragraph, the term "trust" shall
include only a trust where the interest or interests of the beneficiary
or beneficiaries are evidenced by a security;

(iv) the term "voting security" shall mean any security
presently entitling the owner or holder thereof to vote in the
direction or management of the affairs of a person, or any security
issued under or pursuant to any trust, agreement or arrangement whereby
a trustee or trustees or agent or agents for the owner or holder of
such security are presently entitled to vote in the direction or
management of the affairs of a person;

<PAGE> 58

(v) the term "Issuer" shall mean any obligor upon the
Securities; and

(vi) the term "executive officer" shall mean the president,
every vice president, every trust officer, the cashier, the secretary,
and the treasurer of a corporation, and any individual customarily
performing similar functions with respect to any organization whether
incorporated or unincorporated, but shall not include the chairman of
the board of directors.

(e) The percentages of voting securities and other securities specified
in this Section shall be calculated in accordance with the following provisions:

(i) a specified percentage of the voting securities of the
Trustee, the Issuer or any other person referred to in this Section
(each of whom is referred to as a "person" in this paragraph) means
such amount of the outstanding voting securities of such person as
entitles the holder or holders thereof to cast such specified
percentage of the aggregate votes which the holders of all the
outstanding voting securities of such person are entitled to cast in
the direction or management of the affairs of such person;

(ii) a specified percentage of a class of securities of a
person means such percentage of the aggregate amount of securities of
the class outstanding;

(iii) the term "amount", when used in regard to securities,
means the principal amount if relating to evidences of indebtedness,
the number of shares if relating to capital shares, and the number of
units if relating to any other kind of security;

(iv) the term "outstanding" means issued and not held by or for
the account of the issuer; the following securities shall not be deemed
outstanding within the meaning of this definition:

(A) securities of an issuer held in a sinking fund
relating to securities of the issuer of the same class;

(B) securities of an issuer held in a sinking fund
relating to another class of securities of the issuer, if the
obligation evidenced by such other class of securities is not
in default as to principal or interest or otherwise;

<PAGE> 59

(C) securities pledged by the issuer thereof as
security for an obligation of the issuer not in default as to
principal or interest or otherwise; and

(D) securities held in escrow if placed in escrow by
the issuer thereof;

provided, that any voting securities of an issuer shall be deemed outstanding if
any person other than the issuer is entitled to exercise the voting rights
thereof; and

(v) a security shall be deemed to be of the same class as
another security if both securities confer upon the holder or holders
thereof substantially the same rights and privileges; provided, that,
in the case of secured evidences of indebtedness, all of which are
issued under a single indenture, differences in the interest rates or
maturity dates of various series thereof shall not be deemed sufficient
to constitute such series different classes and provided, further,
that, in the case of unsecured evidences of indebtedness, differences
in the interest rates or maturity dates thereof shall not be deemed
sufficient to constitute them securities of different classes, whether
or not they are issued under a single indenture.

SECTION 6.9 Persons Eligible for Appointment as Trustee. The Trustee
for each series of Securities hereunder shall at all times be a corporation
organized and doing business under the laws of the United States of America or
of any State or the District of Columbia having a combined capital and surplus
of at least $50,000,000, and which is authorized under such laws to exercise
corporate trust powers and is subject to supervision or examination by Federal,
State or District of Columbia authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 6.10.

<PAGE> 60

SECTION 6.10 Resignation and Removal; Appointment of Successor Trustee.
(a) The Trustee, or any trustee or trustees hereafter appointed, may at any time
resign with respect to one or more or all series of Securities by giving written
notice of resignation to the Issuer. Upon receiving such notice of resignation,
the Issuer shall promptly appoint a successor trustee or trustees with respect
to the applicable series by written instrument in duplicate, executed by
authority of the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor trustee or
trustees. If no successor trustee shall have been so appointed with respect to
any series and have accepted appointment within 30 days after the mailing of
such notice of resignation, the resigning trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee, or any
Securityholder who has been a bona fide Holder of a Security or Securities of
the applicable series for at least six months may, subject to the provisions of
Section 5.12, on behalf of himself and all others similarly situated, petition
any such court for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any as it may deem proper and prescribe,
appoint a successor trustee.

(b) In case at any time any of the following shall occur:

(i) the Trustee shall fail to comply with the provisions of
Section 6.8 with respect to any series of Securities after written
request therefor by the Issuer or by any Securityholder who has been a
bona fide Holder of a Security or Securities of such series for at
least six months; or

(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 6.9 and shall fail to resign after written
request therefor by the Issuer or by any Securityholder; or

(iii) the Trustee shall become incapable of acting with respect
to any series of Securities, or shall be adjudged a bankrupt or
insolvent, or a receiver or liquidator of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property of affairs for the purpose of
rehabilitation, conservation or liquidation;

then, in any such case, the Issuer may remove the Trustee with respect to the
applicable series of Securities and appoint a successor trustee for such series
by written instrument, in duplicate, executed by order of the Board of Directors
of the Issuer, one copy of which instrument shall be

<PAGE> 61

delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to the provisions of Section 5.12, any Securityholder who has been a
bona fide Holder of a Security or Securities of such series for at least six
months may on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee with respect to such series. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor trustee.

(c) The Holders of a majority in aggregate principal amount of the
Securities of each series at the time Outstanding may at any time remove the
Trustee with respect to securities of such series and appoint a successor
trustee with respect to the Securities of such series by delivering to the
Trustee so removed, to the successor trustee so appointed and to the Issuer the
evidence provided for in Section 7.1 of the action in that regard taken by the
Securityholders.

(d) any resignation or removal of the Trustee with respect to any
series and any appointment of a successor trustee with respect to such series
pursuant to any of the provisions of this Section 6.10 shall become effective
upon acceptance of appointment by the successor trustee as provided in Section
6.11.

SECTION 6.11 Acceptance of Appointment by Successor Trustee. Any
successor trustee appointed as provided in Section 6.10 shall execute and
deliver to the Issuer and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee with respect to all or any applicable series shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all rights, powers, duties and obligations
with respect to such series of its predecessor hereunder, with like effect as if
originally named as trustee for such series hereunder; but, nevertheless, on the
written request of the Issuer or of the successor trustee, upon payment of its
charges then unpaid, the trustee ceasing to act shall, subject to Section 10.4,
pay over to the successor trustee all moneys at the time held by it hereunder
and shall execute and deliver an instrument transferring to such successor
trustee all such rights, powers, duties and obligations. Upon request of any
such successor trustee, the Issuer shall execute any and all instruments in
writing for more fully and certainly vesting in and

<PAGE> 62

confirming to such successor trustee all such rights and powers. Any trustee
ceasing to act shall, nevertheless, retain a prior claim upon all property or
funds held or collected by such trustee to secure any amounts then due it
pursuant to the provisions of Section 6.6.

If a successor trustee is appointed with respect to the Securities of
one or more (but not all) series, the Issuer, the predecessor Trustee and each
successor trustee with respect to the Securities of any applicable series shall
execute and deliver an indenture supplemental hereto which shall contain such
provisions as shall be deemed necessary or desirable to confirm that all the
rights, powers, trusts and duties of the predecessor Trustee with respect to the
Securities of any series as to which the predecessor Trustee is not retiring
shall continue to be vested in the predecessor Trustee, and shall add to or
change any of the provisions of this Indenture as shall be necessary to provide
for or facilitate the administration of the trusts hereunder by more than one
trustee, it being understood that nothing herein or in such supplemental
indenture shall constitute such trustees or co-trustees of the same trust and
that each such trustee shall be trustee of a trust or trusts under separate
indentures.

No successor trustee with respect to any series of Securities shall
accept appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor trustee shall be qualified under the provisions of
Section 6.8 and eligible under the provisions of Section 6.9.

Upon acceptance of appointment by any successor trustee as provided in
this Section 6.11, the Issuer shall mail notice thereof (a) if any Unregistered
Securities of a series affected are then Outstanding, to the Holders thereof, by
publication of such notice at least once in an Authorized Newspaper in London
(and, if required by Section 3.6. at least once in an Authorized Newspaper in
Luxembourg), (b) if any Unregistered Securities of a series affected are then
Outstanding, to the Holders thereof who have filed their names and addresses
with the Trustee pursuant to Section 4.4(c)(ii), by mailing such notice to such
holders at such addresses as were so furnished to the Trustee (and the Trustee
shall make such information available to the Issuer for such purpose) and (c) to
the Holders of Registered Securities of each series affected, by first-class
mail to such Holders of Securities of any series for which such successor
trustee is acting as trustee at their last addresses as they shall appear in the
Security register. If the Issuer fails to mail such notice within ten days after
acceptance of appointment by the successor trustee,

<PAGE> 63

the successor trustee shall cause such notice to be mailed at the expense of
the Issuer.

SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee. Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party or any corporation succeeding to the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided, that such
corporation shall be qualified under the provisions of Section 6.8 and eligible
under the provisions of Section 6.9 without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding.

In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities of any series shall have
been authenticated but not delivered any such successor to the Trustee may adopt
the certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities of
any series shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor Trustee; and in all such cases such certificate
shall have the full force which it is anywhere in the Securities of such series
or in this Indenture provided that the certificate of the Trustee shall have;
provided, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Securities of any series in the name of
any predecessor Trustee shall apply only to its successor or successors by
merger, conversion or consolidation.

SECTION 6.13 Preferential Collection of Claims Against the Issuer. (a)
Subject to the provisions of this Section, if the Trustee shall be or shall
become a creditor, directly or indirectly, secured or unsecured, of the Issuer
within four months prior to a default, as defined in subsection (c) of this
Section, or subsequent to such a default, then, unless and until such default
shall be cured, the Trustee shall set apart and hold in a special account for
the benefit of the Trustee individually, the Holders of the Securities and the
Holders of other indenture securities (as defined in this Section):

(1) an amount equal to any and all reductions in the amount
due and owing upon any claim as such creditor in respect of principal
or

<PAGE> 64

interest, effected after the beginning of such four months period and
valid as against the Issuer and its other creditors, except any such
reduction resulting from the receipt or disposition of any property
described in subsection (a)(2) of this Section, or from the exercise of
any right of set-off which the Trustee could have exercised if a
petition in bankruptcy had been filed by or against the Issuer upon the
date of such default; and

(2) all property received by the Trustee in respect of any
claim as such creditor, either as security therefore, or in
satisfaction or composition thereof, or otherwise, after the beginning
of such four months' period or an amount equal to the proceeds of any
such property, if disposed of, subject, however, to the rights, if any,
of the Issuer and its other creditors in such property or such
proceeds.

Nothing herein contained, however, shall affect the right of the
Trustee:

(A) to retain for its own account (i) payments made on account
of any such claim by any person (other than the Issuer) who is liable
thereon, (ii) the proceeds of the bona fide sale of any such claim by
the Trustee to a third person, and (iii) distributions made in cash,
securities or other property in respect of claims filed against the
Issuer in bankruptcy or receivership or in proceedings for
reorganization pursuant to Title 11 of the United States Code or
applicable state law;

(B) to realize, for its own account, upon any property held by
it as security for any such claim, if such property was so held prior
to the beginning of such four months' period;

(C) to realize, for its own account, but only to the extent of
the claim hereinafter mentioned, upon any property held by it as
security for any such claim, if such claim was created after the
beginning of such four months' period and such property was received as
security therefor simultaneously with the creation thereof, and if the
Trustee shall sustain the burden of proving that at the time such
property was so received the Trustee had no reasonable cause to believe
that a default as defined in subsection (c) of this Section would occur
within four months; or

(D) to receive payment on any claim referred to in paragraph
(B) or (C), against the release of any property held as security for
such claim as provided in such paragraph (B) or (C) as the case may be,
to the extent of the fair value of such property.

<PAGE> 65

For the purpose of paragraphs (B), (C) and (D), property substituted
after the beginning of such four months' period for property held as security at
the time of such substitution shall, to the extent of the fair value of the
property released, have the same status as the property released and to the
extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of Trustee as such creditor, such claim shall have the
same status as such pre- existing claim.

If the Trustee shall be required to account, the funds and property
held in such special account and the proceeds thereof shall be apportioned
between the Trustee, the Securityholders and the holders of other indenture
securities in such manner that the Trustee, such Securityholders and the holders
of other indenture securities realize, as a result of payment from such special
account and payments of dividends on claims filed against the Issuer in
bankruptcy or receivership or in proceedings for reorganization pursuant to
Title 11 of the United States Code or applicable State law, the same percentage
of their respective claims, figured before crediting to the claim of the Trustee
anything on account of the receipt by it from the Issuer of the funds and
property in such special account and before crediting to the respective claims
of the Trustee, such Securityholders and the holders of other indenture
securities dividends on claims filed against the Issuer in bankruptcy or
receivership or in proceedings for reorganization pursuant to Title 11 of the
United States Code or applicable State law, but after crediting thereon receipts
on account of the indebtedness represented by their respective claims from all
sources other than from such dividends and from the funds and property so held
in such special account. As used in this paragraph, with respect to any claim,
the term "dividends" shall include any distribution with respect to such claim,
in bankruptcy or receivership or in proceedings for reorganization pursuant to
Title 11 of the United States Code or applicable State law, whether such
distribution is made in cash, securities or other property, but shall not
include and such distribution with respect to the secured portion, if any, of
such claim. The court in which such bankruptcy, receivership or proceeding for
reorganization is pending shall have jurisdiction (i) to apportion between the
Trustee, such Securityholders and the holders of other indenture securities, in
accordance with the provisions of this paragraph, the funds and property held in
such special account and the proceeds thereof, or (ii) in lieu of such
apportionment, in whole or in part, to give to the

<PAGE> 66

provisions of this paragraph, due consideration in determining the fairness of
the distributions to be made to the Trustee, such Securityholders and the
holders of other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.

Any Trustee who has resigned or been removed after the beginning of
such four months' period shall be subject to the provisions of this subsection
(a) as though such resignation or removal had not occurred. If any Trustee has
resigned or been removed prior to the beginning of such four months' period, it
shall be subject to the provisions of this subsection (a) if and only if the
following conditions exist:

(i) the receipt of property or reduction of claim which would
have given rise to the obligation to account, if such Trustee had
continued as trustee, occurred after the beginning of such four months'
period; and

(ii) such receipt of property or reduction of claim occurred
within four months after such resignation or removal.

(b) There shall be excluded from the operation of this Section a
creditor relationship arising from

(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year
or more at the time of acquisition by the Trustee;

(2) advances authorized by a receivership or bankruptcy court
of competent jurisdiction or by this Indenture for the purpose of
preserving any property which shall at any time be subject to the lien
of this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advance and of the
circumstances surrounding the making thereof is given to the
Securityholders at the time and in the manner provided in this
Indenture;

(3) disbursements made in the ordinary course of business in
the capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other similar
capacity;

<PAGE> 67

(4) an indebtedness created as a result of services rendered or
premises rented or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in subsection (c)(3)
below:

(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act, as amended, which is directly or indirectly a
creditor of the Issuer, or

(6) the acquisition, ownership, acceptance or negotiation of
any draft, bills of exchange, acceptance or obligations which fall
within the classification of self-liquidating paper as defined in
subsection (c)(4) of this Section.

(1) the term "default" shall mean any failure to make payment
in full of the principal of or interest upon any of the Securities or
upon the other indenture securities when and as such principal or
interest becomes due and payable;

(2) the term "other indenture securities" shall mean securities
upon which the Issuer is an obligor (as defined in the Trust Indenture
Act of 1939) outstanding under any other indenture (i) under which the
Trustee is also trustee, (ii) which contains provisions substantially
similar to the provisions of subsection (a) of this Section, and (iii)
under which a default exists at the time of the apportionment of the
funds and property held in said special account;

(3) the term "cash transaction" shall mean any transaction in
which full payment for goods or securities sold is made within seven
days after delivery of the goods or securities in currency or in checks
or other orders drawn upon banks or bankers and payable upon demand;

(4) the term "self-liquidating paper" shall mean any draft,
bill of exchange, acceptance or obligation which is made, drawn,
negotiated or incurred by the Issuer for the purpose of financing the
purchase, processing, manufacture, shipment, storage or sale of goods,
wares or merchandise and which is secured by documents evidencing title
to, possession of, or a lien upon the goods, wares or merchandise or
the receivables or proceeds arising from the sale of the goods, wares
or merchandise previously constituting the secu-

<PAGE> 68

rity, provided the security is received by the Trustee simultaneously
with the creation of the creditor relationship with the Issuer arising
from the making, drawing, negotiating or incurring of the draft, bill
of exchange, acceptance or obligation; and

(5) the term "Issuer" shall mean any obligor upon the
Securities.

ARTICLE SEVEN

CONCERNING THE SECURITYHOLDERS

SECTION 7.1 Evidence of Action Taken by Securityholders. Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by a specified percentage in
principal amount of the Securityholders of any or all series may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such specified percentage of Securityholders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee. Proof of execution of any instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Indenture and
(subject to Sections 6.1 and 6.2) conclusive in favor of the Trustee and the
Issuer, if made in the manner provided in this Article.

SECTION 7.2 Proof of Execution of Instruments and of Holding of
Securities. Subject to Sections 6.1 and 6.2, the execution of any instrument by
a Securityholder or his agent or proxy may be proved in the following manner:

The fact and date of the execution by any Holder of any
instrument may be proved by the certificate of any notary public or
other officer of any jurisdiction authorized to take acknowledgments of
deeds or administer oaths that the person executing such instruments
acknowledged to him the execution thereof, or by an affidavit of a
witness to such execution sworn to before any such notary or other such
officer. Where such execution is by or on behalf of any legal entity
other than an individual, such certificate or affidavit shall also
constitute sufficient proof of the authority of the person executing
the same. The fact of the holding by any Holder

<PAGE> 69

of an Unregistered Security of any series, and the identifying number
of such Security and the date of his holding the same, may be proved by
the production of such Security or by a certificate executed by any
trust company, bank, banker or recognized securities dealer wherever
situated satisfactory to the Trustee, if such certificate shall be
deemed by the Trustee to be satisfactory. Each such certificate shall
be dated and shall state that on the date thereof a Security of such
series bearing a specified identifying number was deposited with or
exhibited to such trust company, bank, banker or recognized securities
dealer by the person named in such certificate. Any such certificate
may be issued in respect of one or more Unregistered Securities of one
or more series specified therein. The holding by the person named in
any such certificate of any Unregistered Securities of any series
specified therein shall be presumed to continue for a period of one
year from the date of such certificate unless at the time of any
determination of such holding (1) another certificate bearing a later
date issued in respect of the same Securities shall be produced, or (2)
the Security of such series specified in such certificate shall be
produced by some other person, or (3) the Security of such series
specified in such certificate shall have ceased to be Outstanding.
Subject to Sections 6.1 and 6.2, the fact and date of the execution of
any such instrument and the amount and numbers of Securities of any
series held by the person so executing such instrument and the amount
and numbers of any Security or Securities for such series may also be
proven in accordance with such reasonable rules and regulations as may
be prescribed by the Trustee for such series or in any other manner
which the Trustee for such series may deem sufficient.

SECTION 7.3 Holders to be Treated as Owners. The Issuer, the Trustee
and any agent of the Issuer or the Trustee may deem and treat the person in
whose name any Security shall be registered upon the Security register for such
series as the absolute owner of such Security (whether or not such Security
shall be overdue and not withstanding any notation of ownership or other
writing thereon) for the purpose of receiving payment of or on account of the
principal of and, subject to the provisions of this Indenture, interest on such
Security and for all other purposes; and neither the Issuer nor the Trustee nor
any agent of the Issuer or the Trustee shall be affected by any notice to the
contrary. The

<PAGE> 70

Issuer, the Trustee and any agent of the lssuer or the Trustee may treat the
Holder of any Unregistered Security and the Holder of any Coupon as the absolute
owner of such Unregistered Security or Coupon (whether or not such Unregistered
Security or Coupon shall be overdue) for the purpose of receiving payment
thereof or on account thereof and for all other purposes and neither the Issuer,
the Trustee, nor any agent of the Issuer or the Trustee shall be affected by any
notice to the contrary. All such payments so made to any such person, or upon
his order, shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for moneys payable upon any
such Security or Coupon.

SECTION 7.4 Securities Owned by Issuer Deemed Not Outstanding. In
determining whether the Holders of the requisite aggregate principal amount of
Outstanding Securities of any or all series have concurred in any direction,
consent or waiver under this Indenture. Securities which are owned by the Issuer
or any other obligor on the Securities with respect to which such determination
is being made or by any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Issuer or any other
obligor on the Securities with respect to which such determination is being made
shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination, except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver
only Securities which the Trustee knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the Securities or any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer or any other obligor on the Securities. In case
of a dispute as to such right, the advice of counsel shall be full protection in
respect of any decision made by the Trustee in accordance with such advice. Upon
request of the Trustee, the Issuer shall furnish to the Trustee promptly a
written statement by two of its officers (which need not comply with Section
11.5) listing and identifying all Securities, if any, known by the Issuer to be
owned or held by or for the account of any of the above-described persons; and,
subject to Sections 6.1 and 6.2, the Trustee shall be entitled to accept such
Officers' Certificate as conclusive evidence of the fact therein set

<PAGE> 71

forth and of the fact that all Securities not listed therein are Outstanding for
the purpose of any such determination.

SECTION 7.5 Right of Revocation of Action Taken. At any time prior to
(but not after) the evidencing to the Trustee, as provided in Section 7.1, of
the taking of any action by the Holders of the percentage in aggregate principal
amount of the Securities of any or all series, as the case may be, specified in
this Indenture in connection with such action, any Holder of a Security the
serial number of which is shown by the evidence to be included among the serial
number of the Securities the Holders of which have consented to such action may,
by filing written notice at the Corporate Trust Office and upon proof of holding
as provided in this Article, revoke such action so far as concerns such
Security. Except as aforesaid any such action taken by the Holder of any
Security shall be conclusive and binding upon such Holder and upon all future
Holders and owners of such Security and of any Securities issued in exchange or
substitution therefore, irrespective of whether or not any notation in regard
thereto is made upon any such Security. Any action taken by the Holders of the
percentage in aggregate principal amount of the Securities of any or all series,
as the case may be, specified in this Indenture in connection with such action
shall be conclusively binding upon the Issuer, the Trustee and the Holders of
all the Securities affected by such action.

ARTICLE EIGHT

SUPPLEMENTAL INDENTURES

SECTION 8.1 Supplemental Indentures Without Consent of Securityholders.
The Issuer, when authorized by a resolution of its Board of Directors, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act of 1939 as in force at the date of the execution thereof)
for one or more of the following purposes:

(a) to convey, transfer, assign, mortgage or pledge to the
Trustee as security for the Securities of one or more series any
property or assets:

(b) to evidence the succession of another corporation to the
Issuer, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Issuer
pursuant to Article Nine;

<PAGE> 72

(c) to add to the covenants of the Issuer such further
covenants, restrictions, conditions or provisions as its Board of
Directors and the Trustee shall consider to be for the protection of
the Holders of Securities or Coupons, and to make the occurrence, or
the occurrence and continuance, of a default in any such additional
covenants, restrictions, conditions or provisions an Event of Default
permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, that in
respect of any such additional covenant, restriction, condition or
provision such supplemental indenture may provide for a particular
period of grace after default (which period may be shorter or longer
than that allowed in the case of other defaults) or may provide for an
immediate enforcement upon such an Event of Default or may limit the
remedies available to the Trustee upon such an Event of Default or may
limit the right of the Holders of a majority in aggregate principal
amount of the Outstanding Securities of such series to waive such an
Event of Default;

(d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture; or to make such other provisions in
regard to matters or questions arising under this Indenture or under
any supplemental indenture as the Board of Directors may deem necessary
or desirable and which shall not adversely affect the interests of the
Holders of the Securities;

(e) to provide for the issuance under this Indenture of
Securities in coupon form (including Securities registrable as to
principal only) and to provide for exchangeability of such Securities
with Securities issued hereunder in fully registered form, and to make
all appropriate changes for such purpose; and

(f) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities of one
or more series, or of the Coupons appertaining to such Securities, and
to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Section 6.11.

The Trustee is hereby authorized to join with the Issuer in the
execution of any such supplemental indenture, to make any further

<PAGE> 73

appropriate agreements and stipulations which may be therein contained and to
accept the conveyance, transfer, assignment, mortgage or pledge of any property
thereunder, but the Trustee shall not be obligated to enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

Any supplemental indenture authorized by the provisions of this Section
may be executed without the consent of the Holders of any of the Securities at
the time Outstanding, notwithstanding any of the provisions of Section 8.2.

SECTION 8.2 Supplemental Indentures With Consent of Securityholders.
With the consent (evidenced as provided in Article Seven of the Holders not less
than 66 2/3% in aggregate principal amount of the Securities at the time
Outstanding of all series affected by such supplemental indenture (voting as one
class), the Issuer, when authorized by a resolution of its Board of Directors,
and the Trustee may, from time to time and at any time, enter into an indenture
or indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act of 1939 as in force at the date of execution thereof) for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Securities of each such
series or the coupons appertaining to such Securities; provided, that no such
supplemental indenture shall (a) extend the final maturity of any Security, or
reduce the principal amount thereof or the method in which amounts of payments
of principal or interest thereon are determined, or reduce the rate or extend
the time of payment of interest thereon, or change the coin or currency or units
based on or related to currencies (including ECU) of payment thereof, or reduce
any amount payable on redemption thereof or reduce the amount of the principal
of an Original Issue Discount Security that would be due and payable upon an
acceleration of the maturity thereof pursuant to Section 5.1 or the amount
thereof provable in bankruptcy pursuant to Section 5.2, or impair or affect the
right of any Securityholder to institute suit for the payment thereof or, if the
Securities provide therefore, any right of repayment at the option of the
Securityholder or make any change in Article Thirteen hereof that adversely
affects the rights of any Holder, in each case, without the consent of the
Holder of each Security so affected, or (b) reduce the aforesaid percentage of
Securities of any series, the consent of the Holders of which is required for
any such supplemental indenture, without the consent of the Holder of each
Security so affected.

<PAGE> 74

as aforesaid and other documents, if any, required by Section 7.1, the Trustee
shall join with the Issuer in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such supplemental
indenture.

It shall not be necessary for the consent of the Securityholders under
this section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.

Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Issuer
shall mail a notice thereof (i) by first class mail to the Holders of then
Outstanding Registered Securities of each series affected thereby at their
addresses as they shall appear on the registry books of the Issuer, (ii) if any
Unregistered Securities of a series affected thereby are then Outstanding, to
the Holders thereof who have filed their names and addresses with the Trustee
pursuant to Section 4.4(c)(ii), by mailing a notice thereof by first class mail
to such Holders at such addresses as were so furnished to the Trustee and (iii)
if any Unregistered Securities of a series affected thereby are then
Outstanding, to all holders thereof by publication of a notice thereof at least
once in an Authorized Newspaper in London (and, if required by Section 3.6, at
least once in an authorized Newspaper in Luxembourg), and in each case such
notice shall set forth in general terms the substance of such supplemental
indenture. Any failure of the Issuer to mail such notice, or any defect therein,
shall not however, in any way impair or affect the validity of any such
supplemental indenture.

SECTION 8.3 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties and immunities
under this Indenture of the Trustee,

<PAGE> 75

the Issuer and the Holders of Securities of each series affected thereby shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture of any and all purposes.

SECTION 8.4 Documents to Be Given to Trustee. The Trustee, subject to
the provisions of Sections 6.1 and 6.2, may receive an Officers' Certificate and
an Opinion Of Counsel as conclusive evidence that any supplemental indenture
executed pursuant to this Article Eight complies with the applicable provisions
of this Indenture.

SECTION 8.5 Notation on Securities in Respect of Supplemental
Indentures. Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to the provisions of this
Article may bear a notation in form approved by the Trustee for such series as
to any matter provided for by such supplemental indenture or as to any action
taken at any such meeting. If the Issuer or the Trustee shall so determine, new
Securities of any series so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared by the Issuer,
authenticated by the Trustee and delivered in exchange for the Securities of
such series then Outstanding.

ARTICLE NINE

CONSOLIDATION, MERGER, SALE OR CONVEYANCE

SECTION 9.1 Issuer May Consolidate, etc., on Certain Terms. The issuer
covenants that it will not merge or consolidate with any other corporation or
sell or convey all or substantially all of its assets to any Person, unless (i)
either the Issuer shall be the continuing corporation, or the successor
corporation or the Person which acquires by sale or conveyance substantially all
the assets of the Issuer (if other than the Issuer) shall be a corporation
organized under the laws of the United States of America or any State thereof
and shall expressly assume the due and punctual payment of the principal of and
interest on all the Securities and Coupons, according to their tenor, and the
due and

<PAGE> 76

punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed or observed by the Issuer by supplemental
indenture satisfactory to the Trustee, executed and delivered to the Trustee by
such corporation, and (ii) the Issuer or such successor corporation, as the case
may be, shall not, immediately after such merger or consolidation, or such sale
or conveyance, be in default in the performance of any such covenant or
condition.

SECTION 9.2 Successor Corporation Substituted. In case of any such
consolidation, merger, sale or conveyance and following such an assumption by
the successor corporation, such successor corporation shall succeed to and be
substituted for the Issuer, with the same effect as if it had been named herein.
Such successor corporation may cause to be signed, and may issue either in its
own name or in the name of the Issuer prior to such succession any or all of the
Securities issuable hereunder, together with any Coupons appertaining thereto,
which theretofore shall not have been signed by the Issuer and delivered to the
Trustee; and, upon the order of such successor corporation instead of the Issuer
and subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee authenticate and shall deliver any Securities, together
with any Coupons appertaining thereto, which previously shall have been signed
and delivered by the officers of the Issuer to the Trustee for authentication,
and any Securities, together with any Coupons appertaining thereto, which such
successor corporation thereafter shall cause to be signed and delivered to the
Trustee for that purpose. All of the Securities, together with any Coupons
appertaining thereto, so issued shall in all respects have the same legal rank
and benefit under this Indenture as the Securities, together with any Coupons
appertaining thereto, theretofore or thereafter issued in accordance with the
terms of this Indenture as though all of such Securities and Coupons had been
issued at the date of the execution hereof.

In case of any such consolidation, merger, sale, lease or conveyance
such changes in phraseology and form (but not in substance) may be made in the
Securities and Coupons thereafter to be issued as may be appropriate.

In the event of any such sale or conveyance (other than a conveyance by
way of lease) the Issuer or any successor corporation which shall theretofore
have become such in the manner described in this Article shall be discharged
from all obligations and covenants under this Indenture and the Securities and
may be liquidated and dissolved.

<PAGE> 77

SECTION 9.3 Opinion of Counsel to Trustee. The Trustee, subject to the
provisions of Sections 6.1 and 6.2, may receive an Opinion of Counsel, prepared
in accordance with Section 11.5, as conclusive evidence that any such
consolidation, merger, sale, lease or conveyance and any such assumption, and
any such liquidation or dissolution, complies with the applicable provisions of
this Indenture.

ARTICLE TEN

SATISFACTION AND DISCHARGE OF INDENTURE:
UNCLAIMED MONEYS

SECTION 10.1 Satisfaction and Discharge of Indenture. (A) If at any
time (a) the Issuer shall have paid or caused to be paid the principal of and
interest on all the Securities of any series Outstanding hereunder and all
unmatured Coupons appertaining thereto (other than Securities or Coupons which
have been destroyed, lost or stolen and which have been replaced or paid as
provided in Section 2.9) as and when the same shall have become due and payable,
or (b) the Issuer shall have delivered to the Trustee for cancellation all
Securities of any series theretofore authenticated and all unmatured Coupons
appertaining thereto (other than any Securities or Coupons of such series which
shall have been destroyed, lost or stolen and which shall have been replaced or
paid as provided in Section 2.9) or (c) (i) all the Securities of such series
not theretofore delivered to the Trustee for cancellation shall have become due
and payable, or are by their terms to become due and payable within one year or
are to be called for redemption within one year under arrangements satisfactory
to the Trustee for the giving of notice of redemption, and (ii) the Issuer shall
have irrevocably deposited or caused to be deposited with the Trustee as trust
funds the entire amount in cash (other than moneys repaid by the Trustee or any
paying agent to the Issuer in accordance with Section 10.4) or U.S. Government
Obligations, maturing as to principal and interest in such amounts and at such
times as will insure the availability of cash (without consideration of any
reinvestment of such principal or interest), or a combination of U.S. Government
Obligations and cash sufficient to pay at maturity or upon redemption all
Securities of such series and all unmatured Coupons appertaining thereto (other
than any Securities or Coupons of such series which shall have been destroyed,
lost or stolen and which shall have been

<PAGE> 78

replaced or paid as provided in Section 2.9) not theretofore delivered to the
Trustee for cancellation, including principal and interest due or to become due
to such date of maturity as the case may be, and if, in any such case, the
Issuer shall also pay or cause to be paid all other sums payable hereunder by
the Issuer with respect to Securities of such series and Coupons appertaining
thereto, then this Indenture shall cease to be of further effect with respect to
Securities of such series and Coupons appertaining thereto (except as to (i)
rights of registration of transfer and exchange, and the Issuer's right of
optional redemption, (ii) substitution of mutilated, defaced, destroyed, lost or
stolen Securities or Coupons, (iii) rights of holders of Securities and Coupons
appertaining thereto to receive payments of principal thereof and interest
thereon upon the original stated due dates therefore (but not upon acceleration)
and remaining rights of the holders to receive mandatory sinking fund payments,
if any, (iv) the rights, obligations, duties and immunities of the Trustee
hereunder, including those under Section 6.6. (v) the rights of the
Securityholders of such series as beneficiaries hereof with respect to the
property so deposited with the Trustee payable to all or any of them, and (vi)
the obligations of the Issuer under Section 3.2) and the Trustee, on demand of
the Issuer accompanied by an Officers' Certificate and an Opinion of Counsel and
at the cost and expense of the Issuer, shall execute proper instruments
acknowledging such satisfaction of and discharging this Indenture with respect
to such series; provided, that the rights of Holders of the Securities and
Coupons to receive amounts in respect of principal of and interest on the
Securities and Coupons held by them shall not be delayed longer than required by
then-applicable mandatory rules or policies of any securities exchange upon
which the Securities are listed. The Issuer agrees to reimburse the Trustee for
any costs or expenses thereafter reasonably and properly incurred and to
compensate the Trustee for any services thereafter reasonably and properly
rendered by the Trustee in connection with this Indenture or the Securities and
Coupons of such series.

(B) The following provisions shall apply to the Securities of each
series unless specifically otherwise provided in a Board Resolution, Officers'
Certificate or indenture supplemental hereto provided pursuant to Section 2.3.
In addition to discharge of the Indenture pursuant to the next preceding
paragraph, the Issuer shall be deemed to have paid and discharged the entire
indebtedness on all the Securities of a series and Coupons appertaining thereto
on the 121st day after the date of the

<PAGE> 79

deposit referred to in subparagraph (a) below, and the provisions of this
Indenture with respect to the Securities of such series and Coupons appertaining
thereto shall no longer be in effect (except as to (i) rights of registration of
transfer and exchange of Securities of such series, and of Coupons appertaining
thereto, (ii) substitution of apparently mutilated, defaced, destroyed, lost or
stolen Securities or Coupons, (iii) rights of holders of Securities and Coupons
appertaining thereto to receive, from the trust fund described in subparagraph
(a) below, payments of principal thereof and interest thereon, upon the original
stated due dates therefore (but not upon acceleration) and remaining rights of
the holders to receive sinking fund payments if any, (iv) the rights,
obligations, duties and immunities of the Trustee hereunder, including those
under section 6.6, (v) the rights of the holders of Securities of such series
and Coupons appertaining thereto as beneficiaries hereof with respect to the
property so deposited with the Trustee payable to all or any of them and (vi)
the obligations of the Issuer under Section 3.2) and the Trustee, at the expense
of the Issuer, shall at the Issuer's request execute proper instruments
acknowledging the same, if

(a) with reference to this provision the Issuer has irrevocably
deposited or caused to be irrevocably deposited with the Trustee as
trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of the Securities of
such series and Coupons appertaining thereto (i) cash, or (ii) U.S.
Government Obligations, maturing as to principal and interest at such
times and in such amounts as will insure the availability of cash or
(iii) a combination thereof, in an amount sufficient, in the opinion of
a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee,
to pay (A) the Principal and interest on all Securities of such series
and Coupons appertaining thereto on the date that such principal or
interest is due and payable and (B) any mandatory sinking fund payments
on the day on which such payments are due and payable in accordance
with the terms of the Indenture and the Securities of such series;

(b) such deposit will not result in a breach or violation of,
or constitute a default under, any agreement or instrument to which the
Issuer is a party or by which it is bound;

(c) the Issuer has delivered to the Trustee an opinion of
independent legal counsel satisfactory to the Trustee to the effect

<PAGE> 80

that Holders of the Securities of such series and Coupons appertaining
thereto will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit, defeasance and discharge and will
be subject to Federal income tax on the same amount and in the same
manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred; and

(d) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the defeasance contemplated by this
provision have been complied with, and the Opinion of Counsel shall
also state that such deposit does not violate applicable law.

SECTION 10.2 Application by Trustee of Funds Deposited for Payment of
Securities. Subject to Section 10.4, all moneys deposited with the Trustee
pursuant to Section 10.1 shall be held in trust and applied by it to the
payment, either directly or through any paying agent (including the Issuer
acting as its own paying agent), to the Holders of the particular Securities of
such series and of Coupons appertaining thereto for the payment or redemption of
which such moneys have been deposited with the Trustee, of all sums due and to
become due thereon for principal and interest; but such money need not be
segregated from other funds except to the extent required by law. Money or U.S.
Government Obligations so held in trust are not subject to the provisions of
Article 13.

SECTION 10.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to Securities
of any series, all moneys then held by any paying agent under the provisions of
this Indenture with respect to such series of Securities shall, upon demand of
the Issuer, be repaid to it or paid to the Trustee and thereupon such paying
agent shall be released from all further liability with respect to such moneys.

SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent
Unclaimed for Two Years. Any moneys deposited with or paid to the Trustee or any
paying agent for the payment of the principal of or interest on any Security of
any series and not applied but remaining unclaimed for two years after the date
upon which such principal or interest shall have become due and payable, shall,
upon the written request of the Issuer and unless otherwise required by
mandatory provisions of applicable escheat or abandoned or unclaimed property
law, be repaid to the Issuer by the Trustee for such series or such paying
agent, and the Holder of the Security of such series shall, unless

<PAGE> 81

otherwise required by mandatory provisions of applicable escheat or abandoned or
unclaimed property laws, thereafter look only to the Issuer for any payment
which such Holder may be entitled to collect, and all liability of the Trustee
or any paying agent with respect to such moneys shall thereupon cease; provided
the Trustee or such paying agent, before being required to make any such
repayment with respect to moneys deposited with it for any payment (a) in
respect of Registered Securities of any series, may at the expense of the
Issuer, mail by first class mail to Holders of such Securities at their
addresses as they shall appear on the Security register, and (b) in respect of
Unregistered Securities of any series, may at the expense of the Issuer cause to
be published once, in an Authorized Newspaper in London (and if required by
Section 3.8, once in an Authorized Newspaper in Luxembourg), notice, that such
moneys remain and that, after a date specified therein, which shall not be less
than thirty days from the date of such mailing or publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer.

SECTION 10.5 Indemnity for U.S. Government Obligations. The Issuer
shall pay and indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against the U.S. Government Obligations deposited pursuant to
Section 10.1 or the principal or interest received in respect of such
obligations.

ARTICLE ELEVEN

MISCELLANEOUS PROVISIONS

SECTION 11.1 Incorporators, Shareholders, Officers and Directors of
Issuer Exempt from Individual Liability. No recourse under or upon any
obligation, covenant or agreement contained in this Indenture, or in any
Security or Coupon appertaining thereto, or because of any indebtedness
evidenced thereby, shall be had against any incorporator, as such or against any
past, present or future shareholder, officer or director, as such, of the Issuer
or of any successor, either directly or through the Issuer or any successor,
under any rule of law, statute or constitutional provision or by the enforcement
of any assessment or by any legal or equitable proceeding or otherwise, all such
liability being expressly waived and released by the acceptance of the
Securities and any Coupons appertaining thereto by the holders thereof and as
part of the consideration for the issue of the Securities and any Coupons
appertaining thereto.

<PAGE> 82

SECTION 11.2 Provisions of Indenture for the Sole Benefit of Parties
and Securityholders. Nothing in this Indenture or in the Securities and any
Coupons appertaining thereto, expressed or implied, shall give or be construed
to give to any person, firm or corporation, other than the parties hereto and
their successors and the Holders of the Securities or Coupons, any legal or
equitable right, remedy or claim under this Indenture or under any covenant or
provision herein contained, all such covenants and provisions being for the sole
benefit of the parties hereto and their successors and of the Holders of the
Securities.

SECTION 11.3 Successors and Assigns of lssuer Bound by Indenture. All
the covenants, stipulations, promises and agreements in this Indenture contained
by or in behalf of the Issuer shall bind its successors and assigns, whether so
expressed or not.

SECTION 11.4 Notices and Demands on Issuer, Trustee and
Securityholders. Any notice or demand which by any provision of this Indenture
is required or permitted to be given or served by the Trustee or by the Holders
of Securities or Coupons to or on the Issuer may be given or served by being
deposited postage prepaid, first-class mail (except as otherwise specifically
provided herein) addressed (until another address of the Issuer is filed by the
Issuer with the Trustee) to The Progressive Corporation, 6000 Parkland
Boulevard, Mayfield Heights, Ohio 44124, Attn: Treasurer. Any notice, direction,
request or demand by the Issuer or any Securityholder to or upon the Trustee
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made at the Corporate Trust Office.

Where this Indenture provides for notice to Holders, such notice shall
be sufficiently given (unless otherwise herein expressly provided) (i) in the
case of Holders of Registered Securities and Holders of Unregistered Securities
who have filed their names and addresses with the Trustee pursuant to Section
4.4(c)(ii), if in writing and mailed, first-class postage prepaid, to each
holder entitled thereto, at his last address as it appears in the registry
books; and (ii) in the case of holders of Unregistered Securities who have not
filed their names and addresses with the Trustee, by publication in accordance
with the requirements of the provision hereof requiring such notice. Any notice
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given when mailed, whether or not the Holder receives the notice.
In any case

<PAGE> 83

where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.

In case, by reason of the suspension of or irregularities in regular
mail service, it shall be impracticable to mail notice to the Issuer and
Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.

SECTION 11.5 Officers' Certificates and Opinions of Counsel; Statements
to Be Contained Therein. Upon any application or demand by the Issuer to the
Trustee to take any action under any of the provisions of this Indenture, the
Issuer shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.

Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (a) a statement that the person
making such certificate or opinion has read such covenant or condition, (b) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.

<PAGE> 84

Any certificate, statement or opinion of an officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless such officer knows that the certificate
or opinion or representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous. Any
certificate, statement or opinion of counsel may be based, insofar as it relates
to factual matters, information with respect to which is in the possession of
the Issuer, upon the certificate, statement or opinion of or representations by
an officer or officers of the Issuer, unless such counsel knows that the
certificate, statement or opinion or representations with respect to the matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous.

Any certificate, statement or opinion of an officer of the Issuer or of
counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Issuer, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.

Any certificate or opinion of any independent firm of public
accountants filed with the Trustee shall contain a statement that such firm is
independent.

SECTION 11.6 Payments Due on Saturdays, Sundays and Holidays. If the
date of maturity of interest on or principal of the Securities of any series or
any Coupons appertaining thereto or the date fixed for redemption or repayment
of any such Security or Coupon shall not be a Business Day, then payment of
interest or principal need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest shall accrue for the
period after such date.

SECTION 11.7 Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939. If and to the extent that any provision of this Indenture
limits, qualifies or conflicts with another provision included in

<PAGE> 85

this Indenture which is required to be included herein by any of Sections 310 to
317, inclusive, of the Trust Indenture Act of 1939, such required provision
shall control.

SECTION 11.8 New York Law to Govern. This Indenture and each Security
and Coupon shall be deemed to be a contract under the laws of the State of New
York, and for all purposes shall be construed in accordance with the laws of
such State, except as may otherwise be required by mandatory provisions of law.

SECTION 11.9 Counterparts. This Indenture may be executed in any number
of counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.

SECTION 11.10 Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.

SECTION 11.11 Securities in Foreign Currencies or in ECU. Whenever this
Indenture provides for any action by, or the determination of any of the rights
of, or any distribution to, Holders of Securities denominated in United States
dollars and in any other currency or currency unit (including ECU), in the
absence of any provision to the contrary in the form of Security of any
particular series, any amount in respect of any Security denominated in a
currency or currency unit (including ECU) other than United States dollars shall
be treated for any such action or distribution as that amount of United States
dollars that could be obtained for such amount on such reasonable basis of
exchange and as of such date as the Issuer may specify in a written notice to
the Trustee or in the absence of such written notice, as the Trustee shall so
determine.

ARTICLE TWELVE

REDEMPTION OF SECURITIES AND SINKING FUNDS

SECTION 12.1 Applicability of Article. The provisions of this Article
shall be applicable to the Securities of any series which are redeemable before
their maturity or to any sinking fund for the retirement of Securities of a
series except as otherwise specified as contemplated by Section 2.3 for
Securities of such series.

<PAGE> 86

SECTION 12.2 Notice of Redemption; Partial Redemptions. Notice of
redemption to the Holders of Registered Securities of any series to be redeemed
as a whole or in part at the option of the Issuer shall be given by mailing
notice of such redemption by first class mail, postage prepaid, at least 30 days
and not more than 60 days prior to the date fixed for redemption to such Holders
of Securities of such series at their last addresses as they shall appear upon
the registry books. Notice of redemption to the Holders of Unregistered
Securities to be redeemed as a whole or in part, who have filed their names and
addresses with the Trustee pursuant to Section 4.4(c)(ii), shall be given by
mailing notice of such redemption, by first class mail, postage prepaid, at
least thirty and not more than sixty days prior to the date fixed for
redemption, to such Holders at such addresses as were so furnished to the
Trustee (and in the case of any such notice given by the Issuer, the Trustee
shall make such information available to the Issuer for such purpose). Notice of
redemption to all other holders of Unregistered Securities shall be published in
an Authorized Newspaper in London (and, if required by Section 3.6, in an
Authorized Newspaper in Luxembourg), in each case, once in each of two
successive calendar weeks, the first publication to be not less than thirty nor
more than sixty days prior to the date fixed for redemption. Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the Holder receives the notice. Failure to give
notice by mail, or any defect in the notice to the Holder of any Security of a
series designated for redemption as a whole or in part shall not affect the
validity of the proceedings for the redemption of any other Security of such
series.

The notice of redemption to each such Holder shall specify the
principal amount of each Security of such series held by such Holder to be
redeemed, the date fixed for redemption, the redemption price, the place or
places of payment, that payment will be made upon presentation and surrender of
such Securities, and, in the case of Securities with Coupons attached thereto,
of all Coupons appertaining thereto maturing after the date fixed for
redemption, that such redemption is pursuant to the mandatory or optional
sinking fund, or both, if such be the case, that interest accrued to the date
fixed for redemption will be paid as specified in such notice and that on and
after said date interest thereon or on the portions thereof to be redeemed will
cease to accrue. In case any Security of a series is to be redeemed in part only
the notice of redemption shall state the portion of the principal amount thereof
to be redeemed and shall state that on and after the date fixed for redemption,
upon surrender of

<PAGE> 87

such Security, a new Security or Securities of such series in principal amount
equal to the unredeemed portion thereof will be issued.

The notice of redemption of Securities of any series to be redeemed at
the option of the Issuer shall be given by the Issuer or, at the Issuer's
request, by the Trustee in the name and at the expense of the Issuer.

On the redemption date specified in the notice of redemption given as
provided in this Section, the Issuer will deposit with the Trustee or with one
or more paying agents (or, if the Issuer is acting as its own paying agent, set
aside, segregate and hold in trust as provided in Section 3.4) an amount of
money sufficient to redeem on the redemption date all the Securities of such
series so called for redemption at the appropriate redemption price, together
with accrued interest to the date fixed for redemption. If any or all of the
outstanding Securities of a series are to be redeemed, the Issuer will deliver
to the Trustee at least 70 days prior to the date fixed for redemption an
Officers' Certificate stating the date of redemption and the aggregate principal
amount of Securities to be redeemed.

If less than all the Securities of a series are to be redeemed, the
Trustee shall select, in such manner as it shall deem appropriate and fair,
Securities of such series to be redeemed in whole or in part. Securities may be
redeemed in part in multiples equal to the minimum authorized denomination for
Securities of such series or any integral multiple thereof. The Trustee shall
promptly notify the Issuer in writing of the Securities of such series selected
for redemption and, in the case of any Securities of such series selected for
partial redemption, the principal amount thereof to be redeemed. For all
purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities of any series shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security which has been or is to be
redeemed.

SECTION 12.3 Payment of Securities Called for Redemption. If notice of
redemption has been given as above provided, the Securities or portions of
Securities specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, together
with interest accrued to the date fixed for redemption, and on and after said
date (unless the Issuer shall default in the payment of such Securities at the
redemption price, together with interest accrued to said date) interest on the
Securities or portions of Securities so called for redemption shall cease to
accrue and the

<PAGE> 88

unmatured Coupons, if any, appertaining thereto shall be void and, except as
provided in Sections 6.5 and 10.4, such Securities shall cease from and after
the date fixed for redemption to be entitled to any benefit or security under
this Indenture, and the Holders thereof shall have no right in respect of such
Securities except the right to receive the redemption price thereof and unpaid
interest to the date fixed for redemption. On presentation and surrender of such
Securities, together with all Coupons appertaining thereto maturing after the
date fixed for redemption, at a place of payment specified in said notice, said
Securities and Coupons or the specified portions thereof shall be paid and
redeemed by the Issuer at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption; provided that any
semiannual payment of interest becoming due on the date fixed for redemption
shall be payable in the case of Securities with Coupons attached thereto, to the
bearers of the Coupons for such interest upon surrender thereof, and in the case
of Registered Securities, to the Holders of such Securities registered as such
on the relevant record date subject to the terms and provisions of Section 2.4
hereof.

If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate of
interest or Yield to Maturity (in the case of an Original Issue Discount
Security) borne by the Security.

If any Security with Coupons attached thereto is surrendered for
redemption and is not accompanied by all such Coupons maturing after the date
fixed for redemption, the surrender of such missing Coupon or Coupons may be
waived by the Issuer and the Trustee, if there be furnished to each of them such
security or indemnity as they may require to save each of them harmless.

Upon presentation of any Security redeemed in part only, the Issuer
shall execute and the Trustee shall authenticate and deliver to or on the order
of the Holder thereof, at the expense of the Issuer, a new Security or
Securities of such series, together with all Coupons, if any, appertaining
thereto, of authorized denominations, in principal amount equal to the
unredeemed portion of the Security so presented.

SECTION 12.4 Exclusion of Certain Securities from Eligibility for
Selection for Redemption. Securities shall be excluded from eligibility for
selection for redemption if they are identified by registra-

<PAGE> 89

tion and certificate number in a written statement signed by an authorized
officer of the Issuer and delivered to the Trustee at least 40 days prior to the
last date on which notice of redemption may be given as being owned of record
and beneficially by, and not pledged or hypothecated by either (a) the Issuer or
(b) an entity specifically identified in such written statement directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Issuer.

SECTION 12.5 Mandatory and Optional Sinking Funds. The minimum amount
of any sinking fund payment provided for by the terms of Securities of any
series is herein referred to as a "mandatory sinking fund payment", and any
payment in excess of such minimum amount provided for by the terms of Securities
of any series is herein referred to as an "optional sinking fund payment". The
date on which a sinking fund payment is to be made is herein referred to as the
"sinking fund payment date".

In lieu of making all or any part of any mandatory sinking fund payment
with respect to any series of Securities in cash, the Issuer may at its option
(a) deliver to the Trustee Securities of such series theretofore purchased or
otherwise acquired (except upon redemption pursuant to the mandatory sinking
fund) by the Issuer or receive credit for Securities of such series (not
previously so credited) theretofore purchased or otherwise acquired (except as
aforesaid) by the Issuer and delivered to the Trustee for cancellation pursuant
to Section 2.7, (b) receive credit for optional sinking fund payments (not
previously so credited) made pursuant to this Section, or (c) receive credit for
Securities of such series (not previously so credited) redeemed by the Issuer
through any optional redemption provision contained in the terms of such series.
Securities so delivered or credited shall be received or credited by the Trustee
at the sinking fund redemption price specified in such Securities.

On or before the sixtieth day next preceding each sinking fund payment
date for any series, the Issuer will deliver to the Trustee a written statement
(which need not contain the statements required by Section 11.5) signed by an
authorized officer of the Issuer (a) specifying the portion of the mandatory
sinking fund payment to be satisfied by payment of cash and the portion to be
satisfied by credit of Securities of such series, (b) stating that none of the
Securities of such series has theretofore been so credited, (c) stating that no
defaults in the payment of interest or Events of Default with respect to such
series have occurred

<PAGE> 90

(which have not been waived or cured) and are continuing and (d) stating whether
or not the Issuer intends to exercise its right to make an optional sinking fund
payment with respect to such series and, if so, specifying the amount of such
optional sinking fund payment which the Issuer intends to pay on or before the
next succeeding sinking fund payment date. Any Securities of such series to be
credited and required to be delivered to the Trustee in order for the Issuer to
be entitled to credit therefore as aforesaid which have not theretofore been
delivered to the Trustee shall be delivered for cancellation pursuant to Section
2.10 to the Trustee with such written statement (or reasonably promptly
thereafter if acceptable to the Trustee). Such written statement shall be
irrevocable and upon its receipt by the Trustee the Issuer shall become
unconditionally obligated to make all the cash payments or payments therein
referred to, if any, on or before the next succeeding sinking fund payment date.
Failure of the Issuer, on or before any such sixtieth day, to deliver such
written statement and Securities specified in this paragraph, if any, shall not
constitute a default but shall constitute, on and as of such date, the
irrevocable election of the Issuer (i) that the mandatory sinking fund payment
for such series due on the next succeeding sinking fund payment date shall be
paid entirely in cash without the option to deliver or credit Securities of such
series in respect thereof and (ii) that the Issuer will make no optional sinking
fund payment with respect to such series as provided in this Section.

If the sinking fund payment or payments (mandatory or optional or both)
to be made in cash on the next succeeding sinking fund payment date plus any
unused balance of any preceding sinking fund payments made in cash shall exceed
$50,000 (or a lesser sum if the Issuer shall so request) with respect to the
Securities of any particular series, such cash shall be applied on the next
succeeding sinking fund payment date to the redemption of Securities of such
series at the sinking fund redemption price together with accrued interest to
the date fixed for redemption. If such amount shall be $50,000 or less and the
Issuer makes no such request, then it shall be carried over until a sum in
excess of $50,000 is available. The Trustee shall select, in the manner provided
in Section 12.2, for redemption on such sinking fund payment date a sufficient
principal amount of Securities of such series to absorb said cash, as nearly as
may be, and shall (if requested in writing by the Issuer) inform the Issuer of
the serial numbers of the Securities of such series (or potions thereof) so
selected. Securities of any series which are (a) owned by the Issuer

<PAGE> 91

or an entity known by the Trustee to be directly or indirectly controlling or
controlled by or under direct or indirect common control with the Issuer, as
shown by the Security register, and not know to the Trustee to have been pledged
or hypothecated by the Issuer or any such entity or (b) identified in an
Officers' Certificate at least 60 days prior to the sinking fund payment date as
being beneficially owned by, and not pledged or hypothecated by, the Issuer or
an entity directly or indirectly controlling or controlled by or under direct or
indirect common control with the Issuer shall be excluded from Securities of
such series eligible for selection for redemption. The Trustee, in the name and
at the expense of the Issuer (or the Issuer, if it shall so request the Trustee
in writing) shall cause notice of redemption of the Securities of such series to
be given in substantially the manner provided in Section 12.2 (and with the
effect provided in Section 12.3) for the redemption of Securities of such series
in part at the option of the Issuer. The amount of any sinking fund payments not
so applied or allocated to the redemption of Securities of such series shall be
added to the next cash sinking fund payment for such series and, together with
such payment, shall be applied in accordance with the provisions of this
Section. Any and all sinking fund moneys held on the stated maturity date of the
Securities of any particular series (or earlier, if such maturity is
accelerated), which are not held for the payment or redemption of particular
Securities of such series shall be applied, together with other moneys, if
necessary, sufficient for the purpose, to the payment of the principal of, and
interest on, the Securities of such series at maturity.

On each sinking fund payment date, the Issuer shall pay to the Trustee
in cash or shall otherwise provide for the payment of all interest accrued to
the date fixed for redemption on Securities to be redeemed on the next following
sinking fund payment date.

The Trustee shall not redeem or cause to be redeemed any Securities of
a series with sinking fund moneys or provide any notice of redemption of
Securities for such series by operation of the sinking fund during the
continuance of a default in payment of interest on such Securities or of any
Event of Default except that, where the mailing or publication of notice of
redemption of any Securities shall theretofore have been made, the Trustee shall
redeem or cause to be redeemed such Securities, provided that it shall have
received from the Issuer a sum sufficient for such redemption. Except as
aforesaid, any moneys in the sinking fund for such series at the time when any
such default or Event of Default

<PAGE> 92

shall occur, and any moneys thereafter paid into the sinking fund, shall, during
the continuance of such default or Event of Default, be deemed to have been
collected under Article Five and held for the payment of all such Securities. In
case such Event of Default shall have been waived as provided in Section 5.10 or
the default cured on or before the sixtieth day preceding the sinking fund
payment date in any year, such moneys shall thereafter be applied on the next
succeeding sinking fund payment date in accordance with this Section to the
redemption of such Securities.

ARTICLE THIRTEEN

SUBORDINATION; SENIORITY

SECTION 13.1 Securities Subordinated to Senior Indebtedness. The Issuer
agrees, and each Holder of the Securities by his acceptance thereof likewise
agrees, that the payment of the principal of and interest on Securities of any
series issued under this Indenture shall be subordinated and junior in right of
payment, to the extent and in the manner provided in this Article 13 to the
prior payment in full of all Senior Indebtedness whether outstanding on the date
hereof or hereafter created, incurred, assumed or guaranteed.

The Senior Indebtedness of the Issuer shall continue to be Senior
Indebtedness and entitled to the benefits of these subordination provisions
irrespective of any amendment, modification or waiver of any term of any
instrument relating to the Senior Indebtedness or the extension or renewal of
the Senior Indebtedness.

All the provisions of this Indenture and the Securities shall be
subject to the provisions of this Article 13 so far as they may be applicable
thereto, except that nothing in this Article 13 shall apply to claims for, or
payments to, the Trustee under or pursuant to Section 6.6.

SECTION 13.2 Issuer Not to Make Payments with Respect to Securities in
Certain Circumstances. No payment shall be made by the Issuer on account of
principal of or interest on Securities of any series or on account of the
purchase or other acquisition of Securities of any series, if there shall have
occurred and be continuing a default with respect to any Senior Indebtedness
permitting the acceleration thereof or with respect to the payment of any Senior
Indebtedness and (a) such default is the subject of a judicial proceeding or (b)
notice of such default

<PAGE> 93

in writing or by telegram has been given to the Issuer by any holder or holders
of any Senior Indebtedness (provided, however, that in the case of Senior
Indebtedness issued pursuant to an indenture such notice may be validly given
only by the trustee under such indenture), unless and until such default or
event of default shall have been cured or waived or shall have ceased to exist.

Upon any acceleration of the principal of Securities of any series or
any payment by the Issuer, or distribution of assets of the Issuer of any kind
or character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or liquidation or reorganization of the Issuer,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Indebtedness
shall first be paid in full in money or money's worth, or payment thereof
provided for, before any payment is made on account of the principal of or
interest on Securities of any series; and (subject to the power of a court of
competent jurisdiction to make other equitable provision, which shall have been
determined by such court to give effect to the rights conferred in this Article
upon the Senior Indebtedness and the holders thereof with respect to Securities
of any series or the Holders thereof or the Trustee, by a lawful plan of
reorganization or readjustment under applicable law) upon any such dissolution
or winding up or liquidation or reorganization, any payment by the Issuer, or
distribution of assets of the Issuer of any kind or character, whether in cash,
property or securities, to which the Holders of the Securities of any series or
the Trustee would be entitled except for the provisions of this Article, shall
be paid by the Issuer or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution directly to
the holders of Senior Indebtedness or their representative or representatives,
or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior
Indebtedness in full in money or money's worth, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness,
before any payment or distribution is made to the Holders of the Securities of
any series or to the Trustee.

In the event that, notwithstanding the foregoing, any payment by or
distribution of assets of the Issuer of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be

<PAGE> 94

received by the Trustee or the Holders of the Securities of any series before
all Senior Indebtedness is paid in full in money or money's worth, or provision
is made for such payment, and if such fact shall then have been or thereafter be
made known to the Trustee or, as the case may be, such Holder, then and in such
event such payment or distribution shall be paid over or delivered to the
holders of Senior Indebtedness or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, and, until so
delivered, the same shall be held in trust by any Holder of a Security as the
property of the holders of Senior Indebtedness.

The consolidation of the Issuer with, or the merger of the Issuer into,
another corporation or the liquidation or dissolution of the Issuer following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided in
Article Nine shall not be deemed a dissolution, winding up, liquidation or
reorganization for the purposes of this Section if such other corporation shall,
as a part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Article Nine. Nothing in this Section shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 6.6.

The holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Holders of the Securities of any
series, without incurring responsibility to the Holders of the Securities of any
series and without impairing or releasing the obligations of the Holders of the
Securities of any series to the holders of Senior Indebtedness: (i) change the
manner, place or terms of payment or change or extend the time of payment of, or
renew or alter, Senior Indebtedness, or otherwise amend in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Issuer and any other Person.

<PAGE> 95

SECTION 13.3 Subrogation of Securities. Subject to the payment in full
of all amounts then due (whether by acceleration of the maturity thereof or
otherwise) on account of the principal and interest on all Senior Indebtedness
at the time outstanding, the Holders of the Securities shall be subrogated to
the rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Issuer applicable to the
Senior Indebtedness until the principal and interest on the Securities shall be
paid in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities of any series or the Trustee
would be entitled except for the provisions of this Article shall, as between
the Issuer, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities of any series, be deemed to be a payment by the Issuer
to or on account of the Senior Indebtedness. It is understood that the
provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders of the Securities, on the one hand,
and the holders of Senior Indebtedness, on the other hand.

Nothing contained in this Article or elsewhere in this Indenture or in
the Securities of any series is intended to or shall impair, as among the
Issuer, its creditors other than the holders of Senior Indebtedness, and the
Holders of the Securities, the obligation of the Issuer, which is absolute and
unconditional, to pay to the Holders of the Securities the principal of and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders of the Securities of any series and creditors of the
Issuer other than the holders of Senior Indebtedness, nor shall anything herein
or therein prevent the Trustee or the Holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article of the holders of
Senior Indebtedness in respect of cash, property or securities of the Issuer
received upon the exercise of any such remedy.

Upon any payment or distribution of assets of the Issuer referred to in
this Article, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such

<PAGE> 96

dissolution, winding up, liquidation or reorganization proceedings are pending,
or certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the Holders of the Securities, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of Senior
Indebtedness and other indebtedness of the Issuer, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article.

SECTION 13.4 Authorization by Holders of Securities. Each Holder of a
Security of any series by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate, as between the Holder of the Security and the holders of Senior
Indebtedness, the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes.

SECTION 13.5 Notices to Trustee. The Issuer shall give prompt written
notice to the Trustee of any fact known to the Issuer which would prohibit the
making of any payment of moneys to or by the Trustee in respect of the
Securities of any series pursuant to the provisions of this Article.
Notwithstanding the provisions of this Article or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment of moneys to or by the
Trustee in respect of the Securities of any series pursuant to the provisions of
this Article, unless and until the Trustee shall have received at its Corporate
Trust Office written notice thereof from the Issuer or a holder or holders of
Senior Indebtedness or from any trustee therefore; and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Section 6.1,
shall be entitled in all respects to assume that no such facts exist; provided,
however, that if the Trustee shall not have received at least three Business
Days prior to the date upon which by the terms hereof any such moneys may become
payable for any purpose (including, without limitation, the payment of the
principal or interest on any Security of any series) with respect to such moneys
the notice provided for in this Section, then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such moneys and to apply the same to the purpose for which they were
received and shall

<PAGE> 97

not be affected by any notice to the contrary which may be received by it within
three Business Days prior to such date.

The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee on behalf of such holder) to establish that such
notice has been given by a holder of Senior Indebtedness or a trustee on behalf
of any such holder. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.

SECTION 13.6 Trustee's Relation to Senior Indebtedness. The Trustee in
its individual capacity shall be entitled to all the rights set forth in this
Article in respect of any Senior Indebtedness at any time held by it, to the
same extent as any other holder of Senior Indebtedness, and nothing in Section
6.13 or elsewhere in this Indenture shall deprive the Trustee of any of its
rights as such holder.

With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe any such of its covenants and obligations as
are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not owe any fiduciary
duty to the holders of Senior Indebtedness but shall have only such obligations
to such holders as are expressly set forth in this Article.

SECTION 13.7 No Impairment of Subordination. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Issuer or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Issuer with the
terms, provisions and

<PAGE> 98

covenants of this Indenture, regardless of any knowledge thereof which any such
holder may have or otherwise be charged with.

SECTION 13.8 Article 13 Not To Prevent Events of Default. The failure
to make a payment on account of principal or interest on the Securities by
reason of any provision in this Article 13 shall not be construed as preventing
the occurrence of an Event of Default under Section 5.1.

SECTION 13.9 Paying Agents other than the Trustee. In case at any time
any Paying Agent other than the Trustee shall have been appointed by the Issuer
and be then acting hereunder, the term "Trustee" as used in this Article 13
shall in such case (unless the context shall otherwise require) be construed as
extending to and including such Paying Agent within its meaning as fully for all
intents and purposes as if such Paying Agent were named in this Article 13 in
addition to or in place of the Trustee; provided, however, that Sections 13.5
and 13.6 hereof shall not apply to the Issuer or any Subsidiary if it acts as
Paying Agent.

SECTION 13.10 Securities Senior to Subordinated Indebtedness. The
indebtedness represented by the Securities will be senior and prior in right of
payment to the principal and interest on all Subordinated Indebtedness, to the
extent and in the manner provided in such Subordinated Indebtedness.

<PAGE> 99

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of November 15, 1988.

THE PROGRESSIVE CORPORATION
[CORPORATE SEAL]
By
-------------------------------------
Treasurer

Attest:

By
--------------------------------------

RHODE ISLAND HOSPITAL TRUST
NATIONAL BANK

[CORPORATE SEAL]
By
-------------------------------------

Attest:
By
--------------------------------------

<PAGE> 100

STATE OF NEW YORK
COUNTY OF NEW YORK ss.:

On this ____ day of ______ before me personally came Howard M. Zelikow,
to me personally known, who, being by me duly sworn, did depose and say that he
resides at Cleveland, Ohio
; that he is an officer of THE PROGRESSIVE
CORPORATION, one of the corporations described in and which executed the above
instrument; that he knows the corporate seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation, and that he signed his
name thereto by like authority.

-------------------------------------
Notary Public
[NOTARIAL SEAL]

STATE OF NEW YORK
COUNTY OF NEW YORK ss.:

On this day of , before me personally came , to me personally known,
who, being by me duly sworn, did depose and say that he resides at New York, New
York; that he is an of RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, one of the
corporations described in and which executed the above instrument; that he knows
the corporate seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.

-------------------------------------
Notary Public

[NOTARIAL SEAL]

<PAGE> 1
EXHIBIT N0. 4(B)

(FACE OF SECURITY)

REGISTERED REGISTERED
NO. R _________ $____________
CUSIP 743315 AD 5
SEE REVERSE FOR CERTAIN
DEFINITIONS

THE PROGRESSIVE CORPORATION

10-1/8% SUBORDINATED NOTE DUE DECEMBER 15, 2000

THE PROGRESSIVE CORPORATION, an Ohio corporation (the
"Issuer"), for value received, hereby promises to pay to
___________________________________ or registered assigns, at the office or
agency of the Issuer at the office of the Trustee in Providence, Rhode Island,
the principal sum of __________________ Dollars on December 15, 2000, in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts, and to pay interest
semiannually on June 15 and December 15 of each year, commencing June 15, 1989,
on said principal sum at said office or agency, in like coin or currency, at the
rate per annum specified in the title of this Note, from the June 15 or the
December 15, as the case may be, next preceding the date of this Note to which
interest has been paid, unless the date hereof is a date to which interest has
been paid, in which case from the date of this Note, or unless no interest has
been paid on these Notes, in which case from December 15, 1988, until payment of
said principal sum has been made or duly provided for; PROVIDED, that payment of
interest may be made at the option of the Issuer by check mailed to the address
of the person entitled thereto as such address shall appear on the Security
Register. Notwithstanding the foregoing, if the date hereof is after the first
day of June or December, as the case may be, and before the following June 15 or
December 15, this Note shall bear interest from such June 15 or December 15;
PROVIDED, that if the Issuer shall default in the payment of interest due on
such June 15 or December 15, then this Note shall bear interest from the next
preceding June 15 or December 15 to which interest has been paid or, if no
interest has been paid on these Notes, from December 15, 1988. The interest so
payable on any June 15 or December 15 will, subject to certain exceptions
provided in the Indenture referred to on the reverse hereof, be paid to the
person in whose name this Note is registered at the close of business on the
June 1 or December 1, as the case may be, next preceding such June 15 or
December 15.

Reference is made to the further provisions of this Note set
forth on the reverse hereof. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.

This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the Trustee
under the Indenture referred to on the reverse hereof.

IN WITNESS WHEREOF, The Progressive Corporation has caused this
instrument to be signed by facsimile by its duly authorized officers and has
caused a facsimile of its corporate seal to be affixed hereunto or imprinted
hereon.

(CORPORATE SEAL)

THE PROGRESSIVE CORPORATION

Attest:

/s/ David M. Schneider By /s/ Peter B. Lewis
---------------------- -------------------------------------
Secretary President and Chief Executive Officer

Dated:____________

<PAGE> 2

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Securities, of the series designated herein,
referred to in the within-mentioned Indenture.

Rhode Island Hospital Trust
National Bank, as Trustee

By.................................
Authorized Signatory

(BACK OF SECURITY)

THE PROGRESSIVE CORPORATION

10-1/8% SUBORDINATED NOTE DUE DECEMBER 15, 2000

This Note is one of a duly authorized issue of debentures, notes, bonds
or other evidences of indebtedness of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to an indenture dated as of November 15, 1988 (herein called
the "Indenture"), duly executed and delivered by the Issuer to Rhode Island
Hospital Trust National Bank, as Trustee (herein called the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Issuer and the holders of the
Securities. The Securities may be issued in one or more series, which different
series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rates, may be subject
to different redemption provisions (if any), may be subject to different
sinking, purchase or analogous funds (if any) and may otherwise vary as in the
Indenture provided. This Note is one of a series designated as the 10-1/8%
Subordinated Note Due December 15, 2000 of the Issuer, limited in aggregate
principal amount to $150,000,000.

In case an Event of Default with respect to the 10-1/8% Subordinated
Notes Due December 15, 2000, as defined in the Indenture, shall have occurred
and be continuing, the principal hereof may be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.

This Note is subordinated to all existing and future Senior
Indebtedness (as defined in the Indenture) of the Issuer. To the extent and in
the manner provided in the Indenture, Senior Indebtedness must be paid before
any payment may be made to any Holders of Securities of any series. Any
Securityholder by accepting this Note agrees to the subordination and authorizes
the Trustee to give it effect.

In addition to all other rights of Senior Indebtedness described in the
Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness and
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of any instrument relating to the
Senior Indebtedness or extension or renewal of the Senior Indebtedness.

<PAGE> 3

impair or affect the rights of any Holder to institute suit for the payment
thereof, or make any change in the subordination provisions that adversely
affects the rights of any Holder, in each case, without the consent of the
Holder of each Security so affected or (ii) reduce the aforesaid percentage of
Securities, the Holders of which are required to consent to any such
supplemental indenture, without the consent of the Holder of each Security
affected. It is also provided in the Indenture that, with respect to certain
defaults or Events of Default regarding the Securities of any series, prior to
any declaration accelerating the maturity of such Securities, the Holders of a
majority in aggregate principal amount Outstanding of the Securities of such
series (or, in the case of certain defaults or Events of Default, all or certain
series of the Securities) may on behalf of the Holders of all the Securities of
such series (or all or certain series of the Securities, as the case may be)
waive any such past default or Event of Default and its consequences. The
preceding sentence shall not, however, apply to a default in the payment of the
principal of or premium, if any, or interest on any of the Securities. Any such
consent or waiver by the Holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such Holder and upon all future
Holders and owners of this Note and any Note which may be issued in exchange or
substitution herefor, irrespective of whether or not any notation thereof is
made upon this Note or such other Note.

No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note in
the manner, at the respective times, at the rate and in the coin or currency
herein prescribed.

The Notes are issuable in registered form without coupons in
denominations of $1,000 and any integral multiples of $1,000 at the office or
agency of the Issuer at the office of the Trustee in Providence, Rhode Island,
and in the manner and subject to the limitations provided in the Indenture, but
without the payment of any service charge, Notes may be exchanged for a like
aggregate principal amount of Notes of other authorized denominations.

The Notes are not subject to redemption at the option of the Issuer or
through the operation of a sinking fund.

Upon due presentment for registration of transfer of this Note at the
office or agency of the Issuer or at the office of the Trustee in Providence,
Rhode Island, a new Note or Notes of authorized denominations for an equal
aggregate principal amount will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.

The Issuer, the Trustee and any authorized agent of the Issuer or the
Trustee may deem and treat the registered Holder hereof as the absolute owner of
this Note (whether or not this Note shall be overdue and notwithstanding any
notation of ownership or other writing hereon), for the purpose of receiving
payment of, or on account of, the principal hereof and, subject to the
provisions on the face hereof, interest hereon, and for all other purposes, and
neither the Issuer nor the Trustee nor any authorized agent of the Issuer or the
Trustee shall be affected by any notice to the contrary.

No recourse under or upon any obligation, covenant or agreement of the
Issuer in the Indenture or any indenture supplemental thereto or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer or director, as such, of the
Issuer or of any successor corporation, either directly or through the Issuer or
any successor corporation, under any rule of law, statute or constitutional
provision or by the enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly waived and released
by the acceptance hereof and as part of the consideration for the issue hereof.

Terms used herein which are defined in the Indenture shall have the
respective meanings assigned thereto in the Indenture.

<PAGE> 4

------------------------
ABBREVIATIONS

The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
CUST - Custodian
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __(Cust)___Custodian __(Minor)
under Uniform Gifts to Minors Act

---------------------------------
(State)

Additional abbreviations may also be used though not in the above list.

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

FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

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

- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of
assignee

- --------------------------------------------------------------------------------
the within Note and all rights
thereunder, hereby irrevocably constituting and appointing

- --------------------------------------------------------------------------------
attorney to transfer said Note on the books of the
Issuer, with full power of substitution in the premises.

Date:
------------------- -------------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within instrument in
every particular, without alteration or
enlargement or any change whatever.

<PAGE> 1

EXHIBIT NO. 4(C)

================================================================================

THE PROGRESSIVE CORPORATION

AND

THE FIRST NATIONAL BANK OF BOSTON,
Trustee

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

INDENTURE

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

Dated as of November 15, 1988

================================================================================

<PAGE> 2

CROSS REFERENCE SHEET*

Between

Provisions of Trust Indenture Act of 1939 and Indenture to be dated as
of November 15, 1988 between THE PROGRESSIVE CORPORATION and THE FIRST NATIONAL
BANK OF BOSTON, Trustee:

Section of the Act Section of Indenture
- - - - ------------------ --------------------

310(a)(1) and (2) . . . . . . . . . . . . . . . . . 6.9
310(a)(3) and (4) . . . . . . . . . . . . . . . . . Inapplicable
310(b) . . . . . . . . . . . . . . . . . . . . . . 6.8 and 6.10(a), (b)
and (d)
310(c) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
311(a) . . . . . . . . . . . . . . . . . . . . . . 6.13(a) and (c)(1)
and (2)
311(b) . . . . . . . . . . . . . . . . . . . . . . 6.13(b)
311(c) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
312(a) . . . . . . . . . . . . . . . . . . . . . . 4.1 and 4.2(a)
312(b) . . . . . . . . . . . . . . . . . . . . . . 4.2(a) and (b)(i)
and (ii)
312(c) . . . . . . . . . . . . . . . . . . . . . . 4.2(c)
313(a) . . . . . . . . . . . . . . . . . . . . . . 4.4(a)(i), (ii), (iii),
(iv), (v) and (vi)
313(b)(1) . . . . . . . . . . . . . . . . . . . . . Inapplicable
313(b)(2) . . . . . . . . . . . . . . . . . . . . . 4.4
313(c) . . . . . . . . . . . . . . . . . . . . . . 4.4
313(d) . . . . . . . . . . . . . . . . . . . . . . 4.4
314(a) . . . . . . . . . . . . . . . . . . . . . . 4.3
314(b) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(c)(1) and (2) . . . . . . . . . . . . . . . . . 11.5
314(c)(3) . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(d) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(e) . . . . . . . . . . . . . . . . . . . . . . 11.5
314(f) . . . . . . . . . . . . . . . . . . . . . . Inapplicable
315(a), (c) and (d) . . . . . . . . . . . . . . . . 6.1
315(b) . . . . . . . . . . . . . . . . . . . . . . 5.11
315(e) . . . . . . . . . . . . . . . . . . . . . . 5.12
316(a)(1) . . . . . . . . . . . . . . . . . . . . . 5.9
316(a)(2) . . . . . . . . . . . . . . . . . . . . . Not Required
316(a) (last sentence) . . . . . . . . . . . . . . 7.4
316(b) . . . . . . . . . . . . . . . . . . . . . . 5.7
317(a) . . . . . . . . . . . . . . . . . . . . . . 5.2
317(b) . . . . . . . . . . . . . . . . . . . . . . 3.4(a) and (b)
318(a) . . . . . . . . . . . . . . . . . . . . . . 11.7

* This Cross Reference Sheet is not part of the Indenture.

<PAGE> 3

TABLE OF CONTENTS

PAGE
----

PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS:

Authorization of Indenture . . . . . . . . . . . . . . . . . . . . 1
Compliance with Legal Requirements . . . . . . . . . . . . . . . . 1
Purpose of and Consideration for Indenture . . . . . . . . . . . . 1

ARTICLE ONE

DEFINITIONS

SECTION 1.1. Certain Terms Defined . . . . . . . . . . . . . . 1
Authorized Newspaper . . . . . . . . . . . . . . 2
Board of Directors . . . . . . . . . . . . . . . 2
Business Day . . . . . . . . . . . . . . . . . . 2
Commission . . . . . . . . . . . . . . . . . . . 2
Corporate Trust Office . . . . . . . . . . . . . 2
Coupon . . . . . . . . . . . . . . . . . . . . . 2
ECU . . . . . . . . . . . . . . . . . . . . . . . 3
European Communities . . . . . . . . . . . . . . 3
Event of Default . . . . . . . . . . . . . . . . 3
Foreign Currency . . . . . . . . . . . . . . . . 3
Holder, holder of Securities, Securityholder . . 3
Indenture . . . . . . . . . . . . . . . . . . . . 3
Interest . . . . . . . . . . . . . . . . . . . . 3
Issuer . . . . . . . . . . . . . . . . . . . . . 3
Officers' Certificate . . . . . . . . . . . . . . 3
Opinion of Counsel . . . . . . . . . . . . . . . 3
Original Issue date . . . . . . . . . . . . . . . 4
Original Issue Discount Securities . . . . . . . 4
Outstanding . . . . . . . . . . . . . . . . . . . 4
Person . . . . . . . . . . . . . . . . . . . . . 5
principal . . . . . . . . . . . . . . . . . . . . 5
Registered Security . . . . . . . . . . . . . . . 5
Responsible Officer . . . . . . . . . . . . . . . 5
Security or Securities . . . . . . . . . . . . . 5
Trustee . . . . . . . . . . . . . . . . . . . . . 5
Trust Indenture Act of 1939 . . . . . . . . . . . 5
Unregistered Security . . . . . . . . . . . . . . 5

<PAGE> 4

PAGE
----

U.S. Government Obligations . . . . . . . . . . . . . . . . . 5
Vice President . . . . . . . . . . . . . . . . . . . . . . . 5
Yield to Maturity . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE TWO

SECURITIES

SECTION 2.1. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.2. Form of Trustee's Certificate of Authentication . . . . . . . 6
SECTION 2.3. Amount Unlimited; Issuable in Series . . . . . . . . . . . . 7
SECTION 2.4. Authentication and Delivery of Securities . . . . . . . . . . 9
SECTION 2.5. Execution of Securities . . . . . . . . . . . . . . . . . . . 10
SECTION 2.6. Certificate of Authentication . . . . . . . . . . . . . . . . 11
SECTION 2.7. Denomination and Date of Securities; Payments of
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.8. Registration, Transfer and Exchange . . . . . . . . . . . . . 13
SECTION 2.9. Mutilated, Defaced, Destroyed, Lost and Stolen
Securities . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.10. Cancellation of Securities; Destruction Thereof . . . . . . . 17
SECTION 2.11. Temporary Securities . . . . . . . . . . . . . . . . . . . . 17

ARTICLE THREE

COVENANTS OF THE ISSUER

SECTION 3.1. Payment of Principal and Interest . . . . . . . . . . . . . . 18
SECTION 3.2. Offices for Payments, etc. . . . . . . . . . . . . . . . . . 19
SECTION 3.3. Appointment to Fill a Vacancy in the Office of Trustee . . . 20
SECTION 3.4. Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.5. Written Statement to Trustee . . . . . . . . . . . . . . . . 21
SECTION 3.6. Luxembourg Publications . . . . . . . . . . . . . . . . . . . 21

ARTICLE FOUR

SECURITYHOLDERS' LISTS AND REPORTS BY THE
ISSUER AND THE TRUSTEE

SECTION 4.1. Issuer to Furnish Trustee Information as to Names and
Addresses of Securityholders . . . . . . . . . . . . . . . 22
SECTION 4.2. Preservation and Disclosure of Securityholders'
Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.3. Reports by the Issuer . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.4. Reports by the Trustee . . . . . . . . . . . . . . . . . . . 25

<PAGE> 5

iii

ARTICLE FIVE

REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT

PAGE
----

SECTION 5.1. Event of Default Defined; Acceleration of Maturity;
Waiver of Default . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.2. Collection of Indebtedness by Trustee; Trustee May
Prove Debt . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.3. Application of Proceeds . . . . . . . . . . . . . . . . . . . 33
SECTION 5.4. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.5. Restoration of Rights on Abandonment of
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.6. Limitations on Suits by Securityholders . . . . . . . . . . . 35
SECTION 5.7. Unconditional Right of Securityholders to Institute
Certain Suits . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.8. Powers and Remedies Cumulative; Delay or Omission
Not Waiver of Default . . . . . . . . . . . . . . . . . . . 36
SECTION 5.9. Control by Securityholders . . . . . . . . . . . . . . . . . 36
SECTION 5.10. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . 37
SECTION 5.11. Trustee to Give Notice of Default, But May Withhold
in Certain Circumstances . . . . . . . . . . . . . . . . . 38
SECTION 5.12. Right of Court to Require Filing of Undertaking to Pay
Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 38

ARTICLE SIX

CONCERNING THE TRUSTEE

SECTION 6.1. Duties and Responsibilities of the Trustee; During
Default; Prior to Default . . . . . . . . . . . . . . . . . 39
SECTION 6.2. Certain Rights of the Trustee . . . . . . . . . . . . . . . . 40
SECTION 6.3. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof . . . . . . . 42
SECTION 6.4. Trustee and Agents May Hold Securities or Coupons;
Collections, etc. . . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.5. Moneys Held by Trustee . . . . . . . . . . . . . . . . . . . 42
SECTION 6.6. Compensation and Indemnification of Trustee and Its
Prior Claim . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.7. Right of Trustee to Rely on Officers' Certificate,
etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.8. Qualification of Trustee; Conflicting Interests . . . . . . . 44
SECTION 6.9. Persons Eligible for Appointment as Trustee . . . . . . . . . 50

<PAGE> 6

PAGE
----

SECTION 6.10. Resignation and Removal; Appointment of Successor
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.11. Acceptance of Appointment by Successor Trustee . . . . . . 52
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee . . . . . . . . . . . . . . . . . . . 54
SECTION 6.13. Preferential Collection of Claims Against the
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . 54

ARTICLE SEVEN

CONCERNING THE SECURITYHOLDERS

SECTION 7.1. Evidence of Action Taken by Securityholders . . . . . . . . 59
SECTION 7.2. Proof of Execution of Instruments and of Holding of
Securities . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 7.3. Holders to be Treated as Owners . . . . . . . . . . . . . . 60
SECTION 7.4. Securities Owned by Issuer Deemed Not Outstanding . . . . . 61
SECTION 7.5. Right of Revocation of Action Taken . . . . . . . . . . . . 62

ARTICLE EIGHT

SUPPLEMENTAL INDENTURES

SECTION 8.1. Supplemental Indentures Without Consent of Security-
holders . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.2. Supplemental Indentures With Consent of Securityholders . . 64
SECTION 8.3. Effect of Supplemental Indenture . . . . . . . . . . . . . 65
SECTION 8.4. Documents to Be Given to Trustee . . . . . . . . . . . . . 66
SECTION 8.5. Notation on Securities in Respect of Supplemental Indentures 66

ARTICLE NINE

CONSOLIDATION, MERGER, SALE OR CONVEYANCE

SECTION 9.1. Issuer May Consolidate, etc., on Certain Terms . . . . . . 66
SECTION 9.2. Successor Corporation Substituted . . . . . . . . . . . . . 67
SECTION 9.3. Opinion of Counsel to Trustee . . . . . . . . . . . . . . . 68

<PAGE> 7

ARTICLE TEN

SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS

PAGE
----

<S> <C>
SECTION 10.1. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . 68
SECTION 10.2. Application by Trustee of Funds Deposited for Payment of Securities 71
SECTION 10.3. Repayment of Moneys Held by Paying Agent . . . . . . . . . . . . . 71
SECTION 10.4. Return of Moneys Held By Trustee and Paying Agent Unclaimed for
Two Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.5. Indemnity for U.S. Government Obligations . . . . . . . . . . . . . 72

ARTICLE ELEVEN

MISCELLANEOUS PROVISIONS

SECTION 11.1. Incorporators, Shareholders, Officers and Directors of
Issuer Exempt from Individual Liability . . . . . . . . . . . . . 72
SECTION 11.2. Provisions of Indenture for the Sole Benefit of Parties
and Securityholders . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.3. Successors and Assigns of Issuer Bound by Indenture . . . . . . . . 73
SECTION 11.4. Notices and Demands on Issuer, Trustee and Securityholders . . . . 73
SECTION 11.5. Officers' Certificates and Opinions of Counsel; Statements
to Be Contained Therein . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.6. Payments Due on Saturdays, Sundays and Holidays . . . . . . . . . . 75
SECTION 11.7. Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939 . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11.8. New York Law to Govern . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.10. Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.11. Securities in Foreign Currencies or in ECU . . . . . . . . . . . . 76

ARTICLE TWELVE

REDEMPTION OF SECURITIES AND SINKING FUNDS

SECTION 12.1. Applicability of Article . . . . . . . . . . . . . . . . . . . . . 76
SECTION 12.2. Notice of Redemption; Partial Redemptions . . . . . . . . . . . . . 77
SECTION 12.3. Payment of Securities Called for Redemption . . . . . . . . . . . . 78
SECTION 12.4. Exclusion of Certain Securities from Eligibility for
Selection for Redemption . . . . . . . . . . . . . . . . . . . . 79
SECTION 12.5. Mandatory and Optional Sinking Funds . . . . . . . . . . . . . . . 80

</TABLE>

<PAGE> 8

TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

<PAGE> 9

THIS INDENTURE, dated as of November 15, 1988, between THE PROGRESSIVE
CORPORATION, an Ohio corporation (the "Issuer"), and THE FIRST NATIONAL BANK OF
BOSTON, a national banking association (the "Trustee"),

WITNESSETH:

WHEREAS, all things necessary to make this Indenture a valid indenture
and agreement according to its terms have been done;

NOW, THEREFORE:

ARTICLE ONE

DEFINITIONS

SECTION 1.1 Certain Terms Defined. The following terms (except as
otherwise expressly provided or unless the content otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All other terms
used in this Indenture that are defined in the Trust Indenture Act of 1939 or
the definitions of which in the Securities Act of 1933 are referred to in the
Trust Indenture Act of 1939, including terms defined therein by reference to the
Securities Act of 1933 (except as herein otherwise expressly provided or unless
the content otherwise clearly requires), shall have the meanings assigned to
such terms in said Trust Indenture Act and in said Securities Act as in force at
the date of this Indenture. All accounting terms used herein and not expressly
defined shall have the meanings assigned to such terms in accordance with
generally accepted accounting principles, and the term "GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES" means such accounting principles as

<PAGE> 10

are generally accepted at the time of any computation. The words "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision. The terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular.

"Board of Directors" means either the Board of Directors of the Issuer
or any committee of such Board duly authorized to act hereunder.

"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date as of which this
Indenture is dated, located at 100 Federal Street, Boston, Massachusetts 02110,
Attn: Corporate Trust Administration.

"Coupon" means any interest coupon appertaining to a Security.

<PAGE> 11

"ECU" means the European Currency Unit as defined and revised from time
to time by the council of European Communities.

"European Communities" means the European Economic Community (the
"EEC"), the European Coal and Steel Community and Euratom.

"Event of Default" means any event or condition specified as such in
Section 5.1.

"Foreign Currency" means a currency issued by the government of a
country other than the United States.

"Holder," "holder of Securities," "Securityholder" or other similar
terms mean (a) in the case of any Registered Security, the Person in whose name
such Security is registered in the security register kept by the Issuer for that
purpose in accordance with the terms hereof, and (b) in the case of any
Unregistered Security, the bearer of such Security, or any Coupon appertaining
thereto, as the case may be.

"Interest" means, when used with respect to non-interest bearing
Securities, interest payable after maturity.

"Issuer" means (except as otherwise provided in Article Six) THE
PROGRESSIVE CORPORATION, an Ohio corporation, and, subject to Article Nine, its
successors and assigns.

<PAGE> 12

"Original issue date" of any Security (or portion thereof) means the
earlier of (a) the date of such Security or (b) the date of any Security (or
portion thereof) for which such Security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.

"Outstanding" (except as otherwise provided in Section 6.8), when used
with reference to Securities, subject to the provisions of Section 7.4, means,
as of any particular time, all Securities authenticated and delivered by the
Trustee under this Indenture, except

(a) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall have been
deposited in trust with the Trustee or with any paying agent (other
than the Issuer) or shall have been set aside, segregated and held in
trust by the Issuer for the holders of such Securities (if the Issuer
shall act as its own paying agent), provided that if such Securities,
or portions thereof, are to be redeemed prior to the maturity thereof,
notice of such redemption shall have been given as herein provided or
provision satisfactory to the Trustee shall have been made for giving
such notice; and
(c) Securities in substitution for which other Securities shall
have been authenticated and delivered, or which shall have been paid,
pursuant to the terms of Section 2.9 (except with respect to any such
Security as to which proof satisfactory to the Trustee is presented
that such Security is held by a person in whose hands such Security is
a legal, valid and binding obligation of the Issuer).

In determining whether the holders of the requisite principal amount of
Outstanding Securities of any or all series have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, the principal
amount of an Original Issue Discount Security that shall be deemed to be
Outstanding for such purposes shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a declaration
of acceleration of the maturity thereof pursuant to Section 5.1.

<PAGE> 13

"Principal" whenever used with reference to the Securities or any
Security or any portion thereof, shall be deemed to include "and premium, if
any."

"Registered Security" means any Security registered on the Security
Register of the Issuer.

"Responsible Officer" when used with respect to the Trustee means any
officer or assistant officer assigned by the Trustee to administer its corporate
trust matters.

"Trustee" means the Person identified as "Trustee" in the first
paragraph hereof and, subject to the provisions of Article Six, shall also
include any successor trustee.

"Trust Indenture Act of 1939" (except as otherwise provided in Sections
8.1 and 8.2) means the Trust Indenture Act of 1939 as in force at the date as of
which this Indenture was originally executed.

"Unregistered Security" means any Security other than a Registered
Security.

"U.S. Government Obligations" means direct obligations of the United
States of America, backed by its full faith and credit.

"Vice President," when used with respect to the Issuer, means any vice
president, whether or not designated by a number or a word or words added before
or after the title of "vice president".

<PAGE> 14

ARTICLE TWO

SECURITIES

SECTION 2.2 Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication on all Securities shall be in
substantially the following form:

This is one of the Securities, of the series designated herein,
referred to in the within-mentioned Indenture.

TRUSTEE,

as Trustee

By
------------------------------------

Authorized Signatory

<PAGE> 15

SECTION 2.3 Amount Unlimited; Issuable in Series. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited.

(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other Securities);

(3) the date or dates on which the principal of the Securities
of the series is payable or the method by which such date or dates
shall be determined;

(5) the place or places where the principal and any interest
on Securities of the series shall be payable;

<PAGE> 16

(10) any authenticating or paying agents, transfer agents or
registrars or any other agents with respect to the Securities of such
series;

(14) whether the Securities of the series will be issuable as
Registered Securities or Unregistered Securities (with or without
Coupons), or both, any restrictions applicable to the offer, sale or
delivery of Unregistered Securities and, if other than as provided in
Section 2.8, the terms upon which Unregistered Securities and, of any
series may be exchanged for Registered Securities of such series and
vice versa;

<PAGE> 17

(17) any other terms of the series, including provisions for
payment by wire transfers, if any, or modifications of the definition
of Business Day (which terms shall not adversely affect the interests
of the Holders of the Securities).

(1) a copy of any resolution or resolutions of the Board of
Directors by or pursuant to which the form and term of such series

<PAGE> 18

were established in each case certified by the secretary or an
assistant secretary of the Issuer;

(2) an executed supplemental indenture, if any;

(3) an Officers' Certificate setting forth the form and terms
of the Securities and Coupons, if any, as required pursuant to Section
2.3, and prepared in accordance with Section 11.5;

(4) an Opinion of Counsel, prepared in accordance with Section
11.5, which shall state

(a) that the form or forms and terms of such Securities
and Coupons, if any, have been established by or pursuant to a
resolution of the Board of Directors or by a supplemental
indenture as permitted by Section 2.1 and 2.3 in conformity
with the provisions of this Indenture;

(c) that all laws and requirements in respect of the
execution and delivery by the Issuer of the Securities and
Coupons, if any, have been complied with; and

(d) such other matters as the Trustee may reasonably
request.

<PAGE> 19

attested. Such signatures may be the manual or facsimile signatures of the
present or any future such officers. The seal of the Issuer may be in the form
of a facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Securities. Typographical and other minor errors or defects in
any such reproduction of the seal or any such signature shall not affect the
validity or enforceability of any Security or Coupon that has been duly
authenticated and delivered by the Trustee.

<PAGE> 20

<PAGE> 21

of the same series and notice of the payment date therefor shall be given by the
Trustee in the name and at the expense of the Company by publication at least
once in an Authorized Newspaper. In case an Unregistered Security is surrendered
in exchange for a Registered Security after the close of business on any record
date for the payment of defaulted interest and before the opening of business on
the proposed date of payment of such defaulted interest, the Coupon appertaining
to such surrendered Unregistered Security and due for payment on such proposed
date of payment will not be surrendered with such surrendered Unregistered
Security and interest payable on such proposed date of payment will be made only
to the holder of such Coupon on such proposed date.

Unregistered Securities (except for any temporary Unregistered
Securities) and Coupons (except for Coupons attached to any temporary
Unregistered Securities) shall be transferable by delivery.

Any Registered Security or Registered Securities of any series may be
exchanged for a Registered Security or Registered Securities of the same series
in other authorized denominations, in all equal aggregate principal amount.
Registered Securities of any series to be exchanged shall be surrendered at any
office or agency to be maintained by the Issuer

<PAGE> 22

for the purpose as provided in Section 3.2, and the Issuer shall execute and the
Trustee shall authenticate and deliver in exchange therefor the Registered
Security or Registered Securities of the same series which the Securityholder
making the exchange shall be entitled to receive, bearing numbers not
contemporaneously outstanding. If the Securities of any series are issued in
both registered and unregistered form, except as otherwise specified pursuant to
Section 2.3, at the option of the Holder thereof, Unregistered Securities of any
series may be exchanged for Registered Securities of such series, maturity date,
and interest rate of any authorized denominations and of a like aggregate
principal amount, upon surrender of such Unregistered Securities to be exchanged
at the agency of the Issuer that shall be maintained for such purpose in
accordance with Section 3.2, with, in the case of Unregistered Securities that
have Coupons attached, all unmatured Coupons and all matured Coupons in default
thereto appertaining, and upon payment, if the Issuer shall so require, of the
charges hereinafter provided. At the Option of the Holder thereof, if
Unregistered Securities of any series, maturity date, interest rate and original
issue date are issued in more than one authorized denomination, except as
otherwise specified pursuant to Section 2.3, such Unregistered Securities may be
exchanged for Unregistered Securities of such series, maturity date, interest
rate and original issue date of other authorized denominations and of a like
aggregate principal amount, upon surrender of such Unregistered Securities to be
exchanged at the agency of the Issuer that shall be maintained for such purpose
in accordance with Section 3.2 or as specified pursuant to Section 2.3, with, in
the case of Unregistered Securities that have Coupons attached, all unmatured
Coupons and all matured Coupons in default thereto appertaining, and upon
payment, if the Issuer shall so require, of the charges hereinafter provided.
Unless otherwise specified pursuant to Section 2.3, Registered Securities of any
series may not be exchanged for Unregistered Securities of such series. Whenever
any Securities, and the Coupons appertaining thereto, if any, are so surrendered
for exchange, the Issuer shall execute, and the Trustee shall authenticate and
deliver, the Securities, and the Coupons appertaining thereto, if any, which the
Holder making the exchange is entitled to receive. Notwithstanding the
foregoing, if an Unregistered Security of any series is surrendered at any such
office or agency in exchange for a Registered Security of the same series after
the close of business at such office or agency on any record date and before the
opening of business at such office or agency on the applicable interest payment
date, such Unregis-

<PAGE> 23

The Issuer shall not be required to exchange or register a transfer of
(a) any Securities of any series for a period of 15 days next preceding the
first mailing of notice of redemption of Securities of such series to be
redeemed, or (b) any Securities selected, called or being called for redemption
except, in the case of any Security where public notice has been given that such
Security is to be redeemed in part, the portion thereof not so to be redeemed
and except that all Unregistered Security may be exchanged for a Registered
Security of the same series being called for redemption.

<PAGE> 24

Every substitute Security or Coupon of any series issued pursuant to
the provisions of this Section by virtue of the fact that any such

<PAGE> 25

<PAGE> 26

determined by the Issuer with the concurrence of the Trustee. Temporary
Securities may contain such reference to any provisions of this Indenture as may
be appropriate. Every temporary Security shall be executed by the Issuer and be
authenticated by the Trustee upon the same conditions and in substantially the
same manner, and with like effect, as the definitive Securities. Without
unreasonable delay the Issuer shall execute and shall furnish definitive
Securities of such series and thereupon temporary Securities of such series may
be surrendered in exchange therefor without charge at each office or agency to
be maintained by the Issuer for that purpose pursuant to Section 3.2, and in the
case of Unregistered Securities, together with any unmatured Coupons and any
matured Coupons in default appertaining thereto, at any agency maintained by the
Issuer for such purpose as specified pursuant to Section 2.3, and the Trustee
shall authenticate and deliver in exchange for such temporary Securities of such
series a like aggregate principal amount of definitive Securities of the same
series of authorized denominations. Until so exchanged, the temporary Securities
and any unmatured Coupons appertaining thereto of any series shall be entitled
to the same benefits under this Indenture as definitive Securities and any
unmatured Coupons appertaining thereto of such series. The provisions of this
Section are subject to any restrictions or limitations on the issue and delivery
of temporary Unregistered Securities of any series that may be established
pursuant to Section 2.3 (including any provision that Unregistered Securities of
such series initially be issued in the form of a single global Unregistered
Security to be delivered to a depositary or agency of the Issuer located outside
the United States and the procedures pursuant to which definitive Unregistered
Securities of such series would be issued in exchange for such temporary global
Unregistered Security).

ARTICLE THREE

COVENANTS OF THE ISSUER

<PAGE> 27

surrender of the several Coupons for such interest installments as are evidenced
thereby as they severally mature. Except as specified in Section 2.3, the
interest on any temporary Unregistered Securities (together with any additional
amounts payable pursuant to the terms of such Securities) shall be paid, as to
the installments of interest evidenced by Coupons attached thereto, if any, only
upon presentation and surrender thereof and, as to the other installments of
interest, if any, only upon presentation of such Securities for notation thereon
of the payment of such interest. Each installment of interest on the Registered
Securities of any series may be paid by mailing checks for such interest payable
to or upon the written order of the holders of Registered Securities entitled
thereto as they shall appear on the registry books of the Issuer.

<PAGE> 28

(a) that it will hold all sums received by it as such agent for
the payment of the principal of or interest on the Securities of such
series (whether such sums have been paid to it by the Issuer or by any
other obligor on the Securities of such series) in trust for the
benefit of the holders of the Securities of such series or the Coupons
appertaining thereto or of the Trustee, and
(b) that it will give the Trustee notice of any failure by the
Issuer (or by any other obligor on the Securities of such series) to
make any payment of the principal of or interest on the Securities of
such series when the same shall be due and payable.

If the Issuer shall act as its own paying agent with respect to the
Securities or the Coupons appertaining thereto of any series, it will, on

<PAGE> 29

Anything in this Section to the contrary notwithstanding, the agreement
to hold sums in trust as provided in this Section is subject to the provisions
of Sections 10.3 and 10.4.

<PAGE> 30

ARTICLE FOUR

SECURITYHOLDERS' LISTS AND REPORTS BY THE
ISSUER AND THE TRUSTEE

PROVIDED that if and so long as the Trustee shall be the Security registrar for
such series and all of the Securities of such series are Registered Securities,
such list shall not be required to be furnished. The Trustee shall, at the
request of the Issuer, provide such list to the Issuer for so long as the
Trustee shall be the Security registrar.

(b) In case three or more holders of Securities (hereinafter referred
to as "applicants") apply in writing to the Trustee and furnish to the Trustee
reasonable proof that each such applicant has owned a Security for a period of
at least six months preceding the date of such application, and such application
states that the applicants desire to communicate with other holders of
Securities of a particular series (in which case the applicants must all hold
Securities of such series) or with Holders of all

<PAGE> 31

Securities with respect to their rights under this Indenture or under such
Securities and such application is accompanied by a copy of the form of proxy or
other communication which such applicants propose to transmit, then the Trustee
shall, within five Business Days after the receipt of such application, at its
election, either

(i) afford to such applicants access to the information
preserved at the time by the Trustee in accordance with the provisions
of subsection (a) of this Section, or

(ii) inform such applicants as to the approximate number of
holders of Securities of such series or all Securities, as the case may
be, whose names and addresses appear in the information preserved at
the time by the Trustee, in accordance with the provisions of
subsection (a) of this Section, and as to the approximate cost of
mailing to such Securityholders the form of proxy or other
communication, if any, specified in such application.

<PAGE> 32

be relieved of any obligation or duty to such applicants respecting their
application.

(c) Each and every holder of Securities and Coupons, by receiving and
holding the same, agrees with the Issuer and the Trustee that neither the Issuer
nor the Trustee nor any agent of the Issuer or the Trustee shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the holders of Securities in accordance with the provisions of
subsection (b) of this Section, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under such subsection
(b).

SECTION 4.3 Reports by the Issuer. The Issuer covenants:

(a) to file with the Trustee, within 15 days after the Issuer
is required to file the same with the Commission, copies of the annual
reports and of the information, documents, any other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Issuer may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, of if the Issuer
is not required to file information, documents, or reports pursuant to
either of such Sections, then to file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
information, documents, and reports which may be required pursuant to
Section 13 of the Securities Exchange Act of 1934, or in respect of a
security listed and registered on a national securities exchange as may
be prescribed from time to time in such rules and regulations;

(c) to transmit by mail to the holders of Securities, within 30
days after the filing thereof with the Trustee, such summaries of any
information, documents and reports required to be filed by the Issuer
pursuant to subsections (a) and (b) of this Section as may be required

<PAGE> 33

to be transmitted to such Holders by rules and regulations prescribed
from time to time by the Commission.

(i) its eligibility under Section 6.9 and its qualification
under Section 6.8, or in lieu thereof, if to the best of its knowledge
it has continued to be eligible and qualified under such Sections, a
written statement to such effect;

(ii) the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) which remain unpaid on the date
of such report and for the reimbursement of which it claims or may
claim a lien or charge, prior to that of the Securities of any series,
on any property or funds held or collected by it as Trustee, except
that the Trustee shall not be required (but may elect) to report such
advances if such advances so remaining unpaid aggregate not more than
1/2 of 1% of the principal amount of the securities of any series
Outstanding on the date of such report;

(iii) the amount, interest rate, and maturity date of all other
indebtedness owing by the Issuer (or by any other obligor on the
Securities) to the Trustee in its individual capacity on the date of
such report, with a brief description of any property held as
collateral security therefor, except any indebtedness based upon a
creditor relationship arising in any manner described in Section
6.13(b)(2), (3), (4) or (6);

(iv) the property and funds, if any, physically in the
possession of the Trustee (as such) on the date of such report;

(v) any additional issue of Securities which the Trustee has
not previously reported; and

(vi) any action taken by the Trustee in the performance of its
duties under this Indenture which it has not previously reported and
which in its opinion materially affects the Securities, except action
in respect of a default, notice of which has been or is to be withheld
by it in accordance with the provisions of Section 5.11.

<PAGE> 34

(b) The Trustee shall transmit to the Securityholders of each series,
as provided in subsection (c) of this Section, a brief report with respect to
the character and amount of any advances (and if the Trustee elects so to state,
the circumstances surrounding the making thereof) made by the Trustee, as such,
since the date of the last report transmitted pursuant to the provisions of
subsection (a) of this Section (or if no such report has yet been so
transmitted, since the date of this Indenture) for the reimbursement of which it
claims or may claim a lien or charge prior to that of the Securities of such
series on property or funds held or collected by it as Trustee and which it has
not previously reported pursuant to this subsection (b), except that the Trustee
shall not be required (but may elect) to report such advances if such advances
remaining unpaid at any time aggregate 10% or less of the principal amount of
Securities of such series outstanding at such time, such report to be
transmitted within 90 days after such time.

(i) to all registered Holders of Securities, as the names and
addresses of such Holders appear upon the registry books of the
Issuer;

(ii) to such other Holders of Securities as have, within two
years preceding such transmission, filed their names and addresses with
the Trustee for that purpose; and

(iii) except in the case of reports pursuant to subsection (b),
to each Holder of a Security whose name and address are preserved at
the time by the Trustee as provided in Section 4.2(a).

(d) A copy of each such report shall, at the time of such transmission
to Securityholders, be furnished to the Issuer and be filed by the Trustee with
each stock exchange upon which the Securities of any applicable series are
listed and also with the Commission. The Issuer agrees to notify the Trustee
with respect to any series when and as the Securities of such series become
admitted to trading on any national securities exchange.

<PAGE> 35

ARTICLE FIVE

REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT

SECTION 5.1 Event of Default Defined; Acceleration of Maturity; Waiver
of Default. "Event of Default" with respect to Securities of any series wherever
used herein, means each one of the following events which shall have occurred
and be continuing (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):

(c) default in the payment of any sinking fund installment as
and when the same shall become due and payable by the terms of the
Securities of such series; or

(e) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Issuer in an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or similar official) of
the

<PAGE> 36

<PAGE> 37

The foregoing provisions, however, are subject to the condition that
if, at any time after the principal (or, if the Securities are Original Issue
Discount Securities, such portion of the principal as may be specified in the
terms thereof) of the Securities of any series (or of all the Securities, as the
case may be) shall have been so declared due and payable, and before any
judgment or decree for the payment of the moneys due shall have been obtained or
entered as hereinafter provided, the Issuer shall pay or shall deposit with the
Trustee a sum sufficient to pay all matured installments of interest upon all
the Securities of such series (or of all the Securities, as the case may be) and
the principal of any and all Securities of such series (or of all the
Securities, as the case may be) which shall have become due otherwise than by
acceleration (with interest upon such principal and, to the extent that payment
of such interest is enforceable under applicable law, on overdue installments of
interest, at the same rate as the rate of interest or Yield to Maturity (in the
case of Original Issue Discount Securities) specified in the Securities of such
series (or at the respective rates of interest or Yields to Maturity of all the
Securities, as the case may be, to the date of such payment or deposit) and such
amount as shall be sufficient to cover reasonable compensation to the Trustee,
its agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee except as a result of negligence
or bad faith, and all other amounts due to the Trustee or any predecessor
Trustee pursuant to Section 6.6, and if any and all Events of Default under the
Indenture, other than the non-payment of the principal of Securities which shall
have become due by acceleration, shall have been cured, waived or otherwise
remedied as provided herein -- then and in every such case the holders of a
majority in aggregate principal amount of all the Securities of such series,
each series voting as a separate class (or of all the Securities, as the case
may be, voting as a single class) then outstanding, by written notice to the
Issuer and to the Trustee, may waive all defaults with respect to such series
(or with respect to all the

<PAGE> 38

SECTION 5.2 Collection of Indebtedness by Trustee, Trustee May Prove
Debt. The Issuer covenants that (a) in case default shall be made in the payment
of any installment of interest on any of the Securities of any series when such
interest shall have become due and payable, and such default shall have
continued for a period of 30 days or (b) in case default shall be made in the
payment of all or any part of the principal of any of the Securities of any
series when the same shall have become due and payable, whether upon maturity of
the Securities of such series or upon any redemption or by declaration or
otherwise -- then upon demand of the Trustee, the Issuer will pay to the Trustee
for the benefit of the Holders of the Securities of such series the whole amount
that then shall have become due and payable on all Securities of such series,
and Coupons appertaining thereto, for principal or interest, as the case may be
(with interest to the date of such payment upon the overdue principal and, to
the extent that payment of such interest is enforceable under applicable law, on
overdue installments of interest at the same rate as the rate of interest or
Yield to Maturity (in the case of Original Issue Discount Securities) specified
in the Securities of such series); and in addition thereto, such further amount
as shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to the Trustee and each predecessor Trustee, their
respective agents, attorneys and counsel, and any expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of its negligence or bad faith, and all other amounts due to
the Trustee or any predecessor Trustee pursuant to Section 6.6.

<PAGE> 39

<PAGE> 40

All rights of action and of asserting claims under this Indenture, or
under any of the Securities, or Coupons appertaining thereto, may be enforced by
the Trustee without the possession of any of the Securities, or Coupons
appertaining thereto, or the production thereof on any trial or other
proceedings relative thereto, and any such action or proceedings

<PAGE> 41

SECOND: In case the principal of the Securities of such series
in respect of which moneys have been collected shall not have become
and be then due and payable, to the payment of interest on the
Securities of such series in default in the order of the maturity of
the installments of such interest, with interest (to the extent that
such interest has been collected by the Trustee) upon the overdue
installments of interest at the same rate as the rate of interest or
Yield

<PAGE> 42

to Maturity (in the case of Original Issue Discount Securities)
specified in such Securities, such payments to be made ratably to the
persons entitled thereto, without discrimination or preference;

THIRD: In case the principal of the Securities of such series
in respect of which moneys have been collected shall have become and
shall be then due and payable, to the payment of the whole amount then
owing and unpaid upon all the Securities of such series for principal
and interest, with interest upon the overdue principal, and (to the
extent that such interest has been collected by the Trustee) upon
overdue installments of interest at the same rate as the rate of
interest or Yield to Maturity (in the case of Original Issue Discount
Securities) specified in the Securities of such series; and in case
such moneys shall be insufficient to pay in full the whole amount so
due and unpaid upon the Securities of such series, then to the payment
of such principal and interest or yield to maturity, without preference
or priority of principal over interest or yield to maturity, or of
interest or yield to maturity over principal, or of any installment of
interest over any other installment of interest, or of any Security of
such series over any other Security of such series, ratably to the
aggregate of such principal and accrued and unpaid interest or yield to
maturity; and

FOURTH: To the payment of the remainder, if any, to the Issuer
or any other person lawfully entitled thereto.

SECTION 5.5 Restoration of Rights on Abandonment of Proceedings. In
case the Trustee shall have proceeded to enforce any right under this Indenture
and such proceedings shall have been discontinued

<PAGE> 43

SECTION 5.6 Limitations on Suits by Securityholders. No holder of any
Security of any series or of any Coupon appertaining thereto shall have any
right by virtue or by availing of any provision of this Indenture to institute
any action or proceeding at law or in equity or in bankruptcy or otherwise upon
or under or with respect to this Indenture, or for the appointment of a trustee,
receiver, liquidator, custodian or other similar official or for any other
remedy hereunder, unless such holder previously shall have given to the Trustee
written notice of default and in of the continuance thereof, as hereinbefore
provided, and unless also the holders of not less than 25% in aggregate
principal amount of the Securities of such series then Outstanding shall have
made written request upon the Trustee to institute such action or proceedings in
its own name as trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby and the Trustee for 60 days after
its receipt of such notice, request and offer of indemnity shall have failed to
institute any such action or proceeding and no direction inconsistent with such
written request shall have been given to the Trustee pursuant to Section 5.9; it
being understood and intended, and being expressly covenanted by the taker and
Holder of every Security or Coupon with every other taker and Holder and the
Trustee, that no one or more Holders of Securities of any series or of any
Coupon appertaining thereto shall have any right in any manner whatever by
virtue or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of any other such Holder of Securities or Coupons, or to
obtain or seek to obtain priority over or preference to any other such Holder or
to enforce any right under this Indenture, except in the manner herein provided
and for the equal, ratable and common benefit of all Holders of Securities of
the applicable series or of any Coupon appertaining thereto. For the protection
and enforcement of the provisions of this Section, each and every Securityholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.

<PAGE> 44

SECTION 5.7 Unconditional Right of Securityholders to Institute Certain
Suits. Notwithstanding any other provision in this Indenture and any provision
of any Security, the right of any holder of any Security or Coupon to receive
payment of the principal of an interest on such Security or Coupon on or after
the respective due dates expressed in such Security or Coupon, or in any Coupon
appertaining thereto, or to institute suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.

SECTION 5.9 Control by Securityholders. The Holders of a majority in
aggregate principal amount of the Securities of each series affected (with each
series voting as a separate class) at the time Outstanding shall have the right
to direct the time, method, and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee with respect to the Securities of such series by this Indenture;
PROVIDED that such direction shall not be otherwise than in accordance with law
and the provisions of this Indenture and PROVIDED FURTHER that (subject to the
provisions of Section 6.1) the Trustee shall have the right to decline to follow
any such direction if the Trustee, being advised by counsel, shall determine
that the action or proceeding so directed may not lawfully be

<PAGE> 45

SECTION 5.10 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Securities of any series as provided in
Section 5.1, the Holders of a majority in aggregate principal amount of the
Securities of such series at the time Outstanding may on behalf of the Holders
of all the Securities of such series waive any past default or Event of Default
described in clause (d) of Section 5.1 (or, in the case of an event specified in
clause (d) of Section 5.1 which relates to less than all series of Securities
then Outstanding, the Holders of a majority in aggregate principal amount of the
Securities then Outstanding affected thereby (each series voting as a separate
class) may waive any such default or Event of Default, or, in the case of all
event specified in clause (d) (if the Event of Default under clause (d) relates
to all series of Securities then Outstanding), (e) or (f) of Section 5.1 the
Holders of Securities of a majority in principal amount of all the Securities
then Outstanding (voting as one class) may waive any such default or Event of
Default), and its consequences except a default in respect of a covenant or
provision hereof which cannot be modified or amended without the consent of the
Holder of each Security affected. In the case of any such waiver, the Issuer,
the Trustee and the Holders of the Securities of such series shall be restored
to their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other default or impair any right consequent
thereon.

Upon any such waiver, such default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of

<PAGE> 46

SECTION 5.11 Trustee to Give Notice of Default, But May Withhold in
Certain Circumstances. The Trustee shall, within 90 days after the occurrence of
a default known to the Trustee with respect to the Securities of any series,
provide notice to the Holders of Securities of such series and Coupons
appertaining thereto, if any, (i) if any Unregistered Securities of that series
are then Outstanding, to the Holders thereof, by publication at least once in an
Authorized Newspaper in London (and, if required by Section 3.6, at least once
in an Authorized Newspaper in Luxembourg), (ii) if any Unregistered Securities
of that series are then Outstanding, to all Holders thereof who have filed their
names and addresses with the Trustee pursuant to Section 4.4(c)(ii), by mailing
such notice to such Holders at such addresses and (iii) to all Holders of then
Outstanding Registered Securities of that series, by mailing such notice to such
Holders at their addresses as they shall appear in the registry books, unless
such defaults shall have been cured before the giving of such notice (the term
"default" or "defaults" for the purposes of this Section being hereby defined to
mean any event or condition which is, or with notice or lapse of time or both
would become, an Event of Default); PROVIDED that, except in the case of default
in the payment of the principal of or interest on any of the Securities of such
series, the Trustee shall be protected in withholding such notice if and so long
as the board of directors, the executive committee, or a trust committee of
directors or trustees and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interests of the
Securityholders of such series.

<PAGE> 47

ARTICLE SIX

CONCERNING THE TRUSTEE

No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own wilful misconduct, except that

(i) the duties and obligations of the Trustee with
respect to the Securities of any series shall be determined
solely by the

<PAGE> 48

SECTION 6.2 Certain Rights of the Trustee. Subject to Section 6.1:

<PAGE> 49

other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;

(f) prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default, the Trustee
shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or document unless
requested in writing so to do by the holders of not less than a
majority in aggregate principal amount of the Securities of all series
affected then Outstanding; provided that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in
the opinion of the Trustee, not reasonably assured to the Trustee by
the security afforded to it by the terms of this Indenture, the Trustee
may require reasonable indemnity against such expenses or liabilities
as a

<PAGE> 50

(h) the Trustee shall not be deemed to have knowledge or notice
of any default or Event of Default unless a Responsible Officer has
actual knowledge thereof or unless the holders of not less than 25% of
the aggregate principal amount of the then Outstanding Securities of
any affected series have notified the Trustee thereof.

SECTION 6.5 Moneys Held by Trustee. Subject to the provisions of
Section 10.4 hereof, all moneys received by the Trustee shall until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except

<PAGE> 51

to the extent required by mandatory provisions of law. Neither the Trustee nor
any agent of the Issuer or the Trustee shall be under any liability for interest
on any moneys received by it hereunder.

SECTION 6.6 Compensation and Indemnification of Trustee and Its Prior
Claim. The Issuer covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) and the Issuer covenants and agrees to pay or reimburse the
Trustee and each predecessor Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by or on behalf of it in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all agents and other persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence or bad faith.
The Issuer also covenants to indemnify the Trustee and each predecessor Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of this Indenture or the trusts hereunder
and its duties hereunder, including the costs and expenses of defending itself
against or investigating any claim of liability in the premises. The obligations
of the Issuer under this Section to compensate and indemnify the Trustee and
each predecessor Trustee and to pay or reimburse the Trustee and each
predecessor Trustee for expenses, disbursements and advances shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. Such additional indebtedness shall be a senior
claim to that of the Securities and Coupons upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the benefit of
the holders of particular Securities or Coupons, and the Securities and Coupons
are hereby subordinated to such senior claim.

SECTION 6.7 Right of Trustee to Rely on Officers' Certificate, etc.
Subject to Sections 6.1 and 6.2, whenever in the administration of the trusts of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed

<PAGE> 52

(b) In the event that the Trustee shall fail to comply with the
provisions of subsection (a) of this Section, the Trustee shall, within 10 days
after the expiration of such 90 day period, provide notice of such failure to
the Securityholders in the manner and to the extent required by Section 4.4(c).

(c) For the purposes of this Section, the Trustee shall be deemed to
have a conflicting interest with respect to Securities of any series if

(i) the Trustee is trustee under this Indenture with respect to
the Outstanding Securities of any other series or is a trustee under
another indenture under which any other securities, or certificates of
interest or participation in any other securities, of the Issuer are
outstanding, unless such other indenture is a collateral trust
indenture under which the only collateral consists of Securities issued
under this Indenture and this Indenture with respect to the Securities
of any other series and there shall also be so excluded any other
indenture or indentures under which other securities, or certificates
of interest or participation in other securities, of the Issuer are
outstanding and this Indenture with respect to the Securities of any
other series (i) this Indenture is and, if applicable, this Indenture
and any series issued pursuant to this Indenture and such other
indenture or indentures are wholly unsecured, and such other indenture
or indentures are hereafter qualified under the Trust Indenture Act of
1939, unless the Commission shall have found and declared by order
pursuant to Section 305(b) or Section, 307(c) of such Trust Indenture
Act of 1939 that differences exist between the provisions of this
Indenture with respect to Securities of such series and one or more
other series, or the provisions of this Indenture and the provisions of
such other indenture or indentures which are so likely to involve a
material conflict of interest as to make it necessary

<PAGE> 53

in the public interest or for the protection of investors to disqualify
the Trustee from acting as such under this Indenture with respect to
Securities of such series and such other series, or under this
Indenture or such other indenture or indentures, or (ii) the Issuer
shall have sustained the burden of proving, on application to the
Commission and after opportunity for hearing thereon, that trusteeship
under this Indenture with respect to Securities of such series and such
other series, or under this Indenture and such other indenture or
indentures is not so likely to involve a material conflict of interest
as to make it necessary in the public interest or for the protection of
investors to disqualify the Trustee from acting as such under this
Indenture with respect to Securities of such series and such other
series, or under this Indenture and such other indentures;

(ii) the Trustee or any of its directors or executive officers
is an obligor upon the Securities of any series issued under this
Indenture or an underwriter for the Issuer;

(iii) the Trustee directly or indirectly controls or is
directly or indirectly controlled by or is under direct or indirect
common control with the Issuer or an underwriter for the Issuer;

(iv) the Trustee or any of its directors or executive officers
is a director, officer, partner, employee, appointee, or representative
of the Issuer, or of an underwriter (other than the Trustee itself) for
the Issuer who is currently engaged in the business of underwriting,
except that (x) one individual may be a director or an executive
officer, or both, of the Trustee and a director or an executive
officer, or both, of the Issuer, but may not be at the same time an
executive officer of both the Trustee and the Issuer; (y) if and so
long as the number of directors of the Trustee in office is more than
nine, one additional individual may be a director or an executive
officer, or both, of the Trustee and a director of the Issuer; and (z)
the Trustee may be designated by the Issuer or by any underwriter for
the Issuer to act in the capacity of transfer agent, registrar,
custodian, paying agent, fiscal agent, escrow agent, or depositary, or
in any other similar capacity, or, subject to the provisions of
subsection (c)(i) of this Section, to act as trustee, whether under all
indenture or otherwise;

(v) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Issuer or by any director, partner or
executive officer thereof, or 20% or more of such voting securities

<PAGE> 54

is beneficially owned, collectively, by any two or more of such
persons; or 10% or more of the voting securities of the Trustee is
beneficially owned either by an underwriter for the Issuer or by any
director, partner, or executive officer thereof, or is beneficially
owned, collectively, by any two or more such persons;

(vi) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default, (x) 5% or
more of the voting securities or 10% or more of any other class of
security of the Issuer, not including the Securities issued under this
Indenture and securities issued under any other indenture under which
the Trustee is also trustee, or (y) 10% or more of any class of
security of an underwriter for the Issuer;

(vii) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default, 5%. or more
of the voting securities of any person who, to the knowledge of the
Trustee, owns 10% or more of the voting securities of, or controls
directly or indirectly or is under direct or indirect common control
with, the Issuer;

(viii) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default, 10% or more
of any class of security of any person who, to the knowledge of the
Trustee, owns 50% or more of the voting securities of the Issuer; or

(ix) the Trustee owns on May 15 in any calendar year, in the
capacity of executor, administrator, testamentary or INTER VIVOS
trustee, guardian, committee or conservator, or in any other similar
capacity, an aggregate of 25% or more of the voting securities, or of
any class of security, of any person, the beneficial ownership of a
specified percentage of which would have constituted a conflicting
interest under Section 6.8(c)(vi), (vii) or (viii). As to any such
securities of which the Trustee acquired ownership through becoming
executor, administrator, or testamentary trustee of an estate which
included them, the provisions of the preceding sentence shall not
apply, for a period of two years from the date of such acquisition, to
the extent that such securities included in such estate do not exceed
25% of such voting securities or 25% of any such class of security.
Promptly after May 15 in each calendar year, the Trustee shall make a
check of its holdings of such securities in any of the above-mentioned
capacities as of such May 15. If the Issuer

<PAGE> 55

fails to make payment in full of principal of or interest on any of the
Securities when and as the same becomes due and payable, and such
failure continues for 30 days thereafter, the Trustee shall make a
prompt check of its holdings of such securities in any of the
above-mentioned capacities as of the date of the expiration of such
30-day period, and after such date, notwithstanding the foregoing
provisions of this paragraph, all such securities so held by the
Trustee, with sole or joint control over such securities vested in it,
shall, but only so long as such failure shall continue, be considered
as though beneficially owned by the Trustee for the purposes of
subsections (c)(vi), (vii) and (viii) of this Section.

For the purposes of subsections (c)(vi), (vii), (viii) and (ix), of
this Section, only,

(ii) an obligation shall be deemed to be in default when a
default in payment of principal shall have continued for 30 days or
more and shall not have been cured; and

Except as provided above, the word "security" or 'securities' as used
in this Section shall mean any note, stock, treasury stock, bond,

<PAGE> 56

(d) For purposes of this Section:

(ii) the term "director" shall mean any director of a
corporation or any individual performing similar functions with respect
to any organization whether incorporated or unincorporated;

<PAGE> 57

(v) the term "Issuer" shall mean any obligor upon the
Securities; and

(e) The percentages of voting securities and other securities specified
in this Section shall be calculated in accordance with the following provisions:

(ii) a specified percentage of a class of securities of a
person means such percentage of the aggregate amount of securities of
the class outstanding;

(iv) the term "outstanding" means issued and not held by or for
the account of the issuer; the following securities shall not be deemed
outstanding within the meaning of this definition:

(A) securities of an issuer held in a sinking fund
relating to securities of the issuer of the same class;

<PAGE> 58

(C) securities pledged by the issuer thereof as
security for an obligation of the issuer not in default as to
principal or interest or otherwise; and

(D) securities held in escrow if placed in escrow by
the issuer thereof;

PROVIDED, that any voting securities of an issuer shall be deemed outstanding if
any person other than the issuer is entitled to exercise the voting rights
thereof; and

(v) a security shall be deemed to be of the same class as
another security if both securities confer upon the holder or holders
thereof substantially the same rights and privileges; PROVIDED, that,
in the case of secured evidences of indebtedness, all of which are
issued under a single indenture, differences in the interest rates or
maturity dates of various series thereof shall not be deemed sufficient
to constitute such series different classes and PROVIDED, FURTHER,
that, in the case of unsecured evidences of indebtedness, differences
in the interest rates or maturity dates thereof shall not be deemed
sufficient to constitute them securities of different classes, whether
or not they are issued under a single indenture.

SECTION 6.9 Persons Eligible for Appointment as Trustee. The Trustee
for each series of Securities hereunder shall at all times be a corporation
organized and doing business under the laws of the United States of America or
of any State or the District of Columbia having a combined capital and surplus
of at least $50,000,000, and which is authorized under such laws to exercise
corporate trust powers and is subject to supervision or examination by Federal,
State or District of Columbia authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition, so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 6.10.

<PAGE> 59

SECTION 6.10 Resignation and Removal; Appointment of Successor Trustee.
(a) The Trustee, or any trustee or trustees hereafter appointed, may at any time
resign with respect to one or more or all series of Securities bygiving written
notice of resignation to the Issuer. Upon receiving such notice of resignation,
the Issuershall promptly appoint a successor trustee or trustees with respect to
the applicable series by written instrument in duplicate, executed by authority
of the Board of Directors, one copy of which instrument shall be delivered to
the resigning Trustee and one copy to the successor trustee or trustees. If no
successor trustee shall have been so appointed with respect to any series and
have accepted appointment within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any Securityholder
who has been a bona fide Holder of a Security or Securities of the applicable
series for at least six months may, subject to the provisions of Section 5.12,
on behalf of himself and all others similarly situated, petition any such court
for the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.

(b) In case at any time any of the following shall occur:

(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 6.9 and shall fail to resign after written
request therefor by the Issuer or by any Securityholder; or

<PAGE> 60

(d) Any resignation or removal of the Trustee with respect to any
series and any appointment of a successor trustee with respect to such series
pursuant to any of the provisions of this Section 6.10 shall become effective
upon acceptance of appointment by the successor trustee as provided in Section
6.11.

SECTION 6.11 Acceptance of Appointment by Successor Trustee. Any
successor trustee appointed as provided in Section 6.10 shall execute and
deliver to the Issuer and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee with respect to all or any applicable series shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all rights, powers, duties and obligations
with respect to such series of its predecessor hereunder, with like effect as if
originally named as trustee for such series hereunder; but, nevertheless, on the
written request of the Issuer or of the successor trustee, upon payment of its
charges then unpaid, the trustee ceasing to act shall, subject to Section 10.4,
pay over to the successor trustee all moneys at the time held by it hereunder
and shall execute and deliver all instrument transferring to such successor
trustee all such rights, powers, duties and obligations. Upon request of any
such successor trustee, the Issuer shall execute any and all instruments in
writing for more fully and certainly vesting in and

<PAGE> 61

Upon acceptance of appointment by any successor trustee as provided in
this Section 6.11, the Issuer shall mail notice thereof (a) if any Unregistered
Securities of a series affected are then Outstanding, to the Holders thereof, by
publication of such notice at least once in an Authorized Newspaper in London
(and, if required by Section 3.8, at least once in an Authorized Newspaper in
Luxembourg), (b) if any Unregistered Securities of a series affected are then
Outstanding, to the Holders thereof who have filed their names and addresses
with the Trustee pursuant to Section 4.4(c)(ii), by mailing such notice to such
holders at such addresses as were so furnished to the Trustee (and the Trustee
shall make such information available to the Issuer for such purpose) and (c) to
the Holders of Registered Securities of each series affected, by first-class
mail to such Holders of Securities of any series for which such successor
trustee is acting as trustee at their last addresses as they shall appear in the
Security register. If the Issuer fails to mail such notice within ten days after
acceptance of appointment by the successor trustee,

<PAGE> 62

the successor trustee shall cause such notice to be mailed at the expense of
the Issuer.

SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee. Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided that such
corporation shall be qualified under the provisions of Section 6.8 and eligible
under the provisions of Section 6.9, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.

In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities of any series shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor Trustee and deliver
such Securities so authenticated; and, in case at that time any of the
Securities of any series shall not have been authenticated, any successor to the
Trustee may authenticate such Securities either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificate shall have the full force which it is anywhere in the Securities of
such series or in this Indenture provided that the certificate of the Trustee
shall have; PROVIDED, that the right to adopt the certificate of authentication
of any predecessor Trustee or to authenticate Securities of any series in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion or consolidation.

(1) an amount equal to any and all reductions in the amount
due and owing upon any claim as such creditor in respect of principal
or

<PAGE> 63

interest, effected after the beginning of such four months' period and
valid as against the Issuer and its other creditors, except any such
reduction resulting from the receipt or disposition of any property
described in subsection (a)(2) of this Section, or from the exercise of
any right of set-off which the Trustee could have exercised if a
petition in bankruptcy had been filed by or against the Issuer upon the
date of such default; and

(2) all property received by the Trustee in respect of any
claim as such creditor, either as security therefor, or in satisfaction
or composition thereof, or otherwise, after the beginning of such four
months' period, or an amount equal to the proceeds of any such
property, if disposed of, subject, however, to the rights, if any, of
the Issuer and its other creditors in such property or such proceeds.

Nothing herein contained, however, shall affect the right of the
Trustee:

(B) to realize, for its own account, upon any property held by
it as security for any such claim, if such property was so held prior
to the beginning of such four months' period;

(D) to receive payment on any claim referred to in paragraph
(B) or (C), against the release of any property held as security for
such claim as provided in such paragraph (B) or (C), as the case may
be, to the extent of the fair value of such property.

<PAGE> 64

For the purposes of paragraphs (B), (C) and (D), property substituted
after the beginning of such four months' period for property held as security at
the time of such substitution shall, to the extent of the fair value of the
property released, have the same status as the property released, and, to the
extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.

If the Trustee shall be required to account, the funds and property
held in such special account and the proceeds thereof shall be apportioned
between the Trustee, the Securityholders and the Holders of other indenture
securities in such manner that the Trustee, such Securityholders and the holders
of other indenture securities realize, as a result of payments from such special
account and payments of dividends on claims filed against the Issuer in
bankruptcy or receivership or in proceedings for reorganization pursuant to
Title 11 of the United States Code or applicable State law, the same percentage
of their respective claims, figured before crediting to the claim of the Trustee
anything on account of the receipt by it from the Issuer of the funds and
property in such special account and before crediting to the respective claims
of the Trustee, such Securityholders and the holders of other indenture
securities dividends on claims filed against the Issuer in bankruptcy or
receivership or in proceedings for reorganization pursuant to Title 11 of the
United States Code or applicable State law, but after crediting thereon receipts
on account of the indebtedness represented by their respective claims from all
sources other than from such dividends and from the funds and property so held
in such special account. As used in this paragraph, with respect to any claim,
the term "dividends" shall include any distribution with respect to such claim,
in bankruptcy or receivership or in proceedings for reorganization pursuant to
Title 11 of the United States Code or applicable State law, whether such
distribution is made in cash, securities or other property, but shall not
include any such distribution with respect to the secured portion, if any, of
such claim. The court in which such bankruptcy, receivership or proceeding for
reorganization is pending shall have jurisdiction (i) to apportion between the
Trustee, such Securityholders and the holders of other indenture securities, in
accordance with the provisions of this paragraph, the funds and property held in
such special account and the proceeds thereof, or (ii) in lieu of such
apportionment, in whole or in part, to give to the

<PAGE> 65

provisions of this paragraph due consideration in determining the fairness of
the distributions to be made to the Trustee, such Securityholders and the
holders of other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.

(ii) such receipt of property or reduction of claim occurred
within four months after such resignation or removal.

(b) There shall be excluded from the operation of this Section a
creditor relationship arising from

(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year
or more at the time of acquisition by the Trustee;

<PAGE> 66

(6) the acquisition, ownership, acceptance or negotiation of
any drafts, bills of exchange, acceptances or obligations which fall
within the classification of self-liquidating paper as defined in
subsection (c)(4) of this Section.

<PAGE> 67

(5) the term "Issuer" shall mean any obligor upon the
Securities.

ARTICLE SEVEN

CONCERNING THE SECURITYHOLDERS

SECTION 7.2 Proof of Execution of lnstruments and of Holding of
Securities. Subject to Sections 6.1 and 6.2, the execution of any instrument by
a Securityholder or his agent or proxy may be proved in the following manner:

<PAGE> 68

<PAGE> 69

Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Holder of any Unregistered Security and the Holder of any Coupon as the absolute
owner of such Unregistered Security or Coupon (whether or not such Unregistered
Security or Coupon shall be overdue) for the purpose of receiving payment
thereof or on account thereof and for all other purposes and neither the Issuer,
the Trustee, nor any agent of the Issuer or the Trustee shall be affected by any
notice to the contrary. All such payments so made to any such person, or upon
his order, shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for moneys payable upon any
such Security or Coupon.

SECTION 7.4 Securities Owned by Issuer Deemed Not Outstanding. In
determining whether the Holders of the requisite aggregate principal amount of
Outstanding Securities of any or all series have concurred in any direction,
consent or waiver under this Indenture, Securities which are owned by the Issuer
or any other obligor on the Securities with respect to which such determination
is being made or by any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Issuer or any other
obligor on the Securities with respect to which such determination is being made
shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination, except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver
only Securities which the Trustee knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the Securities or any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer or any other obligor on the Securities. In case
of a dispute as to such right, the advice of counsel shall be full protection in
respect of any decision made by the Trustee in accordance with such advice. Upon
request of the Trustee, the Issuer shall furnish to the Trustee promptly a
written statement by two of its officers (which need not comply with Section
11.5) listing and identifying all Securities, if any, known by the Issuer to be
owned or held by or for the account of any of the above-described persons; and,
subject to Sections 6.1 and 6.2, the Trustee shall be entitled to accept such
Officers' Certificate as conclusive evidence of the facts therein set

<PAGE> 70

forth and of the fact that all Securities not listed therein are Outstanding for
the purpose of any such determination.

SECTION 7.5 Right of Revocation of Action Taken. At any time prior to
(but not after) the evidencing to the Trustee, as provided in Section 7.1, of
the taking of any action by the Holders of the percentage in aggregate principal
amount of the Securities of any or all series, as the case may be, specified in
this Indenture in connection with such action, any Holder of a Security the
serial number of which is shown by the evidence to be included among the serial
numbers of the Securities the Holders of which have consented to such action
may, by filing written notice at the Corporate Trust Office and upon proof of
holding as provided in this Article, revoke such action so far as concerns such
Security. Except as aforesaid any such action taken by the Holder of any
Security shall be conclusive and binding upon such Holder and upon all future
Holders and owners of such Security and of any Securities issued in exchange or
substitution therefor, irrespective of whether or not any notation in regard
thereto is made upon any such Security. Any action taken by the Holders of the
percentage in aggregate principal amount of the Securities of any or all series,
as the case may be, specified in this Indenture in connection with such action
shall be conclusively binding upon the Issuer, the Trustee and the Holders of
all the Securities affected by such action.

ARTICLE EIGHT

SUPPLEMENTAL INDENTURES

(a) to convey, transfer, assign, mortgage or pledge to the
Trustee as security for the Securities of one or more series any
property or assets;

<PAGE> 71

(c) to add to the covenants of the Issuer such further
covenants, restrictions, conditions or provisions as its Board of
Directors and the Trustee shall consider to be for the protection of
the Holders of Securities or Coupons, and to make the occurrence, or
the occurrence and continuance, of a default in any such additional
covenants, restrictions, conditions or provisions an Event of Default
permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; PROVIDED, that in
respect of any such additional covenant, restriction, condition or
provision such supplemental indenture may provide for a particular
period of grace after default (which period may be shorter or longer
than that allowed in the case of other defaults) or may provide for an
immediate enforcement upon such an Event of Default or may limit the
remedies available to the Trustee upon such an Event of Default or may
limit the right of the Holders of a majority in aggregate principal
amount of the Outstanding Securities of such series to waive such an
Event of Default;

The Trustee is hereby authorized to join with the Issuer in the
execution of any such supplemental indenture, to make any further

<PAGE> 72

SECTION 8.2 Supplemental Indentures With Consent of Securityholders.
With the consent (evidenced as provided in Article Seven) of the Holders of not
less than 66 2/3% in aggregate principal amount of the Securities at the time
Outstanding of all series affected by such supplemental indenture (voting as one
class), the Issuer, when authorized by a resolution of its Board of Directors,
and the Trustee may, from time to time and at any time, enter into an indenture
or indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act of 1939 as in force at the date of execution thereof) for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Securities of each such
series or the coupons appertaining to such Securities; provided, that no such
supplemental indenture shall (a) extend the final maturity of any Security, or
reduce the principal amount thereof or the method in which amounts of payments
of principal or interest thereon are determined, or reduce the rate or extend
the time of payment of interest thereon, or change the coin, or currency or
units based on or related to currencies (including ECU) of payment thereof, or
reduce any amount payable on redemption thereof or reduce the amount of the
principal of an Original Issue Discount Security that would be due and payable
upon an acceleration of the maturity thereof pursuant to Section 5.1 or the
amount thereof provable in bankruptcy pursuant to Section 5.2, or impair or
affect the right of any Securityholder to institute suit for the payment thereof
or, if the Securities provide therefor, any right of repayment at the option of
the Securityholder without the consent of the Holder of each Security so
affected, or (b) reduce the aforesaid percentage of Securities of any series,
the consent of the Holders of which is required for any such supplemental
indenture, without the consent of the Holders of each Security so affected.

<PAGE> 73

Upon the request of the Issuer, accompanied by a copy of a resolution
of the Board of Directors certified by the secretary or an assistant secretary
of the Issuer authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Securityholders
as aforesaid and other documents, if any, required by Section 7.1, the Trustee
shall join with the Issuer in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such supplemental
indenture.

Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Issuer
shall mail a notice thereof (i) by first class mail to the Holders of then
Outstanding Registered Securities of each series affected thereby at their
addresses as they shall appear on the registry books of the Issuer, (ii) if any
Unregistered Securities of a series affected thereby are then Outstanding, to
the Holders thereof who have filed their names and addresses with the Trustee
pursuant to section 4.4(c)(ii), by mailing a notice thereof by first class mail
to such Holders at such addresses as were so furnished to the Trustee and (iii)
if any Unregistered Securities of a series affected thereby are then
Outstanding, to all holders thereof, by publication of a notice thereof at least
once in an Authorized ~newspaper in London (and, if required by Section 3.6, at
least once in an Authorized Newspaper in Luxembourg), and in each case such
notice shall set forth in general terms the substance of such supplemental
indenture. Any failure of the Issuer to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.

<PAGE> 74

SECTION 8.4 Documents to Be Given to Trustee. The Trustee, subject to
the provisions of Sections 6.1 and 6.2, may receive an Officers' Certificate and
an Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant to this Article 8 complies with the applicable provisions of
this Indenture.

ARTICLE NINE

CONSOLIDATION, MERGER, SALE OR CONVEYANCE

SECTION 9.1 Issuer May Consolidate, etc., on Certain Terms. The Issuer
covenants that it will not merge or consolidate with any other corporation or
sell or convey all or substantially all of its assets to any Person, unless (i)
either the Issuer shall be the continuing corporation, or the successor
corporation or the Person which acquires by sale or conveyance substantially all
the assets of the Issuer (if other than the Issuer) shall be a corporation
organized under the laws of the United States of America or any State thereof
and shall expressly assume the due and punctual payment of the principal of and
interest on all the Securities and Coupons, according to their tenor, and the
due and

<PAGE> 75

punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed or observed by the Issuer, by supplemental
indenture satisfactory to the Trustee, executed and delivered to the Trustee by
such corporation, and (ii) the Issuer or such successor corporation, as the case
may be, shall not, immediately after such merger or consolidation, or such sale
or conveyance, be in default in the performance of any such covenant or
condition.

SECTION 9.2 Successor Corporation Substituted. In case of any such
consolidation, merger, sale or conveyance, and following such an assumption by
the successor corporation, such successor corporation shall succeed to and be
substituted for the Issuer, with the same effect as if it had been named herein.
Such successor corporation may cause to be signed, and may issue either in its
own name or in the name of the Issuer prior to such succession any or all of the
Securities issuable hereunder, together with any Coupons appertaining thereto,
which theretofore shall not have been signed by the Issuer and delivered to the
Trustee; and, upon the order of such successor corporation instead of the Issuer
and subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee shall authenticate and shall deliver any Securities,
together with any Coupons appertaining thereto, which previously shall have been
signed and delivered by the officers of the Issuer to the Trustee for
authentication, and any Securities, together with any Coupons appertaining
thereto, which such successor corporation thereafter shall cause to be signed
and delivered to the Trustee for that purpose. All of the Securities, together
with any Coupons appertaining thereto, so issued shall in all respects have the
same legal rank and benefit under this Indenture as the Securities, together
with any Coupons appertaining thereto, theretofore or thereafter issued in
accordance with the terms of this Indenture as though all of such Securities and
Coupons had been issued at the date of the execution hereof.

<PAGE> 76

SECTION 9.3 Opinion of Counsel to Trustee. The Trustee, subject to the
provisions of Sections 6.1 and 6.2, may receive an Opinion of Counsel, prepared
in accordance with Section 11.5, as conclusive evidence that any such
consolidation, merger, sale, lease or conveyance, and any such assumption, and
any such liquidation or dissolution, complies with the applicable provisions of
this Indenture.

ARTICLE TEN

SATISFACTION AND DISCHARGE OR INDENTURE;
UNCLAIMED MONEYS.

<PAGE> 77

replaced or paid as provided in Section 2.9) not theretofore delivered to the
Trustee for cancellation, including principal and interest due or to become due
to such date of maturity as the case may be, and if, in any such case, the
Issuer shall also pay or cause to be paid all other sums payable hereunder by
the Issuer with respect to Securities of such series and Coupons appertaining
thereto, then this Indenture shall cease to be of further effect with respect to
Securities of such series and Coupons appertaining thereto (except as to (i)
rights of registration of transfer and exchange, and the Issuer's right of
optional redemption, (ii) substitution of mutilated, defaced, destroyed, lost or
stolen Securities or Coupons, (iii) rights of holders of Securities and Coupons
appertaining thereto to receive payments of principal thereof and interest
thereon, upon the original stated due dates therefor (but not upon acceleration)
and remaining rights of the holders to receive mandatory sinking fund payments,
if any, (iv) the rights, obligations, duties and immunities of the Trustee
hereunder, including those under Section 6.6, (v) the rights of the
Securityholders of such series as beneficiaries hereof with respect to the
property so deposited with the Trustee payable to all or any of them, and (vi)
the obligations of the Issuer under Section 3.2) and the Trustee, on demand of
the Issuer accompanied by an Officers' Certificate and an Opinion of Counsel and
at the cost and expense of the Issuer, shall execute proper instruments
acknowledging such satisfaction of and discharging this Indenture with respect
to such series; PROVIDED, that the rights of Holders of the Securities and
Coupons to receive amounts in respect of principal of and interest on the
Securities and Coupons held by them shall not be delayed longer than required by
then-applicable mandatory rules or policies of any securities exchange upon
which the Securities are listed. The Issuer agrees to reimburse the Trustee for
any costs or expenses thereafter reasonably and properly incurred and to
compensate the Trustee for any services thereafter reasonably and properly
rendered by the Trustee in connection with this Indenture or the Securities and
Coupons of such series.

<PAGE> 78

deposit referred to in subparagraph (a) below, and the provisions of this
Indenture with respect to the Securities of such series and Coupons appertaining
thereto shall no longer be in effect (except as to (i) rights of registration of
transfer and exchange of Securities of such series, and of Coupons appertaining
thereto, (ii) substitution of apparently mutilated, defaced, destroyed, lost or
stolen Securities or Coupons, (iii) rights of holders of Securities and Coupons
appertaining thereto to receive, from the trust fund described in subparagraph
(a) below, payments of principal thereof and interest thereon, upon the original
stated due dates therefor (but not upon acceleration) and remaining rights of
the holders to receive sinking fund payments, if any, (iv) the rights,
obligation, duties and immunities of the Trustee hereunder, including those
under Section 6.6, (v) the rights of the holders of Securities of such series
and Coupons appertaining thereto as beneficiaries hereof with respect to the
property so deposited with the Trustee payable to all or any of them and (vi)
the obligations of the Issuer under Section 3.2) and the Trustee, at the expense
of the Issuer, shall at the Issuer's request, execute proper instruments
acknowledging the same, if

(a) with reference to this provision the Issuer has irrevocably
deposited or caused to be irrevocably deposited with the Trustee as
trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of the Securities of
such series and Coupons appertaining thereto (i) cash, or (ii) U.S.
Government Obligations, maturing as to principal and interest at such
times and in such amounts as will insure the availability of cash or
(iii) a combination thereof, in an amount sufficient, in the opinion of
a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee,
to pay (A) the principal and interest on all Securities of such series
and Coupons appertaining thereto on the date that such principal or
interest is due and payable and (B) any mandatory sinking fund payments
on the day on which such payments are due and payable in accordance
with the terms of the Indenture and the Securities of such series;

(b) such deposit will not result in a breach or violation of,
or constitute a default under, any agreement or instrument to which the
Issuer is a party or by which it is bound;

(c) the Issuer has delivered to the Trustee an opinion of
independent legal counsel satisfactory to the Trustee to the effect

<PAGE> 79

SECTION 10.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction, and discharge of this Indenture with respect to
Securities of any series, all moneys then held by any paying agent under the
provisions of this Indenture with respect to such series of Securities shall,
upon demand of the Issuer, be repaid to it or paid to the Trustee and thereupon
such paying agent shall be released from all further liability with respect to
such moneys.

<PAGE> 80

otherwise required by mandatory provisions of applicable escheat or abandoned or
unclaimed property laws, thereafter look only to the Issuer for any payment
which such Holder may be entitled to collect, and all liability of the Trustee
or any paying agent with respect to such moneys shall thereupon cease; provided,
the Trustee or such paying agent, before being required to make any such
repayment with respect to moneys deposited with it for any payment (a) in
respect of Registered Securities of any series, may at the expense of the
Issuer, mail by first class mail to Holders of such Securities at their
addresses as they shall appear on the Security register, and (b) in respect of
Unregistered Securities of any series, may at the expense of the Issuer cause to
be published once, in an Authorized Newspaper in London (and if required by
Section 3.6, once in an Authorized Newspaper in Luxembourg), notice, that such
moneys remain and that, after a date specified therein, which shall not be less
than thirty days from the date of such mailing or publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer.

ARTICLE ELEVEN

MISCELLANEOUS PROVISIONS

<PAGE> 81

SECTION 11.3 Successors and Assigns of Issuer Bound by Indenture. All
the covenants, stipulations, promises and agreements in this Indenture contained
by or in behalf of the Issuer shall bind its successors and assigns, whether so
expressed or not.

Where this Indenture provides for notice to Holders. such notice shall
be sufficiently given (unless otherwise herein expressly provided) (i) in the
case of Holders of Registered Securities and Holders of Unregistered Securities
who have filed their names and addresses with the Trustee pursuant to Section
4.4(c)(ii), if in writing and mailed, first-class postage prepaid, to each
holder entitled thereto, at his last address as it appears in the registry books
or as so filed; and (ii) in the case of holders of Unregistered Securities who
have not filed their names and addresses with the Trustee, by publication in
accordance with the requirements of the provision hereof requiring such notice.
Any notice which is mailed in the manner herein provided shall be conclusively
presumed to have been duly given when mailed, whether or not the Holder receives
the notice. In any case

<PAGE> 82

<PAGE> 83

Any certificate or opinion of any independent firm of public
accountants filed with the Trustee shall contain a statement that such firm is
independent.

<PAGE> 84

this Indenture which is required to be included herein by any of Sections 310 to
317, inclusive, of the Trust Indenture Act of 1939, such required provision
shall control.

SECTION 11.10 Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.

ARTICLE TWELVE

REDEMPTION or SECURITIES AND SINKING FUNDS

<PAGE> 85

SECTION 12.2 Notice of Redemption; Partial Redemptions. Notice of
redemption to the Holders of Registered Securities of any series to be redeemed
as a whole or in part at the option of the Issuer shall be given by mailing
notice of such redemption by first class mail, postage prepaid, at least 30 days
and not more than 60 days prior to the date fixed for redemption to such Holders
of Securities of such series at their last addresses as they shall appear upon
the registry books. Notice of redemption to the Holders of Unregistered
Securities to be redeemed as a whole or in part, who have filed their names and
addresses with the Trustee pursuant to Section 4.4(c)(ii), shall be given by
mailing notice of such redemption, by first class mail, postage prepaid, at
least thirty and not more than sixty days prior to the date fixed for
redemption, to such Holders at such addresses as were so furnished to the
Trustee (and, in the case of any such notice given by the Issuer, the Trustee
shall make such information available to the Issuer for such purpose). Notice of
redemption to all other holders of Unregistered Securities shall be published in
an Authorized Newspaper in London (and, if required by Section 3.6, in an
Authorized Newspaper in Luxembourg), in each case, once in each of two
successive calendar weeks, the first publication to be not less than thirty nor
more than sixty days prior to the date fixed for redemption. Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the Holder receives the notice. Failure to give
notice by mail, or any defect in the notice to the Holder of any Security of a
series designated for redemption as a whole or in part shall not affect the
validity of the proceedings for the redemption of any other Security of such
series.

<PAGE> 86

such Security, a new Security or Securities of such series in principal amount
equal to the unredeemed portion thereof will be issued.

<PAGE> 87

<PAGE> 88

<PAGE> 89

If the sinking fund payment or payments (mandatory or optional or both)
to be made in cash on the next succeeding sinking fund payment date plus any
unused balance of any preceding sinking fund payments made in cash shall exceed
$50,000 (or a lesser sum if the Issuer shall so request) with respect to the
Securities of any particular series, such cash shall be applied on the next
succeeding sinking fund payment date to the redemption of Securities of such
series at the sinking fund redemption price together with accrued interest to
the date fixed for redemption. If such amount shall be $50,000 or less and the
Issuer makes no such request then it shall be carried over until a sum in excess
of $50,000 is available. The Trustee shall select, in the manner provided in
Section 12.2, for redemption on such sinking fund payment date a sufficient
principal amount of Securities of such series to absorb said cash, as nearly as
may be, and shall (if requested in writing by the Issuer) inform the Issuer of
the serial numbers of the Securities of such series (or portions thereof) so
selected. Securities of any series which are (a) owned by the Issuer

<PAGE> 90

or an entity known by the Trustee to be directly or indirectly controlling or
controlled by or under direct or indirect common control with the Issuer, as
shown by the Security register, and not know to the Trustee to have been pledged
or hypothecated by the Issuer or any such entity or (b) identified in an
Officers' Certificate at least 60 days prior to the sinking fund payment date as
being beneficially owned by, and not pledged or hypothecated by, the Issuer or
an entity directly or indirectly controlling or controlled by or under direct or
indirect common control with the Issuer shall be excluded from Securities of
such series eligible for selection for redemption. The Trustee, in the name and
at the expense of the Issuer (or the Issuer, if it shall so request the Trustee
in writing) shall cause notice of redemption of the Securities of such series to
be given in substantially the manner provided in Section 12.2 (and with the
effect provided in Section 12.3) for the redemption of Securities of such series
in part at the option of the issuer. The amount of any sinking fund payments not
so applied or allocated to the redemption of Securities of such series shall be
added to the next cash sinking fund payment for such series and, together with
such payment, shall be applied in accordance with the provisions of this
Section. Any and all sinking fund moneys held on the stated maturity date of the
Securities of any particular series (or earlier, if such maturity is
accelerated), which are not held for the payment or redemption of particular
Securities of such series shall be applied, together with other moneys, if
necessary, sufficient for the purpose, to the payment of the principal of, and
interest on, the Securities of such series at maturity.

<PAGE> 91

<PAGE> 92

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of November 15, 1988.

THE PROGRESSIVE CORPORATION
[CORPORATE SEAL]

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

Attest:

By
--------------------------------------------------------

THE FIRST NATIONAL BANK
OF BOSTON

[CORPORATE SEAL]

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

Attest:

By
--------------------------------------------------------

<PAGE> 93

STATE OF NEW YORK
COUNTY OF NEW YORK SS.:

On this _______ day of_______________, before me personally came HOWARD
M. ZELIKOW, to me personally known, who, being by me duly sworn, did depose and
say that he resides at Cleveland, Ohio
that he is an officer of THE PROGRESSIVE CORPORATION,
one of the corporations described in and which executed the above instrument;
that he knows the corporate seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by authority of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.

- --------------------------------------------------------------
Notary Public
[NOTARIAL SEAL]

STATE OF NEW YORK
COUNTY OF NEW YORK SS.:

On this _____ day of_______________, before me personally came
to me personally known, who, being by
me duly sworn,, did depose and say that he resides at New York, New York; that
he is an of THE FIRST NATIONAL BANK OF BOSTON, one of the corporations described
in and which executed the above instrument; that he knows the corporate seal of
said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.

- --------------------------------------------------------------
Notary Public

[NOTARIAL SEAL]

<PAGE> 1
EXHIBIT NO. 4(D)

(FACE OF SECURITY)

REGISTERED REGISTERED
NO. R_______ $__________
CUSIP 743315 AC 7
SEE REVERSE FOR CERTAIN
DEFINITIONS

THE PROGRESSIVE CORPORATION

10% NOTE DUE DECEMBER 15, 2000

THE PROGRESSIVE CORPORATION, an Ohio corporation (the
"Issuer"), for value received, hereby promises to pay to
___________________________________ or registered assigns, at the office or
agency of the Issuer at the office of the Trustee in Boston, Massachusetts, the
principal sum of __________________ Dollars on December 15, 2000, in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest
semiannually on June 15 and December 15 of each year, commencing June 15, 1989,
on said principal sum at said office or agency, in like coin or currency at the
rate per annum specified in the title of this Note, from the June 15 or the
December 15, as the case may be, next preceding the date of this Note to which
interest has been paid, unless the date hereof is a date to which interest has
been paid, in which case from the date of this Note, or unless no interest has
been paid on these Notes, in which case from December 15, 1988, until payment of
said principal sum has been made or duly provided for; PROVIDED that payment of
interest may be made at the option of the Issuer by check mailed to the address
of the person entitled thereto as such address shall appear on the Security
Register. Notwithstanding the foregoing, if the date hereof is after the first
day of June or December, as the case may be, and before the following June 15 or
December 15, this Note shall bear interest from such June 15 or December 15;
PROVIDED, that if the Issuer shall default in the payment of interest due on
such June 15 or December 15, then this Note shall bear interest from the next
preceding June 15 or December 15 to which interest has been paid or, if no
interest has been paid on these Notes, from December 15, 1988. The interest so
payable on any June 15 or December 15 will, subject to certain exceptions
provided in the Indenture referred to on the reverse hereof, be paid to the
person in whose name this Note is registered at the close of business on the
June 1 or December 1, as the case may be, next preceding such June 15 or
December 15.

Reference is made to the further provisions of this Note set
forth on the reverse hereof. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.

This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been signed by
the Trustee under the Indenture referred to on the reverse hereof.

IN WITNESS WHEREOF, The Progressive Corporation has caused this
instrument to be signed by facsimile by its duly authorized officers, and has
caused a facsimile of its corporate seal to be affixed hereunto or imprinted
hereon.

(CORPORATE SEAL)

Attest: THE PROGRESSIVE CORPORATION

/s/ David M. Schneider By /s/ Peter B. Lewis
- - - - ---------------------- --------------------------------
Secretary President and Chief Executive
Officer

Dated:_____________

<PAGE> 2

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Securities, of the series designated herein,
referred to in the within-mentioned Indenture.

The First National Bank of Boston, as Trustee

By_________________________________
Authorized Signatory

(BACK OF SECURITY)

THE PROGRESSIVE CORPORATION

10% NOTE DUE DECEMBER 15, 2000

This Note is one of a duly authorized issue of debentures,
notes, bonds or other evidences of indebtedness of the Issuer (hereinafter
called the "Securities") of the series hereinafter specified, all issued or to
be issued under and pursuant to an indenture dated as of November 15, 1988
(herein called the "Indenture"), duly executed and delivered by the Issuer to
The First National Bank of Boston, as Trustee (herein called the "Trustee"), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Issuer and the holders of the
Securities. The Securities may be issued in one or more series, which different
series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rates, may be subject
to different redemption provisions (if any), may be subject to different
sinking, purchase or analogous funds (if any) and may otherwise vary as in the
Indenture provided. This Note is one of a series designated as the 10% Notes Due
December 15, 2000 of the Issuer, limited in aggregate principal amount to
$150,000,000.

In case an Event of Default with respect to the 10% Notes Due
December 15, 2000, as defined in the Indenture, shall have occurred and be
continuing, the principal hereof may be declared, and upon such declaration
shall become, due and payable, in the manner, with the effect and subject to the
conditions provided in the Indenture.

The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the Holders of not less than 66-2/3% in aggregate
principal amount of the Securities at the time Outstanding (as defined in the
Indenture) of all series to be affected (voting as one class), evidenced as in
the Indenture provided, to execute supplemental indentures adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Indenture or of any supplemental indenture or modifying in any manner the rights
of the Holders of the Securities of each such series; PROVIDED, HOWEVER, that no
such supplemental indenture shall (i) extend the final maturity of any Security,
or reduce the principal amount thereof or any premium thereon, or reduce the
rate or extend the time of payment of any interest thereon, or impair or affect
the rights of any Holder to institute suit for the payment thereof, without the
consent of the Holder of each Security so affected or (ii) reduce the aforesaid
percentage of Securities, the Holders of which are required to consent to any
such supplemental indenture, without the consent of the Holder of each Security
affected. It is also provided in the Indenture that, with respect to certain
defaults or Events of Default regarding the Securities of any series, prior to
any declaration accelerating the maturity of such Securities, the Holders of a
majority in aggregate principal amount Outstanding of the Securities of such

<PAGE> 3

series (or, in the case of certain defaults or Events of Default, all or certain
series of the Securities) may on behalf of the Holders of all the Securities of
such series (or all or certain series of the Securities, as the case may be)
waive any such past default or Event of Default and its consequences. The
preceding sentence shall not, however, apply to a default in the payment of the
principal of or premium, if any, or interest on any of the Securities. Any such
consent or waiver by the Holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such Holder and upon all future
Holders and owners of this Note and any Note which may be issued in exchange or
substitution herefor, irrespective of whether or not any notation thereof is
made upon this Note or such other Note.

No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and interest on
this Note in the manner, at the respective times, at the rate and in the coin or
currency herein prescribed.

The Notes are issuable in registered form without coupons in
denominations of $1,000 and any integral multiples of $1,000 at the office or
agency of the Issuer at the office of the Trustee in Boston, Massachusetts, and
in the manner and subject to the limitations provided in the Indenture, but
without the payment of any service charge, Notes may be exchanged for a like
aggregate principal amount of Notes of other authorized denominations.

The Notes are not subject to redemption at the option of the
Issuer or through the operation of a sinking fund.

Upon due presentment for registration of transfer of this Note
at the office or agency of the Issuer at the office of the Trustee in Boston,
Massachusetts, a new Note or Notes of authorized denominations for an equal
aggregate principal amount will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.

The Issuer, the Trustee and any authorized agent of the Issuer
or the Trustee may deem and treat the registered Holder hereof as the absolute
owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon), for the
purpose of receiving payment of, or on account of, the principal hereof and,
subject to the provisions on the face hereof, interest hereon, and for all other
purposes, and neither the Issuer nor the Trustee nor any authorized agent of the
Issuer or the Trustee shall be affected by notice to the contrary.

No recourse under or upon any obligation, covenant or agreement
of the Issuer in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, shareholder, officer or director, as such, of
the Issuer or of any successor corporation, either directly or through the
Issuer or any successor corporation, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance hereof and as part of the consideration for the
issue hereof.

Terms used herein which are defined in the Indenture shall have
the respective meanings assigned thereto in the Indenture.

------------------------
ABBREVIATIONS

The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

<PAGE> 4

-----------------------------------
(State)

Additional abbreviations may also be used though not in the above list.

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

FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

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

------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of
assignee

------------------------------------------------------------------------------
the within Note and all rights
thereunder, hereby irrevocably constituting and appointing

------------------------------------------------------------------------------
attorney to transfer said Note on the
books of the Issuer, with full power of substitution in the premises.

Date:
------------------- ---------------------------------------------
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the within instrument in every
particular, without alteration or enlargement
or any change whatever.

<PAGE> 1
EXHIBIT NO. 4(H)

(Face of Security)

REGISTERED REGISTERED

No. R________ $___________
CUSIP 743315 AG 8
SEE REVERSE FOR CERTAIN
DEFINITIONS

THE PROGRESSIVE CORPORATION

6.60% NOTE DUE 2004

THE PROGRESSIVE CORPORATION, an Ohio corporation (the "Issuer"), for value
received, hereby promises to pay to ____________________________________ or
registered assigns, at the office or agency of the Issuer at the office of the
Trustee in Canton, Massachusetts, the principal sum of __________________
dollars on January 15, 2004, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest semiannually on January 15 and
July 15 of each year, commencing on July 15, 1994, on said principal sum at said
office or agency, in like coin or currency, at the rate per annum specified in
the title of this Note, from the January 15 or the July 15, as the case may be,
next preceding the date of this Note to which interest has been paid, unless the
date hereof is a date to which interest has been paid, in which case from the
date of this Note, or unless no interest has been paid on the Notes, in which
case from January 12, 1994, until payment of said principal sum has been made or
duly provided for; PROVIDED, that payment of interest may be made at the option
of the Issuer by check mailed to the address of the person entitled thereto as
such address shall appear on the Security Register. Notwithstanding the
foregoing, if the date hereof is after the first day of January or July, as the
case may be, and before the following January 15 or July 15, this Note shall
bear interest from such January 15 or July 15; PROVIDED, that if the Issuer
shall default in the payment of interest due on such January 15 or July 15, then
this Note shall bear interest from the next preceding January 15 or July 15 to
which interest has been paid or, if no interest has been paid on this Note, from
January 12, 1994. The interest so payable on any January 15 or July 15 will,
subject to certain exceptions provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note is registered at
the close of business on the January 1 or July 1, as the case may be, next
preceding such January 15 or July 15.

Reference is made to the further provisions of this Note set forth on
the reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.

This Note shall not be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have been signed by the Trustee under
the Indenture referred to on the reverse hereof.

IN WITNESS WHEREOF, The Progressive Corporation has caused this instrument to
be signed by facsimile by its duly authorized officers and has caused a
facsimile of its corporate seal to be affixed hereto or imprinted hereon.

THE PROGRESSIVE CORPORATION

(CORPORATE SEAL)

Attest: THE PROGRESSIVE CORPORATION

/s/ David M. Schneider By /s/ Peter B. Lewis
- - - - ---------------------- --------------------------------
Secretary President and Chief Executive
Officer

Dated:_____________

<PAGE> 2

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Securities, of the series designated herein, referred to in
the within-mentioned Indenture.

THE FIRST NATIONAL BANK OF BOSTON,
as Trustee

By:_______________________________
Authorized Signatory

(Back of Security)

THE PROGRESSIVE CORPORATION

6.60% NOTE DUE 2004

This Note is one of a duly authorized issue of debentures, notes, bonds or
other evidences of indebtedness of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to an indenture dated as of September 15, 1993 (herein called
the "Indenture"), duly executed and delivered by the Issuer to The First
National Bank of Boston, as Trustee (herein called the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Issuer and the holders of the
Securities. The Securities may be issued in one or more series, which different
series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rates, may be subject
to different redemption provisions (if any), may be subject to different
sinking, purchase or analogous funds (if any) and may otherwise vary as in the
Indenture provided. This Note is one of a series designated as the 6.60% Notes
Due 2004 of the Issuer, limited in aggregate principal amount to $200,000,000.

In case an Event of Default, as defined in the Indenture, with respect to the
6.60% Notes Due 2004 shall have occurred and be continuing, the principal hereof
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.

The Indenture contains provisions permitting the Issuer and the Trustee, with
the consent of the Holders of not less than 66-2/3% in aggregate principal
amount of the Securities at the time Outstanding (as defined in the Indenture)
of all series to be affected (voting as one class), evidenced as in the
Indenture provided, to execute supplemental indentures adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any supplemental indenture or modifying in any manner the rights of the
Holders of the Securities of each such series; PROVIDED, HOWEVER, that no such
supplemental indenture shall (i) extend the final maturity of any Security, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of any interest thereon, or impair or affect the rights of any Holder to
institute suit for the payment thereof, without the consent of the Holder of
each Security so affected or (ii) reduce the aforesaid percentage of Securities,
the Holders of which are required to consent to any such supplemental indenture,
without the consent of the Holder of each Security so affected. It is also
provided in the Indenture that, with respect to certain defaults or Events of
Default regarding the Securities of any series, prior to any declaration
accelerating the maturity of such Securities, the Holders of a majority in
aggregate principal amount Outstanding of the Securities of such series may on
behalf of the Holders of all the Securities of such series waive any such past
default or Event of Default and its consequences. The preceding sentence shall
not, however, apply to a default in the payment of the principal of or premium,
if any, or interest on any of the Securities. Any such consent or waiver by the
Holder of this Note (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such Holder and upon all future Holders and owners
of this Note and any Note which may be issued in exchange or substitution
herefor,

<PAGE> 3

irrespective of whether or not any notation thereof is made upon this Note or
such other Note.

No reference herein to the Indenture and no provision of this Note or of the
Indenture shall alter or impair the obligation of the Issuer, which is absolute
and unconditional, to pay the principal of and interest on this Note in the
manner, at the respective times, at the rate and in the coin or currency herein
prescribed.

The Notes are issuable in registered form without coupons in denominations of
$1,000 and any integral multiple of $1,000 at the office or agency of the Issuer
at the office of the Trustee in Canton, Massachusetts, and in the manner and
subject to the limitations provided in the Indenture, but without the payment of
any service charge. Notes may be exchanged for a like aggregate principal amount
of Notes of other authorized denominations.

The Notes are not subject to redemption at the option of the Issuer or through
the operation of a sinking fund.

Upon due presentment for registration of transfer of this Note at the office
or agency of the Issuer at the office of the Trustee in Canton, Massachusetts, a
new Note or Notes of authorized denominations for an equal aggregate principal
amount will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Indenture, without charge except for any tax or
other governmental charge imposed in connection therewith.

The Issuer, the Trustee and any authorized agent of the Issuer or the Trustee
may deem and treat the registered Holder hereof as the absolute owner of this
Note (whether or not this Note shall be overdue and notwithstanding any notation
of ownership or other writing hereon), for the purpose of receiving payment of,
or on account of, the principal hereof and, subject to the provisions on the
face hereof, interest hereon, and for all other purposes, and neither the Issuer
nor the Trustee nor any authorized agent of the Issuer or the Trustee shall be
affected by notice to the contrary.

No recourse under or upon any obligation, covenant or agreement of the Issuer in
the Indenture or any indenture supplemental thereto or in any Note, or because
of the creation of any indebtedness represented thereby, shall be had against
any incorporator, shareholder, officer or director, as such, of the Issuer or of
any successor corporation, either directly or through the Issuer or any
successor corporation, under any rule of law, statute or constitutional
provision or by the enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly waived and released
by the acceptance hereof and as part of the consideration for the issue hereof.

Terms used herein which are defined in the Indenture shall have the respective
meanings assigned thereto in the Indenture.

------------------------
ABBREVIATIONS

The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

-----------------------------------
(State)

<PAGE> 4

Additional abbreviations may also be used though not in the above list.

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

FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

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

------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of
assignee

------------------------------------------------------------------------------
the within Note and all rights
thereunder, hereby irrevocably constituting and appointing

------------------------------------------------------------------------------
attorney to transfer said Note on the
books of the Issuer, with full power of substitution in the premises.

<PAGE> 1
EXHIBIT NO. 10(C)

DEVELOPMENT AGREEMENT
---------------------

BY AND BETWEEN

GP OHIO, L.L.C. (AS "DEVELOPER")

AND

PROGRESSIVE CASUALTY INSURANCE COMPANY (AS "PROGRESSIVE")

<PAGE> 2

TABLE OF CONTENTS
-----------------

1. Recitals Incorporated......................................................1

2. The Project................................................................1

3. Changes in the Work........................................................4

4. Developer's Compliance Responsibilities....................................5

5. Construction Timetable.....................................................5

6. Progress Payments..........................................................7

7. Stipulated Sum.............................................................8

8. Insurance.................................................................10

9. Architect, Engineer and Other Professionals...............................10

10. Payment and Performance Bonds............................................11

11. Delay Damages............................................................11

12. Termination of Agreement.................................................11

13. Dispute Resolution.......................................................12

14. Warranties...............................................................13

15. Lien Removal.............................................................14

16. Progressive Delay........................................................15

17. Force Majeure............................................................15

18. Indemnification..........................................................16

19. Non-Developer Work.......................................................16

20. Maintain Project.........................................................17

21. Governing Law............................................................17

22. Notices..................................................................17
<PAGE> 3

23. Progressive's Authorized Representative/Consultant.......................18

24. Successors and Assigns...................................................18

25. Regulated Substances.....................................................18

26. Time of the Essence......................................................19

27. Independent Contractor...................................................19

28. No Waiver................................................................19

29. Severability.............................................................19

30. Cooperation..............................................................19

31. Counterparts.............................................................19

32. Interest.................................................................19

33. Entire Agreement.........................................................20

34. Intentionally left blank.................................................20

35. Termination..............................................................20

36. Facsimile Signatures.....................................................20

37. Contingency..............................................................20

EXHIBITS:

EXHIBIT A Site Plan/Survey..............................................

EXHIBIT B Description of Building and Outline Specifications, Schematic
Building Plans and Master Site Plan...........................

EXHIBIT C Project Schedule..............................................

EXHIBIT D Termination Fee Schedule......................................

EXHIBIT E Expense Categories............................................

EXHIBIT F Notice of Commencement........................................

<PAGE> 4

DEVELOPMENT AGREEMENT
---------------------

This Development Agreement ("AGREEMENT"), made and entered into as of
the 16th day of November, 1999, by and between GP Ohio, L.L.C., a Rhode Island
limited liability company ("Developer"), and Progressive Casualty Insurance
Company, an Ohio corporation ("Progressive").

W I T N E S S E T H:

WHEREAS, Progressive has acquired the fee interest in certain parcel(s)
of land, located in Mayfield Village, Ohio, as more particularly depicted on the
site plan attached hereto as EXHIBIT A ("Property") and desires to have
developed on the Property a data center and operations facility ("Building")
containing approximately 80,000 square feet of gross rentable space and
incidental improvements, including surface parking of approximately 70 spaces
and landscaping;

WHEREAS, Developer will oversee, develop and construct the improvements
more particularly delineated herein in a timely manner;

WHEREAS, Developer and Progressive desire to set forth their
understanding of the respective rights and responsibilities of the parties in
connection with the development, design, construction, equipping and furnishing
of the Project (hereinafter defined) and the payment for such services; and

WHEREAS, the obligations of Developer hereunder are being guaranteed by
Gilbane Properties, Inc.

NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and intending to be legally bound hereby, the parties do hereby agree as
follows:

1. RECITALS INCORPORATED. The recitals are hereby incorporated by
reference and made a part of this Agreement.

2. THE PROJECT. Developer shall cause the completion of the design,
construction and development of the Building upon the Property consisting of the
base building elements (including parking) and interior improvements and the
site work on the Property consisting of landscaping, sidewalks, driveways and
related improvements, the preliminary scope of which is outlined on EXHIBIT B
attached hereto and as shall be outlined in the Scope Documents to be prepared
and approved in accordance with Section 2(b), below (collectively, the
"Project") all in accordance with the final set of approved plans, drawings,
specifications and schedules (collectively the "Plans"). As part of the "Work"
defined below, Developer (A) shall advise Progressive and take the lead in
negotiating and obtaining all governmental and private approvals necessary or
required in connection with acquiring the Property, (B) shall enter into a

<PAGE> 5

construction contract with Gilbane Building Company ("Contractor"), which
Contractor shall hire subcontractors for construction of the Project, (C) shall
retain, or cause to be retained, (x) Burt Hill Kosar Rittlemann Assoc., as
architect ("Architect") to perform architectural and design services, and (y) H.
F. Lenz, as engineers ("Engineer"), and other professionals to perform all other
professional services required for the design and construction of the Project
and (D) shall advise Progressive and take the lead in negotiating and obtaining
all governmental subsidies. The contract with Contractor shall provide for
payment to Contractor of a profits fee of 2% for contractor management services.
All major subcontractors and equipment suppliers retained by Contractor shall be
identified on a list submitted to Progressive for Progressive's approval within
ten days after the date of execution of this Agreement. Progressive shall not
unreasonably withhold or unduly delay its approval of the list of such major
subcontractors and equipment suppliers. If Progressive timely objects to any
major subcontractor or equipment supplier, Progressive, Developer and Contractor
shall in good faith attempt to resolve their disagreement. If the parties are
unable to reach agreement on the list of major subcontractors and equipment
suppliers within a reasonable period, the matter shall be submitted to mediation
as provided in Section 13.

(a) The "Work" shall mean all professional design and
engineering services and project administration for, and the completed
new construction of, the Project in accordance with the Contract
Documents (as hereinafter defined), in a timely manner with a specified
target delivery date of October 30, 2000 (the "Delivery Date") and
Final Completion Date (as hereinafter defined) of the 90th day after
the Substantial Completion Date (as hereinafter defined), and includes
labor necessary to produce such new construction, and materials and
equipment incorporated or to be incorporated in such construction. All
Work shall be performed in accordance with the Contract Documents. The
"Contract Documents" shall consist of this Agreement, the Plans, the
Building Description and Outline Specifications, the Schematic Building
Plans, the Master Site Plan, the Project Schedule (hereinafter defined)
and Change Orders.

(b) Within the time frame established under the Project
Schedule, Developer shall cause to be prepared and delivered to
Progressive the "Building Description and Outline Specifications",
"Schematic Building Plans" and "Master Site Plan" for the Project
("Scope Documents"), together with a supplement to this Development
Agreement in substantially the form as that attached hereto as EXHIBIT
B-1, formally adopting such Building Description and Outline
Specifications, Schematic Building Plans and Master Site Plan into this
Agreement. Progressive shall have 15 days after receipt of Developer's
submittals to raise any objection thereto. If Progressive disapproves
of the Scope Documents, Progressive's notice of disapproval shall
specify in detail the basis for such disapproval. Developer shall
promptly cause to be made such revisions to the Scope Documents as may
be necessary to address Progressive's objections, and shall resubmit
the Scope Documents for Progressive's approval to maintain the Project
Schedule. Progressive shall review such revisions and notify Developer
whether Progressive approves or disapproves the Scope Documents as
modified. This process shall be repeated, if necessary, until
Progressive's objections

2
<PAGE> 6

have been addressed and Progressive has approved the Scope Documents;
provided that, if the parties do not reach final agreement on the Scope
Documents on or before November 10, 1999, either party shall have the
right to terminate this Agreement by written notice to the other at any
time thereafter and prior to the parties reaching agreement on the
Scope Documents; provided that Progressive reimburses Developer for
out-of-pocket third party expenses (not including Gilbane Building
Company) incurred by Developer consistent with the schedule of
anticipated expense categories set forth on EXHIBIT E attached hereto
and pays to Developer the termination fee as required under Section 37.
If Progressive fails to give Developer written notice of disapproval of
the Scope Documents within 15 days after receipt of any submittal by
Developer, Progressive shall be deemed to have approved the same. Upon
approval of the Scope Documents, Progressive and Developer shall
execute a supplement to this Agreement in substantially the form as
that attached hereto as EXHIBIT B-1, formally adopting the Scope
Documents as part of EXHIBIT B to this Agreement.

(c) All Work shall be performed with all new material in a
good and workmanlike manner, in accordance with the Plans mutually
approved by Developer and Progressive. Developer shall cause to be
delivered to Progressive proposed drawings, specifications and
schedules consisting of (i) design development drawings and
specifications and (ii) finish schedule. Such deliverables shall be
prepared, reviewed, revised and approved or disapproved by the parties
hereto in accordance with Sections 2 and 5, hereof, to produce a final
set of Plans. Progressive's approval of all of the above plans,
drawings, specifications and schedules shall not be unreasonably
withheld, conditioned or delayed, and except as hereinafter set forth,
Progressive shall not be entitled to condition its approval of such
plans, drawings, specifications and schedules upon the inclusion
therein of any design specifications that are materially inconsistent
with the Scope Documents (including requiring a higher performance
standard than any performance standard expressly set forth in the Scope
Documents). Progressive's approval of such plans, drawings,
specifications and schedules shall not be deemed an acknowledgement,
representation or warranty that any of such plans, drawings,
specifications or schedules meet code or represent good engineering,
design or construction practices or be deemed to waive any design flaw
or code violation. In the event Progressive disapproves plans,
drawings, specifications or schedules or any portion thereof or any
modifications thereto, Progressive's notice of disapproval shall
specify in detail the reasonable basis for such disapproval. Developer
shall promptly cause to be made such revisions to the plans, drawings,
specifications or schedules as may be necessary to address
Progressive's reasonable objections, and shall resubmit the plans,
drawings, specifications or schedules to Progressive for Progressive's
approval to maintain the Project Schedule. Progressive shall review
such revisions and notify Developer whether Progressive approves or
reasonably disapproves the plans, drawings, specifications and
schedules as modified. This process shall be repeated, if necessary,
until Progressive's reasonable objections have been addressed and
Progressive has approved the Plans; provided that, if the parties do
not reach final agreement on the Plans after a reasonable review
period, the matter may be submitted by either party to

3
<PAGE> 7

mediation under Section 13. If Progressive fails to give Developer
written notice of disapproval of any plans, drawings, specifications or
schedules within 15 days after receipt of any submittal by Developer,
Progressive shall be deemed to have approved the same.

(d) Developer shall maintain in good order one record copy of
the Plans, Change Orders and other related documents, marked currently
to record changes made during construction, and during construction
Progressive shall have the right to review all such Plans, Change
Orders and other related documents during regular business hours upon
one business day's notice. Upon completion of the design and
construction and prior to termination of this Agreement, Developer
shall deliver to Progressive the following: (i) as-builts (to be
provided by hard copy and computer diskette); (ii) all written
specifications as amended; (iii) complete copies of all operations and
maintenance manuals for all equipment installed in the Project as part
of the Work; (iv) the warranties for the foregoing in conformity with
Section 14 hereof and transfer of the same to Progressive; and (v)
provide the necessary training and validation of operating systems to
ensure a smooth transition to Progressive's management/operation of the
facility.

3. CHANGES IN THE WORK.

(a) A "Change Order" is a written order to Developer signed
and approved by Progressive issued after execution of this Agreement,
authorizing a change in the Work or an adjustment in the Stipulated
Sum, the Delivery Date or the Final Completion Date. The Stipulated Sum
may be changed only by Change Order. The Non-Developer Work (as defined
in Section 19 hereof) shall be incorporated into the Developer's Work
only by Change Order. The Delivery Date and Final Completion Date may
be changed only by Change Order, Force Majeure (hereinafter defined)
and Progressive Delay (hereinafter defined). A Change Order signed by
Developer indicates its agreement therewith, including the adjustment
(if any) in the Stipulated Sum (as defined in Section 7), the Delivery
Date and the Final Completion Date.

(b) Progressive, without invalidating this Agreement, may
order changes in the Work within the general scope of this Agreement
consisting of additions, deletions or other revisions; provided the
Stipulated Sum, the Delivery Date and the Final Completion Date are
adjusted in a manner reasonably satisfactory to Developer which
approval of any proposed change in the Work shall not be unreasonably
withheld, conditioned or delayed. All such changes in the Work must be
authorized by Change Order, and shall be performed under the applicable
conditions of the Contract Documents.

(c) The cost or credit to Progressive resulting from a Change
Order shall be determined by taking into account the increase or
decrease in (i) the engineered cost for labor and materials of all
contractors and subcontractors affected by the Change Order

4
<PAGE> 8

and (ii) such contractors' and subcontractors' general overhead as a
result of the Change Order. The Stipulated Sum shall be further
increased or decreased to reflect the parties' agreed upon adjustment
to the Developer's overhead and profit as a result of any Change Order,
as follows: 5% of any net increase or decrease in costs attributable to
a Change Order up to $100,000.00 and 3% of any net increase or decrease
in costs attributable to a Change Order of more than $100,000.00;
provided that no overhead or profit fee shall be charged by Developer
for Change Orders adding any "future equipment" (i.e., generator,
chiller, UPS, EGU's) contemplated in the Scope Documents.

(d) If unit prices are stated in the Contract Documents or
subsequently agreed upon, and if the quantities originally contemplated
are so changed in a proposed Change Order that application of the
agreed unit prices to the quantities of Work proposed will cause
substantial inequity to Progressive or Developer, the applicable unit
prices shall be equitably adjusted.

(e) Developer shall prepare Change Orders for Progressive's
approval and execution and shall have authority to make minor changes
(not material in relation to the intent of this document, the Project
and Project Schedule, Project quality or performance requirements as
hereinafter defined) in the design and construction consistent with the
intent of this Agreement, not materially inconsistent with the Plans,
and not involving an adjustment in the Stipulated Sum or an extension
of the Delivery Date and Final Completion Date.

4. DEVELOPER'S COMPLIANCE RESPONSIBILITIES. Developer shall be
responsible for causing the Work (including, without limitation, all changes
thereto) to comply with all applicable legal requirements existing as of
execution of this Agreement, including (without limitation) requirements of
building codes and zoning codes, all federal, state and municipal laws,
including, without limitation, the Americans With Disabilities Act, and all
recorded protective covenants and restrictions. Developer shall also be
responsible for obtaining a certificate of occupancy for the Project. If there
is any change between the date hereof and the Final Completion Date in any
applicable legal requirements which requires a change in the Work in order to
avoid a violation of any such applicable legal requirement, Developer shall be
responsible for changing the Work in order to avoid a violation of such legal
requirements, but the parties shall execute a Change Order to adjust the
Stipulated Sum, if applicable, as a result of any increase or decrease in costs
as a result of such change in legal requirements. If there is a change in any
applicable legal requirement but the Work or portion thereof affected by such
change is deemed to be "grandfathered" (i.e., the applicable legal requirement
does not require that the Work be changed), such portion of the Work shall
nevertheless be deemed to be in compliance with such applicable legal
requirements and Developer shall not be required to change the Work to otherwise
comply with such changed legal requirements.

5. CONSTRUCTION TIMETABLE.

5
<PAGE> 9

(a) In performing the Work, Developer shall achieve the
milestone dates set forth in the schedule (the "Project Schedule") in
EXHIBIT C attached hereto so that the Substantial Completion Date shall
occur on or before the Delivery Date and the Final Completion Date
shall be achieved on the 90th day after the Substantial Completion
Date. Time shall be of the essence as to the Delivery Date and Final
Completion Date. The Project Schedule shall be updated by Developer
from time to time in accordance with the progress of the Work, and
copies of such updates shall be promptly furnished to Progressive; it
being expressly understood, however, that such updates may not extend
the Delivery Date and Final Completion Date, except pursuant to
subsection 5(b) hereof.

(b) The Delivery Date may be extended only by reason of (i) a
Change Order or (ii) a Progressive Delay, or (iii) the occurrence of
Force Majeure. In the event of a Change Order, the Delivery Date shall
be accelerated or postponed, if at all, only as set forth in such
Change Order. In the event (i) a Progressive Delay or Force Majeure
occurs and (ii) Developer would have otherwise been able to perform all
its obligations under the Contract Documents but for such delay,
Developer's remedy shall be an extension of the Delivery Date by the
number of days equal to the days Developer is actually delayed thereby,
notwithstanding the exercise of commercially reasonable efforts. In the
event of a Progressive Delay or Force Majeure, the Stipulated Sum shall
be subject to an equitable adjustment to reflect the increase or
decrease in costs incurred by Developer as a result of such Progressive
Delay.

(c) If at any time in the course of the performance of its
Work, Developer shall fall materially behind the Project Schedule which
is not due to a Change Order, Force Majeure or Progressive Delay, then
Developer shall promptly submit to Progressive a plan, including
proposed adjustments to the Project Schedule, if any, showing how the
Developer plans to mitigate impact upon the timely completion of the
other portions of the Work and how it plans to accelerate performance
so as to regain any time lost. The cost and expense of overtime, or any
other measures implemented to achieve the foregoing, shall be borne
entirely by Developer.

(d) For purposes herein, "Substantial Completion" (as
identified on the Project Schedule) shall mean the stage in the
progress of the Work when the Work or designated portion thereof is
sufficiently complete in accordance with the Plans so that Progressive
can legally occupy or utilize the Work or designated portion thereof
for its intended use. For purposes herein, "Substantial Completion
Date" shall mean the date on which (i) the Architect and Engineer have
certified to Progressive that the Work has been substantially completed
within the definition of "Substantial Completion" set forth above ;
(ii) a certificate of occupancy for the Project has been delivered;
provided, however, that no certificate of occupancy shall be required
of Developer to establish Substantial Completion if and to the extent
such a certificate cannot be obtained because of a failure of
Progressive to complete any of Progressive's Non-Developer Work
(hereinafter defined) or because any Non-Developer Work fails to comply
with any

6
<PAGE> 10
applicable governmental codes, regulations, rules, ordinances
or laws (provided that Developer shall not be excused if Progressive
has retained Developer by separate agreement to perform such
Non-Developer Work and it is Developer's default under such separate
agreement that has in fact caused Progressive's failure to complete the
Non-Developer Work or has caused the Non-Developer Work to fail to
comply with any applicable governmental codes, regulations, rules,
ordinances and laws); and (iii) Architect and Engineer deliver to
Progressive a list of "Punch List Items" (as hereinafter defined), if
any.

(e) For purposes herein, "Final Completion Date" shall mean
the date on which Architect and Engineer shall certify to Progressive
that the Work is finally completed and shall be evidenced by (i)
completion of all Punch List Items and (ii) delivery of as-built
drawings and warranties. The parties expressly understand that the
Final Completion Date may be changed only by Change Order, Force
Majeure or Progressive Delay.

(f) The Architect and Engineer shall deliver to Progressive
for Progressive's review and approval a listing of the Punch List Items
that the Architect and Engineer believe Developer is obligated by the
provisions of this Agreement to complete. Progressive shall advise
Developer and the Architect and Engineer within 15 days after receipt
of Architect's and Engineer's lists of Punch List Items of any
additional Punch List Items which Progressive believes Developer is
obligated by the provisions of this Agreement to complete. Any
disagreements between Developer and Progressive regarding Punch List
Items shall be resolved in accordance with Section 13. The term "Punch
List Items" shall mean details of construction and mechanical and
electrical adjustments which are minor in character and do not
materially interfere with Progressive's use or enjoyment of the Project
or designated portion thereof for its business operations, and may also
include landscaping and other items which do not materially affect
Progressive's use of the Project but which cannot be immediately
completed because of weather.

6. PROGRESS PAYMENTS. Payment to Developer of that portion of the
Stipulated Sum included within the Professional Fees/Project Management category
shall be disbursed: (i) 20% to Developer in the first monthly draw, and (ii) the
balance in monthly progress payments on a percentage-of-completion basis, as
hereinafter provided. Payment of that portion of the Stipulated Sum included
within the Construction/Development Costs category shall be disbursed in monthly
progress payments based on actual costs incurred by Developer, as hereinafter
provided. No more than once each calendar month (which the parties expect in the
ordinary course to be by the tenth day of the calendar month), Developer will
submit to Progressive or its designee a requisition ("Requisition") for the
percentage of the Project completed, with respect to payments toward the
Professional Fees/Project Management portion of the Stipulated Sum, and for the
actual costs incurred by Developer, with respect to payments toward the
Construction/Development Costs portion of the Stipulated Sum, through the last
day of the immediately preceding calendar month, less the aggregate of previous
payments made by

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Progressive to Developer hereunder and less Retainage (as hereinafter defined).
Each Requisition will be in the form of AIA Document G702/703 and will be based
on the Schedule of Values. Each Requisition shall be approved in writing by
Developer confirming that the portion of the Work for which payment is requested
has been completed. Each Requisition shall further include a certification by
the Developer that the Developer has paid the Architect and Engineer, the
Contractor and design professionals retained by Developer for all work performed
by such parties for which Developer has received payment under previous
Requisitions, and by the Contractor and major subcontractors that all of their
respective subcontractors have been paid for all work performed by such
subcontractors for which the Contractor has received payment under previous
Requisitions. Within 20 days after the receipt of each approved Requisition,
Progressive shall, unless Progressive and Developer otherwise agree, pay the
full amount requested to Developer to disburse in accordance with the
Requisition. In the case of a dispute, Developer and Progressive shall agree on
the disputed value which shall be deducted from the payment while dispute
resolution in Paragraph 13 is implemented. Progressive understands and
acknowledges that prompt payment of all approved Requisitions is a critical
component in Developer's ability to complete the Project within the time frame
required and if any Requisition is not paid to Developer in full or as otherwise
set forth in the Requisition, within 20 days after its due date, interest shall
accrue (and be immediately due) on the unpaid amounts at the rate of 10% per
annum until paid. As used herein, "Retainage" shall mean an amount equal to 10%
of construction hard costs (but not of design or soft costs for which there
shall be no retainage) until the Work is 50% completed, and zero percent (0%) of
the final 50% of the Work, which Retainage balance shall be released/disbursed
to Developer upon Final Completion of the Work.

7. STIPULATED SUM.

(a) Progressive shall pay to Developer in consideration for
Developer's performance of the Work, an agreed upon stipulated sum (the
"Stipulated Sum"). The Stipulated Sum shall be divided into two
categories, the first category sometimes referred to herein as the
"Professional Fee/Project Management" category and the second category
sometimes referred to as the "Construction/Development Costs" category.
The Stipulated Sum shall be established in coordination with the
preparation and approval of the Scope Documents. Upon approval of the
Scope Documents by Progressive, Developer shall submit to Progressive
the total amount of the "Stipulated Sum" to be paid Developer for the
work hereunder. Progressive shall have ten business days after receipt
of Developer's notice of the Stipulated Sum to object to such amount.
If Progressive timely objects, Developer and Progressive shall
negotiate in good faith to resolve any disagreement and confirm the
Stipulated Sum. If Developer and Progressive are not able to reach
agreement on the Stipulated Sum on or before November 18, 1999, either
party may terminate this Agreement by written notice to the other given
on or after November 19, 1999 and prior to reaching agreement on the
Stipulated Sum; provided that Progressive reimburses Developer for
out-of-pocket third party expenses incurred by Developer and pays to
Developer the termination fee as required under Section 37. Upon
establishment of the Stipulated Sum, the parties shall

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<PAGE> 12

execute the supplement to this Agreement in substantially the form as
that attached hereto as EXHIBIT B-1, establishing the Scope Documents
and Stipulated Sum agreed to by the parties. If Progressive fails to
give Developer written notice of disapproval of the Stipulated Sum
within ten days after receipt of Developer's notice thereof,
Progressive shall be deemed to have approved the same.

(b) Once established, the Stipulated Sum, subject to
adjustment by approved Change Orders constitutes Developer's complete
compensation for the Work and, without limitation, includes
compensation for all (i) design, construction and development services
rendered by Developer, the Architect, the Engineer, the Contractor and
all other subcontractors and design and engineering professionals used
by Developer, Architect, Engineer and/or Contractor pursuant to this
Agreement; (ii) expenses of Developer, the Architect, the Engineer, the
Contractor and all other subcontractors and design and engineering
professionals used by Developer, Architect, Engineer and/or Contractor
including, without limitation, the cost of all equipment, taxes,
royalties, insurance premiums, and permits; (iii) fees earned by
Developer, the Architect, the Engineer, the Contractor and all other
subcontractors and design and engineering professionals used by
Developer, Architect, Engineer and/or Contractor with respect to the
design, construction and development services rendered pursuant to this
Agreement; and (iv) all legal and other fees and expenses incurred by
or on behalf of Developer.

(c) The Stipulated Sum shall be broken into two categories,
one category for professional fees and the second category for all
other construction and development costs included within the scope of
the Work ("Construction/Development Costs"). Within 45 days after the
Final Completion Date, Developer shall submit to Progressive
documentation detailing the total actual costs incurred by the
Developer in completing the Work included within the
Construction/Development Cost category of the Stipulated Sum. If such
final accounting indicates that the total actual costs for that portion
of the Work included within the Construction/Development Cost category
is less than the portion of the Stipulated Sum established by the
parties hereunder, Progressive shall pay Developer one-half of such
savings within 20 days after receipt of Developer's statement and
Progressive shall be deemed to have received a credit against the
Stipulated Sum otherwise due from Progressive to Developer hereunder in
an amount equal to the balance of such savings. If the actual costs of
completing that portion of the Work included within the
Construction/Development Cost category of the Stipulated Sum is greater
than the amount of the Stipulated Sum for such category, Developer
shall be solely responsible for such excess costs. Any decrease in the
Stipulated Sum due to a Change Order modifying the scope of the Work
shall accrue 100% to the benefit of Progressive. Progressive shall have
the right to audit Developer's and Contractor's books and records to
verify actual costs incurred by Developer and Contractor for all Work
included within the Construction/Development Cost category of the
Stipulated Sum; and Developer and Contractor shall make their

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<PAGE> 13

books and records available to Progressive and its accountants and
agents during regular business hours.

8. INSURANCE.

(a) Developer shall maintain until final completion or, as the
case may be, shall be responsible for ensuring that Contractor
maintain, as part of the Project and at no additional expense to
Progressive, the insurance set forth in clause (b) below. The Developer
shall also be responsible for the filing and settling of claims and
liaison with insurance adjusters. The Developer shall send a copy of
all policies to Progressive, which shall be deemed to have approved of
such policies unless, within 30 days after receipt thereof, it shall by
notice in writing advise the Developer to the contrary.

(b) The Contractor shall maintain worker's compensation
insurance, commercial general liability insurance (on an occurrence
basis), automobile liability insurance and umbrella liability insurance
with companies reasonably satisfactory to Progressive. The general
liability policy shall be for a combined single limit for personal
injury and property damage of not less than $2,000,000, and shall
provide coverage, at a minimum, for (i) broad form contractual
liability; (ii) products liability and completed operations; and (iii)
broad form property damage coverage. The automobile liability policy
shall be written for a combined single limit for bodily injury and
property damage of not less than $1,000,000. The umbrella liability
policy shall be for a maximum single limit of $20,000,000 for
supplementing the comprehensive general liability policy and automobile
liability policy. In the case of worker's compensation coverage,
insurance shall be in amount statutorily required. The comprehensive
general liability automobile liability and umbrella liability insurance
policies shall name Progressive, Developer and any mortgagee of the
Property ("Lender") as additional insureds. The foregoing insurance
coverage shall be at the expense of Developer. The Contractor policies
shall be maintained throughout the Project duration, shall include a
Waiver of Subrogation, shall provide that such policy may not be
cancelled or reduced in coverage without thirty days notice and shall
have deductable levels of not more than: Worker's Compensation
$250,000; Commercial General Liability %150,000; and automibile
liability policy $0 (zero dollars).

(c) Progressive shall also procure and maintain a builder's
risk insurance policy on an "all risk" 100% replacement cost basis and
shall name Developer and Contractor, as additional insureds.

9. ARCHITECT, ENGINEER AND OTHER PROFESSIONALS. Developer represents
that the design agreements (the "Design Agreements") with Architect, Engineer
and other professionals retained by Developer and/or Contractor for the Work
shall, without limitation, contain the following:

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<PAGE> 14

(a) The Architect and Engineer shall be required to carry
errors and omissions insurance, on an occurrence basis, in an amount
not less than $2,000,000, and such other professionals shall be
required to carry errors and omissions insurance in amounts reasonably
acceptable to Developer and to Progressive. All such professionals
shall be required to indemnify Progressive against errors and omissions
including patent infringement; and

(b) The rights to use the Plans and other related documents
prepared in connection with the Work are and shall remain under the
control of Progressive and may not be used by others without
Progressive's consent (except that Developer and its agents may use
such Plans and related documents only in connection with their
performance of this Agreement). Such professionals shall be required to
deliver to Progressive copies, including reproducible copies and
computer diskettes, of the Plans and other related documents for
information and reference in connection with Progressive's use and
occupancy of the Project. Further, the Plans and other related
documents may be used by Developer and Progressive, in whole or in
part, or in modified form, for completion and maintenance of the
Project by others, without further employment of, or payment of any
compensation to, Architect, Engineer and other design professionals, in
which event, Developer and Progressive shall release such professionals
from any responsibility for the conformance of the incomplete portions
of the Project to the Plans and other related documents and shall
indemnify such professionals against and hold them harmless from all
claims arising from causes other than the negligence or fault of such
professionals. In the event of the termination of this Agreement for
whatever reason, Developer shall immediately return and deliver to
Progressive all originals, copies and reproductions of the Plans and
other related documents then in the possession or control of Developer,
Architect, Engineer and such other professionals retained by Developer.

10. PAYMENT AND PERFORMANCE BONDS. Developer shall, at its own cost and
expense, procure payment and performance bonds for (i) each subcontractor or
materialman, irrespective of contract value, involved with the Building envelope
(exterior or roof) and (ii) at Developer's discretion, each subcontractor or
materialman whose contract for the Project exceeds $100,000 in the aggregate.
Progressive shall be a co-obligee with respect to such bonds.

11. DELAY DAMAGES. If the Substantial Completion Date does not occur on
or before the Delivery Date, as such date may be extended by reason of Change
Order, Force Majeure, or Progressive Delay, then Developer shall pay to
Progressive, as liquidated damages for each business day of such delay, the Per
Diem Delay Damage Amount from the Delivery Date until the Substantial Completion
Date ("Delay Damages"). The "Per Diem Delay Damage Amount" shall be $3,000.00.

12. TERMINATION OF AGREEMENT. If Developer defaults or fails or
neglects to carry out its Work in accordance with the Contract Documents,
Progressive may give written notice that Progressive intends to terminate this
Agreement, which notice shall contain a reasonably

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<PAGE> 15

detailed explanation of the reasons for the proposed termination. Developer
shall correct the defaults, failure or neglect within 10 days after being given
such notice; provided, however, if (i) the nature of such defaults, failure or
neglect is such that they are not reasonably capable of being corrected within
such 10 day period and (ii) Developer notifies Progressive of a reasonable
alternative period reasonably acceptable to Progressive within fifteen days of
receipt of such notice, Developer shall be allowed such reasonable alternative
period to correct the defaults, failure or neglect so long as Developer promptly
commences and diligently pursues such corrections to completion. If Developer
fails to make such corrections within the 30 day period or fails to commence and
diligently pursue to completion such corrections within the alternative period,
then Progressive may, at its sole discretion and without prejudice to any other
remedy, (x) make good such deficiencies and cause the deduction of the cost
thereof from the payment due Developer or (y) with fifteen days notice,
terminate the employment of Developer and take possession of the site and of all
materials, equipment, tools and construction equipment and machinery thereon
owned by Developer and, if Progressive so chooses, finish the Work by whatever
method Progressive may deem expedient. If the expense of finishing the Work
exceeds the unpaid balance of the Stipulated Sum, Developer shall pay the
difference to Progressive on demand.

Upon termination hereunder, those contracts for the design and/or
construction of the Work designated by Progressive shall be assigned to
Progressive for Progressive to use at Progressive's option to complete the Work.
Progressive's remedies set forth hereunder are not exclusive, and Progressive
has the right to pursue any other right or remedy available to it at law or in
equity.

13. DISPUTE RESOLUTION. Any dispute arising out of or relating to this
Agreement shall be resolved in accordance with the procedures specified in this
Section 13, which shall be the sole and exclusive procedure for the resolution
of any such dispute.

(a) The parties shall attempt in good faith to resolve any
dispute arising out of or relating to this Agreement promptly by direct
negotiation between executives who have authority to settle the
controversy and who are at a higher level of management than the
persons with direct responsibility for administration of this
Agreement. Any party may give the other party written notice of any
dispute not resolved in the normal course of business. Within fifteen
(15) days after delivery of the notice, the receiving party shall
submit to the other a written response. The notice and the response
shall include (a) a statement of each party's position and a summary of
arguments supporting that position, and (b) the name and title of the
executive who will represent that party and of any other person who
will accompany the executive. Within 30 days after the delivery of the
disputing party's notice, the executives of both parties shall meet at
a mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to attempt to resolve the dispute. All
reasonable requests for information made by one party to the other will
be honored. All negotiations pursuant to this clause are confidential
and shall be treated as compromise and settlement negotiations for
purposes of applicable rules of evidence.

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(b) If the dispute has not been resolved by negotiation within
45 days of the disputing party's notice, or if the parties fail to meet
within 20 days, the parties shall endeavor to settle the dispute by
mediation using a mediator and mediation mutually agreeable to the
parties. In the event that the parties are unable or unwilling to agree
on a mediator or the mediation procedure to employ, then the parties
shall endeavor to settle the dispute by mediation under the then
current American Arbitration Association Commercial Mediation Rules.
The cost of the mediator's services incurred in conjunction with any
mediation conducted under this Section 13 shall be shared equally by
the parties.

(c) If the dispute has not been resolved by non-binding means
as provided herein within 90 days of the initiation of such procedure,
either party may initiate litigation upon 10 days written notice to the
other party; provided, however, that if one party has requested the
other to participate in a non-binding procedure and the other has
failed to participate, the requesting party may initiate litigation
before the expiration of the above period.

(d) All applicable statutes of limitation and defenses upon
the passage of time shall be tolled while the procedures specified in
this Section 13 are pending. The parties will take such action, if any,
required to effectuate such tolling.

(e) Each party is required to continue to perform its
obligations under this contract pending final resolution of any dispute
arising out of or related to this Agreement, unless to do so would be
impossible or impracticable under the circumstances.

(f) If Progress Payment (Paragraph 6) has been reduced due to
Progressive action, the amount deducted shall accrue interest as stated
in Paragraph 32 if it is determined in the Dispute Resolution that the
deduction from payment was not justified.

14. WARRANTIES.

(a) Developer warrants and represents to Progressive that the
Work (i) will be completed in accordance with the Contract Documents,
(ii) will comply with all applicable covenants and restrictions and all
applicable governmental codes, rules and regulations in effect at the
execution of this Agreement, (iii) will be new (except for those
portions of any existing improvements located upon the Property which
are to remain as a part of the Project under the Plans), and (iv) will
be free of all liens, claims and encumbrances consistent with the
provisions of Section 15, hereof. In addition, Developer (i) shall
obtain from the roofing manufacturer an industry standard 20 year
warranty against roof leakage due to defective materials , (ii) shall
obtain from the roofing subcontractor a one year warranty against roof
leakage due to defective workmanship and (iii) shall use commercially
reasonable efforts to obtain extended

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<PAGE> 17

warranties relating to major equipment included in the construction of
the Project or the Work provided under any construction and/or supply
contracts now or hereafter entered into by Developer or Contractor for
construction of the Project and the Work.

(b) Developer hereby guaranties to Progressive that all Work
for the Project will be in conformance with the Contract Documents free
from defects in workmanship and materials for a period of one year
after Substantial Completion Date.

(c) In the event that the Work or any portion thereof is found
defective or not in accordance with the Contract Documents within the
one year time period set forth in Section 14(b), Developer shall
correct it or cause it to be corrected promptly after written notice
from Progressive to do so. Developer shall not have any liability for
any claimed breach of the above guarantee unless Progressive gives
Developer written notice of breach of such guarantee, specifying the
nature of the breach, within one year after the Substantial Completion
Date.

(d) On the first anniversary of the date following the
Substantial Completion Date, Developer shall assign, and cause
Contractor to assign, to Progressive the nonexclusive right along with
Developer and Contractor to enforce, at Progressive's cost, if
Progressive elects to pursue such enforcement, any and all warranties
which Developer or Contractor may have relating to construction of the
Project or the Work provided under any construction and/or supply
contracts now or hereafter entered into by Developer or Contractor for
construction of the Project and the Work. After such assignment,
Progressive shall have the right, at Progressive's cost, to pursue any
such claims in the name of Developer or Contractor. In such event,
Developer and Contractor, at their sole cost, shall cooperate with
Progressive in connection therewith; provided, however, that Developer
and Contractor shall not be obligated to incur third-party costs.

(e) Except as specifically set forth above, Developer makes no
warranty or representation to Progressive as to the condition and/or
suitability of the Project and Progressive waives and releases
Developer from any other claim or cause of action Progressive may now
or hereafter have or claim to have against Developer for or on account
of the construction or condition of the Project, excepting only claims
against Developer for (i) fraud or willful misconduct, (ii) Delay
Damages, and/or (iii) failure to complete the Work in accordance with
the Contract Documents and the terms of this Agreement.

15. LIEN REMOVAL.

(a) If, at any time, there is any lien or claim of any kind
whatsoever filed against the Project by Contractor, a subcontractor,
Architect, Engineer or other design professional or anyone claiming
under or through Developer, Contractor, a subcontractor, Architect,
Engineer or other design professional for work performed or

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<PAGE> 18

materials, supplies or equipment furnished in connection with the Work,
Developer shall, within 60 days, or such shorter period as is required
by any loan secured by the Project, after the filing of same, cause
such lien or encumbrance to be canceled and discharged of record by
payment, bonding or otherwise, at Developer's sole cost and expense,
and at no cost to Progressive.

(b) If any lien or other encumbrance required to be removed at
Developer's sole cost and expense pursuant to subsections 15(a),
hereof, is not canceled and discharged of record as aforesaid,
Progressive shall have the right to take such action as Progressive
shall deem appropriate (which shall include the right to cause such
lien or other encumbrance to be canceled and discharged of record), and
in such event, all costs and expenses incurred by Progressive in
connection therewith (including, without limitation, premiums for any
bond furnished in connection therewith, and reasonable attorneys' fees,
court costs and disbursements), together with interest thereon at the
rate set forth in Section 32 hereof, shall be paid by Developer to
Progressive, as applicable, on demand, or at the option of Progressive,
as applicable, deducted from any payment then due or thereafter
becoming due to Developer in accordance with provisions of this
Agreement; and such deducted amount to be paid to Progressive.

16. PROGRESSIVE DELAY. For purposes hereof, a Progressive Delay shall
mean delays or hindrances in the Work caused by the acts or omissions of
Progressive in its performance of its obligations under this Agreement for the
Project, or its failure to respond and give approvals and/or disapprovals within
10 business days after Progressive's Authorized Representative has acknowledged
receipt of submittal. In the event of a Progressive Delay, Developer shall seek
to minimize the period of delay or hindrance by means which include, without
limitation, seeking alternate sources of labor or materials or acceleration of
the Work. If in seeking to minimize the period of delay or hindrance added costs
would be incurred, Developer shall have no obligation to act unless Progressive
executes a Change Order to cover such added costs. If Developer wishes to make a
claim for an extension of the Delivery Date and Final Completion Date or
increase in the Stipulated Sum by reason of a Progressive Delay, Developer shall
give prompt notice to Progressive of such claim.

17. FORCE MAJEURE. For purposes hereof, a Force Majeure shall mean
delays or hindrances in the Work caused by (i) acts of God; (ii) strikes, labor
disputes, labor shortages or material shortages (for reasons outside of
Developer's reasonable control using Developer's professional expertise and good
faith diligent efforts); (iii) blackouts; (iv) acts of public enemy; (v) orders
of any kind of the government of the United States or of the State of Ohio or
any department, agency, political subdivision or official of either of them, or
any civil or military authority; (vi) riots; (vii) epidemics disabling the labor
force; (viii) landslides; (ix) earthquakes affecting the Project; (x) fires;
(xi) hurricanes and/or tornadoes; (xii) adverse weather conditions (i.e., the
number of days in excess of the normal weather [rain or snow days] as defined
for a 30 day period by the National Weather Bureau for the Cleveland, Ohio
metropolitan area); (xiii) floods; (xiv) partial or entire failure of public
utilities affecting the Project; (xv) delays associated with the existence,
removal or remediation of any Regulated

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Substance (as defined below); (xvi) delay in obtaining any necessary or required
building permits, licenses and approvals (for reasons outside of Developer's
reasonable control using Developer's professional expertise and good faith
diligent efforts); (xvii) delays due to unforeseen soil or other underground
conditions; or (xviii) any other similar cause or event beyond Developer's
control. Developer shall give notice to Progressive of the occurrence of any
event of Force Majeure that may give rise to a claim for an extension of the
Delivery Date and Final Completion Date or adjustment to the Stipulated Sum as
soon as reasonably possible after the discovery by Developer of such Force
Majeure event. Developer shall thereafter use all reasonable diligence in
attempting to overcome or lessen the impact of such Force Majeure event and
shall keep Progressive reasonably informed of Developer's progress in mitigating
the effects of any such Force Majeure event. Developer shall cooperate with
Progressive, and allow Progressive to participate in attempting, to resolve or
mitigate any such Force Majeure event, but Progressive shall not have any
obligation to do so.

18. INDEMNIFICATION. Developer shall indemnify and hold Progressive
harmless, to the extent permitted by law, from any and all third party claims or
causes of action for loss, liability, damage or expense, including reasonable
attorney's fees and disbursements, directly arising out of (i) the performance
of the Work, including, but not limited to, any mechanics or construction liens
arising as a result thereof, (ii) any failure of the Project or Work to comply
with any applicable governmental laws, ordinances, rules and regulations in
effect as of the Substantial Completion Date, (iii) any negligence of Developer,
the Contractor or any subcontractor, (iv) any breach of Developer's warranties
and representations under this Agreement, and (v) Developer's failure to comply
with the performance of any of its other covenants or obligations under this
Agreement; provided that such indemnity and hold harmless shall not apply to any
loss, liability, damage or expense, including attorneys' fees, to the extent
arising out of any negligent act or omission of Progressive or any officer,
employee, agent, representative or contractor of Progressive.

19. NON-DEVELOPER WORK. Any other work, installations, furniture,
fixtures and equipment relating to the Project desired by Progressive, to the
extent not included within the scope of the Work under the Plans shall be deemed
to be "Non-Developer Work" and shall be performed by and at the sole cost of
Progressive. Developer shall cooperate with and afford Progressive's separate
contractors reasonable opportunity for introduction and storage of their
materials and equipment in a reasonably safe and secure area for execution of
their Non-Developer Work. All such materials and equipment shall be insured by
Progressive or its contractors or subcontractors, and all risk of loss,
liability and responsibility for such stored materials and equipment shall
belong to Progressive or its contractors or subcontractors. Any and all such
Non-Developer Work performed by or on behalf of Progressive shall be performed
in such a manner so as to cause the least amount of interference with
Developer's completion of the Work; and Developer shall have overall control of
coordinating any such Non-Developer Work so as to insure that such Non-Developer
Work does not hinder or delay completion of the Work.

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20. MAINTAIN PROJECT. Throughout the performance of the Work, Developer
shall keep the Project free from accumulation of waste materials or rubbish
caused by Developer's operations; it being expressly understood by the parties
hereto that Progressive and its contractors shall be responsible for such
obligation with respect to any Non-Developer Work. On or before the Final
Completion Date, Developer shall remove from and about the Project Developer's
tools, construction equipment, machinery, surplus materials, waste materials and
rubbish and provide the Project in a clean state (i.e., relative to the Work).

21. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Ohio. If any provision of this
Agreement or the application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of this Agreement shall
not be affected thereby and each provision of the Agreement shall be valid and
enforceable to the fullest extent permitted by law.

22. NOTICES. All notices and demands by any party to any other shall be
given in writing and sent by a nationally recognized overnight courier or by
United States certified mail, postage prepaid, return receipt requested, and
addressed as follows:

To Developer: GP Ohio, L.L.C.
c/o Gilbane Properties, Inc.
7 Jackson Walkway
Providence, Rhode Island 02903
Attn.: Michael E. Culbert

With a copy to: GP Ohio, L.L.C.
c/o Gilbane Properties, Inc.
7 Jackson Walkway
Providence, Rhode Island 02903
Attn.: Robert V. Gilbane

With a copy to: Michael J. Dwyer
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202

To Progressive: Progressive Casualty Insurance Company
300 North Commons Boulevard
Mayfield Village, OH 44143
Attention: Daniel Schluer

With a copy to: Michael Uth
Assistant General Counsel
Progressive Casualty Insurance Company
6300 Wilson Mills Road

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Mayfield Village, Ohio 44143

Any party may, upon prior notice to the others, specify a different
address for the giving of notice. Notices shall be effective one day after
sending if sent by overnight courier or two days after sending if sent by
certified mail, return receipt requested.

23. PROGRESSIVE'S AUTHORIZED REPRESENTATIVE/CONSULTANT. Progressive
designates Daniel Schluer as a "Progressive's Authorized Representative", and
anyone else whom, with prior notice to Developer, Progressive may designate as a
Progressive's Authorized Representative. Any Progressive's Authorized
Representative shall have the authority to act individually or jointly with any
other Progressive Authorized Representative to approve in writing all plans,
drawings, specifications, Change Orders, charges and approvals to this Agreement
on behalf of Progressive. Progressive's Authorized Representative shall inform
Developer of any errors, omissions, defects, deficiencies or other problems that
such Progressive's Authorized Representative believes may exist in order to
assist Developer in rectifying same, but this undertaking shall not in any way
affect the obligations and responsibilities of Developer under this Agreement.
Developer shall keep Progressive's Authorized Representative informed as to the
progress of the Work, shall provide Progressive's Authorized Representative with
copies of the Project Monthly Report and updates or refinements to the Project
Schedule and keep Progressive's Authorized Representative reasonably informed of
upcoming key milestone events in the Project Schedule.

24. SUCCESSORS AND ASSIGNS. Except as expressly otherwise provided, all
of the terms, covenants and conditions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
This Agreement may not be assigned without the prior written consent of all
parties to this Agreement, which consent shall not unreasonably be withheld
except that Progressive may assign this Agreement or delegate any of its rights
or obligation hereunder to any of its affiliates upon notice to Developer;
provided that Progressive shall remain liable for the full performance of all of
its obligations under this Agreement.

25. REGULATED SUBSTANCES. As used herein, the term "Regulated
Substance" shall mean and include any, each and all substances or materials now
or hereafter regulated pursuant to any Environmental Laws, including, but not
limited to, any such substance or material now or hereafter defined as or deemed
to be a "Regulated Substance", "Pesticide", "Hazardous Substance" or "Hazardous
Waste" or included in any similar or like classification or categorization
thereunder. As used herein, the term "Environmental Laws" shall mean and include
the Resource Conservation and Recovery Act, as amended by the Hazardous and
Solid Waste Amendments of 1984, the Comprehensive Environmental Response,
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Toxic Substances and Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act and all applicable state and local environmental laws,
ordinances, rules, requirements, and regulations, as any of the foregoing may
have been or may be from time to time amended, supplemented or supplanted and
any and all other federal, state or local laws, ordinances, rules, requirements,
and regulations, now or

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hereafter existing, relating to the preservation of the environment or the
regulation or control of petroleum products, toxic or hazardous substances or
materials or other environment threatening substances or materials. Developer
shall not bring unto the Project site (or allow to be brought onto the Project
site) any Regulated Substance, except such materials as are routinely used in
connection with construction and then only in accordance with appropriate
guidelines, standards, and practices in the industry. Developer shall advise
Progressive immediately if Developer becomes aware of Regulated Substances on or
near the Project site.

26. TIME OF THE ESSENCE. Time shall be of the essence with respect to
this Agreement and of every provision hereof.

27. INDEPENDENT CONTRACTOR. It is expressly understood and agreed by
the parties hereto that Developer, in performing its obligations under the
Contract Documents, shall be deemed an independent contractor and not an agent,
employee or partner of Progressive.

28. NO WAIVER. The failure of Progressive to insist upon the strict
performance of any provisions of the Contract Documents, the failure of
Progressive to exercise any right, option or remedy hereby reserved, or the
existence of any course of performance hereunder shall not be construed as a
waiver of any provision hereof or of any such right, option or remedy or as a
waiver for the future of any such provision, right, option or remedy or as a
waiver of a subsequent breach thereof. The consent or approval by Progressive of
any act by Developer requiring Progressive's consent or approval shall not be
construed to waive or render unnecessary the requirement for Progressive's
consent or approval of any subsequent similar act by Developer. Progressive's
approval of payment of any amount due hereunder with knowledge of a breach of
any provision or requirement of the Contract Documents shall not be deemed a
waiver of such breach. No provision of the Contract Documents shall be deemed to
have been waived unless such waiver shall be in writing signed by the party to
be charged.

29. SEVERABILITY. If any term or provision of this Agreement shall be
determined to be invalid or unenforceable in any respect, it shall be replaced
with a substantially similar provision to the greatest extent possible and the
Agreement shall remain in full force and effect.

30. COOPERATION. The parties agree to cooperate to achieve the
objectives of this Agreement and to use reasonable and good faith efforts to
resolve all disputes and disagreements that may arise hereunder.

31. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but both of such
counterparts together shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for the other counterpart.

32. INTEREST. Any amount due hereunder which is not paid when due shall
bear interest at an annual rate equal to the greater of (i) 1% per annum in
excess of the Prime Rate or (ii) 10% per annum (but in no event shall such rate
of interest exceed the maximum rate of interest

19
<PAGE> 23

permitted to be charged by law) from the date due until paid, compounded
monthly, but the payment of such interest shall not excuse or cure any default
by any party under this Agreement. "Prime Rate" means the highest base rate on
corporate loans posted by at least 75% of the 30 largest banks in the United
States as published from time to time by THE WALL STREET JOURNAL.

33. ENTIRE AGREEMENT. This Agreement and the exhibits attached hereto
and forming a part hereof, set forth all the covenants, promises, agreements,
conditions and understandings between Developer and Progressive concerning the
Property and the development of the Project thereon and there are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them other than are herein set forth. No alteration, amendment, change
or addition to this Agreement shall be binding upon Developer or Progressive
unless reduced to writing and signed by each party.

34. INTENTIONALLY LEFT BLANK.

35. TERMINATION. Except for Developer's obligation under Section 14,
Section 15 and Section 18, and except for any liability for Delay Damages under
Section 11, Developer's obligations and liability under this Agreement shall
expire following the occurrence of the Final Completion Date and the assignment
of any documents to be assigned upon final completion (i.e. assignment of
warranties). This Section 35 shall in no way lessen or otherwise affect the
liability the Architect, Engineer and other design professionals may have with
respect to the Project.

36. FACSIMILE SIGNATURES. Either party hereto may execute this
Agreement by facsimile signature which facsimile signature shall be deemed to be
an original signature.

37. CONTINGENCY. Notwithstanding anything contained in this Agreement
to the contrary, Developer's and Progressive's obligations under this Agreement
shall be contingent upon (a) Developer obtaining government approvals, permits
and licenses necessary or required for the start of construction of the Project,
and (b) Progressive and Developer agreeing on the Scope Documents and Stipulated
Sum as contemplated under Sections 2(b) and 7(a). Upon satisfaction of
contingencies (a) and (b), prior to commencement of construction of the Project,
Developer shall notify Progressive of Developer's intent to commence
construction of the Project and Progressive shall have 3 days after receipt of
any such notice to give notice of termination of this Agreement; the failure of
Progressive timely to terminate upon receipt of such notice shall be deemed a
waiver of Progressive's right to terminate this Agreement under this Section 37.
In addition, if such contingencies have not been satisfied or waived on or
before November 18, 1999, Progressive and/or Developer shall have the right to
terminate this Agreement effective as of November 19, 1999 by written notice to
the other. In the event of termination under this Section 37, Progressive shall
pay to Developer all out-of-pocket third party expenses incurred by Developer in
design and pre-construction development activities together with a termination
fee in the amount set forth on EXHIBIT D for the applicable date

20
<PAGE> 24

of termination to compensate Developer for its labor and efforts hereunder
through the date of termination.

38. NOTICE OF COMMENCEMENT. Developer acknowledges that it has received
a copy of the Notice of Commencement attached hereto as EXHIBIT F and that at
all times following the date Work commences, Developer will keep a copy of such
Notice of Commencement posted in a conspicuous place on the Project site.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day, month and year first above written.

(Developer)

GP Ohio, L.L.C.

By: Gilbane Properties, Inc., Managing Member

By: /s/ Edward T. Broderick
--------------------------------------
Title: Vice President

(Progressive)

Progressive Casualty Insurance Company

By: /s/ Daniel E. Schluer
-------------------------------------------
TITLE: Senior Real Estate Project Manager

21
<PAGE> 25

EXHIBIT A
---------

Property Depiction/Survey

(Property Depiction/Survey)

<PAGE> 26

EXHIBIT B
---------

Preliminary Scope Documents

<PAGE> 27

Development Agreement - Exhibit B
Exhibit B-1 - Schedule A

PROGRESSIVE CASUALTY INSURANCE COMPANY

Building Description and Outline Specification
----------------------------------------------
October 29, 1999

This section outlines the design specifications, which have been developed for
Progressive's requirements.

I. GENERAL PROJECT OVERVIEW

Project Description
- -------------------

Progressive intends to develop a state-of-the-art Data/Information Systems
Center in suburban Mayfield Village, Ohio. The project will be master planned to
accommodate growth.

The Phase I project is designed to house the data center for Progressive's
primary computer and processing equipment. The Phase I building will be
approximately 80,000 square feet comprised of the following space:

37,600 sf Data Processing Area
25,000 sf Mechanical Room/Utility & Support Area
2,400 sf Loading
11,550 sf Office/Support Area
3,450 sf Core Area
-------
80,000 sf Total Area *

* A generator building of approximately 6,000 -square-feet will be provided

The design criteria for the mechanical and electrical systems will be as
follows:

- - Uninterruptible Power Supply = 2N+2
- - Generators = 2N
- - Chilled Water Plant = 2N
- - Make-up Water = 2N
- - Fire Protection = N
- - Electrical Distribution = 2N
- - Chilled Water Distribution = 1.5N
- - Other = N

The above design criteria is based on the final system configuration with all
future equipment installed.

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<PAGE> 28

The building shall be designed to accommodate state-of-the-art systems with the
intent of expanding to meet long-term data processing requirements. The building
utility infrastructure will enable building operation to be independent of local
utilities during an outage for approximately three days for on-site fuel and one
day for water storage. For the office/support area design and planning will
incorporate relevant office building technology and also provide an
infrastructure for long-term future growth and ongoing facility change.

Building Concept
- ----------------

The exterior building appearance in both design and finish shall be responsive
to surrounding topography and the corporate image/culture the Company intends to
portray. The building will be broken into four (4) principal elements: the data
processing area; office/support areas; the entrance/ core lobby area, and; the
mechanical/electrical and utility service area. These building elements will be
focused in a single-story building where the facade will be concrete panels with
minimum window openings. The main lobby will be a focal point of the building
and act as a central security/control point. The finishes planned for the main
entrance are ceramic tile with a walk off mat insert in the vestibules. The
lobby will have a pass-through counter/window separating Lobby and adjacent
Security Room. A separate generator building will be provided.

Add alternates shall be obtained from all major equipment suppliers and
subcontractors for future equipment attic stock and extended equipment
maintenance/warranties. These alternatives will be presented to Progressive
during project implementation for approval/funding or rejection.

Bay Size
- --------

Shall be approximately 30'x 40'; with mechanical and electrical plant bays being
approximately 30' x 50'.

Building Module
- ---------------

24" x 48" shall be incorporated

Floor Configuration
- -------------------

General
- -------

- - Floor size is approximately 80,000 square feet for a single-story
configuration

General building area Phase I building:

Data processing 37,600

Mech/Elec. & support 25,000

Loading 2,400

Office/Support 11,550

CORE AREA 3,450
----------------------------------
Total 80,000 SF

2
<PAGE> 29

- - In addition an independent generator building of approximately 6,000 SF
will be constructed as shown on the site plan.

- - All slabs shall be designed to accommodate a 2' x 2' raised floor system,
48" high, designed for a uniform load of 300 lbs. and a concentrated load
of 1,250 lbs). Raised floor shall be installed in accordance with the
attached approved Schematic Floor Plan.

Codes/Standards/Requirements
- ----------------------------

All design and construction shall be in accordance with applicable local, state,
federal codes and standards, ADA, Progressive and their underwriters'
requirements as identified herein. In the event of a conflict between the
applicable codes or standards, the more stringent shall prevail.

Loading
- -------

Loading/Receiving
- -----------------

- - Two four foot (4') high docks shall be provided with appropriate bumpers,
seals, lighting and air pillow levelers. Loading dock area shall be
enclosed and a secured and heated receiving area shall be provided.
Overhead doors shall be motorized and interior walls shall be painted
white.

Geotechnical
- ------------

Geotechnical report will be prepared for the site. Building and site shall be
designed accordingly utilizing an appropriate foundation system. Spread footing
design has been assumed for this proposal.

Environmental
- -------------

A Phase I environmental survey has been completed by Progressive and no
environmental problems were noted as a result thereof.

II. SITEWORK

Site Plan - See attached approved Schematic Plan
- ---------

Site Utilities

- - All required utilities shall be extended underground from points indicated
on Bialosky Partners Drawings M400 and #100A, both dated October 5, 1999,
Bulletin #67 , to the building with adequate capabilities to meet the
project requirements as described herein. All utility work beyond limits of
Work shall be by others.

- - Required communication service will be identified and coordinated by
Progressive. Base building will provide Main Distribution Frame Room and
access via conduit. The conduit will be provided to points as shown on the
above referenced plans.

3
<PAGE> 30

- - Domestic water will be supplied from the Campus Water Distribution System
to the building and on-site storage tank.

- - Fire protection water will be supplied from the Campus Water Distribution
System to the building and on-site storage tank.

- - Site storm drainage and exterior gutter drains shall be piped underground
and discharged into appropriate storm drainage system, as provided by
Progressive to a point approximately 30 feet outside building and shown on
Exhibit A. Sheet draining of parking lot to catch basins and/or swells in
non-paved areas may be incorporated prior to runoff entering underground
piping system.

- - Separate waste and sanitary lines will be extended from the building and
converge at the sanitary man-hole located outside of the building.

- - Two primary electric services shall be provided at Progressive's cost.
Conduit to a match point shown on Exhibit A (30' from building) will be
provided. An allowance of $20,000 is provided for the two primary feeder
cables from Central Chilled Water Plant to project transformers.

Roads and Driveways
- -------------------

- - Paving sections shall conform to final civil geotechnical recommendations.

- - Heavy duty paving section shall be provided for truck access.

- - Fire access shall be provided around building as required by code.

- - Concrete curbs shall be provided at all site and building entrances.

Parking
- -------

A minimum of 60 parking spaces (other parking spaces will be provided on-site by
Progressive, if needed) will be provided for the project. Security with regards
to vehicle access and visitor parking will be a site plan consideration.

Parking Stalls - Minimum 9' width striped stalls
- --------------

- - Visitor and service parking areas shall be provided as appropriate.

Lighting
- --------

- - Metal halide lamps on poles (match existing) achieving between one-half and
one foot candles and laid out to match existing.

Landscaping
- -----------

- - Will be consistent with surrounding area and integrated with final site
master plan creating a corporate campus environment. All work included in
Landscape Allowance of $25,000.

Access, Security - $50,000 Allowance
- ------------------------------------

4
<PAGE> 31

- - The building shall be equipped with an electronic surveillance system to
monitor areas of the building interior and exterior (cameras shall be
provided in appropriate location).

- - A card access system with programmable levels of security shall be provided
at exterior doors and raised floor perimeter. The base system will be
expandable to permit future monitoring of systems and be an extension of
the existing campus system.

- - System shall be CardKey.

- - Base building shall include rough-in for fifteen cameras on/or within the
building and contacts at all exterior doors. Three (3) electronic strikes
shall be provided at exterior doors. All other security cost provided in
Security System Allowance of $50,000.

Signage
- -------

- - Signage shall meet applicable Code and ADA requirements (signage allowance
of $20,000 has been included).

Loading Area
- ------------

- - Security: surveillance camera (see Security Section).

- - Finishes: Sealed exposed concrete floor.

- - Eight foot chain link fence and access/security gates to be provided via
Fencing Allowance of $20,000.

III. STRUCTURAL

Design Loads - Floors
- ---------------------

Structural floor systems shall be designed with the minimum live loads,
including partitions:

- - Dock Areas: 200 psf

- - All Other Areas: 150 psf, including partitions.

Structural System
- -----------------

- - The structural system will be designed to meet load requirements and
applicable codes.

Foundations
- -----------

- - Foundations shall be designed and constructed with proper consideration
given to soil, rock and ground water conditions of the site.

- - Final foundation design (assumed to be a spread footer) shall be consistent
with geotechnical and structural engineers' recommendations. All concrete
shall have a minimum 28-day compressive strength of 3,000 psi. Slab on
grade floors shall be consistent with design loads described above.

5
<PAGE> 32

IV. EXTERIOR WALL

Combination of cast concrete and punched windows.

System Performance Criteria
- ---------------------------

- - Wind Loads: Minimum as required by code or higher as recommended by
structural engineer.

- - Thermal Values: As required by Ohio Code.

- - Walls/Spandrels: Minimum to be selected by architect.

- - Glass: Insulated double pane.

- - Water infiltration: no uncontrolled leakage inboard of system (as designed
by system performance criteria.)

- - Fire protection: as required by code.

- - A vapor barrier system will be incorporate to permit elevated humidity
levels (50%RH) during the winter.

V. ROOFING

Roofing materials shall comply with all applicable codes.

Roofing System Criteria
- -----------------------

- - The system shall be a three-ply modified Bitumen roofing system.

- - Warranty: Twenty years from the system manufacturer.

- - The roof will be pitched at a slope of .25" per 12".

- - Insulation: Polyisocianurate at a thickness required complying with Ohio
Energy Code. (Minimum R20).

- - Insulation mechanically fastened to meet FM 1-90.

- - Pavers: Pavers are not being provided since roof mounted equipment is
minimal.

- - All roof drainage will be outside the data processing building.

VI. PUBLIC AREAS

The design and selection of finish materials for public areas should be
appropriate for Progressive's corporate image. Durability and ease of
maintenance be considered in the selection of finishes.

Main Lobby
- ----------

- - Lobby floors shall be a ceramic tile with walk off mat insert in the
vestibule.

- - A pass-through counter with glass window shall be provided between Security
Room and entrance lobby.

6
<PAGE> 33

- - Rough-in for a Lobby pay telephone shall be provided.

- - A building directory shall be incorporated into the lobby design.

- - The ceiling shall be a flat painted dry-wall for perimeter with 2 x 2
tegular edge tile inserts. Lobby wall finishes shall be a combination of
Type II wall covering and paint.

Toilets
- -------

- - Toilet areas shall be located as shown on floor plan and installation is to
comply with code and ADA requirements.

- - Fixture count will conform to variance request and floor plan.

- - Ceilings shall be flat drywall tile with can downlight cove lighting.

- - At the wet wall, full height glazed ceramic tile.

- - At all other toilet room walls a serviceable vinyl wall covering.

- - Corian, or equal for lavatory countertops with under-counter sinks.

- - Toilet partitions shall be ceiling hung with baked enamel finish.

- - Toilets shall be wall-mounted.

- - Flooring shall be ceramic tile.

- - Provide floor drain in each toilet room.

BASE BUILDING FINISHES

Electrical/Telephone Closet/ Mechanical Room
- --------------------------------------------

- - Ceiling - Exposed structure

- - Walls- Painted

- - Flooring - sealed concrete

Walls and Partitions
- --------------------

CORE AREAS AND DEMISING WALLS

- - 5/8" gypsum board on metal studs 16" on center, all joints and
corners to be taped, bedded and ready for finishing. Erect from floor to
underside of roof deck.

- - Insulation will be provided.

7
<PAGE> 34

Toilet Rooms
- ------------

- - 5/8" gypsum (water resistant) board on metal studs 16" on center. Erected
from floor to structure with insulation blanket.

Doors
- -----

Building Entries

- - Front entrance doors shall be a part of the entry glazing system with
automatic opening capabilities. Doors shall be aluminum storefront.

Other Exterior Doors

- - UL labeled hollow metal painted. Rated per code.

Core Area Doors

- - 3'x 8' solid core stain grade wood doors equipped with hinges and
standard hardware package. Doors and frames shall be rated where required
by code. Kick plates shall be provided at all bathrooms.

Core Area Frames

- - Hollow metal frames painted to match adjacent wall surface.

Double Doors

- - All double doors shall have 4' to 2' leafs. 4' leaf shall have
a piano hinge or four hinges.

VII. MECHANICAL

Heating, Ventilating and Air Conditioning
- -----------------------------------------

- - Electrical centrifugal chillers shall be as manufactured by Carrier, Trane
or York.

- - Chiller efficiency shall be 0.6kw/ton for R134A or 0.55 kw/ton for R123 at
full load conditions. Chillers shall be furnished with inverter-rated
motors with variable frequency drives.

- - Building envelope (base on ASHRAE standard 90.1) will have a wall U-factor
of .082 and a roof U-factor of .053.

- - The inside/outside parameters (based on ASHRAE Fundamentals - 1997)

- Inside Temperature: 72 (degrees)F @ 50% RH

- Summer Design Temperature: 91(degrees)F db, 73(degrees)F wb

- Winter Design Temperature: 1 (degree)F db

8
<PAGE> 35

- - Initial installation shall include three 500 ton centrifugal chillers and
space for one additional machine.

- - Commissioning of critical systems by H.F. Lenz shall be included.

- - One year warranties for all equipment shall be included as part of the
equipment purchase packages. Add alternates shall be provided for three or
five years maintenance contracts on all critical equipment.

- - Conditioning of computer room space shall be by chilled-water down-flow
environmental control units (ECU), each equipped with manufacturer's
standard humidification system. 34 units rated at 26 tons (total), each,
shall be provided.

- - Conditioning of occupied support areas shall by a central
variable-air-volume air handling unit.

- - Piping in Data Center Chilled Water Plant shall be furnished with colored
PVC jacket for easy identification and durability.

- - The data center shall be connected to the main Progressive chilled water
plant to provide cooling equal to the critical load of 910 tons in the
event that the data center's chiller plant is unable to satisfy the
connected load. This shall be accomplished by tying into the existing
chilled water plant's primary loop with a bridge and a `T to T' connection.
The water will be pumped to two (2) plate-frame heat exchangers. The heat
exchangers shall be piped in parallel with the data center's chillers to
provide back-up/supplemental cooling to either of the 1,000-ton plants in
the event of a failure.

- - Butterfly valves in the chilled water system shall be used.

- - Outdoor air provisions shall be as follows; human occupied areas = 20
cfm/per person based on an occupancy of 80 plus an allowance for space
pressurization.

- - Outdoor air shall be introduced through the central air handling unit.

- - A Smoking area shall be provided outside main entrance. A 5' x 10'
bus shelter with light and electric heat shall be provided.

- - Cooling towers shall be induced draft units, one cell per chiller. Towers
shall have stainless steel basins. Towers shall be equipped for winter
operation. Cooling towers shall be equipped with variable frequency drives.
Cooling towers will be designed at 95 FDB and 78 FWB outside air
conditions.

- - Chilled water and condenser water circulating pumps shall be provided. Only
the secondary chilled water pumps will be equipped with variable frequency
drives. The drives will be equipped with a bypass feature.

VIII. MONITORING SYSTEM

All work outlined in this Section shall be included in the Monitoring System
Allowance. Allowance of $387,600 shall include cost of all work directly related
to this Scope of Work (contractor/sub-contractor related costs).

A central automated direct digital control Building Monitoring System (BMS)
shall be provided as described below.

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<PAGE> 36

The following functions should flow through the control points of the BMS by
taking each system individually and addressing the control points:

- - Under raised floor monitoring

- - HVAC Control

- - Life Safety Interface (as required by code)

- - Space comfort level monitoring

- - Water detection system

- - Water supply systems (per code)

- - Electric power distribution

- - Other programmable controls

It is important that the BMS design be capable of expansion and have a proven
track record of performance. System should include an additional view-only
monitor to be located at the Reception/Security Desk.

HVAC Control
- ------------

- - The BMS system shall be designed to be expandable and provide initially 500
pts.

- - Start and stop designated equipment within the project. All controllable
systems should have remote reset capabilities.

- - The air handling unit should be controlled with not less than temperatures,
stop/start, filter alarms and dampers.

- - Space temperature and humidification level should be read one per air
handler zone.

LIFE SAFETY (SEPARATE SYSTEM)

Life safety control measures which must be considered with the Building
Management System's comprehensive plan include:

- - Remote control monitoring of fire and jockey pump.

- - Status reporting of fire protection systems controls.

- - Capability of printing hard copy in engineers office.

IX. PLUMBING

General
- -------

10
<PAGE> 37

- - This section establishes the design criteria for all plumbing work to be
executed in the proposed facility and supplements local, state and national
codes and laws applicable to the work being undertaken.

- - In case of conflict between any code, standard or this RFP requirement, the
more stringent provision shall prevail.

Systems
- -------

- - Domestic water supply system.

- - Sanitary fixtures.

- - Sanitary drainage and vent system.

- - Storm drainage system.

- - HVAC system drainage

- - Below raised floor drainage.

Plumbing
- --------

Domestic Water Supply System

- - Metered domestic service will be extended from the campus distribution
system.

- - On-site storage tank (132,000 gallons) will be provided for fire reserve,
cooling system make-up and domestic water requirements.

- - Parallel back flow preventers will be provided. check valve.

Sanitary Fixtures

- - All fixtures are to be wall hung.

- - All fixtures are to be water saver type and utilize sensor controls.

Core Areas

- - One (1) men's and one (1) women's toilet rooms.

- - One electric hot water heater. Fixture count to be based on attached
drawings. A variance shall be obtained for reduced count.

- - All toilet rooms shall be accessible to and usable by the physically
disabled, as required by local code and the Americans With Disabilities Act
(ADA).

- - Drinking fountains: Two (2) or per code.

- - One vending area/kitchenette for building with water and drainage.

Sanitary Drainage System

- - Provide a complete sanitary drainage system for the fixtures, floor drains,
etc.

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<PAGE> 38

- - Single system trap primer shall be utilized.

- - Separate condensate and sanitary drainage systems will be placed below the
slab. The systems will converge at the sanitary man-hole outside of the
building. This is to protect the raised floor drainage system should the
waste lines become blocked.

Storm Drainage

- - Provide a complete system with gutters and downspouts and connect to the
site drainage system. The design will avoid any penetrations through the
data processing area.

X. FIRE PROTECTION

General
- -------

- - This section establishes the design criteria for the fire protection work
to be executed at the proposed facility.

- - Provide an automatic cycling pre-action sprinkler system.

- - Dry pendant, semi-recessed sprinkler heads will be provided in all areas
with ceilings. Areas without ceilings will be equipped with up-turned
sprinkler heads.

- - Each sprinkler system shall have a water flow alarm, tamper switches and
zone valves connected to a central annunciator panel.

- - An underfloor water and smoke detection system throughout the entire raised
floor area.

- - All above raised floor computer equipment areas shall be protected with
pre-action sprinkler system.

- - The generator fuel storage rooms will be protected by foam systems.

- - The generator room area will be protected by a dry sprinkler system.

- - The fire protection system shall be supported by an electric fire pump. The
fire pump shall operate from both a normal and emergency power source.

XI. ELECTRICAL

General
- -------

This document establishes electrical design criteria for the proposed facility
and shall be used to supplement local, state and national codes and laws which
are applicable to the work being undertaken, and those laws dealing with
environmental protection, occupational safety and health. In case of conflict,
the more stringent requirement shall govern.

Standards for Materials
- -----------------------

12
<PAGE> 39

All materials shall be new and shall conform to the applicable standard or
standards where such have been established for particular material in question.
Publications and standards or the organizations listed below are applicable to
materials specified herein:

- - Underwriters Laboratories, Inc. (UL)

- - National Electrical Manufacturers Association (NEMA)

- - Other general criteria:

- - All electrical motors shall be premium efficiency, inverter duty rated.

- - All variable frequency drives shall be of the same manufacturer and model
to minimize parts inventory.

_ All variable frequency drives shall be provided with RFI/EMI shielding,
line inductors, bypasses and 2 spare circuit boards of each type used.

- - All circuit breakers 400 amps and larger shall be 100% rated.

Scope of Work
- -------------

Furnish all material, labor, transportation, tools, equipment and supervision to
completely install and leave ready for operation, complete electrical systems in
accordance with this proposal.

- - Main switchgear, paralleling gear, switchboards, panel boards, distribution
boards, transformers, feeders and other equipment for the complete power
distribution system.

- - Wiring, branch circuiting, conduit systems and devices.

- - Lighting system.

- - Power wiring and connection for mechanical equipment furnished under other
sections.

- - Emergency power distribution system should support selected
lighting fixtures at all paths of egress as required by applicable code.

- - Fire alarm system.

The Normal Power System consists of two in-coming services of 5,000 amperes,
each. Each service will be fed from a separate transformer rated 3000 KVA, 3
phase, 4 wire, 60 hertz. Each transformer will be fed from a separate utility
company primary feeder (provided by the power company).
EMERGENCY GENERATOR SYSTEM

- - Initial installation shall include three, 2000 kw diesel generators with
space for one additional unit .

- - The diesel generators shall be as manufactured by CAT or equal.

- - The diesel generators shall be standby-duty units with critical mufflers,
engine mounted radiators.

- - Four 5,000 gallon fuel storage tanks shall be provided. The tanks shall be
housed within above-grade, fire-rated vaults as part of the generator
building.

- - These diesel generators shall furnish both critical and life safety loads.

13
<PAGE> 40

UPS System
- ----------

- - 4,500 kva UPS shall be provided in six 750 kva modules. Initially four
modules, with associated battery strings, will be installed with space for
two additional units and their batteries.

- - Battery capacity will be 8 minutes.

- - PDU's will be furnished under the stated allowance. Progressive provided
data will be used to size and configure the PDU arrangement.

Main Distribution Frame Room
- ----------------------------

- - Provide four (4) sets of six (6) 4" incoming conduits stubbed 6" AFF in
building main distribution frame room and extending beyond building site
parameter wall underground to connect to conduits extending to utility
access by others (see Exhibit A)

- - Provide No. 16 galvanized iron "pull wire" or nylon zip string in each
telephone conduit opening.

- - Provide equipment backboards. Provide 4' x 8', 3/4" fireproof plywood
sheets secured to wall around the interior of the room

- - Provide one #1/0 copper ground wire for each backboard tied back to main
switch gear ground.

- - The ceiling shall be exposed structure.

- - The finished floor shall be a sealed concrete.

- - The Room dimension shall be approximately 30' x 50'.

Fire Alarm System
- -----------------

Provide a complete stand-alone fire alarm system to comply with Building Code,
ADA, and all ordinances having jurisdiction over this project.

Fire alarm system shall be individually addressable multiplexed type and shall
include, the following:

- - Main FACP and one annunciator panel.

- - Manual pull stations.

- - Horn/strobe devices.

- - Smoke detectors in all mechanical equipment rooms, electrical rooms,
telephone rooms and lobbies and below the raised floor area.

- - Smoke detectors in supply and return ducts or each air handler system in
outside air intake fans as required by code.

- - Monitoring of all sprinkler system alarm valves, flow switches, tamper
switches, etc. as required by code.

- - System shall be compatible with existing systems on campus and communicate
with the local fire department.

14
<PAGE> 41

Lighting System
- ---------------

- - 4' Utility Fluorescent - Mechanical and Electrical Equipment areas.

- - 27 cell parabolic in all office/support areas providing 50 initial foot
candles at 3' above an open finish floor.

- - All computer raised floor areas and storage areas shall utilize acrylic
prismatic lensed fixtures.

15
<PAGE> 42

Lightning Protection
- --------------------

- - Provide and install a complete lightning protection system in compliance
with NFPA No. 780. System shall be installed for a UL Master Label A.

Intermediate Distribution Frame Room
- ------------------------------------

- - The Intermediate Distribution Frame Room shall be approx. 8'x 10'.

- - The ceiling shall be exposed structure.

- - The finished floor shall be a static-free tile.

- - Provide equipment backboards. Provide 4'x 8', 3/4" fireproof plywood
sheets secured to wall around the interior of the room and painted white.

- - Provide one #1/0 copper ground wire for each backboard tied back to main
switch gear ground

XII. VERTICAL TRANSPORTATION

- - None Required

16
<PAGE> 43

XIII. ALLOWANCES: ALL ALLOWANCES SHALL INCLUDE COST OF ALL WORK DIRECTLY RELATED
TO THE SPECIFIC SCOPE OF WORK INCLUDING ALL EQUIPMENT CONTRACTOR/SUBCONTRACTOR
COSTS.

BMS/Monitoring System(s) $387,600

Fencing $ 20,000

Commissioning by Independent Contractor $ 75,000

Architectural Screening $ 10,000

Landscaping $ 25,000

Appliance $ 8,000

Control Room Millwork $ 15,000

Compactor $ 40,000

Bailer $ 15,000

Attic Stock/Spare Parts - Equipment $ 30,000

Signage $ 20,000

Modifications within Central Chilled Water Plant $ 75,000

PDU's $428,000

Security $ 50,000

Emergency Power-Off System $ 20,000

Primary feeder cables from Chilled Water Plant. $ 20,000

17
<PAGE> 44

EXHIBIT B-1
-----------

Supplement to Development Agreement

This Supplement to Development Agreement is made and entered into as of
the 16th day of November, 1999, by and between GP Ohio, L.L.C., a Rhode Island
limited liability company ("Developer") and Progressive Casualty Insurance
Company, a Ohio corporation ("Progressive").

RECITALS:

A. Developer and Progressive have previously entered into a Development
Agreement dated as of November 16, 1999.

B. Section 2(b) of the Development Agreement anticipates that Developer
and Progressive will mutually agree on certain "Scope Documents" consisting of a
building description and outline specifications, schematic building plans and
master site plan for the Project (as defined in the Development Agreement).
Section 7(a) of the Development Agreement further anticipates that Developer and
Progressive will establish the "Stipulated Sum" to be paid by Progressive to
Developer for Developer's performance of the Work under the Development
Agreement.

C. Developer and Progressive have reached agreement on the Scope
Documents and Stipulated Sum for the Development Agreement.

NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the parties do hereby agree as follows:

1. Attached hereto as SCHEDULE A is the final, approved Building
Description and Outline Specifications, Schematic Building Plans and Master Site
Plan for the Project. SCHEDULE A attached hereto is hereby incorporated in and
shall be deemed a part of EXHIBIT B to the Development Agreement, superseding
the preliminary Scope Documents identified in the EXHIBIT B previously attached
to the Development Agreement. From and after the date hereof, any and all
reference to the Scope Documents and/or EXHIBIT B in the Development Agreement
shall be deemed to refer to SCHEDULE A attached hereto.

2. The agreed upon Stipulated Sum under the Development Agreement is
hereby established and confirmed to be $24,713,000.00, consisting of a
Professional Fees/Project Management category of $2,131,000.00 and a
Construction/Development Cost category of $22,582,000.00.

3. Except as expressly modified herein, the Development Agreement
remains in full force and effect.

<PAGE> 45

4. Terms and conditions of this Supplement shall be binding upon and
shall insure to the benefit of the parties hereto and their respective
successors and assigns.

IN WITNESS WHEREOF, the undersigned have executed this Supplement as of
the date first written above.

(Developer)

GP Ohio, L.L.C.

By: Gilbane Properties, Inc., Managing Member

By: /s/ Robert V. Gilbane
----------------------------------
Title: President

(Progressive)

Progressive Casualty Insurance Company

By: /s/ Daniel E. Schluer
----------------------------------
Title: Senior Real Estate Project Manager

1
<PAGE> 46

EXHIBIT C
---------

Project Schedule

(Construction Schedule)

<PAGE> 47

EXHIBIT D
---------

Termination Fee Schedule

PERIOD TERMINATION FEE
- ------ ---------------

On or before September 1, 1999 $100,000

September 1, 1999 to October 31, 1999 $175,000

November 1, 1999 to November 15, 1999 $225,000

On or after November 16, 1999 $275,000

<PAGE> 48

EXHIBIT E
---------

Expense Categories

Design Services $1,477,000
Permits and Fees 25,000
Professional Services Expenses 165,000

<PAGE> 49

EXHIBIT F
---------

Notice of Commencement

<PAGE> 50

ORIGINAL
--------
NOTICE OF COMMENCEMENT
----------------------
( SECTION 1311.04 O.R.C.)
STATE OF OHIO,
COUNTY OF CUYAHOGA, SS:

Daniel E. Schluer being first duly cautioned and sworn states that he
is the Senior Real Estate Project Manager of Progressive Casualty Insurance
Company, the Owner, that he is duly authorized to give this Notice of
Commencement, that the information contained hereinbelow is true as he verily
believes, and states the following:

1. NOTICE. Notice is hereby given pursuant to section 1311.04 of the Ohio
Revised Code that an Improvement which may be the subject of Mechanic Lien is
about to begin.

2. DESCRIPTION. The legal description of the real property upon which the
Improvement is to be made is attached as Exhibit A hereto, said exhibit being
incorporated by reference into this notice as if fully set forth herein.

3. IMPROVEMENT. The Improvement will be new construction of an approximately
80,000 square foot data center building and associated site improvements. The
building will share an address of 300 North Commons Boulevard, Mayfield Village,
OH with other buildings on the site. Construction is scheduled to begin
November 1, 1999.

4. CONTRACTING PARTY. Progressive Casualty Insurance Company, whose address is
6300 Wilson Mills Road, Mayfield Village, Ohio 44143, is the Owner who
contracted for the Improvement.

5. OWNERS DESIGNEE. No designee has been appointed by the Owner for this
Improvement.

6. ORIGINAL CONTRACTOR(S). The following is a complete list of the original
contractors working on the Improvement and the dates of their contracts:

1) Name: Gilbane Properties, L.L.C.
Address: 7 Jackson Walkway
Providence, RI 02903-3623

7. LENDING INSTITUTION(S). There are no lending institutions providing financing
for the Improvement.

8. SURETIES. No sureties have provided any bonds for the Improvement.

<PAGE> 51

9. NOTICE.

TO LIEN CLAIMANTS AND SUBSEQUENT PURCHASERS
TAKE NOTICE THAT LABOR OR WORK IS ABOUT TO BEGIN ON OR
MATERIALS ARE ABOUT TO BE FURNISHED FOR AN IMPROVEMENT TO THE REAL PROPERTY
DESCRIBED IN THIS INSTRUMENT. A PERSON HAVING A MECHANICS' LIEN MAY PRESERVE THE
LIEN BY PROVIDING A NOTICE OF FURNISHING TO THE ABOVE-NAMED DESIGNEE AND HIS
ORIGINAL CONTRACTOR, IF ANY, AND BY TIMELY RECORDING AN AFFIDAVIT PURSUANT TO
SECTION 1311.06 OF THE REVISED CODE.

A COPY OF THIS NOTICE MAY BE OBTAINED UPON MAKING A WRITTEN
REQUEST BY CERTIFIED MAIL TO THE ABOVE-NAMED OWNER, PART OWNER, LESSEE,
DESIGNEE, OR THE PERSON WITH WHOM YOU HAVE CONTRACTED.

10. PREPARER. The following is the name and address of the person who prepared
this Notice of Commencement.

1) Name: Daniel E. Schluer
Address: 300 North Commons Boulevard
Mayfield Village, OH 44143

11. Further Affiant sayeth naught.

/s/ Daniel E. Schluer
----------------------
Daniel E. Schluer

Sworn to and subscribed in my presence this 26th day of October, 1999.

/s/ Rachael J. Lardie
----------------------
NOTARY PUBLIC

<PAGE> 52

EXHIBIT A
LEGAL DESCRIPTION

Situated in the Village of Mayfield, County of Cuyahoga and State of
Ohio, and known as being part of Original Mayfield Township Lot Nos. 15 and 25,
Tract No. 1, and being further bounded and described as follows:

Commencing at a 1 inch diameter iron pin monument found in the
centerline of S.O.M. Center Road, (S.R. 91), 60 feet wide, at its intersection
with the Southerly line said Original Lot No. 15; Thence North 1(degree)15'18"
East, along the centerline of S.O.M. Center Road a distance of 692.89 feet to
the Southeasterly corner of land conveyed to the Village of Mayfield by deed
recorded in Volume 97-11623, Page 25 of Cuyahoga County Records; Thence North
89(degree)23'28" West along the Southerly line of land so conveyed to the
Village of Mayfield a distance of 777.90 feet to capped iron pin set at the
principal place of beginning of the parcel of land herein described;

Thence South 43(degree)26'00" West, a distance of 940.00 feet to a
capped iron pin set;

Thence South 56(degree)26'40" West, a distance of 881.08 feet to a
capped iron pin set in the Easterly Limited Right of Way of State Highway No. 1,
(Interstate 271);

Thence North 3(degree)14'16" West, along said Easterly Limited Right of
Way line a distance of 129.87 feet to a capped iron pin set at an angle therein;

Thence North 5(degree)47'36" East, continuing along said Easterly
Limited Right of Way line a distance of 560.68 feet to a capped iron pin set at
an angle therein;

Thence North 0(degree)17'43" East, continuing along said Easterly
Limited Right of Way line distance of 116.18 feet to a capped iron pin set at
the Southwesterly corner of land conveyed to the C.E.I. Co. by deed recorded in
Volume 14210, Page 869 of Cuyahoga County Records;

Thence South 89(degree)23'28" East, along the Southerly line of land so
conveyed the C.E.I. Co. a distance of 30.00 feet to a capped iron pin set at the
Southeasterly corner of said land;

Thence North 2(degree)20'48" East, along the Easterly line of land so
conveyed to the C.E.I. Co. a distance of 108.52 feet to a capped iron pin set at
the Northeasterly corner of said land;

Thence North 89(degree)23'28" West, along the Northerly line of land so
conveyed to the C.E.I. Co. distance of 35.00 feet to a capped iron pin set at
the Northwesterly corner of said land, in the Easterly Limited Right of Way of
State Highway No. 1, (Interstate 271);

Thence North 0(degree)17'43" West, along said Easterly Limited Right of
Way line a distance of 181.02 feet to a capped iron pin set at an angle therein;

Thence North 3(degree)25'45" East, continuing along said Easterly
Limited Right of Way line a distance of 90.58 feet to a 3/4 inch diameter iron
pin found at the Southwesterly corner of land conveyed to the Village of
Mayfield, aforesaid;

Thence South 89(degree)23'28" East, along said Southerly line a
distance of 1313.32 feet to principal place of beginning and containing 19.6383
acres of land, be the same more or less as surveyed by Stephen Hovancsek and

<PAGE> 53

Associates, Inc., Registered Surveyor No. 5160, State of Ohio in January 1998,
but subject to all legal highways. Bearings are to an assumed meridian and are
used to denote angles only. All capped iron pins set are 5/8 inch diameter
rebar, 30 inches long, with a plastic cap marked SH&A 5160.

Prior instrument reference: Volume 97-11876, Page 01.

<PAGE> 1
Exhibit No. 10(D)

AIRCRAFT PURCHASE AGREEMENT
---------------------------

THIS AIRCRAFT PURCHASE AGREEMENT (this "Agreement") is entered
into as of this 23rd day of April, 1999, by and between Village Transport Corp.,
a Delaware corporation having an office at 6300 Wilson Mills Road, Mayfield
Village, Ohio 44143 ("Seller"), and ACME Acquisition Corporation, an Ohio
corporation having an office at 6300 Wilson Mills Road, Mayfield Village, Ohio
44143 ("Buyer").

1. PURCHASE AND SALE. Upon and subject to the terms and conditions set
forth herein, at Closing (as defined below), Seller shall sell and deliver to
Buyer, and Buyer shall purchase from Seller, the following:

(a) CANADAIR CHALLENGER 601-1A Serial No. 3007, bearing United
States Registration No. N711SX, equipped with two (2) General
Electric CF 34-1A engines, bearing manufacturer's Serial Nos.
350-105 and 350-104, and all related avionics, appliances, parts,
instruments, equipment and accessories, and as described in the
specifications attached hereto as Exhibit A (the "Challenger"); and

(b) all related manuals and catalogs (as set forth in Exhibit A-1),
documents, logbooks and maintenance and other records (the
"Challenger Documents").

2. PAYMENT. In consideration for good and marketable title to the
Challenger and the Challenger Documents as herein provided, at Closing, Buyer
hereby agrees to pay to Seller, and Seller agrees to accept from Buyer, by wire
transfer the aggregate sum of TWELVE MILLION ONE HUNDRED SEVENTEEN THOUSAND TWO
HUNDRED AND FORTY-THREE U.S. Dollars ($12,117,243.00) (the "Purchase Price").

3. CLOSING.

(a) TIME AND PLACE. The closing of the transaction contemplated
herein (the "Closing") shall take place at Wilmington, Delaware, or
at such other location as the parties may mutually agree. The
Closing shall take place on a date ("Closing Date") to be selected
by mutual agreement of the parties, which shall be on or about April
23, 1999, but no later than July 31, 1999, subject to Sections 12
and 16 below, unless a later date is mutually agreed upon by the
parties.

(b) EVENTS AT CLOSING. At Closing, Seller shall sell and convey to
Buyer, against delivery of the Purchase Price, as provided at
Section 2 above, good and marketable title to the Challenger, free
and clear of all liens, encumbrances, claims and rights of third
parties. Possession of the Challenger will be delivered by Seller to
Buyer at the time and place of Closing.

(i) possession of and title to the Challenger and the Challenger
Documents;

<PAGE> 2

(ii) an Aircraft Bill of Sale (FAA AC Form 8050-2), executed in
favor of Buyer, covering the Challenger (the "FAA Bill of Sale")
in substantially the form of Exhibit B hereto;

(iii) a Bill of Sale, in the form of Exhibit C hereto, executed
in favor of Buyer, covering the Challenger;

(iv) all equipment, parts and personal property presently in the
Challenger and other additional equipment, parts and personal
property described in Exhibit D hereto; and

(v) an assignment of all warranties relating to the Challenger
which are then in effect and assignable.

(d) OBLIGATIONS OF BUYER. At Closing, Buyer shall deliver to Seller,
or as otherwise provided herein, the following:

(i) the Purchase Price in the manner described at Section 2
above; and

(ii) an aircraft delivery receipt covering the Challenger in the
form attached hereto as Exhibit E;

4. FAA FILING. The parties hereby agree that duplicate originals of all
documents required to be filed with the United States Federal Aviation
Administration ("FAA"), including AC Form 8050-1 and AC Form 8050-2, in order to
convey the Challenger to Buyer, shall be prepositioned with Aero Records & Title
Co, for filing with the FAA upon Closing and receipt of filing instructions from
the parties hereto.

5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants to Buyer that, as of the date hereof and as of the Closing Date:

(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
necessary power and authority to conduct its business and to enter
into and perform its obligations under this Agreement and each
document delivered hereunder;

(b) This Agreement, each document delivered hereunder, and all
transactions contemplated hereby and thereby, have been duly
authorized by all necessary action on the part of Seller;

(c) This Agreement and all documents delivered hereunder constitute
the legal, valid and binding obligations of Seller, enforceable in
accordance with their terms;

(d) Record title to the Challenger is held in the name of Seller;
Seller is the beneficial owner of the Challenger, holds valid and
lawful title to the Challenger and has all legal right and authority
necessary to sell and convey the Challenger to Buyer, as herein
provided, and to carry out all of its obligations hereunder;

2
<PAGE> 3

(e) At Closing, Seller shall transfer and convey to Buyer title to
the Challenger and, by the deliveries to be made at Closing, Buyer
will have good and marketable title to the Challenger, free and
clear of any and all liens, encumbrances, claims and rights of
others;

(f) At Closing, the Challenger and all associated equipment and
accessories (i) will be current on the Bombardier Aerospace
maintenance program, (ii) will have a current United States
Certificate of Airworthiness issued by the FAA, (iii) will not be
subject to any outstanding mandatory airworthiness directives; and
(iv) will comply with all statutes, laws, rules, and regulations of
governmental or regulatory authorities applicable thereto;

(g) All sales, use, personal property and excise taxes, and all
other taxes, proper charges and assessments, based upon or relating
to the ownership, maintenance, purchase, use or operation of the
Challenger prior to the date hereof, or the Closing Date, as
applicable, have been duly paid and satisfied;

(h) At Closing, the Challenger will conform to the specifications
attached hereto as Exhibit A;

(i) At the Closing Date, the flight logs and maintenance records
relating to the Challenger will be complete and accurate in all
material respects and will be in conformity with all applicable FAA
regulations; and

(j) At Closing, all representations of Seller to Buyer set forth in
Exhibit F will be true, accurate and complete.

EXCEPT AS TO TITLE AND THE MATTERS SET FORTH IN THIS SECTION 5,
THE CHALLENGER WILL BE SOLD AND DELIVERED TO BUYER "AS IS" AND
SELLER MAKES NO OTHER WARRANTIES, GUARANTEES OR REPRESENTATIONS
OF ANY KIND WITH RESPECT TO THE CHALLENGER, WHETHER EXPRESS OR
IMPLIED, ARISING BY LAW OR OTHERWISE, INCLUDING WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. EXCEPT FOR THOSE REPRESENTATIONS,
WARRANTIES AND COVENANTS EXPRESSLY SET FORTH IN THIS AGREEMENT,
BUYER HEREBY WAIVES ALL WARRANTIES, GUARANTEES, OBLIGATIONS,
LIABILITIES, RIGHTS AND REMEDIES AGAINST SELLER. EXCEPT AS TO
TITLE AND THE OBLIGATIONS OF SELLER UNDER SECTIONS 9, 10 AND 11
HEREOF, BUYER HEREBY WAIVES ANY CLAIM AGAINST SELLER FOR LOSS OF
USE, REVENUE OR PROFIT WITH RESPECT TO THE CHALLENGER OR ANY
OTHER INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.

3
<PAGE> 4

6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to Seller that, as of the date hereof and as of the Closing Date:

(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Ohio;

(b) Buyer has all necessary power and authority to conduct its
business and to enter into and perform its obligations under this
Agreement and each document delivered hereunder;

(c) This Agreement, each document delivered hereunder, and all
transactions contemplated hereby and thereby, have been duly
authorized on behalf of Buyer by all necessary corporate action; and

(d) This Agreement and each document delivered hereunder constitute
the legal, valid and binding obligations of Buyer, enforceable in
accordance with their terms.

7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligation of
Buyer to purchase the Challenger, and to otherwise consummate the transactions
contemplated by this Agreement, is subject to the following conditions:

(a) Each of the representations and warranties of Seller contained
this Agreement shall be true and correct as of the date hereof and
as of the Closing Date, as if each were again made at such time;

(b) Seller shall have performed and complied with all covenants,
agreements and conditions contained in this Agreement required to be
performed or complied with by it on or prior to the Closing Date;

(c) All proceedings to be taken by Seller shall have been taken; all
consents and governmental approvals to be obtained in connection
with the transactions contemplated by this Agreement shall have been
obtained; and all documents incident thereto shall be reasonably
satisfactory in form and substance to Buyer; and

(d) No action, proceeding or inquiry shall be pending or threatened
by any third party (other than a person claiming by or through
Buyer) or any governmental or regulatory authority to restrain or
prevent the consummation of the transactions contemplated hereby.

8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligation of
Seller to sell the Challenger to Buyer, and to otherwise consummate the
transactions contemplated by this Agreement, is subject to the following
conditions:

(a) Each of the representations and warranties of Buyer contained in
this Agreement shall be true and correct as of the date hereof and
as of the Closing Date, as if each were again made at such time;

4
<PAGE> 5

(b) Buyer shall have performed and complied with all covenants,
agreements and conditions contained in this Agreement required to be
performed or complied with by it on or prior to the Closing Date
(including, without limitation, the payment, deposit or delivery in
full of the Purchase Price);

(c) All proceedings to be taken by Buyer shall have been taken; all
consents and governmental approvals to be obtained in connection
with the transactions contemplated by this Agreement shall have been
obtained; and all documents incident thereto shall be reasonably
satisfactory in form and substance to Seller; and

(d) No action, proceeding or inquiry shall be pending or threatened
by any third party (other than a person claiming by or through
Seller) or any governmental or regulatory authority to restrain or
prevent the consummation of the transactions contemplated hereby.

9. TAXES. The consideration to be paid for the Challenger hereunder
does not include any sales, use, personal property, excise or other similar
taxes or assessments which may be hereafter imposed by any governmental
authority upon the sale transaction or, with respect to periods after Closing,
upon the Challenger or the use by Buyer thereof. Buyer agrees to pay, or to
indemnify Seller against, any and all such taxes or assessments, except for any
taxes on the income or gain resulting from the sale of the Challenger (or at its
sole expense to defend against the imposition of any such taxes). The
consideration to be paid for the Challenger includes, if applicable, all sales,
excise and similar taxes assessed on the sale of materials and equipment to
Seller for incorporation into the Challenger, and any personal property taxes
assessed against the Challenger, or any part thereof, prior to Closing, and
Buyer is not responsible for any additional payment with respect thereto. Seller
shall also pay when due any taxes imposed by any governmental authority on the
income or gain resulting from the sale of the Challenger hereunder.

10. INDEMNIFICATION.

(a) Seller agrees to indemnify, defend and hold harmless Buyer, its
affiliates, and each of their respective officers, agents and
employees, from and against any and all demands, actions,
obligations, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) relating to or arising out of any and
all claims and causes of action which have accrued prior to the
Closing Date (regardless of when asserted) with respect to or
arising out of the ownership, maintenance, condition, operation or
use of the Challenger prior to the Closing Date.

(b) Buyer agrees to indemnify, defend and hold harmless Seller, its
affiliates, and each of their respective officers, agents and
employees, from and against any and all demands, actions,
obligations, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) relating to or arising out of any and
all claims and causes of action which accrue on or after the
Closing Date (regardless of when asserted) with respect to or
arising out of the ownership, maintenance, condition, operation or
use of the Challenger on or after the Closing Date.

5
<PAGE> 6

11. CONTRACTUAL INDEMNIFICATION. Each of the parties hereto (the
"Indemnifying Party") covenants and agrees to indemnify, defend and hold
harmless the other party, its affiliates, and each of their respective officers,
agents and employees, from and against any and all claims, demands, actions,
damages, obligations, liabilities, costs and expenses (including reasonable
attorneys' fees) arising out of any breach of any covenant, representation or
warranty made by such Indemnifying Party in this Agreement. The obligations to
indemnify contained in this Agreement shall survive Closing and the consummation
of the transactions contemplated by this Agreement.

12. RISK OF LOSS. Seller shall continue to maintain the Challenger in
accordance with the requirements of this Agreement up to the Closing Date. In
the event that, prior to Closing, the Challenger is destroyed, lost, stolen or
damaged to the extent that "Major Repairs" (defined to mean repairs which cost
in excess of $25,000 in the aggregate) are necessary, Seller and Buyer shall
each have the right to terminate this Agreement by notice to the other, in which
case both parties shall be released from all obligations hereunder. If the
Challenger is damaged to a lesser extent prior to Closing, Seller shall be
obligated to repair same at its own expense, and the Closing shall be extended
for a reasonable period (but in no event longer than 60 days) to permit such
repair.

13. EXPENSES. Regardless of whether the transactions contemplated
hereby shall be consummated, each party hereto shall pay its own expenses
(including attorney's fees) incidental to the negotiation, documentation and
consummation of such transactions. Each of the parties hereby covenants and
agrees to indemnify, defend and save harmless the other against any and all
claims and liabilities which may arise in connection with any third party claim
for brokerage or similar fees arising out of any commitments made by or services
performed for the covenanting party (real or alleged) in connection with the
sale of the Challenger.

14. GOVERNMENTAL APPROVALS. The Closing shall be subject to all
governmental and regulatory approvals required for consummation of the
transaction, including without limitation, the registration of the transfer of
ownership to the Challenger with the FAA or other applicable authority.

15. ASSIGNMENT. Neither party may assign its respective rights or
obligations hereunder without the prior written consent of the other party,
which consent shall not be unreasonably withheld. All representations,
warranties and covenants of each party hereunder shall inure to the benefit of
the other party and its permitted assignees.

16. FORCE MAJEURE. Subject to the terms and conditions set forth
herein, the parties hereto shall use reasonable efforts to consummate the
transactions provided for herein on or before May 31, 1999. In the event that
either Seller or Buyer is unable to perform its obligations hereunder, or to
deliver the required documents, instruments or items of property at Closing, by
reason of any act of God, weather, act of government, strike, shortage of supply
or other cause not reasonably within the control of such party, the date set for
Closing shall be extended until the cause of such inability to perform or
deliver shall have been cured; provided, however, such Closing shall not be
delayed more than thirty-one (31) days. In the event that the Closing is so
delayed, but does not occur on or before July 31, 1999, in accordance with this
Section 16, upon the written demand of either party, the parties shall be
released from their respective obligations

6
<PAGE> 7

hereunder and, in such event, neither party will have any further responsibility
or liability to the other.

17. FURTHER ASSURANCES. From time to time after Closing, Seller shall
promptly do, acknowledge, execute and deliver all such further acts, deeds,
bills of sale, transfers, conveyances, certificates of title, registrations of
title and/or other documents and things as Buyer may reasonably request in order
to transfer to and vest and confirm in Buyer the Challenger and to otherwise
fully consummate the transactions provided for herein.

18. NOTICES. All notices and requests in connection with this Agreement
shall be given in writing and shall be given by facsimile, telegram, cable,
telex or teletype, confirmed by certified mail, as follows:

If to Seller: If to Buyer:

Village Transport Corp. Mr. Peter B. Lewis
6300 Wilson Mills Road c/o The Progressive Corporation
Mayfield Village, Ohio 44143 6300 Wilson Mills Road
Attention: David M. Schneider, Secretary Mayfield Village, Ohio 44143

19. MISCELLANEOUS.

(a) This Agreement shall inure to the benefit of and shall be
binding upon the parties hereto and their respective successors and
permitted assigns.

(b) The headings of the Sections of this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning of such Sections.

(c) This Agreement and the Exhibits hereto constitutes the entire
agreement between the parties with respect to the subject matter
hereof, and supersedes any and all other written or oral
representations, negotiations, agreements or understandings between
the parties.

(d) No representations, warranties, inducements, agreements,
promises or understandings which alter, modify, limit or add to the
terms, provisions or conditions hereof shall have any force or
effect unless the same are recorded in a written instrument duly
executed by the parties to be bound thereby.

(e) This Agreement is not intended to benefit, and shall not confer
any rights or remedies on, any party other than Seller and Buyer
and their permitted assignees, if any.

(f) This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original.

(g) This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio.

7
<PAGE> 8

IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized representative, as
of the day and year first above written.

SELLER: BUYER:

Village Transport Corp. ACME Acquisition Corporation

By: /s/ David M. Schneider By: /s/ Peter B. Lewis
----------------------------------- -------------------------------
David M. Schneider, Secretary Peter B. Lewis, President

8
<PAGE> 9

EXHIBIT A

SPECIFICATIONS

Serial Number: 3007 Total Time: 5063.1 hrs.
Registration Number: N711SX Total landings: 2938
Date of Manufacture: June 17, 1983

ENGINES
-------

Engine #1 Engine #2
Serial Number: 350105 Serial Number: 350104
Total Time: 5,063.1 hrs. Total Time: 4864.1 hrs.
Total Cycles: 3,165.7 Total Cycles: 2997.1
Time Since Hot Section: 890.4 hrs. Time Since Hot Section: 890.4 hrs.
Cycles Since Hot Section: 500.7 Cycles Since Hot Section: 500.7

(Both engines are due for overhaul at 6000 hrs. total time. The #1 HPT blades
were replaced with the P142 "Serpentine Cooled" blades at the last Hot Section
Inspection on both engines.)

MAINTENANCE
-----------

The 4800 hour and 180 month inspections were performed by Bombardier Aviation
Services Tucson facility on 2/97.

EXTERIOR
--------

Canadair Challenger paint scheme done by Bombardier Aviation Services Tucson
facility on 2/97. Overall Materhorn White, Pratt & Lambert JetGlo 570-535, with
bottom and stripes Gloss Black, Pratt & Lambert JetGlo 571-900.

AVIONICS
--------

AUTOPILOT: Sperry Dual Channel SPZ 600
EFIS: Sperry Dual EFIS 800 (4 tubes)
COMM: Triple Collins VHF-22C
NAV: Dual Collins VIR-32
ADF: Dual Collins ADF-60
DME: Dual Collins DME-42
TRANSPONDER: Dual Honeywell RCZ-852
RADAR: Sperry Primus 800 Color
IRS: Dual Honeywell Laseref
FMS: Dual Universal 1-C with GPS
HF: Dual Collins HF 9000
SELCAL: Motorola NA138-714
FLIGHT PHONE: Wulfsberg FF VI (with Privacy Mod)
ELT: Dorne & Margolin

9
<PAGE> 10

CVR: Fairchild A-100A
FDR: Provisions for Fairchild F 800 Digital
ALT: Collins ALT-55B
RMI: Collins BDI-36
TCAS: Honeywell TCAS 2000
EGPWS: Allied Signal with windshear

INTERIOR
--------

Ten passenger executive interior with grey color theme. Six grey leather
berthable chairs with lumbar support. Four passenger fabric devan converts to
berth for one. Most fabrics and carpet new by KC Aviation, Appleton, 1/96.
Forward full service galley with microwave oven, ERDA warming oven, and TIA
Electric coffee brewing/hot water system. Aft private lavatory. Cabin
entertainment system with TV Monitor, Airshow 200, Sony VCR, Sony 10 Disc CD
player, Sony Cassette player, Upgraded speakers and individual headphone station
at each seat.

ADDITIONAL FEATURES
-------------------

RVSM RNP-5/RNP-10 Approved
Increased Take-off Weight Mod
Powered Fuel Crossfeed Mod
Spoiler Auto Depoloy Mod
Innotech 2000 Soundproofing
Nose Gear Door Inadvertant Closure Mod
Large KC Aviation Jumpseat (Certified for take-off & landing)
Remote Single Point Refueling Panel
Remote Skydrol Replenishing System
Bleed Air Pressurized Water System
Aft Fuselage Storage Compartment
8.33 Khz frequency spacing modification to all three VHF Comms
New Collins Pro-Line CTL Control Heads
Aft Fuselage Mounted Tronair Towbar and Head

10
<PAGE> 11

EXHIBIT A-1

CHALLENGER DOCUMENTS

1. Aircraft logbook.
2. Engine logbooks.
3. APU logbook.
4. Airframe maintenance manual.
5. Engine maintenance manual.
6. All other maintenance manuals.

11
<PAGE> 12

EXHIBIT B

FAA BILL OF SALE

12
<PAGE> 13

EXHIBIT C

BILL OF SALE

Village Transport Corp. ("Seller"), a Delaware corporation
having an office at 6300 Wilson Mills Road, Mayfield Village, Ohio 44143, in
consideration of the sum of one dollar ($1.00), and other good and valuable
consideration, to it in hand paid by ACME Acquisition Corporation, an Ohio
corporation having an office at 6300 Wilson Mills Road, Mayfield Village, Ohio
44143 ("Buyer"), the receipt and sufficiency of which are hereby acknowledged,
does hereby sell, convey, transfer and deliver unto said Buyer the Canadair
Challenger aircraft, bearing United States Registration No. N711SX, bearing
manufacturer's Serial No. 3007 and equipped with two General Electric CF 34-1A
engines, bearing manufacturer's Serial Numbers 350-105 and 350-104, and all
related avionics, appliances, parts, instruments, equipment and accessories, and
as described in the specifications attached as Exhibit A hereto, and all related
manuals and catalogues (as described in Exhibit A-1 hereto), service bulletins
documents and logbooks (hereinafter collectively referred to as the "Aircraft").

TO HAVE AND TO HOLD, said Aircraft, as described, to Buyer,
its successors and assigns forever.

Seller hereby warrants that, at the time of the sale to be
effected hereby, Seller is the lawful owner of the Aircraft and has good and
lawful right to sell the same to Buyer, as herein provided, and that title to
the Aircraft is free from any lien, charge or encumbrance whatsoever, and that
Seller will defend said title against any and all claims.

Seller further covenants and agrees to execute and deliver, or
cause to be executed and delivered, all such further instruments and documents,
and to do or cause to be done all such acts and things, as may be reasonably
requested by Buyer in order to better convey and confirm

13
<PAGE> 14

unto Buyer title to and possession of the Aircraft hereby sold, conveyed,
transferred and delivered.

This Bill of Sale, and the representations, warranties and
covenants herein contained, shall inure to the benefit of Buyer and its
successors and assigns, and shall survive the execution and delivery hereof.

IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be
signed on this 23rd day of April, 1999.

Village Transport Corp., as Seller

- -------------------------------
By: David M. Schneider
Title: Secretary

14
<PAGE> 15

EXHIBIT D

CHALLENGER ADDITIONAL EQUIPMENT, PARTS
AND OTHER PERSONAL PROPERTY

APU:
----
Garrett Turbine Engine Company
Model Number: GTCP 36-100E Total Time: 3197 hrs.
Serial Number: P239C Time Since Hot Section: 758 hrs.

15
<PAGE> 16

EXHIBIT E

AIRCRAFT DELIVERY AND ACCEPTANCE RECEIPT

ACME Acquisition Corporation (the "Buyer"), hereby accepts and
acknowledges receipt from Village Transport Corp. (the "Seller"), in accordance
with the terms and conditions of that certain Aircraft Purchase Agreement dated
April _____, 1999, entered into between Buyer and Seller, of one (1) Canadair
Challenger, Serial No. 3077, bearing United States Registration No. N711SX.

The aircraft referred to above was received by the undersigned
Buyer on the date and at the location set forth below.

IN WITNESS WHEREOF, this instrument has been duly signed by
the undersigned, by its duly authorized representative in Wilmington, Delaware
on April 23, 1999 at a.m./p.m. local time.

BUYER

ACME Acquisition Corporation

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

By: Peter B. Lewis

Its: President

16
<PAGE> 17

EXHIBIT F

SELLER'S ADDITIONAL REPRESENTATIONS

1. The Challenger was painted in April, 1997, by Bombardier Aviation.

2. The Challenger has 5,063.1 hours of flight.

3. The Challenger left and right engines have 5,063.1 and 4,864.1 hours and
3,165.7 and 2,997.1 cycles, respectively.

<PAGE> 1
Exhibit No. 10(E)

AIRCRAFT
MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (the "Agreement") made and entered into as of
this 23rd day of April, 1999, by and between Village Transport Corp., a Delaware
corporation having an office at 6300 Wilson Mills Road, Mayfield Village, Ohio
44143 ("Manager"), and ACME Operating Corporation, an Ohio corporation having an
office at 6300 Wilson Mills Road, Mayfield Village, Ohio 44143 ("ACME").

WITNESSETH:

WHEREAS, ACME pursuant to an Aircraft Lease Agreement ("Lease") dated
of even date herewith, leases the aircraft (the "Aircraft") bearing the
manufacturer's Serial Number and Federal Aviation Administration Registration
Number set forth on the Schedule hereto, equipped with two General Electric CF
34-1A engines as more particularly described in the Lease Schedule (hereinafter
called the "Aircraft"); and

WHEREAS, ACME is desirous of engaging the services of Manager to
provide certain management services with respect to the Aircraft; and

WHEREAS, Manager is desirous of providing certain management services
pertaining to the Aircraft on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the parties hereto hereby
agree as follows:

1. ACME hereby engages Manager, and Manager hereby agrees, to provide
certain management services with respect to the Aircraft for the benefit of the
ACME.

2. Manager hereby agrees for the benefit and at the direction of ACME
that it shall provide the services set forth below:

3. (a) Throughout the term of this Agreement, Manager shall, at ACME's
cost and expense, (1) inspect, maintain, service, repair, overhaul and test the
Aircraft by duly competent personnel, in accordance with FAA approved
maintenance and preventive repair programs therefor, so as to keep the Aircraft
in good operating condition, ordinary wear and tear excepted, and in such
condition as may be necessary to enable the airworthiness certification of the
Aircraft to be maintained in good standing at all times under 49 U.S.C. Section
40101, et seq., as in effect from time to time; (2) maintain all records, logs
and other materials required by the FAA to be maintained in respect of the
Aircraft and make the same available for ACME's inspection; and (3) comply with
all laws of each and every jurisdiction in which the Aircraft may be operated
and with all rules of the FAA and each and every other legislative, executive,
administrative or judicial body exercising any power or jurisdiction over the
Aircraft, and shall maintain the Aircraft in proper condition for operation
under such laws and rules including, without limitation, all manufacturers
recommended maintenance. Manager also agrees not to

<PAGE> 2

operate or locate the Aircraft, or suffer the Aircraft to be operated or
located, in any area excluded from coverage by any insurance required by the
terms of this Agreement.

(b) The cost of compliance with any airworthiness or similar
directive, or regulation issued by the FAA or other governmental agency
("Airworthiness Directive") and the cost of complying with any mandatory or
recommended service bulletins or letters, shall be borne by ACME.

4. (a) Manager hereby agrees to identify and make available to ACME at
the inception of this Agreement, certain pilots, from a group of professionally
qualified pilots who shall be familiar with and licensed to operate the
Aircraft, from which ACME shall, in its own discretion, designate two (2) of
such pilots to operate the Aircraft for ACME, and thereafter such designated
pilots shall be ACME's pilots of the Aircraft. The pilot designation shall be in
writing and signed by ACME, which writing shall be binding upon ACME.

(b) ACME shall be permitted to remove any of such pilots by
providing written notice to Manager and designate new pilots, who shall
thereafter be ACME's pilots of the Aircraft.

(c) Notwithstanding the foregoing, the pilots designated by ACME
shall be subject to (i) availability, (ii) the rules and regulations promulgated
by the FAA, and (iii) strikes and labor disputes.

(d) ACME may at any time provide its own pilots upon twenty-four
(24) hours prior notice to Manager.

(e) ACME hereby directs Manager and Manager hereby agrees to make
all necessary take-off, flight and landing arrangements for flights operated by
ACME. Manager shall pay, at Manager's cost and expense, the following operating
expenses relating to the Aircraft: crew salary and benefits, telephone and costs
associated with providing information services. ACME shall, at all reasonable
times, have the right to inspect Manager's records with respect to the Aircraft.

(f) ACME will pay all operating expenses related to the Aircraft
except those set forth in paragraph (e) of this Section 4. Such operating
expenses shall include, but shall not be limited to: fuel, storage, domestic
landing fees, all federal, state and local taxes, charges, imposts, duties and
excise taxes and with respect to flights outside the 48 contiguous states of the
continental United States (the "Continental United States"), for foreign permit,
overflight, navigation, and air space fees, customs, head taxes and similar
assessments relating to the ownership, operation, maintenance or the use of the
Aircraft by ACME, registration and handling costs, catering, crew travel and
lodging, hangar and tie-down costs, flight planning and weather contract
services, maintenance supplies, outside pilot services (if any), equipment
costs, sales and use taxes and any other taxes and licensing fees associated
with the Aircraft.

5. ACME shall obtain, at ACME's expense, all-risk aircraft hull
insurance with no deductible with respect to the Aircraft, against any loss,
theft or damage to the Aircraft, including

2
<PAGE> 3

extended coverage with respect to any engines or parts while removed from the
Aircraft, for the fair market value of the Aircraft, naming Manager and ACME, as
named insureds and loss payees with losses payable as their respective interests
may appear. ACME shall likewise pay for and arrange to procure liability
insurance for the Aircraft in the form and substance and with such insurers
approved by Manager but in an amount not less than One Hundred Million Dollars
($100,000,000) single limit liability coverage and shall cause ACME and Manager,
to be named as additional insureds. Copies of such policies and certificates of
Insurance shall be furnished by the ACME to Manager promptly upon the execution
of this Agreement. Such Insurance shall be maintained by ACME in full force and
effect throughout the term hereof and the insurer shall provide ACME and Manager
thirty (30) days advance notice of cancellation or material alteration. All such
insurance shall contain a Breach of Warranty Endorsement in favor of ACME and
Manager.

6. At ACME's direction, Manager hereby agrees that it will provide
assistance to and consult with ACME in all matters regarding the Aircraft
including but not limited to:

(a) FAA and manufacturers correspondence and directives;

(b) Enforcement of warranty claims;

(d) Parts replacement, services and maintenance arrangements.

7. As compensation for the services to be performed by Manager
hereunder, ACME hereby agrees to pay to Manager an annual Management Fee in an
amount equal to $405,200; provided, that the parties agree to adjust the
Management Fee at each anniversary of the date hereof. The Management Fee shall
be payable in twelve equal monthly installments each of which shall be due on
the first day of each calendar month during the term of this Agreement.

8. In addition, ACME agrees that it shall provide Manager with the
following information for each proposed flight:

(a) proposed departure point;

(b) destination;

(d) the number of anticipated passengers;

(e) the nature and extent of luggage to be carried;

(f) the date and time of a return flight, if any; and

3
<PAGE> 4

(g) any other information concerning the proposed flight that may be
pertinent or is reasonably required by Manager.

9. Manager agrees that, throughout the term of this Agreement, it shall
not cause or permit, through any of its own acts or failures to act, any liens,
claims or encumbrances to attach to the Aircraft other than mechanics liens to
be discharged in the ordinary course of business.

10. ACME acknowledges that Manager shall have no liability for delay or
failure to furnish the pilots pursuant to this Agreement. Manager shall not
otherwise be liable to ACME for any direct, indirect, special, consequential or
other damages caused directly or indirectly by any such delay or failure to
furnish the pilots. ACME and Manager further agree that when, in the reasonable
view of ACME or the pilots of the Aircraft, safety may be compromised, ACME or
the pilots may terminate a flight, refuse to commence a flight, or take other
action necessitated by such safety considerations without liability for loss,
injury, damage or delay. ACME can dictate other limitations of flights. ACME
acknowledges that the ACME shall operate the Aircraft at all times in accordance
with applicable FAA Regulations.

11. Upon the occurrence of an Event of Default (as hereinafter defined)
under this Agreement, Manager will cease all activities hereunder. In addition
to the foregoing, Manager shall have all right to bring an action or claim
against ACME for all sums which may be due and owing hereunder and to pursue all
other remedies available to it at law or in equity. For purposes hereof, the
term "Event of Default" shall mean the occurrence and continuation of any of the
following events of default hereunder:

(a) The failure of ACME to pay when due the Management Fee set
forth in Section 7 hereof or any taxes or similar assessments levied or imposed
against components of such fee, as set forth in said Section 7, with a ten (10)
day period of grace after written notice of nonpayment;

(b) The material breach by ACME of any other provision of this
Agreement, which material breach shall continue for thirty (30) days after
written notice to ACME;

(1) admit in writing its inability to pay, or fail to pay, its
debts generally as they become due;

(2) file a petition in bankruptcy or a petition to take
advantage of any insolvency act or file an answer admitting or failing
to deny the material allegations of such petition:

(3) make an assignment for the benefit of its creditors;

(4) consent to the appointment of, or possession by, a
custodian for itself or for the whole or substantially all of its
property; or

4
<PAGE> 5

(5) file a petition or answer seeking reorganization or
arrangement or other aid or relief under any bankruptcy or insolvency
laws or any other law for the relief of debtors or file an answer
admitting, or fail to deny, the material allegations of a petition
filed against it for any such relief.

(d) If a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without the consent of ACME, a custodian for ACME
or the whole or substantially all of its property, or approving a petition filed
against it seeking liquidation, reorganization or arrangement of ACME under any
bankruptcy or insolvency laws or any other law for the relief of debtors, and
such order, judgment or decree shall not be vacated or set aside or stayed
within sixty (60) days from the date of entry thereof; or,

(e) If, under the provision of any law for the relief of debtors,
any court of competent jurisdiction or custodian shall assume custody or control
of ACME or of the whole or any substantial part of its property without the
consent of ACME, and such custody or control shall not be terminated or stayed
within sixty (60) days from the date of assumption of such custody or control.

12. This Agreement shall commence on the date of execution hereof and
shall terminate on the earlier of (i) thirty (30) days after the date Manager
elects to terminate this Agreement as a result of ACME's default, or (ii) after
the first anniversary hereof, thirty (30) days after either party elects, by
written notice to the other party, to terminate this Agreement.

13. Manager represents and warrants to ACME as follows:

(a) Manager is a corporation duly and validly organized and
existing in good standing under the laws of the state of its incorporation.
Manager has the power and authority to enter into this Agreement and to execute,
deliver or receive all other instruments and documents executed and delivered
and received, in connection with the transactions contemplated hereunder;

(b) There is no action, suit or proceeding pending against Manager
before or by any court, administrative agency or other governmental authority,
or threatened, which brings into question the validity of, or in any way legally
or financially (in the case of performance) impairs or would if adversely
determined impair the execution, delivery or performance by Manager of this
Agreement;

(c) The execution and delivery of this Agreement by Manager and the
performance by it of its obligations hereunder, have been duly authorized by all
necessary corporate action of Manager and do not violate or conflict with (i)
any provision of Manager's Certificate of Incorporation or By-Laws, (ii) any law
or any order, writ, injunction, decree, rule or regulation of any court,
administrative agency or any other governmental authority or (iii) any Agreement
entered into or binding on Manager or its affiliated companies, whether relating
to the Aircraft or otherwise;

5
<PAGE> 6

(d) This Agreement constitutes the valid and binding obligations of
Manager enforceable in accordance with its terms, subject, however, to (i) laws
of general application affecting creditors' rights and (ii) judicial discretion,
to which equitable remedies are subject; and

(e) Manager is not subject to any restriction (which has not been
complied with) or agreement which, with or without the giving of notice, the
passage of time, or both, prohibits or would be violated by, or be in conflict
with, the execution, delivery and consummation of this Agreement.

14. ACME represents and warrants to Manager as follows:

(a) ACME is duly and validly organized and existing in good
standing under the laws of the state of its incorporation;

(b) ACME has the power and the authority to enter into this
Agreement, and to carry out the transactions contemplated hereunder;

(c) The execution and delivery of this Agreement by ACME, and the
performance of its obligations hereunder, have been duly authorized by all
necessary action of ACME and do not violate or conflict with (i) any provision
of ACME's Certificate of Incorporation or By-Laws or (ii) any law or any order,
writ, injunction, decree, rule or regulation of any court, administrative agency
or any other governmental authority. There is no action, suit or proceeding
pending or threatened against ACME before any court, administrative agency or
other governmental authority which brings into question the validity of, or
might in any way impair, the execution, delivery or performance by ACME of this
Agreement; and

(d) This Agreement constitutes the valid and binding obligations of
the ACME enforceable in accordance with its terms, subject, however, to (i) laws
of general application affecting creditors' rights and (ii) judicial discretion,
to which equitable remedies are subject.

15. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto, their representatives, successors and permitted assigns.
This Agreement shall not be assignable by either party except upon the express
written consent of the other party.

16. This Agreement constitutes the entire understanding among the
parties with respect to the subject matter hereof, and any changes or
modifications hereto must be in writing and signed by authorized representatives
of both parties. The parties hereto further agree that the courts of the United
States and State of Ohio shall have jurisdiction over the parties with regard to
any disputes arising under this Agreement or arising out of the operation,
maintenance, inspection, servicing or occupancy of the Aircraft during the term
of the Agreement and that this Agreement shall be interpreted and governed by
the laws of the State of Ohio.

17. Any notice, request or other communication to either party by the
other hereunder shall be made in writing and shall be deemed given on the
earlier of the date (i) personally delivered with receipt acknowledged, or (ii)
telecopied at time of transmission or (iii) three (3)

6
<PAGE> 7

days after mailed by certified mail, return receipt requested, postage prepaid
and addressed to the party at the address set forth in the first paragraph of
this Agreement. The address of a party to which notices or copies of notices are
to be given may be changed from time to time by such party by written notice to
the other party.

18. This Agreement may be executed in one or more counterparts each of
which shall be deemed an original, all of which together shall constitute one
and the same agreement.

19. In the event that any one or more of the provisions of this
Agreement shall for any reason be held to be invalid, illegal or unenforceable,
the remaining provisions of this Agreement shall be unimpaired and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
provision, which, being valid, legal and enforceable, comes closest to the
intention of the parties underlying the invalid, illegal or unenforceable
provision.

REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.

7
<PAGE> 8

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed the day and year first above written. The persons
signing below warrant their signatures.

ACME Operating Corporation

By: /s/ Peter B. Lewis
----------------------------------
Peter B. Lewis, President

Village Transport Corp.

By: /s/ David M. Schneider
----------------------------------

David M. Schneider, Secretary

8
<PAGE> 9

SCHEDULE

Minimum Telephonic Notice: 24 hours
Serial No.: 3007
FAA Registration No.: N711SX

<PAGE> 1
Exhibit (10)(H)

THE PROGRESSIVE CORPORATION
2000 GAINSHARING PLAN
---------------------

1. The Progressive Corporation and its subsidiaries ("Progressive" or the
"Company") have adopted The Progressive Corporation 2000 Gainsharing
Plan (the "Plan") as part of their overall compensation program. The
objective of the compensation program is to pay competitive base
salaries and for gainsharing to bring total cash compensation to the
top of the market when Core Business (as defined below) and assigned
Business Unit performance meets expectations. Participants will have
the opportunity to earn cash compensation in excess of the top of the
market when Core Business and assigned Business Unit performance
exceeds expectations.

2. Plan participants for each Plan year shall be selected by the Executive
Compensation Committee (the "Committee") of the Board of Directors of
The Progressive Corporation from those officers and regular employees
of Progressive who are assigned primarily to the Core Business, other
operating business or a corporate support function as of December 1 (or
such other date as may be determined by the Chief Human Resource
Officer) of that Plan year. The gainsharing opportunity, if any, for
those executive officers who participate in The Progressive Corporation
1999 Executive Bonus Plan will be provided by and be a component of
that plan. The Plan shall be administered by or under the direction of
the Committee.

3. Annual Gainsharing Payments under the Plan will be determined by
application of the following formula:

Annual Gainsharing Payment = Paid Earnings x Target Percentage x
Performance Factor

4. Paid Earnings for any Plan year means the following items paid to a
participant during the Plan year: (a) regular, vacation, sick, holiday,
funeral and overtime pay, (b) lump sum merit adjustments based on
performance and (c) retroactive payments of any of the foregoing items
relating to the same Plan year.

For purposes of the Plan, Paid Earnings shall not include any
short-term or long-term disability payments made to the participant,
the earnings replacement component of any worker's compensation award
or any other bonus or incentive compensation awards.

Notwithstanding the foregoing, if the sum of the regular, vacation,
sick, holiday and funeral pay received by a participant during a Plan
year exceeds his/her salary range maximum for that Plan year, then
his/her Paid Earnings for that Plan year shall equal his/her salary
range maximum, plus any of the following items received by such
participant during that Plan year: (a) overtime pay, (b) retroactive
payments of regular, vacation, sick, holiday, overtime and funeral pay
and (c) lump sum merit adjustments.

1
<PAGE> 2

5. Target Percentages vary by position. Target Percentages for Plan
participants typically are as follows:

<TABLE>
<CAPTION>
============================================================================================
POSITION TARGET %
- --------------------------------------------------------------------------------------------
<S> <C>
Senior Executives, General Managers and Senior Process Leaders/Managers 40 - 135%
- --------------------------------------------------------------------------------------------
Top Functional/Line Managers 30 - 45%
- --------------------------------------------------------------------------------------------
Senior Functional/Line Managers 25%
- --------------------------------------------------------------------------------------------
Middle Functional/Line Managers 15 - 20%
- --------------------------------------------------------------------------------------------
Senior Professionals and Managers 12 - 15%
- --------------------------------------------------------------------------------------------
Professionals and Supervisors 8%
============================================================================================
</TABLE>

Target Percentages will be established within the above ranges by, and
may be changed with the approval of (a) the Chairman and CEO or CEO -
Insurance Operations, (b) Chief Human Resource Officer and (c) the
Chief Financial Officer (collectively, the "Designated Executives").
Target Percentages also may be changed from year to year by the
Designated Executives.

6. THE PERFORMANCE FACTOR
----------------------

A. GENERAL
-------

The Performance Factor shall consist of one or more
Profitability and Growth Components, as described below (the
"Performance Component"). The Performance Components will be
weighted to reflect the nature of the individual participant's
assigned responsibilities. The weighting factors may differ
among participants and will be determined, and may be changed
from year to year, by or under the direction of the Committee.

B. PROFITABILITY AND GROWTH COMPONENTS
-----------------------------------

The Profitability and Growth Components measure overall
operating performance of Progressive's Personal Lines segment
(excluding Midland Financial Group, Inc.) and commercial
vehicle insurance business unit (collectively, the "Core
Business"), as a whole, or the participant's assigned Business
Unit, for the Plan year for which an Annual Gainsharing
Payment is to be made. For purposes of computing a Performance
Score for these Components, operating performance results are
measured by a Gainsharing Matrix, as established by or under
the direction of the Committee for the Plan year, which
assigns a Profitability and Growth Performance Score to
various combinations of profitability (as measured by the
Gainsharing Combined Ratio) and growth (based on year-to-year
change in Net Written Premium) outcomes.

2
<PAGE> 3

The Gainsharing Combined Ratio is determined for the Core
Business, or assigned Business Unit, using the GAAP combined
ratio as a measure of profitability. The Gainsharing Combined
Ratio is then matched with growth in Net Written Premium using
the Gainsharing Matrix to determine a Profitability and Growth
Performance Score.

C. COMPONENT WEIGHTING
-------------------

Performance Components for the Core Business and assigned
Business Unit are weighted as determined by or under the
direction of the Committee. For participants in the Core
Business, the typical weighting will be as follows:

- -----------------------------------------------------------------------
PERFORMANCE COMPONENT WEIGHTING
- -----------------------------------------------------------------------
Core Business Profitability and Growth
Results 75%
- -----------------------------------------------------------------------
Business Unit Profitability and Growth
Results 25%
- -----------------------------------------------------------------------
Total 100%
- -----------------------------------------------------------------------

There will typically be no Business Unit Profitability and
Growth Component for participants assigned to a corporate
support function (such as Finance, Human Resource and Law) and
others who are not assigned primarily to a Business Unit.
Individualized programs may be developed if and to the extent
deemed appropriate by the Designated Executives.

The Performance Score for each Performance Component is
multiplied by the assigned weighting factor to produce a
Weighted Performance Score. The sum of the Weighted
Performance Scores equals the Performance Factor. The final
Performance Factor can vary from 0 to 2.0, based on actual
performance versus the pre-established objectives.

7. Subject to Paragraph 8 below, no later than December 31 of each Plan
year, each participant will receive an initial payment in respect of
his or her Annual Gainsharing Payment for that Plan year equal to 75%
of an amount calculated on the basis of Paid Earnings for the first 11
months of the Plan year, one month of estimated earnings, performance
data through the first 11 months of the Plan year (estimated, if
necessary) and one month of forecasted operating results. No later than
February 15 of the following year, each participant shall receive the
balance of his or her Annual Gainsharing Payment, if any, for such Plan
year, based on his or her Paid Earnings and performance data for the
entire Plan year.

Any Plan participant who is then eligible to participate in The
Progressive Corporation Executive Deferred Compensation Plan ("Deferral
Plan") may elect to defer all or a portion of the Annual Gainsharing
Payment otherwise payable to him/her under this Plan, subject to and in
accordance with the terms of the Deferral Plan.

3
<PAGE> 4

8. Unless otherwise determined by the Committee or as provided at
Paragraph 10 hereof, in order to be entitled to receive any portion of
an Annual Gainsharing Payment for any Plan year, the participant must
be employed by Progressive on the payment date for that portion of the
Annual Gainsharing Payment. Annual Gainsharing Payments will be net of
any legally required deductions for federal, state and local taxes and
other items.

9. The right to any Annual Gainsharing Payment hereunder may not be
transferred, assigned or encumbered by any participant. Nothing herein
shall prevent any participant's interest hereunder from being subject
to involuntary attachment, levy or other legal process.

10. The Plan shall be administered by or under the direction of the
Committee. The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines, procedures and practices governing the
Plan as it shall, from time to time, in its sole discretion, deem
advisable.

The Committee shall have full authority to determine the manner in
which the Plan will operate, to interpret the provisions of the Plan
and to make all determinations hereunder. All such interpretations and
determinations shall be final and binding on Progressive, all Plan
participants and all other parties. No such interpretation or
determination shall be relied on as a precedent for any similar action
or decision.

Unless otherwise determined by the Committee, all of the authority of
the Committee hereunder (including, without limitation, the authority
to administer the Plan, select the persons entitled to participate
herein, interpret the provisions thereof, waive any of the requirements
specified herein and make determinations hereunder and to select,
establish, change or modify Performance Components and their respective
weighting factors, performance targets and Target Percentages) may be
exercised by the Designated Executives. In the event of a dispute or
conflict, the determination of the Committee will govern.

11. The Plan may be terminated, amended or revised, in whole or in part, at
any time and from time to time by the Committee, in its sole
discretion.

12. The Plan will be unfunded and all payments due under the Plan shall be
made from Progressive's general assets.

13. Nothing in the Plan shall be construed as conferring upon any person
the right to remain a participant in the Plan or to remain employed by
Progressive, nor shall the Plan limit Progressive's right to discipline
or discharge any of its officers or employees or change any of their
job titles, duties or compensation.

14. Progressive shall have the unrestricted right to set off against or
recover out of any Annual Gainsharing Payment or other sums owed to any
participant under the Plan any amounts owed by such participant to
Progressive.

4
<PAGE> 5

15. This Plan supersedes all prior plans, agreements, understandings and
arrangements regarding bonuses or other cash incentive compensation
payable to participants by or due from Progressive. Without limiting
the generality of the foregoing, this Plan supersedes and replaces The
Progressive Corporation 1999 Gainsharing Plan, as heretofore in effect
(the "Prior Plan"), which is and shall be deemed to be terminated as of
December 31, 1999 (the "Termination Date"); provided, that any bonuses
or other sums earned and payable under the Prior Plan with respect to
any Plan year ended on or prior to the Termination Date shall be
unaffected by such termination and shall be paid to the appropriate
participants when and as provided thereunder.

16. This Plan is adopted, and is to be effective, as of January 1, 2000.
This Plan shall be effective for 2000 and for each calendar year
thereafter unless and until terminated by the Committee.

17. This Plan shall be interpreted and construed in accordance with the
laws of the State of Ohio.

<PAGE> 1
EXHIBIT NO. 10(P)

THE PROGRESSIVE CORPORATION

1995 INCENTIVE PLAN

SECTION 1. PURPOSE; DEFINITIONS.

The purpose of The Progressive Corporation 1995 Incentive Plan
(the "Plan") is to enable The Progressive Corporation (the "Company") to
attract, retain and reward key employees of the Company and its Subsidiaries and
Affiliates and strengthen the mutuality of interests between such key employees
and the Company's shareholders by offering such key employees equity or
equity-based incentives.

For purposes of the Plan, the following terms shall be defined
as set forth below:

(a) "Affiliate" means any entity (other than the Company and
its Subsidiaries) that is designated by the Board as a participating
employer under the Plan.

(b) "Award" means any award of Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase
Rights and Other Stock-Based Awards under the Plan.

(d) "Book Value" means, as of any given date, on a per share
basis (1) the shareholders' equity in the Company as of the end of the
immediately preceding fiscal year as reflected in the Company's audited
consolidated balance sheet as of such year-end date, subject to such
adjustments as the Committee shall specify at or after grant, divided
by (2) the number of outstanding shares of Stock as of such year-end
date, subject to such adjustments as the Committee shall specify for
events subsequent to such year-end date.

(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.

(f) "Committee" means the Committee referred to in Section 2
of the Plan.

(g) "Company" means The Progressive Corporation, an Ohio
corporation, or any successor corporation.

(h) "Deferred Stock" means an award of the right to receive
Stock at the end of a specified deferral period granted pursuant to
Section 8.

<PAGE> 2

(i) "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.

(j) "Disinterested Person" shall have the meaning set forth in
Rule 16b-3(c)(2)(i) as promulgated by the Securities and Exchange
Commission under the Exchange Act, or any successor definition adopted
by the Commission.

(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.

(l) "Fair Market Value" means, as of any given date, the mean
between the highest and lowest quoted selling price, regular way, of
the Stock on such date on the New York Stock Exchange or, if no such
sale of the Stock occurs on the New York Stock Exchange on such date,
then such mean price on the next preceding day on which the Stock was
traded. If the Stock is no longer traded on the New York Stock
Exchange, then the Fair Market Value of the Stock shall be determined
by the Committee in good faith.

(m) "Incentive Stock Option" means any Stock Option intended
to be and designated as an "Incentive Stock Option", within the meaning
of Section 422 of the Code or any successor section thereto.

(n) "Non-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option.

(o) "Other Stock-Based Award" means an award granted pursuant
to Section 10 that is valued, in whole or in part, by reference to, or
is otherwise based on, Stock.

(p) "Plan" means The Progressive Corporation 1995 Incentive
Plan, as amended from time to time.

(q) "Restricted Stock" means an award of shares that is
granted pursuant to Section 7 and is subject to restrictions.

(r) "Section 16 participant" means a participant under the
Plan who is then subject to Section 16 of the Exchange Act.

(s) "Stock" means the Common Shares, $1.00 par value per
share, of the Company.

(t) "Stock Appreciation Right" means an award of rights that
is granted pursuant to Section 6.

<PAGE> 3

(u) "Stock Option" or "Option" means any option to purchase
shares of Stock (including Restricted Stock and Deferred Stock, if the
Committee so determines) that is granted pursuant to Section 5.

(v) "Stock Purchase Right" means an award of the right to
purchase Stock that is granted pursuant to Section 9.

(w) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company if each of the corporations (other than the last corporation in
the unbroken chain) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.

In addition, the terms "Change in Control," "Potential Change
in Control" and "Change in Control Price" shall have the meanings set forth,
respectively, in Sections 11(b), (c) and (d) and the term "Cause" shall have the
meaning set forth in Section 5(b)(8) below.

SECTION 2. ADMINISTRATION.

The Plan shall be administered by the Executive Compensation
Committee of the Board (the "Committee"). The Committee shall consist of not
less than three directors of the Company, all of whom shall be Disinterested
Persons and "outside directors", as defined in Section 162(m) of the Code and
the regulations promulgated thereunder. Such directors shall be appointed by the
Board and shall serve as the Committee at the pleasure of the Board. The
functions of the Committee specified in the Plan shall be exercised by the Board
if and to the extent that no Committee exists which has the authority to so
administer the Plan.

The Committee shall have full power to interpret and
administer the Plan and full authority to select the individuals to whom Awards
will be granted and to determine the type and amount of Award(s) to be granted
to each participant, the consideration, if any, to be paid for such Award(s),
the timing of such Award(s), the terms and conditions of Awards granted under
the Plan and the terms and conditions of the related agreements which will be
entered into with participants. As to the selection of and grant of Awards to
participants who are not Section 16 participants, the Committee may delegate its
responsibilities to members of the Company's management consistent with
applicable law.

The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines and practices governing the Plan as it shall, from
time to time, deem advisable; to interpret the terms and provisions of the Plan
and any Award issued under the Plan (and any agreements relating thereto); to
direct employees of the Company or other advisors to prepare such materials or
perform such analyses as the Committee deems necessary or appropriate; and
otherwise to supervise the administration of the Plan.

<PAGE> 4

Any interpretation and administration of the Plan by the
Committee, and all actions and determinations of the Committee, shall be final,
binding and conclusive on the Company, its shareholders, Subsidiaries,
Affiliates, all participants in the Plan, their respective legal
representatives, successors and assigns, and upon all persons claiming under or
through any of them. No member of the Board or of the Committee shall incur any
liability for any action taken or omitted, or any determination made, in good
faith in connection with the Plan.

SECTION 3. STOCK SUBJECT TO THE PLAN.

(a) Aggregate Stock Subject to the Plan. Subject to adjustment
as provided below in Section 3(c), the total number of shares of Stock
reserved and available for Awards under the Plan is 5,000,000. Any
Stock issued hereunder may consist, in whole or in part, of authorized
and unissued shares or treasury shares.

(b) Forfeiture or Termination of Awards of Stock. If any Stock
subject to any Award granted hereunder is forfeited or an Award
otherwise terminates or expires without the issuance of Stock, the
Stock subject to such Award shall again be available for distribution
in connection with future Awards under the Plan as set forth in Section
3(a), unless the participant who had been awarded such forfeited Stock
or the expired or terminated Award has theretofore received dividends
or other benefits of ownership with respect to such Stock. For purposes
hereof, a participant shall not be deemed to have received a benefit of
ownership with respect to such Stock by the exercise of voting rights
or the accumulation of dividends which are not realized due to the
forfeiture of such Stock or the expiration or termination of the
related Award without issuance of such Stock.

(c) Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, share dividend, share split,
combination of shares or other change in corporate structure of the
Company affecting the Stock, such substitution or adjustment shall be
made in the aggregate number of shares of Stock reserved for issuance
under the Plan, in the number and option price of shares subject to
outstanding Options granted under the Plan, in the number and purchase
price of shares subject to outstanding Stock Purchase Rights granted
under the Plan, and in the number of shares subject to Restricted Stock
Awards, Deferred Stock Awards and any other outstanding Awards granted
under the Plan as may be approved by the Committee, in its sole
discretion; provided that the number of shares subject to any Award
shall always be a whole number. Any fractional shares shall be
eliminated.

(d) Annual Award Limit. No participant may be granted Stock
Options or other Awards under the Plan with respect to an aggregate of

<PAGE> 5

more than 300,000 shares of Stock (subject to adjustment as provided in
Section 3(c) hereof) during any calendar year.

SECTION 4. ELIGIBILITY.

Officers and other key employees of the Company and its
Subsidiaries and Affiliates (but excluding members of the Committee and any
person who serves only as a director) who are responsible for or contribute to
the management, growth or profitability of the business of the Company or its
Subsidiaries or Affiliates are eligible to be granted Awards under the Plan.

SECTION 5. STOCK OPTIONS.

(a) Grant. Stock Options may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside of the Plan. However, no Incentive Stock Option shall be
issued in tandem with any other Award other than a Stock Appreciation
Right as provided for in Section 6. The Committee shall determine the
individuals to whom, and the time or times at which, grants of Stock
Options will be made, the number of shares purchasable under each Stock
Option and the other terms and conditions of the Stock Options in
addition to those set forth in Sections 5(b) and 5(c). Any Stock Option
granted under the Plan shall be in such form as the Committee may from
time to time approve.

Stock Options granted under the Plan may be of two types which
shall be indicated on their face: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options. Subject to Section 5(c) hereof, the
Committee shall have the authority to grant to any participant
Incentive Stock Options, Non-Qualified Stock Options or both types of
Stock Options.

(b) Terms and Conditions. Options granted under the Plan shall
be evidenced by Option Agreements, shall be subject to the following
terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:

(1) Option Price. The option price per share of Stock
purchasable under a Non-Qualified Stock Option shall be
determined by the Committee at the time of grant and shall not
be less than fifty percent of the Fair Market Value of the
Stock at the date of grant. The option price per share of
Stock purchasable under an Incentive Stock Option shall be
determined by the Committee at the time of grant and shall be
not less than 100% of the Fair Market Value of the Stock at
the date of grant (or 110% of the Fair Market Value of the
Stock at the date of grant in the case of a participant who at
the date of grant owns shares possessing more than ten percent
of the total combined voting power of all classes of stock of
the Company

<PAGE> 6

or its parent or subsidiary corporations (as determined under
Section 424(d), (e) and (f) of the Code)).

(2) Option Term. The term of each Stock Option shall be
determined by the Committee and may not exceed ten years from
the date the Option is granted (or, with respect to Incentive
Stock Options, five years in the case of a participant who at
the date of grant owns shares possessing more than ten percent
of the total combined voting power of all classes of stock of
the Company or its parent or subsidiary corporations (as
determined under Section 424(d), (e) and (f) of the Code)).

(3) Exercise. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as
shall be determined by the Committee at or after grant;
provided, however, that, except as provided in Section 5(b)(6)
and Section 11, unless otherwise determined by the Committee
at or after grant, no Stock Option shall be exercisable prior
to six months and one day following the date of grant. If any
Stock Option is exercisable only in installments or only after
a specified vesting date, the Committee may accelerate or
waive, in whole or in part, such installment exercise
provisions or vesting date, at any time at or after grant
based on such factors as the Committee shall determine, in its
sole discretion.

(4) Method of Exercise. Subject to whatever installment
exercise provisions apply with respect to such Stock Option,
and the six month and one day holding period set forth in
Section 5(b)(3), Stock Options may be exercised in whole or in
part, at any time during the option period, by giving to the
Company written notice of exercise specifying the number of
shares of Stock to be purchased.

Such notice shall be accompanied by payment in full of
the option price of the shares of Stock for which the Option
is exercised, in cash or by check or such other instrument as
the Committee may accept. Subject to the following sentence,
unless otherwise determined by the Committee, in its sole
discretion, at or after grant, payment, in full or in part, of
the option price of (i) Incentive Stock Options may be made in
the form of unrestricted Stock then owned by the participant
and (ii) Non-Qualified Stock Options may be made in the form
of unrestricted Stock then owned by the participant or Stock
that is part of the Non-Qualified Stock Option being
exercised. Notwithstanding the foregoing, any election by a
Section 16 participant to satisfy such payment obligation, in
whole or in part, with Stock that is part of the Non-Qualified
Stock Option being exercised shall be subject to approval by
the Committee, in its sole discretion. The value of each

<PAGE> 7

such share surrendered or withheld shall be 100% of the Fair
Market Value of the Stock on the date the Option is exercised.

No Stock shall be issued pursuant to an exercise of an
Option until full payment has been made. A participant shall
not have rights to dividends or any other rights of a
shareholder with respect to any Stock subject to an Option
unless and until the participant has given written notice of
exercise, has paid in full for such shares, has given, if
requested, the representation described in Section 14(a) and
such shares have been issued to him.

(5) Non-Transferability of Options. No Stock Option shall
be transferable by the participant other than by will or by
the laws of descent and distribution, and all Stock Options
shall be exercisable, during the participant's lifetime, only
by the participant or, subject to Sections 5(b)(3) and 5(c),
by the participant's authorized legal representative if the
participant is unable to exercise an Option as a result of the
participant's Disability.

(6) Termination by Death. Subject to Section 5(c), if any
participant's employment by the Company or any Subsidiary or
Affiliate terminates by reason of death, any Stock Option held
by such participant may thereafter be exercised, to the extent
such Option was exercisable at the time of death or would have
become exercisable within one year from the time of death had
the participant continued to fulfill all conditions of the
Option during such period (or on such accelerated basis as the
Committee may determine at or after grant), by the estate of
the participant (acting through its fiduciary), for a period
of one year (or such other period as the Committee may specify
at or after grant) from the date of such death. The balance of
the Stock Option shall be forfeited.

(7) Termination by Reason of Disability. Subject to
Sections 5(b)(3) and 5(c), if a participant's employment by
the Company or any Subsidiary or Affiliate terminates by
reason of Disability, any Stock Option held by such
participant may thereafter be exercised, to the extent such
Option was exercisable at the time of termination or would
have become exercisable within one year from the time of
termination had the participant continued to fulfill all
conditions of the Option during such period (or on such
accelerated basis as the Committee may determine at or after
grant), by the participant or by the participant's duly
authorized legal representative if the participant is unable
to exercise the Option as a result of the participant's
Disability, for a period of one year (or such other period as
the Committee may specify at or after grant) from the date of
such termination of employment; provided, however, that in no
event may any such Option be exercised prior to six months and
one day from the date of grant; and provided, further, that if
the participant dies within such one-year period (or such
other period as

<PAGE> 8

the Committee shall specify at or after grant), any
unexercised Stock Option held by such participant shall
thereafter be exercisable by the estate of the participant
(acting through its fiduciary) to the same extent to which it
was exercisable at the time of death for a period of one year
from the date of such termination of employment. The balance
of the Stock Option shall be forfeited.

(8) Other Termination. Unless otherwise determined by the
Committee at or after the time of granting any Stock Option,
if a participant's employment by the Company or any Subsidiary
or Affiliate terminates for any reason other than death or
Disability, all Stock Options held by such participant shall
thereupon immediately terminate, except that if the
participant is involuntarily terminated by the Company or any
Subsidiary or Affiliate without Cause, any such Stock Option
may be exercised, to the extent otherwise exercisable at the
time of such termination, at any time during the lesser of two
months from the date of such termination or the balance of
such Stock Option's term. For purposes of this Plan, "Cause"
means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, or a
participant's willful misconduct or dishonesty, any of which,
in the judgment of the Committee, is harmful to the business
or reputation of the Company or any Subsidiary or Affiliate.

(c) Incentive Stock Options. Notwithstanding Section 4, only
key employees of the Company or any Subsidiary shall be eligible to
receive Incentive Stock Options. Notwithstanding Sections 5(b)(6) and
(7), an Incentive Stock Option shall be exercisable by (i) a
participant's authorized legal representative (if the participant is
unable to exercise the Incentive Stock Option as a result of the
participant's Disability) only if, and to the extent, permitted by
Section 422 of the Code and Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder and (ii) by the
participant's estate, in the case of death, or authorized legal
representative, in the case of Disability, no later than 10 years from
the date the Incentive Stock Option was granted (in addition to any
other restrictions or limitations which may apply). Anything in the
Plan to the contrary notwithstanding, no term or provision of the Plan
relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan
be exercised, so as to disqualify the Plan under Section 422 of the
Code, or, without the consent of the participant(s) affected, to
disqualify any Incentive Stock Option under such Section 422 or any
successor Section thereto.

(d) Buyout Provisions. The Committee may at any time buy out
for a payment in cash, Stock, Deferred Stock or Restricted Stock an
Option previously granted, based on such terms and conditions as the
Committee shall establish and agree upon with the participant, provided
that no such transaction involving a Section 16 participant shall be
structured or effected in a manner that would violate, or result in any
liability on the

<PAGE> 9

part of the participant under, Section 16 of the Exchange Act or the
rules and regulations promulgated thereunder.

SECTION 6. STOCK APPRECIATION RIGHTS.

(a) Grant. Stock Appreciation Rights may be granted alone, in
addition to or in tandem with other Awards granted under the Plan or
cash awards made outside of the Plan. The Committee shall determine the
individuals to whom, and the time or times at which, grants of Stock
Appreciation Rights will be made and the other terms and conditions of
the Stock Appreciation Rights in addition to those set forth in Section
6(b). Any Stock Appreciation Right granted under the Plan shall be in
such form as the Committee may from time to time approve. In the case
of Non-Qualified Stock Options, such rights may be granted either at or
after the time of the grant of the related Non-Qualified Stock Options.
In the case of Incentive Stock Options, such rights may be granted in
tandem with Incentive Stock Options only at the time of the grant of
such Incentive Stock Options and exercised only when the Fair Market
Value of the Stock subject to the Option exceeds the option price of
the Option.

Stock Appreciation Rights issued in tandem with Stock
Options ("Tandem SARs") shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, subject
to such provisions as the Committee may specify at grant if a Stock
Appreciation Right is granted with respect to less than the full number
of shares of Stock subject to the related Stock Option.

All Stock Appreciation Rights granted hereunder shall be
exercised, subject to Section 6(b), in accordance with the procedures
established by the Committee for such purpose. Upon such exercise, the
participant shall be entitled to receive an amount determined in the
manner prescribed in Section 6(b).

(b) Terms and Conditions. Stock Appreciation Rights granted
under the Plan shall be subject to the following terms and conditions
and shall contain such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall
deem desirable:

(1) Tandem SARs shall be exercisable only at such time or
times and to the extent that the Stock Options to which they
relate shall be exercisable in accordance with the provisions
of Section 5 and this Section 6, and Stock Appreciation Rights
granted separately ("Freestanding SARs") shall be exercisable
as the Committee shall determine; provided, however, that any
Stock Appreciation Right granted to a Section 16 participant
shall not be exercisable at any time prior to six months and
one day from the date of the grant of such Stock Appreciation
Right, except that this limitation shall not

<PAGE> 10

apply in the event of the death of the participant prior to
the expiration of the six-month and one-day period.

(2) Upon the exercise of a Stock Appreciation Right, a
participant shall be entitled to receive an amount in cash or
shares of Stock, as determined by the Committee, equal in
value to the excess of the Fair Market Value of one share of
Stock on the date of exercise of the Stock Appreciation Right
over (i) the option price per share specified in the related
Stock Option in the case of Tandem SARs, which price shall be
fixed no later than the date of grant of the Tandem SARs, or
(ii) the price per share specified in the related Stock
Appreciation Rights Agreement in the case of Freestanding
SARs, which price shall be fixed at the date of grant and
shall be not less than fifty percent of the Fair Market Value
of the Stock on the date of grant, multiplied by the number of
shares of Stock in respect of which the Stock Appreciation
Right shall have been exercised. The Committee, in its sole
discretion, shall have the right to determine the form of
payment (i.e. cash, Stock or any combination thereof) and to
approve any election by the participant to receive cash, in
whole or in part, upon exercise of the Stock Appreciation
Right. When payment is to be made in Stock, the number of
shares of Stock to be paid shall be calculated on the basis of
the Fair Market Value of the Stock on the date of exercise.
Notwithstanding the foregoing, the Committee may unilaterally
limit the appreciation in value of any Stock Appreciation
Right at any time prior to exercise.

(3) Upon the exercise of a Tandem SAR, the Stock Option or
part thereof to which such Tandem SAR is related shall be
deemed to have been exercised.

(4) In its sole discretion, the Committee may grant
"Limited" Stock Appreciation Rights under this Section 6; that
is, Freestanding SARs that become exercisable only in the
event of a Change in Control or a Potential Change in Control,
subject to such terms and conditions as the Committee may
specify at grant. Such Limited Stock Appreciation Rights shall
be settled solely in cash.

(5) Stock Appreciation Rights shall not be transferable by
the participant other than by will or by the laws of descent
and distribution, and all Stock Appreciation Rights shall be
exercisable, during the participant's lifetime, only by the
participant or, subject to Section 6(b)(6), by the
participant's authorized legal representative if the
participant is unable to exercise a Stock Appreciation Right
as a result of the participant's Disability.

(6) Unless varied by the Committee, Stock Appreciation
Rights shall be subject to the terms and conditions specified
for Stock Options in Sections 5(b)(6), (7) and (8) and 5(d),
except that the terms and conditions applicable to any Stock
Appreciation Right held

<PAGE> 11

by a Section 16 participant shall not be varied in a manner
that would cause the exercise or cancellation of such Stock
Appreciation Right to fail to qualify for any applicable
exemption from Section 16(b) of the Exchange Act provided by
Rule 16b-3 thereunder.

SECTION 7. RESTRICTED STOCK.

(a) Grant. Shares of Restricted Stock may be issued alone, in
addition to or in tandem with other Awards under the Plan or cash
awards made outside of the Plan. The Committee shall determine the
individuals to whom, and the time or times at which, grants of
Restricted Stock will be made, the number of shares of Restricted Stock
to be awarded to each participant, the price (if any) to be paid by the
participant (subject to Section 7(b)), the date or dates upon which
Restricted Stock Awards will vest and the period or periods within
which such Restricted Stock Awards may be subject to forfeiture, and
the other terms and conditions of such Awards in addition to those set
forth in Section 7(b).

The Committee may condition the grant of Restricted Stock
upon the attainment of specified performance goals or such other
factors as the Committee may determine in its sole discretion.

(b) Terms and Conditions. Restricted Stock awarded under the
Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem desirable. A
participant who receives a Restricted Stock Award shall not have any
rights with respect to such Award, unless and until such participant
has executed an agreement evidencing the Award in the form approved
from time to time by the Committee and has delivered a fully executed
copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such Award.

(1) The purchase price for shares of Restricted Stock
shall be determined by the Committee at the time of grant and
may be equal to their par value or zero.

(2) Awards of Restricted Stock must be accepted by
executing a Restricted Stock Award agreement and paying
whatever price (if any) is required under Section 7(b)(1).

(3) Each participant receiving a Restricted Stock Award
shall be issued a stock certificate in respect of such shares
of Restricted Stock. Such certificate shall be registered in
the name of such participant, and shall bear an appropriate
legend referring to the terms, conditions and restrictions
applicable to such Award.

<PAGE> 12

(4) The Committee shall require that the stock
certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed, and
that, as a condition of any Restricted Stock Award, the
participant shall have delivered to the Company a stock power,
endorsed in blank, relating to the Stock covered by such
Award.

(5) Subject to the provisions of this Plan and the
Restricted Stock Award agreement, during a period set by the
Committee commencing with the date of such Award (the
"Restriction Period"), the participant shall not be permitted
to sell, transfer, pledge, assign or otherwise encumber the
shares of Restricted Stock awarded under the Plan. The
Restriction Period shall not be less than six months and one
day in duration ("Minimum Restriction Period"). Subject to
these limitations and the Minimum Restriction Period
requirement, the Committee, in its sole discretion, may
provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions, in whole or in
part, based on service, performance or such other factors and
criteria as the Committee may determine, in its sole
discretion.

(6) Except as provided in this Section 7(b)(6), Section
7(b)(5) and Section 7(b)(7), the participant shall have, with
respect to the shares of Restricted Stock awarded, all of the
rights of a shareholder of the Company, including the right to
vote the Stock, and the right to receive any dividends. The
Committee, in its sole discretion, as determined at the time
of award, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines,
reinvested, subject to Section 14(f), in additional Restricted
Stock to the extent shares are available under Section 3, or
otherwise reinvested. Stock dividends issued with respect to
Restricted Stock shall be treated as additional shares of
Restricted Stock that are subject to the same restrictions and
other terms and conditions that apply to the shares with
respect to which such dividends are issued.

(7) No Restricted Stock shall be transferable by a
participant otherwise than by will or by the laws of descent
and distribution.

(8) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of death, any
Restricted Stock held by such participant shall thereafter
vest or any restriction lapse, to the extent such Restricted
Stock would have become vested or no longer subject to
restriction within one year from the time of death had the
participant continued to fulfill all of the conditions of the
Restricted Stock Award during such period (or on such
accelerated basis as the Committee may determine at or after
grant). The balance of the Restricted Stock shall be
forfeited.

<PAGE> 13

(9) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability,
any Restricted Stock held by such participant shall thereafter
vest or any restriction lapse, to the extent such Restricted
Stock would have become vested or no longer subject to
restriction within one year from the time of termination had
the participant continued to fulfill all of the conditions of
the Restricted Stock Award during such period (or on such
accelerated basis as the Committee may determine at or after
grant), subject in all cases to the Minimum Restriction Period
requirement. The balance of the Restricted Stock shall be
forfeited.

(10) Unless otherwise determined by the Committee at or
after the time of granting any Restricted Stock, if a
participant's employment by the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, the Restricted Stock held by such participant
which is unvested or subject to restriction at the time of
termination shall thereupon be forfeited.

(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other award designed to
guarantee a minimum value, payable in cash or Stock to the recipient of
a Restricted Stock Award, subject to such performance, future service,
deferral and other terms and conditions as may be specified by the
Committee.

SECTION 8. DEFERRED STOCK.

(a) Grant. Deferred Stock may be awarded alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside of the Plan. The Committee shall determine the individuals
to whom, and the time or times at which, Deferred Stock shall be
awarded, the number of shares of Deferred Stock to be awarded to any
participant, the duration of the period (the "Deferral Period") during
which, and the conditions under which, receipt of the Stock will be
deferred, and the other terms and conditions of the Award in addition
to those set forth in Section 8(b).

The Committee may condition the grant of Deferred Stock
upon the attainment of specified performance goals or such other
factors as the Committee shall determine, in its sole discretion.

<PAGE> 14

(b) Terms and Conditions. Deferred Stock Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable:

(1) The purchase price for shares of Deferred Stock shall
be determined at the time of grant and may be equal to their
par value or zero, as determined by the Committee. Subject to
the provisions of the Plan and the Award agreement referred to
in Section 8(b)(9), Deferred Stock Awards may not be sold,
assigned, transferred, pledged or otherwise encumbered during
the Deferral Period. At the expiration of the Deferral Period
(or the Elective Deferral Period referred to in Section
8(b)(8), where applicable), share certificates shall be
delivered to the participant, or his legal representative, for
the shares covered by the Deferred Stock Award. The Deferral
Period applicable to any Deferred Stock Award shall not be
less than six months and one day ("Minimum Deferral Period").

(2) Unless otherwise determined by the Committee at grant,
amounts equal to any dividends declared during the Deferral
Period with respect to the number of shares covered by a
Deferred Stock Award will be paid to the participant
currently, or deferred and deemed to be reinvested in
additional Deferred Stock, or otherwise reinvested, all as
determined at or after the time of the Award by the Committee,
in its sole discretion.

(3) No Deferred Stock shall be transferable by a
participant otherwise than by will or by the laws of descent
and distribution.

(4) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of death, any
Deferred Stock held by such participant shall thereafter vest
or any restriction lapse, to the extent such Deferred Stock
would have become vested or no longer subject to restriction
within one year from the time of death had the participant
continued to fulfill all of the conditions of the Deferred
Stock Award during such period (or on such accelerated basis
as the Committee may determine at or after grant). The balance
of the Deferred Stock shall be forfeited.

(5) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability,
any Deferred Stock held by such participant shall thereafter
vest or any restriction lapse, to the extent such Deferred
Stock would have become vested or no longer subject to
restriction within one year from the time of termination had
the participant continued to fulfill all of the conditions of
the Deferred Stock Award during such period (or on such
accelerated basis as the Committee may determine at or after
grant), subject in all cases to the Minimum Deferral Period
requirement. The balance of the Deferred Stock shall be
forfeited.

<PAGE> 15

(6) Unless otherwise determined by the Committee at or
after the time of granting any Deferred Stock Award, if a
participant's employment by the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, all Deferred Stock held by such participant which
is unvested or subject to restriction shall thereupon be
forfeited.

(7) Based on service, performance or such other factors or
criteria as the Committee may determine, the Committee may, at
or after grant, accelerate the vesting of all or any part of
any Deferred Stock Award or waive a portion of the Deferral
Period for all or any part of such Award, subject in all cases
to the Minimum Deferral Period requirement.

(8) A participant may elect to further defer receipt of a
Deferred Stock Award (or an installment of an Award) for a
specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's
approval and the terms of this Section 8 and such other terms
as are determined by the Committee, all in its sole
discretion. Subject to any exceptions approved by the
Committee, such election must be made at least 12 months prior
to completion of the Deferral Period for such Deferred Stock
Award (or such installment).

(9) Each such Award shall be confirmed by, and subject to
the terms of, a Deferred Stock Award agreement evidencing the
Award in the form approved from time to time by the Committee.

(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other Award designed to
guarantee a minimum value, payable in cash or Stock to the recipient of
a Deferred Stock Award, subject to such performance, future service,
deferral and other terms and conditions as may be specified by the
Committee.

SECTION 9. STOCK PURCHASE RIGHTS.

(a) Grant. Stock Purchase Rights may be granted alone, in
addition to or in tandem with other Awards granted under the Plan or
cash awards made outside the Plan. The Committee shall determine the
individuals to whom, and the time or times at which, grants of Stock
Purchase Rights will be made, the number of shares of Stock which may
be purchased pursuant to the Stock Purchase Rights, and the other terms
and conditions of the Stock Purchase Rights in addition to those set
forth in

<PAGE> 16

Section 9(b). The Stock subject to the Stock Purchase Rights may be
purchased, as determined by the Committee at the time of grant:

(1) at the Fair Market Value of such Stock on the date of
grant;

(2) at 50% of the Fair Market Value of such Stock on the
date of grant;

(3) at an amount equal to the Book Value of such Stock on
the date of grant; or

(4) at an amount equal to the par value of such Stock on
the date of grant.

Subject to Section 9(b) hereof, the Committee may also
impose such deferral, forfeiture or other terms and conditions as it
shall determine, in its sole discretion, on such Stock Purchase Rights
or the exercise thereof.

Each Stock Purchase Right Award shall be confirmed by, and
be subject to the terms of, a Stock Purchase Rights Agreement which
shall be in form approved by the Committee.

(b) Terms and Conditions. Stock Purchase Rights may contain
such additional terms and conditions not inconsistent with the terms of
the Plan as the Committee shall deem desirable, and shall generally be
exercisable for such period as shall be determined by the Committee.
However, Stock Purchase Rights granted to Section 16 participants shall
not become exercisable earlier than six months and one day after the
grant date. Stock Purchase Rights shall not be transferable by a
participant other than by will or by the laws of descent and
distribution.

SECTION 10. OTHER STOCK-BASED AWARDS.

(a) Grant. Other Awards of Stock and other Awards that are
valued, in whole or in part, by reference to, or are otherwise based
on, Stock, including, without limitation, performance shares,
convertible preferred stock, convertible debentures, exchangeable
securities and Stock Awards or options valued by reference to Book
Value or subsidiary performance, may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside of the Plan.

At the time the Stock or Other Stock-Based Award is
granted, the Committee shall determine the individuals to whom and the
time or times at which such Stock or Other Stock-Based Awards shall be
awarded, the number of shares of Stock to be used in computing an Award
or which are to be awarded pursuant to such Awards, the consideration,
if any, to be

<PAGE> 17

paid for such Stock or Other Stock-Based Awards, and all other terms
and conditions of the Awards in addition to those set forth in Section
10(b).

The provisions of Other Stock-Based Awards need not be the
same with respect to each participant.

(b) Terms and Conditions. Other Stock-Based Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable:

(1) Subject to the provisions of this Plan and the Award
agreement referred to in Section 10(b)(5) below, Stock awarded
or subject to Awards made under this Section 10 may not be
sold, assigned, transferred, pledged or otherwise encumbered
prior to the date on which the Stock is issued, or, if later,
the date on which any applicable restriction, performance,
holding or deferral period or requirement is satisfied or
lapses. All Stock or Other Stock Based Awards granted under
this Section 10 shall be subject to a minimum holding period
(including any applicable restriction, performance and/or
deferral periods) of six months and one day ("Minimum Holding
Period").

(2) Subject to the provisions of this Plan and the Award
agreement and unless otherwise determined by the Committee at
the time of grant, the recipient of an Other Stock-Based Award
shall be entitled to receive, currently or on a deferred
basis, interest or dividends or interest or dividend
equivalents with respect to the number of shares of Stock
covered by the Award, as determined at the time of the Award
by the Committee, in its sole discretion, and the Committee
may provide that such amounts (if any) shall be deemed to have
been reinvested in additional Stock or otherwise reinvested.

(3) Subject to the Minimum Holding Period, any Other
Stock-Based Award and any Stock covered by any such Award
shall vest or be forfeited to the extent, at the times and
subject to the conditions, if any, provided in the Award
agreement, as determined by the Committee, in its sole
discretion.

(4) In the event of the participant's Disability or death,
or in cases of special circumstances, the Committee may, in
its sole discretion, waive, in whole or in part, any or all of
the remaining limitations imposed hereunder or under any
related Award agreement (if any) with respect to any part or
all of any Award under this Section 10, provided that the
Minimum Holding Period requirement may not be waived, except
in case of a participant's death.
<PAGE> 18

(5) Each Award shall be confirmed by, and subject to the
terms of, an agreement or other instrument evidencing the
Award in the form approved from time to time by the Committee,
the Company and the participant.

(6) Stock (including securities convertible into Stock)
issued on a bonus basis under this Section 10 shall be issued
for no cash consideration. Stock (including securities
convertible into Stock) purchased pursuant to a purchase right
awarded under this Section 10 shall bear a price of at least
50% of the Fair Market Value of the Stock on the date of
grant. The purchase price of such Stock, and of any Other
Stock Based Award granted hereunder, or the formula by which
such price is to be determined, shall be fixed by the
Committee at the time of grant.

(7) In the event that any "derivative security", as
defined in Rule 16a-1(c) (or any successor thereto)
promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, is awarded pursuant to this
Section 10 to any Section 16 participant, such derivative
security shall not be transferrable other than by will or by
the laws of descent and distribution.

SECTION 11. CHANGE IN CONTROL PROVISION.

(a) Impact of Event. In the event of: (1) a "Change in
Control" as defined in Section 11(b) or (2) a "Potential Change in
Control" as defined in Section 11(c), the following acceleration and
valuation provisions shall apply:

(1) Any Stock Appreciation Rights and any Stock Options
awarded under the Plan not previously exercisable and vested
shall become fully exercisable and vested;

(2) The restrictions and deferral limitations applicable
to any Restricted Stock, Deferred Stock, Stock Purchase Rights
and Other Stock-Based Awards shall lapse and such shares and
awards shall be deemed fully vested; and

(3) The value of all outstanding Awards, in each case to
the extent vested, shall, unless otherwise determined by the
Committee in its sole discretion at or after grant but prior
to any Change in Control or Potential Change in Control, be
cashed out on the basis of the "Change in Control Price" as
defined in Section 11(d) as of the date such Change in Control
or such Potential Change in Control is determined to have
occurred;

<PAGE> 19

provided, however, that the provisions of Sections 11(a)(1)-(3) shall
not apply with respect to Awards granted to any Section 16 participant
which have been held by such participant for less than six months and
one day as of the date that such Change in Control or Potential Change
in Control is determined to have occurred.

(b) Definition of Change in Control. For purposes of Section
11(a), a "Change in Control" means the happening of any of the
following:

(1) When any "person" as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the
Exchange Act, but excluding the Company and any Subsidiary and
any employee benefit plan sponsored or maintained by the
Company or any Subsidiary (including any trustee of such plan
acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, as amended from time to time), of securities of
the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
provided, however, that the terms "person" and "group" shall
not include any "Excluded Director", and the term "Excluded
Director" means any director who, on the effective date of the
Plan, is the beneficial owner of or has the right to acquire
an amount of Stock equal to or greater than five percent of
the number of shares of Stock outstanding on such effective
date; and further provided that, unless otherwise determined
by the Board or any committee thereof, the terms "person" and
"group" shall not include any entity or group of entities
which has acquired Stock of the Company in the ordinary course
of business for investment purposes only and not with the
purpose or effect of changing or influencing the control of
the Company, or in connection with or as a participant in any
transaction having such purpose or effect, ("Investment
Intent"), as demonstrated by the filing by such entity or
group of a statement on Schedule 13G (including amendments
thereto) pursuant to Regulation 13D under the Exchange Act, as
long as such entity or group continues to hold such Stock with
an Investment Intent;

(2) When, during any period of 24 consecutive months
during the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to
constitute at least a majority thereof; provided, however,
that a director who was not a director at the beginning of
such 24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually (because they
were directors at the beginning of such 24-month period) or by
prior operation of this Section 11(b)(2); or

<PAGE> 20

(3) The occurrence of a transaction requiring shareholder
approval for the acquisition of the Company by an entity other
than the Company or a Subsidiary through purchase of assets,
by merger or otherwise; provided, however, a change in control
shall not be deemed to be a Change in Control for purposes of
the Plan if the Board approves such change prior to either (i)
the commencement of any of the events described in Section
(b)(l), (2), or (3) or (c)(l) or (ii) the commencement by any
person other than the Company of a tender offer for Stock.

(c) Definition of Potential Change in Control. For purposes of
Section 11(a), a "Potential Change in Control" means the happening of
any one of the following:

(1) The approval by shareholders of an agreement by the
Company, the consummation of which would result in a Change in
Control of the Company as defined in Section 11(b); or

(2) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the
Company or a Subsidiary or any Company employee benefit plan
(including any trustee of such plan acting as such trustee))
of securities of the Company representing 5% or more of the
combined voting power of the Company's outstanding securities
and the adoption by the Board of a resolution to the effect
that a Potential Change in Control of the Company has occurred
for purposes of this Plan.

(d) Change in Control Price. For purposes of this Section 11,
"Change in Control Price" means the highest price per share paid in any
transaction reported on the New York Stock Exchange Composite Index, or
paid or offered in any bona fide transaction related to a Change in
Control or Potential Change in Control of the Company, at any time
during the 60-day period immediately preceding the occurrence of the
Change in Control (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the
Committee, except that, in the case of Incentive Stock Options and
Stock Appreciation Rights relating to Incentive Stock Options, such
price shall be based only on transactions reported for the date on
which the participant exercises such Stock Appreciation Rights or,
where applicable, the date on which a cashout occurs under Section
11(a)(3).

SECTION 12. AMENDMENTS AND TERMINATION.

The Board may at any time, in its sole discretion, amend,
alter or discontinue the Plan, but no such amendment, alteration or
discontinuation shall be made which would impair the rights of a participant
under an Award theretofore granted, without the participant's consent. The
Company shall

<PAGE> 21

submit to the shareholders of the Company for their approval any amendments to
the Plan which are required by Section 16 of the Exchange Act, or the rules and
regulations thereunder, to be approved by the shareholders.

The Committee may at any time, in its sole discretion, amend
the terms of any Award, but no such amendment shall be made which would impair
the rights of a participant under an Award theretofore granted, without the
participant's consent; nor shall any such amendment be made which would make the
applicable exemptions provided by Rule 16b-3 under the Exchange Act unavailable
to any Section 16 participant holding the Award without the participant's
consent. The Committee may also substitute new Stock Options for previously
granted Stock Options (on a one-for-one or other basis), including previously
granted Stock Options having a higher option price.

Subject to the above provisions, the Board shall have all
necessary authority to amend the Plan to take into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.

SECTION 13. UNFUNDED STATUS OF PLAN.

The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payments not yet made
to a participant by the Company, nothing contained herein shall give any such
participant any rights that are greater than those of a general creditor of the
Company.

SECTION 14. GENERAL PROVISIONS.

(a) The Committee may require each participant acquiring Stock
pursuant to an Award under the Plan to represent to and agree with the
Company in writing that the participant is acquiring the Stock without
a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.

All shares of Stock or other securities delivered under
the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed, and
any applicable federal or state securities laws, and the Committee may
cause a legend or legends to be put on any certificates for such shares
to make appropriate reference to such restrictions.

(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to

<PAGE> 22

shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.

(c) Neither the adoption of the Plan, nor its operation, nor
any document describing, implementing or referring to the Plan, or any
part thereof, shall confer upon any participant under the Plan any
right to continue in the employ, or as a director, of the Company or
any Subsidiary or Affiliate, or shall in any way affect the right and
power of the Company or any Subsidiary or Affiliate to terminate the
employment, or service as a director, of any participant under the Plan
at any time with or without assigning a reason therefor, to the same
extent as the Company or any Subsidiary or Affiliate might have done if
the Plan had not been adopted.

(d) For purposes of this Plan, a transfer of a participant
between the Company and its Subsidiaries and Affiliates shall not be
deemed a termination of employment.

(e) No later than the date as of which an amount first becomes
includable in the gross income of the participant for federal income
tax purposes with respect to any Award under the Plan, the participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any federal, state or local taxes
or other items of any kind required by law to be withheld with respect
to such amount. Subject to the following sentence, unless otherwise
determined by the Committee, withholding obligations may be settled
with Stock, including unrestricted Stock previously owned by the
participant or Stock that is part of the Award that gives rise to the
withholding requirement. Notwithstanding the foregoing, any election by
a Section 16 participant to settle such tax withholding obligation with
Stock that is part of such Award shall be subject to approval by the
Committee, in its sole discretion. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements and the
Company and its Subsidiaries and Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.

(f) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Stock (or in Deferred Stock or
other types of Awards) at the time of any dividend payment shall only
be permissible if sufficient shares of Stock are available under
Section 3 for such reinvestment (taking into account then outstanding
Stock Options, Stock Purchase Rights and other Plan Awards).

(g) The Plan, all Awards made and actions taken thereunder and
any agreements relating thereto shall be governed by and construed in
accordance with the laws of the State of Ohio.

(h) All agreements entered into with participants pursuant to
the Plan shall be subject to the Plan.

<PAGE> 23

(i) The provisions of Awards need not be the same with respect
to each participant.

SECTION 15. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.

The Plan was adopted by the Board on February 10, 1995 and is
subject to approval by the holders of the Company's outstanding Stock, in
accordance with applicable law. The Plan will become effective on the date of
such approval.

SECTION 16. TERM OF PLAN.

No Award shall be granted pursuant to the Plan on or after
February 10, 2005, but Awards granted prior to such date may extend beyond that
date.

<PAGE> 1

EXHIBIT NO. 11

THE PROGRESSIVE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(MILLIONS - EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1996
-----------------------------------------------------------------------------
Per Per Per
Amount Share Amount Share Amount Share
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC:
Net income $295.2 $4.05 $456.7 $6.30 $400.0 $5.56
=============================================================================
Average shares outstanding 72.9 72.5 72.0
============== ============== ==============

DILUTED:

Net income $295.2 $3.96 $456.7 $6.11 $400.0 $5.31
=============================================================================

Average shares outstanding 72.9 72.5 72.0
Net effect of dilutive stock options 1.7 2.2 3.3
-------------- -------------- --------------
Total 74.6 74.7 75.3
============== ============== ==============
</TABLE>

<PAGE> 1
Exhibit 13

The Progressive Corporation

1999 Annual Report

<PAGE> 2

1999 Financial Highlights 7
Vision, Core Values and Objectives 10
Letter to Shareholders 16
Financial Review 32

<PAGE> 3
The Progressive insurance organization began business in 1937. Progressive
Casualty Insurance Company was founded in 1956 to be among the first specialty
underwriters of nonstandard auto insurance. The Progressive Corporation, an
insurance holding company formed in 1965, owns 82 subsidiaries and has one
mutual insurance company affiliate. The companies provide personal automobile
insurance and other specialty property-casualty insurance and related services
throughout the United States.

About the Art
- -----------------------

Much about Progressive fits the statement "not what you'd expect from an
insurance company." To illustrate this concept in the Annual Report, we
commissioned artist Gregory Crewdson to investigate the idea of the end of
status quo with his evocative photographs. Crewdson's work explores a kind of
mystery and strangeness in recognizable scenes and landscapes. His elaborately
staged photographs address this notion of the "unexpected." Crewdson's work will
become part of Progressive's growing collection of contemporary art.

[Art - pages 4 through 6]

<PAGE> 4

1999 FINANCIAL HIGHLIGHTS

(millions-except per share amounts)
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
COMPOUNDED RATE OF INCREASE
----------------------------
5-YEAR 10-YEAR
1999 1998 % CHANGE 1995-1999 1990-1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Direct premiums written $ 6,305.3 $ 5,451.3 16% 19% 17%
Net premiums written 6,124.7 5,299.7 16 20 18
Net premiums earned 5,683.6 4,948.0 15 21 17
Total revenues 6,124.2 5,292.4 16 20 16
Operating income 266.7 449.3 (41) 5 10
Net income 295.2 456.7 (35) 2 14
Per share:(1)
Operating income 3.58 6.01 (40) 5 11
Net income 3.96 6.11 (35) 2 15
Underwriting margin(2) 1.7% 8.4% 6 6

AT YEAR-END
Consolidated shareholders' equity $ 2,752.8 $ 2,557.1 8 19 20
Common Shares outstanding 73.1 72.5 1 1 --
Book value per share $ 37.66 $ 35.27 7 20 21
Market capitalization $ 5,345.4 $ 12,279.7 (56) 16 18
Return on average shareholders' equity(2) 10.9% 19.3% 17 20

STOCK PRICE APPRECIATION (DEPRECIATION)(3) 1-YEAR 5-YEAR 10-YEAR
Progressive (56.7)% 16.2% 19.7%
S&P 500 21.0% 28.5% 18.1%
</TABLE>

(1) Presented on a diluted basis.
(2) The 5- and 10-year amounts represent averages for the period, not rates of
increase.
(3) Assumes dividend reinvestment.

[Art - pages 8 and 9]

<PAGE> 5

VISION, CORE VALUES AND OBJECTIVES

Communicating a clear picture of Progressive by stating what we try to achieve
(Vision), what guides our behavior (Core Values), what our people expect to
accomplish (Objectives), and how we evaluate performance (Measurements), permits
all people associated with Progressive to understand their role and to enjoy
their contributions.

Vision
- -------------------------

We seek to be an excellent, innovative, growing and enduring business by
cost-effectively and profitably reducing the human trauma and economic costs of
auto accidents and other mishaps, and by building a recognized, trusted,
admired, business-generating brand. We seek to earn a superior return on equity
and to provide a positive environment which attracts quality people who develop
and achieve ambitious growth plans.

<PAGE> 6
Core Values
- ----------------------------------------------------------

Progressive's Core Values are pragmatic statements of what works best for us in
the real world. They govern our decisions and behavior. We want them understood
and embraced by all Progressive people. Growth and change provide new
perspective, requiring regular refinement of Core Values.

INTEGRITY We revere honesty. We adhere to high ethical standards, report
promptly and completely, encourage disclosing bad news and welcome
disagreement.

GOLDEN RULE We respect all people, value the differences among them and deal
with them in the way we want to be dealt with. This requires us to know
ourselves and to try to understand others.

OBJECTIVES We strive to communicate clearly Progressive's ambitious objectives
and our people's personal and team objectives. We evaluate performance against
all these objectives.

EXCELLENCE We strive constantly to improve in order to meet and exceed the
highest expectations of our customers, shareholders and people. We teach and
encourage our people to improve performance and to reduce the costs of what
they do for customers. We base their rewards on results and promotion on
ability.

PROFIT The opportunity to earn a profit is how the competitive free-enterprise
system motivates investment to enhance human health and happiness. Expanding
profits reflect our customers' and claimants' increasingly positive view of
Progressive. We value all people's well-being and strive to give back to our
communities.

<PAGE> 7

Financial Objectives and Measurements
- ---------------------------------------------------------------

Consistent achievement of superior results requires that our people understand
Progressive's objectives and their specific role, and that their personal
objectives dovetail with Progressive's. Our objectives are ambitious yet
realistic. We are committed to achieving financial objectives over rolling
five-year periods. Experience always clarifies objectives and illuminates
better strategies. We constantly evolve as we monitor the execution of our
strategies and progress toward achieving our objectives.

RETURN ON SHAREHOLDERS' EQUITY Our most important financial goal is to achieve
an after-tax return on shareholders' equity over a five-year period that is at
least 15 percentage points greater than the rate of inflation (measured by the
Consumer Price Index which was 2.7% in 1999, and averaged 2.4% over the past
five years and 2.9% over the past ten years). Return on equity was 10.9% in
1999, and averaged 17.5% over the past five years and 19.6% over the past ten
years.

PROFITABILITY Progressive is driven by the goal of producing a calendar year 4%
underwriting profit. Overall, we had an underwriting profit of 1.7% in 1999,
5.9% for the past five years and 5.8% for the past ten years. Estimated industry
results for the personal auto insurance market for the same periods were
underwriting losses of 2.8%, 1.2% and 2.2%.

GROWTH We seek increases in net premium volume that are at least 15 percentage
points greater than the rate of inflation. Companywide net premiums written
increased 15.6% in 1999, 20.0% compounded annually over the past five years and
18.1% over the past ten years. Net premiums written in the personal auto
insurance market for the same periods grew 2.6%, 4.4% and 5.0%.

<PAGE> 8

ACHIEVEMENTS We are convinced that the best way to maximize shareholder value is
to achieve these financial objectives consistently. A shareholder who purchased
100 shares of Progressive for $1,800 in our first public stock offering on April
15, 1971, owned 7,689 shares on December 31, 1999, with a market value of
$562,000, for a 22.3% compounded annual return, compared to the 9.8% return
achieved by investors in the Standard & Poor's 500 during the same period. In
addition, the shareholder received dividends of $1,999 in 1999, bringing total
dividends received to $20,265 since the shares were purchased.
In the ten years since December 31, 1989, Progressive shareholders have
realized compounded annual returns of 19.7%, compared to 18.1% for the S&P 500.
In the five years since December 31, 1994, Progressive shareholders' returns
were 16.2%, compared to 28.5% for the S&P 500. In 1999, the returns were (56.7)%
on Progressive shares and 21.0% on the S&P 500.
Over the years, when we have had adequate capital and believe it is
appropriate, we have repurchased our shares. Since 1971, we spent $614.3 million
repurchasing our shares, at an average cost of $9.11 per share. During 1999, we
repurchased 6,044 Common Shares to offset obligations under various employee
benefit plans.

1999 Objectives and Accomplishments
- -------------------------------------------------------------------------------------
LAST LAST
1999 5 YEARS 10 YEARS

- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETURN ON SHAREHOLDERS' EQUITY
Objective 17.7% 17.4% 17.9%
Accomplishment 10.9 17.5 19.6

UNDERWRITING PROFIT (LOSS)
Objective 4.0 4.0 4.0
Accomplishment 1.7 5.9 5.8
Industry-Personal Auto
Insurance Market (2.8) (1.2) (2.2)

GROWTH (ANNUALIZED)
Objective 17.7 17.4 17.9
Accomplishment 15.6 20.0 18.1
Industry-Personal Auto
Insurance Market 2.6 4.4 5.0
- --------------------------------------------------------------------------------------
</TABLE>

[Art - pages 14 and 15]

<PAGE> 9
LETTER TO SHAREHOLDERS

16
<PAGE> 10

Progressive's strategy is to become the number one choice of U.S. consumers for
auto insurance. Progressive has consciously decided to narrow its business focus
within the framework of that objective.

If past is prologue, Progressive will experience a resurgence. We increased
prices ahead of competitors which will likely slow our volume, allowing us to
focus on developing our current claim representatives rather than focus on
building the staff as we have for the past few years. We expect that this in
turn should produce lower loss costs.
A key part of the improved customer experience is building customer trust and
loyalty, which we do in part by continually identifying new and better ways to
serve customers.
The theme for this annual report is "not what you'd expect." Progressive has
routinely redefined what you should expect from an auto insurance company by
consistently dreaming, thinking outside the lines and having the will to do
things never before tried. Progressive's future depends on continuing to do
that. Progressive must lead. Leaders always go where others never have been.

1999 was a mixed year for Progressive. Many positive accomplishments, including
a 16% increase in annual premium volume and becoming the 4th largest U.S.auto
insurer, were overshadowed by a 6.7 point decrease in the Company's year-to-year
underwriting profit (from 8.4% in 1998 to 1.7% in 1999) with a concomitant
decline in earnings per share from $6.11 in 1998 to $3.96 in 1999. Progressive
shareholders had a wild ride as Progressive's stock traded at an all-time high
price of 174+ on January 12 and then plummeted to close 1999 at $73.125.
Disappointing 1999 performance caused us to reappraise all of our assumptions,
abilities, approaches, advantages and attitudes. This letter shares our view of
what happened and why, what we are doing about each issue, how we view both
competition and the social/political environment vis-a-vis auto insurance, what
our strategy is and how we will execute it.

<PAGE> 11

What Happened and What We Are Doing
- ------------------------------------------------------------

RATE CHANGES In 1999, we were surprised by the sudden reversal in the long-term
trend of reducing accident frequency and severity, resulting in loss cost
increases not contemplated in the rates we charged. We attribute the change to
forces both inside and outside Progressive. Progressive decreased rates an
average of 1.3% during the first six months of 1999, only to increase rates 4.4%
in the second half of the year, primarily in the fourth quarter. It is likely
that these rate increases will slow volume growth in 2000, and, since the
majority of our policies are annual, we will not see the full impact of these
rate changes on earnings until the fourth quarter of 2000. We will take
advantage of this slow down to increase the tenure of our claim force and to
improve our service to customers, agents and claimants.

OPERATING GOALS We recognized that the way we structured our goals and
incentive compensation program for 1999 helped drive our disappointing calendar
underwriting results. We created internal incentives that credited a portion of
anticipated future policy renewal profits to current results to encourage
growing the business acquired directly. Although expanding the direct business
is key to Progressive's long-term viability, we learned that we are unable to
measure accurately either who will renew and/or the likely future profit
margins on the renewals. The insoluble issues include that we often change
prices and/or risk categories, and that distribution is changing fast so that
history may no longer be a good predictor. We decided that anticipating profit
to be earned on policies to be renewed in the future can lead to flawed
conclusions, inadequate pricing and GAAP underwriting losses. In response, we
based our goals and manager incentives for 2000 on calendar year results.

CLAIM FOCUS Progressive's premium volume has expanded from $2,457.2 million in
1994 to $6,124.7 million in 1999, a compound annual growth rate of 20%. Our
number of claims handled has grown at a similar rate, from 348,000 in 1994 to
988,000 in 1999. Automobile insurance is a personal service business. Claim
handling, a highly technical job, is the most significant of Progressive's
services. It takes about two years to train and develop a new claim
representative to be a consistently excellent claim handler. The claim staff
expanded from 3,093 in 1994 to 7,561 in 1999, with average claim representative
tenure of 3.7 years, bringing with it predictable but unmeasurably lower claim
handling quality and increased loss costs. As premium growth slows, we expect
to see a reduction in new claim representative hiring and an increase in
average claim representative tenure. Our claim effort is focused on building
our industry recognized Immediate Response(R) claims service with the goal of
improved total resolution (pay and conclude with happy customers and
claimants). Continuously delighting customers drives us to create new
customer/claimant services.

<PAGE> 12
RESERVE ADEQUACY In 1999, we reduced loss reserves relating to prior accident
years, amounting to .5 combined ratio points, compared to 3.7 points in 1998,
2.5 points in 1997 and 3.3 points in 1996. We believe that our loss reserves are
fairly stated; we continually monitor their adequacy to ensure that we remain
properly reserved.

ADVERTISING During 1999, we continued to increase our understanding of
advertising, brand building and direct sales management. Our inexperience, and
probably a bit of hubris, beginning with our advertising and sponsorship
associated with Super Bowl XXXIII, led us to incur significant costs without
achieving proportionate benefits. Although we didn't get the hoped-for consumer
response, we did achieve a boost in overall awareness of Progressive as an auto
insurer. We also learned about advertising agency and media selection
management, more about what messages sell best and more about call center
management--all developing skills for Progressive. We changed advertising
agencies and, in 2000, are running a new series of advertising spots leading
with our strongest attribute--Progressive's own people explaining the many
advantages we have to offer with a greater focus on generating calls and sales
while building the brand.

STOCK PRICE The question I am most often asked is, "Why did PGR drop from the
$170s to the $60s?" Because my personal net worth has always been based on the
value of Progressive stock, I have 30 years experience with, and interest in,
the stock's price. I respond to the question first with an honest, "I don't
know." Then I reminisce. In December 1974, Progressive dropped from the $27 per
share it sold at in early 1973 to nearly $2 per share, a decline which rendered
me insolvent. Since 1974, I have known that inexplicably high prices are
possible and can be followed by precipitous price drops. My personal explanation
for last year's Progressive stock price gyrations is that after 35 years of
being an exciting growth company, Progressive was finally recognized as such. In
the euphoria of last year's stock market and despite our comments to the
contrary, some assumed we would achieve both the wide profit margins and high
growth of the late '90s well into the future. When it became clear that we would
sustain neither the margin nor the growth rate during a cyclical auto insurance
downturn, the stock price plummeted. Through the efforts discussed above, I
believe that we have both the strategy and determination in place to return to
more profitable times.
It is possible that the many changes implemented in 1999 (e.g., program
design, credit vendors, etc.) interacted to cause unanticipated risk selection
problems. In 2000, we will focus more on improving what we've developed rather
than creating new processes and systems.

[Art - pages 20 and 21]

<PAGE> 13

The Current Environment
----------------------------------------

Auto insurance is a cyclical business. From 1974 through 1991, the auto
insurance industry lost an annual average of 6% in underwriting. During that
same period, Progressive made an average 1% underwriting profit. From 1992
through 1998, the auto insurance industry lost only 1% in underwriting, similar
to results in the seven years prior to 1974. During that same period, 1992
through 1998, Progressive made an average underwriting profit of 7.9%. It
appears that the cycle began to turn again in 1999, meaning that Progressive
will have to continue to outperform the industry in order to achieve our
targeted 4% underwriting profit. Progressive now competes directly with the
largest auto insurance companies in the U.S., most of which are well-capitalized
and very experienced. In addition, industry consolidation is underway, which
will probably result in fewer, but much stronger, competitors. Multiple-line
companies doing business with insurance agents confront increasing competitive
disadvantages from the insurers specializing in automobile insurance. Some sold
their personal lines business in 1999--more will. This trend could benefit
Progressive, which sells more auto insurance through Independent Agents than any
other auto insurer. On the other hand, we anticipate greater competition for
agent business.
Progressive's product and service innovations have changed the competitive
landscape. Customers are beginning to expect 24-hour service and the ability to
buy when and where it is convenient for them. Customers also want special
pricing and coverages to meet their unique needs.
Technology presents continuous opportunity and challenge. Much money and
energy is being invested to develop new ways to distribute auto insurance over
the Internet, as well as new ways to make it easy and inexpensive for consumers
to compare prices and other aspects of individual insurer offerings. Technology
becomes increasingly critical to everything we do.

<PAGE> 14

Personal Lines Business
--------------------------------------------

In 1999, we continued to focus on growing our Personal Lines business.
Insurance written for private passenger automobiles, motorcycles and recreation
vehicles accounted for 93% of Progressive's total net premiums written in 1999.
In 1999, Personal Lines net premiums written were $5,702.4 million, an increase
of 16% as compared to 1998. The underwriting profit margin was 1.2% in 1999,
compared to 7.9% last year. Although we had several significant missteps in
1999, our fundamental strategy remains sound.

OFFER A CHOICE IN HOW TO BUY Progressive recognizes the importance of providing
consumers choices in how to buy based on where, when and how they want it.
Accordingly, we continue to pursue a multiple-distribution approach. We view no
distribution method through which we sell as superior to any other. No matter
whether our customers choose to buy through an Independent Insurance Agent or
direct through 1-800-AUTO-PRO(R) or progressive.com, we believe that to get the
business we seek, we have to provide the lowest price. Therefore, we identify
and market to those groups with the greatest likelihood of buying. We also know
that we have to be as efficient as possible. To continue to be successful, we
need to be the leader in market innovation. During 1999, one of our more
significant achievements was the success we experienced in selling auto
insurance over the Internet. By continuing to offer our products for sale in
every way in which customers wish to shop, we believe we can achieve our goal of
being consumers' number one choice for auto insurance.

BECOME A RECOGNIZED, TRUSTED BRAND Progressive's brand promotion can be seen in
a variety of media in every market where we do business, completing in 1999,
our multi-year rollout of our direct distribution option. Despite the fact that
we have been the largest seller of auto insurance through Independent Insurance
Agents for several years, it is only recently that we have become more of a
household name. During 1999, our brand profile with consumers continued to
rise. Our awareness measures, particularly our awareness levels with age
segments up to 35, an attractive part of our new acquisition range, have all
improved. Our advertising, which was initially centered around our promise to
give the rates of several of our largest competitors, seems to have resonated
well with consumers and earned their trust. During 1999, we attempted several
creative directions to build awareness and communicate our size and innovative
service features. As our brand strengthened and awareness grew, consumer
confidence was expressed in increased conversion rates. We ended 1999 much
stronger than we entered, with many lessons learned.

PROVIDE A COMPETITIVE PRICE FOR ALL DRIVERS In 1996, we migrated to a goal to
produce a 4% underwriting profit over the entire retention period of a
policyholder. In mid-1999, we realized this approach was not consistent with
our financial goals. Accordingly, we returned to our historic target of a
calendar year 96 combined ratio in Personal Lines, with the intent to achieve
that goal within the next few years. One important lesson of migrating to and
then from profit targets based on the entire retention period of a policyholder
was a better appreciation of the importance of customer retention. Beginning in
1999, we focused on better understanding what actions, in addition to price, we
can take to retain our customers longer. While customer retention is an
important tenet in our pricing strategy, the end goal is still to capture
sufficient information so that we provide the lowest rates possible for all
drivers while still earning a reasonable rate of return. We continue to believe
that we do this as well as or better than anyone in the industry.

BE EASY TO DO BUSINESS WITH We realized early on that, regardless of
distribution method, people migrate to the company with the lowest rates. On
the other hand, more and more people put a premium on their own time.
Accordingly, in addition to providing a low-cost product, we have to be easy to
do business with. What does that mean for Progressive? For a multi-distribution
company, that means several things. From the Agency side, we must offer simple
and reliable software on the desktop of each Agency's customer service
representative. In the event that these representatives have a question, they
need to be able to contact someone 24 hours a day, 7 days a week for an answer.
Waiting until tomorrow is not acceptable. In addition, we are focusing on those
Independent Agents who, like Progressive, deliver a superior customer
experience at the point of sale. The same principles hold true for our direct
operations. When customers call Progressive, either to purchase a policy or ask
a question, they want a process that is efficient and customer friendly.
Perhaps the most demanding customers are found on the Internet. Used to the
control they exercise over the buying process, Internet customers demand a site
that is both fast and efficient. To discover the ease of doing business with
Progressive, we invite you to call a local agent, call us at 1-800-AUTO-PRO(R)
or visit us at progressive.com. Sometimes we have the lowest price. Sometimes
we don't. But one thing that is certain, Progressive is always working to
ensure that we are easy to do business with.

FOCUS ON SATISFACTORY CLAIM RESOLUTION FOR CUSTOMERS While most consumers make
their purchasing decisions based on the cost of the product, some actually
think about the service they will receive in the event they have an accident. A
customer that had a claim under a

<PAGE> 15

Progressive policy in 1999, would have received an in-person contact within nine
hours about 42% of the time. Following this initial contact, the claim
representative would have verified coverage, assessed the damage and provided a
timely settlement. With five claim call centers open 24 x 7, and over 7,500
claim professionals in 350 field offices, we believe the overall process is as
good as any in the industry.
As we look forward to 2000, we expect that executing against these five
tenets will allow us to move steadily toward our goal of becoming consumers'
number one choice for auto insurance.

<PAGE> 16
Other Businesses
- ---------------------------

The Company's other lines of business include writing insurance for small fleets
of commercial vehicles, collateral protection and loan tracking for auto lenders
and financial institutions, directors' and officers' liability and fidelity
coverage for American Bankers Association member community banks and independent
credit unions, and providing related claims, underwriting and system services.
Revenues in these businesses were $437.0 million in 1999, compared to $405.5
million the prior year. Pretax operating profit was $41.8 million, compared to
$61.9 million in 1998, and return on revenue was 9.6%, compared to 15.3% in
1998.

Investments and Capital Management
-------------------------------------------------
Progressive's investment and capital management goals are first to ensure that
there is sufficient capital to support all the insurance premium we can
profitably write, and second to maximize our total investment return. Our
objectives are to finance growth internally, to sustain an A or better debt
rating, to have a lower debt cost than peer companies and to repurchase stock
cost effectively. Progressive's senior debt was rated A+ and A2 by Standard &
Poor's and Moody's, respectively, at year-end 1999, and our debt to debt plus
equity ratio was 27.6%.
During 1999, we did not repurchase shares other than to fulfill obligations
under certain employee benefit programs. Over the last ten years, we repurchased
20.8 million split-adjusted shares at an average cost of $20.89. The shares we
bought back in the 1990s were purchased for $433 million and were worth $1.5
billion at the end of the decade, an annualized return of 38%, exceeding the S&P
500 index return of 18%. We do not follow a formulaic approach, but consider
short- and long-term factors, both technical and fundamental, in deciding
whether to repurchase shares. In 1999, some of the important considerations that
caused us to hold off buying shares were the excessive capital in the industry
and falling auto rate levels. Over the long term, we expect Progressive to be a
much larger company and will need the capital we have now, if not more, but we
will buy back shares when, in our judgement, we believe it is appropriate.
In March 1999, we successfully issued $300 million of 30-year senior debt at
6.625% in a public offering. We intend to use these funds to pay the $300
million of debt ($150 million at 10% and $150 million at 10.125%) due at the end
of 2000.
At year-end 1999, $4,513.7 million, 70.2% of our total invested assets, were
investment-grade, fixed-maturity securities, compared to $4,532.9 million and
79.9% in 1998. Non-investment-grade fixed-maturity securities were $248.0
million, 3.9% of total invested assets, compared to $128.0 million and 2.3% in
1998. The portfolio's duration was 3.0 years at year-end 1999, near the middle
of our target range. We earned 3.0% on our fixed-income assets which was a good
result relative to other fixed-income managers who had flat or declining total
returns caused by the rise in interest rates (five-year government bonds rose
174 basis points from 4.5% to 6.3% in 1999).
We increased our common stock investments during the year to $1,243.6
million, 19.3% of total invested assets, compared to $636.9 million and 11.2% in
1998. A truer representation of our common equity exposure at year end is
$1,013.4 million, or 15.8%, which excludes $230.2 million of term trust
certificates holding fixed-income investments. Our 11.6% equity return was in
line with value oriented active equity managers, but underperformed relative to
the Russell 3000's 20.9% because of our underweighting technology stocks
throughout the year. Borrowing a terrific quote from Byron Wien at Morgan
Stanley, as stated in Barron's, "In my lifetime, we've gone from valuing stocks
based on dividends to earnings, to cash flow, and then momentum. Now stocks are
priced on possibilities." At Progressive, we never adopted the "momentum"
approach and focus on the intrinsic value of a company to invest in more than
its "possibilities."
Included in our fixed-maturity and common equity portfolios are $195.8
million, or 3.0%, of other risk assets. These include high yield and distressed
debt, private equities and warrants, and mezzanine investments. No individual
security in this category comprised more than 1% of Progressive's total
investment portfolio. Our total return in this asset class was 7.1%.
In 1999, Progressive earned $387.9 million of investment income before
taxes, compared to $306.2 million in 1998, including realized gains of $47.2
million in 1999 and $11.4 million in 1998. The weighted average fully taxable
equivalent book yield of the portfolio was 6.3% in both 1999 and 1998.

<PAGE> 17
Management Transition
- ------------------------------------------------------

We closed the year with another step in management transition. Glenn Renwick was
named CEO-Insurance Operations. With Glenn assuming that new role officially on
January 1, 2000, and Chuck Chokel already in a comparable position for
Investments and Capital Management, the new generation of Progressive leadership
is in place and leading the way. I am thrilled to continue to be deeply involved
working with Glenn and Chuck as well as our senior staff officers.

2000 Focus
--------------------

Helping customers and claimants resolve the inconvenience, pain and costs
associated with automobile accidents is what Progressive is all about. In 2000,
we will pursue, with all the energy, creativity and focus that we can bring to
it, ways that we can change what we do to improve the claim experience that our
customers and claimants have when they have the misfortune to be involved in a
loss. We want to produce an even better experience from beginning to end for our
customers in every one of their interactions with Progressive.
Like customers for all services and products, auto insurance customers want
more information about their opportunities and many more options as to how they
can seize those opportunities. Our objective is to make the buying experience
with Progressive the easiest, most interesting and gratifying of any auto
insurer.
The Internet has become the market of choice for people ages 18-35. As this
age group has the highest propensity to shop for auto insurance, it is a market
in which we are most interested. In 1999, Progressive extended its dominance in
Internet auto insurance. We are unique in offering consumers the option to buy
insurance directly online in 47 states, plus

<PAGE> 18

the District of Columbia. During the year, we sold more than $70 million of auto
insurance on the Internet (for the year, Internet sales, which either closed
directly online or through a customer service representative, represented about
7% of our direct sales), gave over 1 million insurance quotes to consumers, and
serviced over 65,000 customers online. For those consumers who prefer buying
through an Independent Agent, we provided a quick online way to find a local
Independent Agent, which was accessed by consumers over 5,000 times a month
during 1999. Through "Personal Progressive" (located at progressive.com) we are
able to provide our policyholders a personalized online insurance service center
for billing, online payments, policy changes, individualized claim information
and vehicle replacement quotes.
We will launch a homeowners product in Arizona in March 2000 and plan to
expand to a few additional states during the year. Progressive recognizes that
many consumers and agents prefer the convenience of placing their home and auto
insurance with the same company. The new product line will also include
condominium owners' and renters' insurance policies. We will limit our rollout
of these new products to states where the competitive and regulatory
environments allow us to charge adequate premiums for the risk and provide
reasonable opportunity to achieve an underwriting profit.

The Future
- ----------------------------

We begin 2000 excited about the opportunities that lie ahead yet respectful of
the challenges that are implicit in our objectives and strategy. Much will be
required to realize our vision. At Progressive, it is always as if we are just
beginning our business. We believe the future is brighter than ever.
We deeply appreciate the customers we are privileged to serve. Thank you for
your business. Thanks to the more than 30,000 Independent Insurance Agents who
did business with Progressive in 1999. We are grateful for our shareholders'
continued confidence. To the 18,753 men and women who make Progressive a great
company, thanks for all your contributions in 1999 and for the promise you bring
to our future.

Joy, Love and Peace

/s/Peter B. Lewis

Peter B. Lewis
Chairman, President and Chief Executive Officer

[Art - pages 28 through 31]

<PAGE> 19

1999 FINANCIAL REVIEW

Consolidated Financial Statements 34

Management's Discussion and Analysis 48

Quarterly Financial and Common Share Data 51

Ten Year Summaries 52

Quantitative Market Risk Disclosures 56

Analysis of Loss and LAE Development 58

Direct Premiums Written by State 58

<PAGE> 20

REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS, THE PROGRESSIVE CORPORATION:

In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, changes in shareholders' equity
and cash flows present fairly, in all material respects, the financial position
of The Progressive Corporation and subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/Pricewaterhousecoopers L.L.P.

Cleveland, Ohio
January 25, 2000

33
<PAGE> 21

CONSOLIDATED STATEMENTS OF INCOME

(millions-except per share amounts)
- ---------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997

- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET PREMIUMS WRITTEN $ 6,124.7 $ 5,299.7 $ 4,665.1
===============================================

REVENUES
Premiums earned $ 5,683.6 $ 4,948.0 $ 4,189.5
Investment income 340.7 294.8 274.9
Net realized gains on security sales 47.2 11.4 98.5
Service revenues 47.5 38.2 45.3
Other income(1) 5.2 -- --
-----------------------------------------------
Total revenues 6,124.2 5,292.4 4,608.2
-----------------------------------------------
EXPENSES
Losses and loss adjustment expenses 4,256.4 3,376.3 2,967.5
Policy acquisition costs 745.0 659.9 607.8
Other underwriting expenses 583.8 495.8 336.0
Investment expenses 9.5 7.4 9.9
Service expenses 40.9 30.8 43.9
Interest expense 76.4 61.1 64.6
----------------------------------------------
Total expenses 5,712.0 4,631.3 4,029.7
-----------------------------------------------
NET INCOME
Income before income taxes 412.2 661.1 578.5
Provision for income taxes 117.0 204.4 178.5
-----------------------------------------------
Net income $ 295.2 $ 456.7 $ 400.0
===============================================

COMPUTATION OF EARNINGS PER SHARE
Basic:
Average shares outstanding 72.9 72.5 72.0
===============================================
Per share $ 4.05 $ 6.30 $ 5.56
===============================================
Diluted:
Average shares outstanding 72.9 72.5 72.0
Net effect of dilutive stock options 1.7 2.2 3.3
-----------------------------------------------
Total equivalent shares 74.6 74.7 75.3
===============================================
Per share $ 3.96 $ 6.11 $ 5.31
===============================================
</TABLE>

(1) See Note 12-Related Party Transaction for discussion.
See notes to consolidated financial statements.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
34

<PAGE> 22

CONSOLIDATED BALANCE SHEETS

(millions)
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998

- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Available-for-sale:
Fixed maturities, at market (amortized cost: $4,650.9 and $4,171.6) $ 4,532.7 $ 4,219.0
Equity securities, at market:
Preferred stocks (cost: $425.4 and $374.3) 422.4 376.5
Common stocks (cost: $1,127.8 and $512.2) 1,243.6 636.9
Short-term investments, at amortized cost (market: $229.0 and $441.9) 229.0 441.9
- ----------------------------------------------------------------------------------------------------------------------
Total investments 6,427.7 5,674.3
Cash 14.2 18.6
Accrued investment income 54.0 53.1
Premiums receivable, net of allowance for doubtful accounts of $42.9 and $34.0 1,760.8 1,456.2
Reinsurance recoverables 254.7 281.0
Prepaid reinsurance premiums 88.3 77.7
Deferred acquisition costs 343.4 299.1
Income taxes 273.7 192.9
Property and equipment, net of accumulated depreciation of $243.8 and $194.1 447.7 376.2
Other assets 40.2 34.0
======================================================================================================================
Total assets $ 9,704.7 $ 8,463.1
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Unearned premiums $ 2,781.4 $ 2,329.7
Loss and loss adjustment expense reserves 2,416.2 2,188.6
Policy cancellation reserve 17.8 29.1
Accounts payable and accrued expenses 687.9 582.0
Debt 1,048.6 776.6
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 6,951.9 5,906.0
======================================================================================================================
Shareholders' equity:
Common Shares, $1.00 par value (authorized 300.0, issued 83.1,
including treasury shares of 10.0 and 10.6) 73.1 72.5
Paid-in capital 481.6 448.3
Accumulated other comprehensive income:
Net unrealized appreciation (depreciation) on investment securities (3.4) 113.3
Other (9.0) (9.6)
Retained earnings 2,210.5 1,932.6
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,752.8 2,557.1
======================================================================================================================
Total liabilities and shareholders' equity $ 9,704.7 $ 8,463.1
======================================================================================================================

</TABLE>

See notes to consolidated financial statements.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(millions-except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997

- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance, Beginning of year $ 1,932.6 $ 1,534.8 $ 1,155.2
Net income 295.2 $ 295.2 456.7 $ 456.7 400.0 $ 400.0
----------- ----------- ------------
Cash dividends on Common Shares ($.26, $.25
and $.24 per share) (19.0) (18.1) (17.3)
Treasury shares purchased (.6) (39.8) (2.7)
Other, net 2.3 (1.0) (.4)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of year $ 2,210.5 $ 1,932.6 $ 1,534.8
- -----------------------------------------------------------------------------------------------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS), NET OF TAX
Balance, Beginning of year $ 103.7 $ 116.0 $ 68.4
Change in unrealized appreciation (depreciation) (116.7) (9.0) 48.3
Other .6 (3.3) (.7)
----------- ----------- ------------
Other comprehensive income (loss) (116.1) (116.1) (12.3) (12.3) 47.6 47.6
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of year $ (12.4) $ 103.7 $ 116.0
- -----------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 179.1 $ 444.4 $ 447.6
=========== =========== ============
COMMON SHARES, $1.00 PAR VALUE
Balance, Beginning of year $ 72.5 $ 72.3 $ 71.5
Stock options exercised .6 .6 .8
Treasury shares purchased -- (.4) --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of year $ 73.1 $ 72.5 $ 72.3
- -----------------------------------------------------------------------------------------------------------------------------------

PAID-IN CAPITAL
Balance, Beginning of year $ 448.3 $ 412.8 $ 381.8
Stock options exercised 12.0 10.9 13.3
Tax benefits on stock options exercised 20.4 25.6 17.6
Treasury shares purchased -- (2.4) (.2)
Other 0.9 1.4 .3
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of year $ 481.6 $ 448.3 $ 412.8
- -----------------------------------------------------------------------------------------------------------------------------------

TOTAL SHAREHOLDERS' EQUITY $ 2,752.8 $ 2,557.1 $ 2,135.9
==================================================================== ========== ==========
</TABLE>

There are 20.0 million Serial Preferred Shares authorized; no such shares are
issued or outstanding.

There are 5.0 million Voting Preference Shares authorized; no such shares have
been issued.

See notes to consolidated financial statements.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
36

<PAGE> 24

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

(millions)
- ---------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997

- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 295.2 $ 456.7 $ 400.0
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 71.8 56.1 36.6
Net realized gains on security sales (47.2) (11.4) (98.5)
Gain on sale of property and equipment (5.2) -- --
Changes in:
Unearned premiums 451.7 349.6 442.3
Loss and loss adjustment expense reserves 231.2 42.0 204.6
Accounts payable and accrued expenses 118.0 76.7 49.9
Policy cancellation reserve (11.3) (5.6) (8.6)
Prepaid reinsurance premiums (10.6) 2.1 33.3
Reinsurance recoverables 26.3 36.5 62.7
Premiums receivable (304.6) (295.4) (310.9)
Deferred acquisition costs (44.3) (39.5) (52.7)
Income taxes (17.8) (71.3) (67.8)
Other, net 21.9 21.5 43.8
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 775.1 618.0 734.7
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases:
Available-for-sale: fixed maturities (6,076.7) (3,998.8) (6,764.3)
equity securities (1,094.7) (942.9) (658.2)
Sales:
Available-for-sale: fixed maturities 5,182.5 3,210.2 5,840.0
equity securities 480.0 774.3 581.7
Maturities, paydowns, calls and other:
Available-for-sale: fixed maturities 361.4 419.9 578.0
equity securities 26.6 126.0 125.4
Net (purchases) sales of short-term investments 221.0 (32.5) (248.6)
(Receivable) payable on securities (19.1) 18.9 (2.0)
Purchases of property and equipment (147.5) (174.2) (121.9)
Sale of property and equipment 12.1 -- --
Purchase of subsidiaries, net of cash acquired (9.9) -- (48.0)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,064.3) (599.1) (717.9)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 12.6 11.5 14.1
Tax benefits from exercise of stock options 20.4 25.6 17.6
Proceeds from debt 301.4 -- --
Payments of debt (30.0) -- (20.4)
Dividends paid to shareholders (19.0) (18.1) (17.3)
Acquisition of treasury shares (.6) (42.6) (2.9)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 284.8 (23.6) (8.9)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (4.4) (4.7) 7.9
Cash, Beginning of year 18.6 23.3 15.4
- ---------------------------------------------------------------------------------------------------------------------
Cash, End of year $ 14.2 $ 18.6 $ 23.3
=====================================================================================================================
</TABLE>

See notes to consolidated financial statements.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
37

<PAGE> 25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999, 1998 and 1997

01 REPORTING AND ACCOUNTING POLICIES

NATURE OF OPERATIONS The Progressive Corporation, an insurance holding company
formed in 1965, owns 82 subsidiaries and has one mutual insurance company
affiliate. The companies provide personal automobile insurance and other
specialty property-casualty insurance and related services throughout the United
States.
BASIS OF CONSOLIDATION AND REPORTING The accompanying consolidated financial
statements include the accounts of The Progressive Corporation, its subsidiaries
and affiliate (the Company). All of the subsidiaries and the affiliate are
wholly owned or controlled. All intercompany accounts and transactions are
eliminated in consolidation.
INVESTMENTS Available-for-sale: fixed maturity securities are securities held
for indefinite periods of time, and may be used as a part of the Company's
asset/liability strategy or sold in response to changes in interest rates,
anticipated prepayments, risk/reward characteristics, liquidity needs or similar
economic factors. These securities are carried at market value with the
corresponding unrealized appreciation or depreciation, net of deferred income
taxes, reported in accumulated other comprehensive income. Market values are
obtained from a recognized pricing service or other quoted sources. The
asset-backed portfolio is accounted for under the retrospective method;
prepayment assumptions are based on market expectations.
Available-for-sale: equity securities include common stocks and nonredeemable
preferred stocks and are reported at quoted market values. Changes in the market
values of these securities, net of deferred income taxes, are reflected as
unrealized appreciation or depreciation in accumulated other comprehensive
income. Changes in value due to foreign currency exchange are limited by foreign
currency hedges; unhedged amounts are not material and changes in value are
recognized in income in the current period.
Trading securities are securities bought principally for the purpose of
selling them in the near term and are reported at market value. Changes in
market value are recognized in income in the current period. During the year,
the net activity in trading securities was not material to the Company's
financial position, cash flows or results of operations and was recognized in
the available-for-sale portfolio.
Derivative instruments, as defined by Statement of Financial Accounting
Standards (SFAS) 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments," include futures, options, short positions,
forward positions, foreign currency forwards and interest rate swap agreements.
Derivative instruments held or issued for purposes other than trading include
derivative positions used for risk management purposes and hedge positions.
Derivative positions used for risk management are evaluated as to their
effectiveness to modify the Company's risk characteristics and enhance the
yields of the available-for-sale portfolios. Hedges are evaluated on established
criteria to determine the effectiveness of their correlation and ability to
reduce risk of specific securities or transactions. Those instruments held or
issued for risk management purposes are carried at market value in the
appropriate available-for-sale portfolio based on the nature of the derivative
instrument; changes in value of futures, options, foreign currency forwards and
short positions are recorded to income in the current period, and changes in the
value of forward positions and interest rate swaps are reflected in other
comprehensive income as unrealized appreciation or depreciation, net of deferred
income taxes. At disposition, changes in value of forward positions and interest
rate swap agreements are recognized in income as "net realized gains or losses
on security sales." Those instruments entered into for the purpose of hedging
are carried at market value; changes in value follow the recognition of the
asset being hedged. Gains or losses on closed hedge positions are recorded as
basis adjustments to the cost of the assets hedged and amortized over their
expected life. Unamortized amounts are recognized in income at the disposition
of the assets hedged. Gains and losses on instruments entered into for the
purpose of hedging anticipated transactions are deferred and amortized over the
life of the hedged transaction, beginning at the inception of the transaction.
Gains and losses on foreign currency hedges offset the foreign exchange gains
and losses on the foreign equity portfolio. The net hedged gain or loss is not
material and is recognized into income in the current period. Hedges that no
longer qualify for hedge accounting due to lack of correlation are reclassified
to derivative instruments held or issued for purposes other than trading and
used for risk management purposes. Those instruments held or issued for trading
purposes are carried at market value and include derivatives held or issued for
the specific purpose of generating profits and all other derivatives not meeting
the criteria for derivatives held or issued for other than trading purposes;
changes in value are recorded to income in the current period. During the year,
the net activity in derivative instruments held or issued for trading purposes
was not material to the Company's financial position, cash flows or results of
operations; gains or losses during the year were recognized in the
available-for-sale portfolio. See Note 4-Investments for further discussion.
Short-term investments include eurodollar deposits, commercial paper and other
securities maturing within one year and are reported at amortized cost, which
approximates market.
Investment securities are exposed to various risks such as interest rate,
market and credit. Market values of securities fluctuate based on the magnitude
of changing market conditions; significant changes in market conditions could
materially affect portfolio value in the near term.
Realized gains and losses on sales of securities are computed based on the
first-in first-out method and include write downs on available-for-sale
securities considered to have other than temporary declines in market value.
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation
is provided over the estimated useful lives of the assets using accelerated
methods for computers and straight line for all other fixed assets. The useful
lives range from 3 to 4 years for computers, 10 to 31 years for buildings and
improvements and 5 to 6 years for all other property and equipment. Property and
equipment includes software capitalized for internal use.
As of December 31, 1999, the Company had contractual commitments related to
the Company's construction project in Mayfield Village, Ohio totalling $127.6
million, of which $60.9 million had been paid through 1999. Total interest
capitalized related to the Company's construction projects and capitalized
computer software costs was $3.4 million and $3.5 million in 1999 and 1998,
respectively.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
38

<PAGE> 26

INSURANCE PREMIUMS AND RECEIVABLES Insurance premiums written are earned
primarily on a pro rata basis over the period of risk. For products where more
than 50% cancellations are anticipated, premiums written and earned are reduced,
though cancellations have not yet occurred.The Company provides insurance and
related services to individuals, lenders and motor carriers throughout the
United States, and offers a variety of payment plans to meet individual customer
needs. Generally, premiums are collected in advance of providing risk coverage,
minimizing the Company's exposure to credit risk.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES Loss reserves represent the estimated
liability on claims reported to the Company, plus reserves for losses incurred
but not yet reported (IBNR). These estimates are reported net of amounts
recoverable from salvage and subrogation. Loss adjustment expense reserves
represent the estimated expenses required to settle these claims and losses. The
methods of making estimates and establishing these reserves are reviewed
regularly, and resulting adjustments are reflected in income currently. Such
loss and loss adjustment expense reserves could be susceptible to significant
change in the near term.
REINSURANCE The Company's reinsurance transactions include premiums written
under state-mandated involuntary plans for commercial vehicles (Commercial Auto
Insurance Procedures-CAIP), for which the Company retains no indemnity risk (see
Note 7-Reinsurance for further discussion). The remaining reinsurance arises
from the Company seeking to reduce its loss exposure in its auto and non-auto
programs and its strategic alliance relationships. Prepaid reinsurance premiums
are recognized on a pro rata basis over the period of risk.
EARNINGS PER SHARE Basic earnings per share are computed using the weighted
average number of Common Shares outstanding. Diluted earnings per share include
common stock equivalents, such as stock options, assumed outstanding during the
period.
DEFERRED ACQUISITION COSTS Deferred acquisition costs include commissions,
premium taxes and other costs incurred in connection with writing business.
These costs are deferred and amortized over the period in which the related
premiums are earned. The Company considers anticipated investment income in
determining the recoverability of these costs. Based on current indications,
management believes that these costs will be fully recoverable in the near term.
The Company does not defer advertising costs.
SERVICE REVENUES AND EXPENSES Service revenues consist primarily of fees
generated from processing business for involuntary plans and are earned on a pro
rata basis over the term of the related policies; acquisition expenses are
deferred and amortized over the period in which the related revenues are earned.
SUPPLEMENTAL CASH FLOW INFORMATION Cash includes only bank demand deposits. The
Company paid income taxes of $116.5 million, $235.9 million and $166.9 million
in 1999, 1998 and 1997, respectively. Total interest paid was $72.4 million for
1999 and $63.8 million for both 1998 and 1997.
STOCK OPTIONS The Company follows the provisions of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," to account for
its stock option activity in the financial statements. The Company granted all
options currently outstanding at an exercise price equal to the market price at
the date of grant and, therefore, under APB 25, no compensation expense is
recorded. The Company follows the disclosure provisions of SFAS 123, "Accounting
for Stock-Based Compensation."
NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board
issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
which standardizes the accounting for derivative instruments and requires that
all derivatives be recognized at fair value on the balance sheet. Changes in
fair value are recorded in current period earnings or in other comprehensive
income if the derivative transaction is a qualified cash flow hedge. The
statement is effective for fiscal years beginning after June 15, 2000. The
Company is currently analyzing the impact of this statement, but estimates that
the net effect of all derivative transactions would not have been significant at
December 31, 1999.
ESTIMATES The Company is required to make estimates and assumptions when
preparing its financial statements and accompanying notes in conformity with
accounting principles generally accepted in the United States (GAAP). Actual
results could differ from those estimates.

02 LITIGATION

The Company is named as defendant in various lawsuits generally relating to its
insurance operations. All legal actions relating to claims made under insurance
policies or in connection with previous reinsurance agreements are considered by
the Company in establishing its loss and loss adjustment expense reserves.
Various other legal and regulatory actions are currently pending that involve
the Company and specific aspects of its conduct of business. The Company
believes that the ultimate disposition of these lawsuits in excess of amounts
currently reserved will not materially impact the Company's financial position,
cash flows or results of operations.

The Company is also named as defendant in a number of purported class action
lawsuits, such as those alleging damages as a result of the Company's use of
after-market parts or the alleged diminution of value to vehicles which are
involved in accidents, and cases challenging other aspects of the Company's
business. Other insurance companies face similar suits. The Company plans to
vigorously contest these suits, but is currently unable to estimate the
potential exposure.

03 CONTRACTUAL COMMITMENTS

The Company has operating lease commitments and licensing and service agreements
with terms greater than one year, some with options to renew at the end of the
contract periods. The minimum commitments under such noncancelable contracts at
December 31, 1999 are as follows (in millions): 2000-$61.0; 2001-$41.1;
2002-$19.8; 2003-$11.9; 2004-$5.5; and thereafter-$.2. Total expense incurred by
the Company for such purposes for 1999, 1998 and 1997 was $96.3 million, $93.1
million and $83.3 million, respectively.

<PAGE> 27

04 INVESTMENTS

The components of pretax investment income and net realized gains on security
sales for the years ended December 31 were:
<TABLE>
<CAPTION>

(millions)
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997

- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available-for-sale: fixed maturities $ 275.6 $ 233.9 $ 219.1
equity securities 53.4 34.1 24.6
Short-term investments 11.7 26.8 31.2
- ---------------------------------------------------------------------------------------------------------------------
Investment income 340.7 294.8 274.9
- ---------------------------------------------------------------------------------------------------------------------
Gross realized gains:
Available-for-sale: fixed maturities 35.4 34.6 56.9
equity securities 135.8 159.1 121.4
Short-term investments .1 .2 --
Gross realized losses:
Available-for-sale: fixed maturities (55.8) (37.1) (36.9)
equity securities (68.3) (145.4) (42.9)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gains on security sales 47.2 11.4 98.5
- ---------------------------------------------------------------------------------------------------------------------
$ 387.9 $ 306.2 $ 373.4
=====================================================================================================================
</TABLE>

The composition of the investment portfolio at December 31 was:

(millions)

GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE

- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Available-for-sale:
U.S. government obligations $ 322.6 $ -- $ (6.1) $ 316.5
State and local government obligations 1,352.9 8.8 (29.5) 1,332.2
Foreign government obligations 60.4 -- (1.4) 59.0
Corporate debt securities 935.3 .1 (25.0) 910.4
Asset-backed securities 1,897.3 .7 (66.9) 1,831.1
Other debt securities 82.4 1.6 (.5) 83.5
- -------------------------------------------------------------------------------------------------------------------------
4,650.9 11.2 (129.4) 4,532.7
Preferred stocks 425.4 2.4 (5.4) 422.4
Common stocks 1,127.8 195.0 (79.2) 1,243.6
Short-term investments 229.0 -- -- 229.0
- -------------------------------------------------------------------------------------------------------------------------
$ 6,433.1 $ 208.6 $ (214.0) $ 6,427.7
=================================================================
1998
Available-for-sale:
U.S. government obligations $ 610.8 $ 4.1 $ (.4) $ 614.5
State and local government obligations 1,649.0 44.9 (.3) 1,693.6
Foreign government obligations 52.9 .4 -- 53.3
Corporate debt securities 315.5 4.5 (1.8) 318.2
Asset-backed securities 1,491.4 19.8 (24.3) 1,486.9
Other debt securities 52.0 .7 (.2) 52.5
- -------------------------------------------------------------------------------------------------------------------------
4,171.6 74.4 (27.0) 4,219.0
Preferred stocks 374.3 14.0 (11.8) 376.5
Common stocks 512.2 144.3 (19.6) 636.9
Short-term investments 441.9 -- -- 441.9
- -------------------------------------------------------------------------------------------------------------------------
$ 5,500.0 $ 232.7 $ (58.4) $ 5,674.3
=========================================================================================================================
</TABLE>

Included in the available-for-sale portfolio are trading securities. The net
activity in trading securities was not material to the Company's financial
position, cash flows or results of operations. At December 31, 1999 and 1998,
trading securities had a net market value of $50.2 million and $(.4) million,
respectively.

<PAGE> 28

The composition of fixed maturities by maturity at December 31, 1999 was:
<TABLE>
<CAPTION>

(millions)
- ---------------------------------------------------------------------------------------------------------
MARKET
COST VALUE

- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than one year $ 389.6 $ 389.4
One to five years 3,039.3 2,983.0
Five to ten years 1,057.2 1,016.6
Ten years or greater 164.8 143.7
- ---------------------------------------------------------------------------------------------------------
$ 4,650.9 $ 4,532.7
=========================================================================================================
</TABLE>

Asset-backed securities are reported based upon their projected cash flows. All
other securities which do not have a single maturity date are reported at
average maturity. Actual maturities may differ from expected maturities because
the issuers of the securities may have the right to call or prepay obligations
without prepayment penalties.

At December 31, 1999, bonds in the principal amount of $74.2 million were on
deposit with various regulatory agencies to meet statutory requirements.
Securities with a market value of $2.9 million were held at December 31, 1999,
by a bankruptcy remote subsidiary and are not available to the general creditors
of the Company.

The components of derivative financial instruments held or issued for purposes
other than trading at December 31 were:
<TABLE>
<CAPTION>

(millions)
- --------------------------------------------------------------------------------------------------------------------
MARKET VALUE/ CONTRACT/
CARRYING VALUE AT NOTIONAL VALUE AT
DECEMBER 31, DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998

- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Forward and future positions:
Assets $ 1.3 $ 2.8 $ 2.1 $ 30.9
Call options:
Liabilities (.9) -- 16.5 --
Anticipatory debt issuance hedges:
Short futures position -- 4.4 -- 203.7
Interest rate swap hedge -- (11.0) -- 150.0
Foreign currency forward and future positions:
Liabilities (1.3) (.5) 16.1 31.8
- --------------------------------------------------------------------------------------------------------------------
$ (.9) $ (4.3) $ 34.7 $ 416.4
====================================================================================================================
</TABLE>

Derivative instruments classified as held or issued for purposes other than
trading are used to manage the Company's risks and enhance the yields of the
available-for-sale portfolio. This is accomplished by modifying the basis,
duration, interest rate or foreign currency characteristics of the portfolio,
hedged securities or hedged cash flows. During 1998, anticipatory debt issuance
hedges were entered into to hedge against possible rises in interest rates prior
to the issuance of debt under the Company's outstanding $300 million shelf
registration, which is intended to replace debt expiring in December 2000.
During 1999, the $300 million debt was issued and the hedges were closed. During
the life of the hedge, the interest rate swap performed as expected and was
recorded as a deferred asset under SFAS 80, "Accounting for Futures Contracts,"
as a qualified hedge. The deferred asset of $4.8 million is recognized as an
adjustment to interest expense over the life of the debt. During 1998, the short
futures position, driven by changing economic conditions, did not meet the
established criteria for hedging correlation and was discontinued as a hedge.
The short futures position recognized a net realized gain of $8.1 million in
1999, and a net realized loss of $9.2 million in 1998.
Derivative instruments may also be used for trading purposes. The Company had
net losses of $1.8 million (gross gains of $4.4 million; gross losses of $6.2
million) during 1999 and net losses of $1.2 million (gross gains of $9.9
million; gross losses of $11.1 million) during 1998 from derivatives used for
trading purposes; these losses were not material to the Company's results of
operations and are included in the results of the available-for-sale portfolio.
At December 31, 1999, the Company had trading positions in treasury forwards and
call and put options with net market values of $(.1) million and notional values
of $129.4 million; the average market value for long positions was $(.4) million
and the average market value for short positions was less than $.1 million in
1999. At December 31, 1998, the Company had short trading positions in foreign
currency and treasury forwards with net market values of $(.4) million and
notional values of $31.5 million; the average market values for long and short
positions in 1998 were $(.2) million and $.5 million, respectively.
For all derivative positions, net cash requirements are limited to changes in
market values, which may vary based upon changes in interest rates, currency
exchange rates and other factors. Exposure to credit risk is limited to the
carrying value; unless otherwise noted, collateral is not required to support
the credit risk.
As of December 31, 1999, the Company had open investment funding commitments
of $34.6 million. The Company had no uncollateralized lines or letters of credit
as of December 31, 1999 or 1998.

<PAGE> 29

05 STATUTORY FINANCIAL INFORMATION

At December 31, 1999, $278.5 million of consolidated statutory policyholders'
surplus represents net admitted assets of the Company's insurance subsidiaries
that are required to meet minimum statutory surplus requirements in the
subsidiaries' states of domicile. The subsidiaries may be licensed in states,
other than their states of domicile, which may have higher minimum statutory
surplus requirements. Generally, the net admitted assets of insurance
subsidiaries that, subject to other applicable insurance laws and regulations,
are available for transfer to the parent company cannot include the net admitted
assets required to meet the minimum statutory surplus requirements of the states
where the subsidiaries are licensed.
During 1999, the insurance subsidiaries paid aggregate cash dividends of $89.6
million to the parent company. Based on the dividend laws currently in effect,
the insurance subsidiaries may pay aggregate dividends of $200.3 million in 2000
without prior approval from regulatory authorities.
Statutory policyholders' surplus was $2,258.9 million and $2,029.9 million at
December 31, 1999 and 1998, respectively. Statutory net income was $199.3
million, $330.4 million and $274.7 million for the years ended December 31,
1999, 1998 and 1997, respectively.
In 1998, the National Association of Insurance Commissioners (NAIC) adopted
the Codification of Statutory Accounting Principles guidance, which will replace
the current NAIC Accounting Practices and Procedures manual as the NAIC's
primary guidance on statutory accounting. The Codification provides guidance for
areas where statutory accounting has been silent and changes current statutory
accounting in some areas. The implementation date established by the NAIC is
January 1, 2001; however, the effective date will be specified by each insurance
company's state of domicile. The Company is currently evaluating the potential
effect of the Codification guidance, but does not expect it to have a material
impact on the Company's statutory surplus.

06 LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

Activity in the loss and loss adjustment expense reserves, prepared in
accordance with GAAP, is summarized as follows:
<TABLE>
<CAPTION>

(millions)
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997

- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 2,188.6 $ 2,146.6 $ 1,800.6
Less reinsurance recoverables on unpaid losses 242.8 279.1 267.7
- --------------------------------------------------------------------------------------------------------------------
Net balance at January 1 1,945.8 1,867.5 1,532.9
- --------------------------------------------------------------------------------------------------------------------
Net reserves of subsidiary purchased -- -- 82.2
- --------------------------------------------------------------------------------------------------------------------
Incurred related to:
Current year 4,286.2 3,560.5 3,070.8
Prior years (29.8) (184.2) (103.3)
- --------------------------------------------------------------------------------------------------------------------
Total incurred 4,256.4 3,376.3 2,967.5
- --------------------------------------------------------------------------------------------------------------------
Paid related to:
Current year 2,919.2 2,376.0 1,971.5
Prior years 1,082.8 922.0 743.6
- --------------------------------------------------------------------------------------------------------------------
Total paid 4,002.0 3,298.0 2,715.1
- --------------------------------------------------------------------------------------------------------------------
Net balance at December 31 2,200.2 1,945.8 1,867.5
Plus reinsurance recoverables on unpaid losses 216.0 242.8 279.1
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31 $ 2,416.2 $ 2,188.6 $ 2,146.6
====================================================================================================================
</TABLE>

The Company establishes case and IBNR reserves near the midpoint of the
reasonable range of reserves. The Company's reserves have historically developed
conservatively. In 1999, the Company experienced an increase in severity trends
which led to less favorable development on prior accident years as compared to
1998 and 1997.
Because the Company is primarily an insurer of motor vehicles, it has limited
exposure for environmental, product and general liability claims. The Company
has established reserves for these exposures, in amounts which it believes to be
adequate based on information currently known by it. The Company does not
believe that these claims will have a material impact on the Company's
liquidity, financial condition, cash flows or results of operations.
The Company writes auto insurance in the coastal states, which could be
exposed to natural catastrophes, such as hurricanes. Although the occurrence of
a major catastrophe could have a significant impact on the Company's quarterly
results, the Company believes such an event would not be so material as to
disrupt the overall normal operations of the Company. The Company is unable to
predict if any such events will occur in the near term.

07 REINSURANCE

Reinsurance contracts do not relieve the Company from its obligations
to policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.

As of December 31, 1999 and 1998, 26% and 36%, respectively, of the "prepaid
reinsurance premiums" and 49% and 56%, respectively, of the "reinsurance
recoverables" relate to CAIP, for which the Company retains no indemnity risk.

<PAGE> 30

The effect of reinsurance on premiums written and earned as of December 31 was
as follows:
<TABLE>
<CAPTION>

(millions)
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED

- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Direct premiums $ 6,305.3 $ 5,853.5 $ 5,451.3 $ 5,100.5 $ 4,825.2 $ 4,382.9
Ceded (180.6) (169.9) (151.6) (152.5) (160.1) (193.4)
- --------------------------------------------------------------------------------------------------------------------------
Net premiums $ 6,124.7 $ 5,683.6 $ 5,299.7 $ 4,948.0 $ 4,665.1 $ 4,189.5
==========================================================================================================================
</TABLE>

Losses and loss adjustment expenses are net of reinsurance ceded of $132.8
million in 1999, $131.9 million in 1998 and $150.8 million in 1997.

08 INCOME TAXES

Significant components of the Company's income tax provision were as follows:
<TABLE>
<CAPTION>

(millions)
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1997

- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision $ 136.2 $ 237.1 $ 241.6
Deferred tax benefit (19.2) (32.7) (63.1)
- -----------------------------------------------------------------------------------------------------------------
Total income tax provision $ 117.0 $ 204.4 $ 178.5
=================================================================================================================
</TABLE>

The provision for income taxes in the accompanying consolidated statements of
income differed from the statutory rate as follows:

(millions)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997

- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 412.2 $ 661.1 $ 578.5
=======================================================================
Tax at statutory rate $ 144.3 35% $ 231.4 35% $ 202.5 35%
Tax effect of:
Exempt interest income (22.1) (5) (23.1) (3) (19.6) (3)
Dividends received deduction (6.1) (2) (6.6) (1) (7.0) (1)
Other items, net .9 -- 2.7 -- 2.6 --
- ---------------------------------------------------------------------------------------------------------------------------------
$ 117.0 28% $ 204.4 31% $ 178.5 31%
=================================================================================================================================
</TABLE>

Deferred income taxes reflect the impact for financial statement reporting
purposes of temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities. At December 31, 1999 and
1998, the components of the net deferred tax assets were as follows:
<TABLE>
<CAPTION>

(millions)
- -----------------------------------------------------------------------------------------------------------------
1999 1998

- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Unearned premiums reserve $ 194.5 $ 161.2
Non-deductible accruals 45.8 43.1
Capitalized expenditures 1.9 10.9
Loss reserves 115.7 109.5
Other 20.3 18.7
Deferred tax liabilities:
Deferred acquisition costs (120.2) (104.7)
Unrealized (gains) losses 2.0 (61.0)
- -----------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 260.0 $ 177.7
=================================================================================================================
</TABLE>

The Company is able to demonstrate that the benefit of its deferred tax assets
is fully realizable.

<PAGE> 31
09 EMPLOYEE BENEFIT PLANS

RETIREMENT PLANS The Company has a two-tiered Retirement Security Program. The
first tier is a defined contribution pension plan covering all employees who
meet requirements as to age and length of service. Contributions vary from 1% to
5% of annual eligible compensation up to the Social Security wage base, based on
years of eligible service. Company contributions were $8.0 million in 1999, $6.5
million in 1998 and $5.1 million in 1997.
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 an employee up
to a maximum of 3% of the employee's eligible compensation. Company
contributions were $11.3 million in 1999, $9.9 million in 1998 and $7.3 million
in 1997.

The Company has a defined benefit pension plan which covered employees hired
before January 1, 1989, who met requirements as to age and length of service.
This plan and future benefit accruals were frozen on December 31, 1993; the
benefits accruals through the date the plan was frozen were based on years of
service and career average compensation up to the Social Security tax base. As
of December 31, 1999, the Company had a net pension asset of $4.9 million,
compared to $3.5 million in 1998, and $2.0 million in 1997. The Company
recognized expense of $2.3 million in 1999 and income of $.1 million in both
1998 and 1997. The Company's funding policy is to contribute annually the
minimum amount required by the Employee Retirement Income Security Act of 1974,
as amended. There is no past service liability requiring funding by the Company.
POSTEMPLOYMENT BENEFITS The Company provides various postemployment benefits to
former or inactive employees who meet eligibility requirements, their
beneficiaries and covered dependents. Postemployment benefits include salary
continuation and disability-related benefits including workers' compensation
and, if elected, continuation of health-care benefits. The Company's liability
was $2.4 million at December 31, 1999, compared to $1.8 million in 1998.
POSTRETIREMENT BENEFITS The Company provides postretirement health and life
insurance benefits to all employees who met requirements as to age and length of
service at December 31, 1988. The Company recognized expenses of $.4 million in
1999, $.7 million in 1998 and $.2 million in 1997. The Company's funding policy
is to contribute annually the maximum amount that can be deducted for Federal
income tax purposes. Contributions are intended to provide not only for benefits
attributed to services to date, but also for those expected to be earned in the
future.
DEFERRED COMPENSATION The Company maintains The Progressive Corporation
Executive Deferred Compensation Plan (Deferral Plan), which permits eligible
executives to defer receipt of some or all of their annual bonuses or other
incentive awards. These deferred amounts are deemed invested in one or more
investment funds, including Common Shares of the Company, offered under the
Deferral Plan. All distributions from the Deferral Plan will be made in cash,
except that distributions representing amounts deemed invested in Common Shares
will be made in Common Shares. The Company reserved 300,000 Common Shares for
issuance under the Deferral Plan. The Company established an irrevocable grantor
trust to provide a source of funds to assist the Company in meeting its
liabilities under the Deferral Plan. At December 31, 1999 and 1998, the trust
held assets of $18.8 million and $14.6 million, respectively, of which $2.3
million and $3.9 million were held in Common Shares, to cover its liabilities.
INCENTIVE COMPENSATION PLANS The Company's 1989 Incentive Plan and 1995
Incentive Plan provide for the granting of stock options and other stock-based
awards to key employees of the Company. The 1989 Incentive Plan has 6,500,000
shares authorized and the 1995 Incentive Plan has 5,000,000 shares authorized.
In addition to the Incentive Plans, the Company registered 1,425,000 and 650,000
Common Shares relating to stock options granted to key employees and directors
of the Company, respectively. The nonqualified stock options granted are for
periods up to ten years, become exercisable at various dates not earlier than
six months after the date of grant, and remain exercisable for specified periods
thereafter. All options granted have an exercise price equal to the market value
of the Common Shares on the date of grant.

A summary of all employee stock option activity during the three years ended
December 31 follows:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
OPTIONS OUTSTANDING SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE

- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 4,705,811 $ 46.07 4,968,964 $ 35.52 5,109,390 $ 28.09
Add (deduct):
Granted 476,850 139.18 441,210 124.61 726,889 69.82
Exercised (552,473) 22.54 (641,013) 16.99 (758,580) 17.44
Cancelled (171,725) 65.50 (63,350) 61.03 (108,735) 41.07
- ----------------------------------------------------------------------------------------------------------------------------------
End of year 4,458,463 $ 58.20 4,705,811 $ 46.07 4,968,964 $ 35.52
===============================================================================================
Exercisable, end of year 1,571,538 $ 25.15 1,342,801 $ 20.26 1,497,050 $ 15.53
===============================================================================================
Available, end of year 4,371,422 4,676,547 5,054,407
==================================================================================================================================
</TABLE>

<PAGE> 32

The following employee options were outstanding or exercisable as of December
31, 1999:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE

- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 13 - 20 610,615 1.71 years 15.70 610,615 $15.70
21 - 40 1,548,235 4.20 years 33.53 934,685 30.60
41 - 60 761,012 5.98 years 47.19 23,012 45.58
61 - 80 644,602 7.00 years 68.58 2,127 66.12
81 - 125 434,839 8.02 years 121.21 589 114.19
126 - 161 459,160 8.97 years 141.92 510 154.00
- -------------------------------------------------------------------------------------------------------------------------
$ 13 - 161 4,458,463 1,571,538
=========================================================================================================================
</TABLE>

Under SFAS 123, the Company uses the Black-Scholes pricing model to calculate
the fair value of the options awarded, including 144,207 options awarded to
directors. This model produced a value of 44.3% for 1999 awards, 40.6% for 1998
awards and 43.2% for 1997 awards. The following assumptions were used to derive
the ratio: a 7-year option term; an annualized volatility rate of .284 for 1999,
.259 for 1998 and .255 for 1997; a risk-free rate of return of 6.18% for 1999,
5.49% for 1998 and 6.63% for 1997; and a dividend yield of .18% for 1999, .20%
for 1998 and .25% for 1997. The Company elected to account for terminations when
they occur rather than include an attrition factor into its model.

If compensation cost had been measured based on the fair-value based accounting
method under SFAS 123, the following would have been disclosed for December 31:
<TABLE>
<CAPTION>

(millions-except per share amounts)
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1997

- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRO FORMA
Net income $ 283.9 $ 447.3 $ 393.5
=============================================
Earnings per share
Basic $ 3.90 $ 6.17 $ 5.46
Diluted 3.81 6.00 5.22
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

The amounts charged to income for incentive compensation plans, including
executive cash bonus programs for key members of management and a gainsharing
program for all other employees, were $55.6 million in 1999, $107.5 million in
1998 and $85.8 million in 1997.

10 DEBT

Debt at December 31 consisted of:
<TABLE>
<CAPTION>

(millions)
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Market Market
Cost Value Cost Value

- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999) $ 293.7 $ 254.1 $ -- $ --
7.30% Notes due 2006 (issued: $100.0, May 1996) 99.7 98.0 99.7 109.5
6.60% Notes due 2004 (issued: $200.0, January 1994) 199.3 193.7 199.1 199.4
7% Notes due 2013 (issued: $150.0, October 1993) 148.5 138.8 148.4 157.2
8 3/4% Notes due 1999 (issued: $30.0, May 1989) -- -- 29.9 30.4
10% Notes due 2000 (issued: $150.0, December 1988) 149.9 154.3 149.8 162.7
10 1/8% Subordinated Notes due 2000 (issued: $150.0, December 1988) 149.8 154.5 149.7 162.4
Other debt 7.7 7.7 -- --
- --------------------------------------------------------------------------------------------------------------------------------
$ 1,048.6 $ 1,001.1 $ 776.6 $ 821.6
================================================================================================================================
</TABLE>

Debt includes amounts the Company has borrowed and contributed to the capital of
its insurance subsidiaries or borrowed for other long-term purposes. During
1999, there were no bank borrowings outstanding. Market values are obtained from
publicly quoted sources.

<PAGE> 33
The Company's debt is noncallable, except for the 6 5/8% Senior Notes which may
be redeemed all or in part at any time, subject to a "make whole" provision;
interest is payable semiannually.
In May 1990, the Company entered into a revolving credit arrangement with
National City Bank, which is reviewed by the bank annually. Under this
agreement, the Company has the right to borrow up to $10.0 million. By selecting
from available credit options, the Company may elect to pay interest at rates
related to the London interbank offered rate, the bank's base rate or at a money
market rate. A commitment fee is payable on any unused portion of the committed
amount at the rate of .125 percent per annum. The Company had no borrowings
under this arrangement at December 31, 1999 or 1998.
Aggregate principal payments on debt outstanding at December 31, 1999, are
$300.4 million for 2000, $.4 million for 2001, $0 for 2002, $.9 million for
2003, $206.0 million for 2004 and $550.0 million thereafter.

11 SEGMENT INFORMATION

During 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires companies to report
financial and descriptive information about their reportable operating segments.
The Company writes personal automobile and other specialty property-casualty
insurance and related services throughout the United States. The Company's
Personal Lines business is predominantly auto insurance and is organized by
states. The Company's 39 state/community managers are located in or near the
market served. These managers are measured and paid based on profit and growth
in their state(s)/community and manage claims, distribution, advertising,
budgets, price levels, agent development, regulation and community relations for
their area.
The Company's other lines of business include insurance for commercial
vehicles, lenders' collateral protection, directors' and officers' liability and
related services, including processing business for involuntary plans and claim
services to fleet owner and other insurance companies. The other businesses
accounted for 7% of the Company's 1999 consolidated revenues. All revenues are
generated from external customers and the Company does not have a reliance on
any major customer.
The Company evaluates segment profitability based on pretax operating profit.
Expense allocations are based on certain assumptions and estimates; stated
segment operating results would change if different methods were applied. The
Company does not allocate assets, investment income, interest expense or income
taxes to operating segments. In addition, the Company does not separately
identify depreciation and amortization expense by segment and such disclosure
would be impracticable. Companywide depreciation and amortization expense was
$71.8 million in 1999, $56.1 million in 1998 and $36.6 million in 1997. The
accounting policies of the operating segments are the same as those described in
Note 1-Reporting and Accounting Policies.

For the years ended December 31,
<TABLE>
<CAPTION>

(millions)
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
PRETAX PRETAX PRETAX
REVENUES PROFIT (LOSS) REVENUES PROFIT (LOSS) REVENUES PROFIT (LOSS)

- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Personal Lines (1) $ 5,294.1 $ 63.2 $ 4,580.7 $ 361.5 $ 3,832.7 $ 243.0
Other (2) 442.2 47.0 405.5 61.9 402.1 36.6
Investments (3) 387.9 378.4 306.2 298.8 373.4 363.5
Interest Expense -- (76.4) -- (61.1) -- (64.6)
- --------------------------------------------------------------------------------------------------------------------------
$ 6,124.2 $ 412.2 $ 5,292.4 $ 661.1 $ 4,608.2 $ 578.5
==========================================================================================================================
</TABLE>

(1) 94% of the Personal Lines segment is personal automobile insurance.
(2) 1999 amounts include a $5.2 million gain on sale of corporate aircraft. See
Note 12-Related Party Transaction for discussion.
(3) Revenues represent recurring investment income and net realized gains/losses
on security sales; pretax profit is net of investment expenses.

12 RELATED PARTY TRANSACTION

On April 23, 1999, the Company sold its corporate aircraft to a company
independently owned by Peter B. Lewis, the Company's Chairman of the Board,
President and Chief Executive Officer. The airplane had a net book value of $6.9
million and was sold to Mr. Lewis for $12.1 million, the fair market value of
the airplane as determined by an independent appraiser.

46
<PAGE> 34

13 FAIR VALUE OF FINANCIAL INSTRUMENTS

Information about specific valuation techniques and related fair value detail is
provided in Note 1-Reporting and Accounting Policies, Note 4-Investments and
Note 10-Debt. Pursuant to SFAS 119, the cost and market value of the financial
instruments as of December 31 are summarized as follows:
<TABLE>
<CAPTION>

(millions)
- ------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
MARKET MARKET
COST VALUE COST VALUE

- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments:
Available-for-sale: fixed maturities $ 4,650.9 $ 4,532.7 $ 4,171.6 $ 4,219.0
preferred stocks 425.4 422.4 374.3 376.5
common stocks 1,127.8 1,243.6 512.2 636.9
Short-term investments 229.0 229.0 441.9 441.9
Debt (1,048.6) (1,001.1) (776.6) (821.6)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

14 OTHER COMPREHENSIVE INCOME

During 1998, the Company adopted SFAS 130, "Reporting Comprehensive Income,"
which requires disclosure of comprehensive income and its components in the
financial statements. The components of other comprehensive income (loss) for
the years ended December 31 were as follows:
<TABLE>
<CAPTION>

(millions)
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
TAX TAX TAX
(PROVISION) AFTER (PROVISION) AFTER (PROVISION) AFTER
PRETAX BENEFIT TAX PRETAX BENEFIT TAX PRETAX BENEFIT TAX

- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized gains (losses)
arising during period:(1)
Available-for-sale:
fixed maturities $(150.7) $ 52.8 $ (97.9) $ 2.8 $ (1.0) $ 1.8 $ 29.5 $ (10.3) $ 19.2
equity securities 25.7 (9.0) 16.7 64.3 (22.5) 41.8 44.8 (15.7) 29.1
Reclassification adjustment:(2)
Available-for-sale:
fixed maturities (14.9) 5.2 (9.7) (10.0) 3.5 (6.5)
equity securities (39.8) 14.0 (25.8) (71.2) 25.1 (46.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) (179.7) 63.0 (116.7) (14.1) 5.1 (9.0) 74.3 (26.0) 48.3
Other(3) .6 -- .6 (3.3) -- (3.3) -- (.7) (.7)
- -----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive
income (loss) $(179.1) $ 63.0 $(116.1) $(17.4) $ 5.1 $ (12.3) $ 74.3 $ (26.7) $ 47.6
===================================================================================================================================
</TABLE>

(1) Amounts for 1997 reflect changes in net unrealized gains (losses).
(2) Represents adjustments for gains (losses) realized in net income;
reclassification adjustments for 1997 are not available.
(3) Other includes foreign currency translation adjustments, which have no tax
effect, and minimum pension liability, which is taxed at the statutory
rate.

<PAGE> 35

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The consolidated financial statements and the related notes on pages 34 through
47, together with the supplemental information on pages 51 through 58, should be
read in conjunction with the following discussion of the consolidated financial
condition and results of operations.
FINANCIAL CONDITION The Progressive Corporation is a holding company and does
not have any revenue producing operations of its own. It receives cash through
borrowings, equity sales, subsidiary dividends and other transactions, and may
use the proceeds to contribute to the capital of its insurance subsidiaries in
order to support premium growth, to repurchase its Common Shares, to retire its
outstanding indebtedness, to pay dividends and for other business purposes.
During 1999, the Company repurchased 6,044 of its Common Shares at a total
cost of $.6 million (average $93.25 per share) to satisfy obligations under the
Company's benefit plans. During the three-year period ended December 31, 1999,
the Company repurchased 440,316 of its Common Shares at a total cost of $46.0
million (average $104.57 per share). During the same period, The Progressive
Corporation made $82.5 million of capital contributions to its subsidiaries, net
of dividends received from these subsidiaries. The regulatory restrictions on
subsidiary dividends are described in Note 5 to the financial statements.
The Company has substantial capital resources and is unaware of any trends,
events or circumstances that are reasonably likely to affect its capital
resources in a material way. In March 1999, the Company issued $300 million of
6 5/8% Senior Notes due 2029 under an outstanding shelf registration, which
became effective in 1998. The net proceeds of $293.7 million will be used to
repay current outstanding debt upon its maturity. The Company also has available
a $10.0 million revolving credit agreement. The Company's debt to total capital
ratio is 28%; management believes the Company has substantial capital resources
and sufficient borrowing capacity to support current and anticipated growth.
The Company's insurance operations create liquidity by collecting and
investing premiums from new and renewal business in advance of paying claims.
For the three years ended December 31, 1999, operations generated positive cash
flows of $2,127.8 million, and cash flows are expected to be positive in both
the short-term and reasonably foreseeable future. The Company's investment
portfolio is highly liquid and consists substantially of readily marketable
securities.
Total capital expenditures for the three years ended December 31, 1999,
aggregated $443.6 million. In December 1997, the Company purchased approximately
72 acres in Tampa, Florida to construct a three-building, 307,000 square foot,
regional call center. The final cost of the project was $45.5 million. The first
two buildings were completed during 1998. The third building was completed in
February 1999. In addition, in November 1997, the Company purchased 91 acres in
Mayfield Village, Ohio to construct an office complex, near the site of its
current corporate headquarters. This office complex is part of a five-year
cooperative effort with Mayfield Village to develop over 300 acres. Progressive
will serve as the anchor corporate user with additional business users and
recreational facilities on the site. The Company is constructing five buildings
containing a total of approximately 770,000 square feet on the site, and a
parking garage, at an estimated cost of $132.5 million. As of December 31, 1999,
$65.8 million has been paid. The first building was completed in May 1999. The
next two buildings were completed in the first quarter of 2000. The parking
garage and fourth building are scheduled to be completed in October 2000. The
fifth building is scheduled to be completed in February 2001. The construction
projects are being funded through operating cash flows.
INVESTMENTS The Company invests in fixed-maturity, equity and short-term
securities. The Company's investment strategy recognizes its need to maintain
capital adequate to support its insurance operations. The Company evaluates the
risk/reward tradeoffs of investment opportunities, measuring their effects on
stability, diversity, overall quality and liquidity of the investment portfolio.
At December 31, 1999, the Company's portfolio was $6,427.7 million, compared to
$5,674.3 million in 1998.
As of December 31, 1999, the Company's portfolio had $5.4 million in
unrealized losses, compared to $174.3 million in unrealized gains in 1998. This
decrease in value was the result of widening credit spreads on all non-treasury
related products and the portfolio's underperformance relative to the S&P 500,
due to underweighting in the technology sector. The weighted average fully
taxable equivalent book yield of the portfolio was 6.3% for the years ended
December 31, 1999 and 1998 and 6.6% for 1997.
The majority of the portfolio is invested in high-grade, fixed-maturity
securities, of which short- and intermediate-term securities represented
$4,417.7 million, or 68.7% of the portfolio, at the end of 1999, compared to
$4,439.4 million, or 78.3%, at the end of 1998. Long-term investment-grade
securities, including those principal paydowns from asset-backed securities that
are greater than 10-years, were $96.0 million, or 1.5% of the portfolio, at the
end of 1999, compared to $93.5 million, or 1.6%, at the end of 1998.
Non-investment-grade fixed-maturity securities were $248.0 million, or 3.9% of
the portfolio, at the end of 1999, compared to $128.0 million, or 2.3%, at the
end of 1998, and offer the Company higher returns and added diversification
without a significant adverse effect on the stability and quality of the
investment portfolio as a whole. Non-investment-grade securities may involve
greater risks often related to creditworthiness, solvency and relative liquidity
of the secondary trading market. The duration of the fixed-income portfolio was
3.0 years at December 31, 1999, compared to 2.8 years at December 31, 1998.
As of December 31, 1999, the Company held $1,831.1 million of asset-backed
securities, which represented 28.5% of the total investment portfolio. The
asset-backed portfolio included collateralized mortgage obligations (CMO) and
commercial mortgage-backed obligations (CMB) totaling $612.0 million and $649.7
million, respectively. The remainder of the asset-backed portfolio was invested
primarily in auto loan and other asset-backed securities. As of December 31,
1999, the CMO portfolio included sequential bonds, representing 68.3% of the CMO
portfolio ($417.7 million), and planned amortization class bonds, representing
31.7% of the CMO Portfolio ($194.3 million). At December 31, 1999, the CMO
portfolio had an average life of 3.88 years and a weighted average Moody's or
Standard & Poor's rating of AAA. The CMB portfolio had an average life of 5.75
years and a weighted average Moody's or Standard & Poor's rating of AA. At
December 31, 1999, the CMO and CMB portfolios had unrealized losses of $13.0
million and $45.1 million, respectively. The single largest unrealized loss in
any individual CMO security was $1.3 million and in any CMB security was $6.9
million, at December 31, 1999. The CMB portfolio includes $106.6 million of CMB
interest-only certificates, which had an average life of 6.45 years and a
weighted average Moody's or Standard & Poor's rating of AAA at December 31,
1999. Both the CMO and CMB portfolios are liquid with available market quotes
and contain no residual interests. During 1997, the Company sold $178.4 million
(proceeds of $200.8 million) of non-investment-grade CMB securities to a
third-party purchaser. The purchaser subsequently transferred the securities to
a trust as collateral in a resecuritized debt offering. The transaction was
accounted for as a sale under SFAS 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of

<PAGE> 36

Liabilities," resulting in a net gain of $22.4 million. A bankruptcy remote
subsidiary of the Company acquired $22.8 million of the resecuritized debt,
which was subsequently sold in 1998 for a net gain of $3.5 million. This portion
of the transaction was not accounted for as a sale in 1998 in accordance with
SFAS 125.
A portion of the investment portfolio is invested in marketable equity
securities. Common stocks represented $1,243.6 million, or 19.3% of the
portfolio, at the end of 1999, compared to $636.9 million, or 11.2%, a year
earlier. The majority of the common stock portfolio is invested in domestic
equities traded on nationally recognized securities exchanges. The common stock
portfolio also includes term trust certificates, the common shares of closed-end
bond funds, which have the risk and reward characteristics of the underlying
bonds and comprised $230.2 million of the common stock portfolio at the end of
1999; no term trust securities were held at the end of 1998. Foreign equities,
which may include stock index futures and foreign currency forwards, comprised
$84.2 million of the common stock portfolio at the end of 1999, compared to
$130.7 million last year, and partnership investments comprised $104.0 million
of the common stock portfolio at the end of 1999, compared to $63.7 million last
year. Preferred stocks represented $422.4 million, or 6.6% of the portfolio, at
the end of 1999, compared to $376.5 million, or 6.6%, a year earlier, and was
comprised of over 89% of fixed-rate preferred stocks with mechanisms that are
expected to provide an opportunity to liquidate at par.
Investments in the Company's portfolio have varying degrees of risk. The
primary market risk exposure to the fixed-income portfolio is interest rate
risk, which is limited by managing duration to a defined range of 1.8 to 5
years. The distribution of maturities and convexity are monitored on a regular
basis. Common stocks, excluding term trust certificates, and other risk assets,
which generally have greater risk and volatility of market value, may range from
0 to 25%; at December 31, 1999, the Company held 16.5% of these securities.
Market values, along with industry and sector concentrations of common stocks
and similar investments, are monitored daily. Exposure to foreign currency
exchange risk is limited by Company restrictions and is monitored quarterly for
compliance. Exposures are evaluated individually and as a whole, considering the
effects of cross correlation. For the quantitative market risk disclosures, see
page 56. The Company quarterly examines its portfolio for evidence of
impairment. In such cases, changes in market value are evaluated to determine
the extent to which such changes are attributable to: (i) interest rates, (ii)
market-related factors other than interest rates and (iii) financial conditions,
business prospects and other fundamental factors specific to the issuer.
Declines attributable to issuer fundamentals are reviewed in further detail.
Available evidence is considered to estimate the realizable value of the
investment. When a security in the Company's investment portfolio has a decline
in market value which is other than temporary, the Company is required by GAAP
to reduce the carrying value of such security to its net realizable value.
Included in the Company's fixed-maturity and equity portfolios are $195.8
million, or 3.0%, of other risk assets. These include high yield and distressed
debt, private equities and warrants, and mezzanine investments. No individual
security in this category comprised more than 1% of the Company's total
investment portfolio. The total return on this asset class in 1999 was 7.1% with
a total net unrealized gain of $20.5 million.
Trading securities and derivative instruments held or issued for trading are
entered into for the purpose of near-term profit taking. During 1999, net
activity in the trading portfolio was not material to the Company's financial
position, cash flows or results of operations. At December 31, 1999, trading
positions had a net market value of $50.2 million, compared to $(.4) million at
December 31, 1998. Net gains and losses for the year ended December 31, 1999 and
1998, were $.8 million and $(1.2) million, respectively.
Derivative instruments are primarily used to manage the risks and enhance the
returns of the available-for-sale portfolio. This is accomplished by modifying
the basis, duration, interest rate or foreign currency characteristics of the
portfolio, hedged securities or hedged cash flows. During 1998, the Company
entered into two transactions, an interest rate swap hedge and a short futures
position, to hedge against possible rises in interest rates prior to the
issuance of debt under the $300 million shelf registration. During 1999, the
$300 million debt was issued and the hedges were closed. The interest rate swap
performed as expected and was recorded as a deferred asset under SFAS 80,
"Accounting for Futures Contracts," as a qualified hedge. The deferred asset of
$4.8 million is recognized as an adjustment to interest expense over the life of
the debt. During 1998, the short futures position, driven by changing economic
conditions, did not meet the established criteria for hedging correlation and
was discontinued as a hedge, but the Company continued to hold it for risk
management of the anticipated debt offering. The Company recognized a net
realized gain of $8.1 million in 1999 and a net realized loss of $9.2 million in
1998, on the short futures position. Derivative instruments may also be used for
trading purposes. For all derivative positions, net cash requirements are
limited to changes in market values which may vary based upon changes in
interest rates and other factors. Exposure to credit risk is limited to the
carrying value; collateral is not required to support the credit risk.
RESULTS OF OPERATIONS Operating income, which excludes net realized gains and
losses from security sales and one-time items, was $266.7 million, or $3.58 per
share, in 1999, $449.3 million, or $6.01 per share, in 1998 and $336.0 million,
or $4.46 per share, in 1997. The GAAP combined ratio was 98.3 in 1999, 91.6 in
1998 and 93.4 in 1997.
Direct premiums written increased 16% to $6,305.3 million in 1999, compared to
$5,451.3 million in 1998 and $4,825.2 million in 1997. Net premiums written
increased 16% to $6,124.7 million in 1999, compared to $5,299.7 million in 1998
and $4,665.1 million in 1997. The difference between direct and net premiums
written is attributable to premiums written under state-mandated involuntary
Commercial Auto Insurance Procedures, for which the Company retains no indemnity
risk, of $49.7 million in 1999, $60.7 million in 1998 and $78.4 million in 1997,
and reinsurance the Company maintains in its auto and non-auto programs and its
strategic alliance relationships. Premiums earned, which are a function of the
amount of premiums written in the current and prior periods, increased 15% in
1999, compared to 18% in 1998 and 31% in 1997.
Net premiums written in the Company's Personal Lines business units, which
write insurance for private passenger automobiles and recreation vehicles and
currently represent 93% of the Company's total premiums written, grew 16%, 15%
and 36% in 1999, 1998 and 1997, respectively, primarily reflecting an increase
in unit sales. The Company decreased rates an average of 1.3% during the first
six months of 1999, and increased rates 4.4% in the second half of the year, for
an annual rate increase of 3.1% in 1999, compared to rate decreases of 5.3% and
.9% in 1998 and 1997, respectively. The Company expects that these rate
increases will likely slow volume growth in 2000 and since the majority of the
policies are annual, the Company does not expect to see the full impact of these
rate changes until the fourth quarter of 2000.
The Personal Lines business is generated either by an Agent or written
directly by the Company. The Agent channel includes business written by the
Company's network of 30,000 Independent Insurance Agents and through Strategic
Alliance business relationships (other insurance companies, financial
institutions, employers and national brokerage agencies). Total net premiums
written through Independent Agents and Strategic Alliance agency relationships
were $4,746.5 million in 1999, compared to $4,390.4 million in 1998 and $4,033.8
million in 1997. The combined ratios for the Agency channel were 96.5, 90.6 and
93.2 for 1999, 1998 and 1997, respectively. Direct business includes business
written through 1-800-AUTO-PRO(R), the Internet (progressive.com) and the
Strategic Alliance business unit on behalf of affinity groups. Net premiums
written and combined ratios on the Direct business were $955.9 million and
113.1, respectively, in 1999, compared to $531.9 million and 107.5 in 1998 and
$255.0 million and 103.8 in 1997.

<PAGE> 37

The sales generated via the Internet represented approximately 7% and 2% of
the Direct business net premiums written for 1999 and 1998, respectively; the
Company started selling insurance directly over the Internet in August 1997.
Through these multiple distribution channels, the Company continues to write
standard and preferred risks, which represented between 45% and 50% of total
1999 Personal Lines volume, compared to between 30% and 35% in 1998 and between
20% and 25% in 1997, as well as its traditional nonstandard auto products.
Claim costs, the Company's most significant expense, represent actual
payments made and changes in estimated future payments to be made to or on
behalf of its policyholders, including expenses required to settle claims and
losses. These costs include a loss estimate for future assignments and
assessments, based on current business, under state-mandated involuntary
automobile programs. Claim costs are influenced by inflation and loss severity
and frequency, the impact of which is mitigated by adequate pricing. Increases
in the rate of inflation increase loss payments, which are made after premiums
are established. Accordingly, anticipated rates of inflation are taken into
account when the Company establishes premium rates and loss reserves. Claim
costs, expressed as a percentage of premiums earned, were 75% in 1999, compared
to 68% in 1998 and 71% in 1997. The increase in the loss ratios was driven by
the factors discussed below.
Four factors contributed to the Company's underwriting losses during the
second half of 1999 and its inability to meet its traditional goals in 1999. The
first factor was that, during 1999, the Company reduced loss reserves relating
to prior accident years $29.8 million, or .5 points, compared to $184.2 million,
or 3.7 points, and $103.3 million, or 2.5 points, for 1998 and 1997,
respectively. The second factor was continued strong growth in the Direct
business in 1999. In periods of rapid growth in the Direct business, the
Company's earnings may be lower as a result of higher up-front costs and higher
loss costs traditionally associated with new business. In response, the Company
decided to return to profit targets based on a calendar year measure rather than
over the entire retention period of a policyholder, with the intent to bring the
combined ratio back to the historic goal of 96 over the next few years. The
Company's profit and growth opportunities change from year to year; however,
over every consecutive 5-year period, the Company strives to produce a four
percent underwriting profit and to grow at 15 percentage points greater than the
rate of inflation. The third factor was that the Company lowered rates in 1998
and during the first half of 1999, in an attempt to raise its combined ratio to
96 while achieving its growth target. Lastly, during 1999, loss trend
accelerated at an unanticipated pace; consequently, loss costs rose faster than
expected. The Company expects these loss costs trends to continue.
The Company's other lines of business include writing insurance for small
fleets of commercial vehicles, collateral protection and loan tracking for auto
lenders and financial institutions, directors' and officers' liability and
fidelity coverage for American Bankers Association member community banks and
independent credit unions, and providing related claim, underwriting and system
services. Revenues in these businesses were $437.0 million in 1999, compared to
$405.5 million in 1998 and $402.1 million in 1997. Pretax operating profit was
$41.8 million in 1999, compared to $61.9 million in 1998 and $36.6 million in
1997.
The Company writes directors and officers and other professional liability
coverage for community banks and credit unions and, therefore, could potentially
be exposed to liability for errors made by these institutions relating to the
year 2000 conversion. The Company has reinsurance to limit its potential
exposure to approximately 7% of the average policy limits in the event any of
the insured directors or officers are held liable for year 2000 noncompliance by
their financial institutions. It is currently unknown whether these financial
institutions have been able to completely avoid errors relating to year 2000
compliance and the Company is unable to predict to what extent such financial
institutions will incur losses as a result of noncompliance and whether their
directors and officers will be subject to individual liability for such
noncompliance. In the event of a claim, applicable factual and coverage issues
would have to be resolved. Based on information currently available and
management's best estimate, the Company does not believe that any losses
resulting from this exposure will have a material impact on the Company's
liquidity, financial condition, cash flows or results of operations.
Because the Company is primarily an insurer of motor vehicles, it has limited
exposure for environmental, product and general liability claims. The Company
has established reserves for these exposures, in amounts which it believes to be
adequate based on information currently known by it. Management does not believe
that these claims will have a material impact on the Company's liquidity,
financial condition, cash flows or results of operations.
Policy acquisition and other underwriting expenses as a percentage of premiums
earned were 23% in 1999, 1998 and 1997. The Company advertises locally in 35
states, plus Washington D.C. (107 markets), as compared to 32 states (83
markets) in 1998 and 19 states (40 markets) in 1997. The Company expanded its
television advertising campaign on a national level during 1998. During 1999,
the Company incurred advertising expenses of $124 million, compared to $70
million in 1998 and $23 million in 1997.
Recurring investment income (interest and dividends) increased 16% to $340.7
million in 1999, compared to $294.8 million in 1998 and $274.9 million in 1997,
primarily due to an increase in the size of the investment portfolio. Net
realized gains on security sales were $47.2 million in 1999, $11.4 million in
1998 and $98.5 million in 1997. Investment expenses were $9.5 million in 1999,
compared to $7.4 million in 1998 and $9.9 million in 1997.
YEAR 2000 COMPLIANCE The Company's five-year effort to achieve year 2000
compliance was successful. The Company successfully operated through the
rollover to year 2000 with only minor issues and has not experienced any
significant business outage or incurred any significant cost due to the year
2000 failure or errors of business partners to date. The total cost to modify
existing production systems, which includes both internal and external costs of
programming, coding and testing, was $9.3 million, of which $9.2 million had
been expensed through December 31, 1999. The Company also replaced some of its
systems. In addition to being year 2000 compliant, these new systems added
increased functionality to the Company. The majority of the projects were
completed in 1998, with remaining parallel testing completed during the first
half of 1999. As of December 31, 1999, $5.5 million, which include both internal
and external costs, had been paid for these systems. All costs were funded
through operating cash flows.
The Company continually evaluates computer hardware and software upgrades for
enhancements and, therefore, many of the costs to replace these items to be year
2000 compliant were not incremental costs to the Company.
In preparing for the rollover to the 21st century, the Company's process teams
and business groups identified potential year 2000 scenarios. For those
scenarios deemed to be both probable and with a potentially significant business
impact, the Company developed contingency plans. These plans were reviewed by
the Company's chief financial and technology officers throughout 1999. It has
not been necessary to execute any of the contingency plans to date.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: CERTAIN MATTERS IN THIS ANNUAL REPORT MAY BE CONSIDERED FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL EVENTS AND RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
THESE RISKS AND UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, RISKS RELATED TO
ESTIMATES, ASSUMPTIONS AND PROJECTIONS GENERALLY; CHANGES IN ECONOMIC CONDITIONS
(INCLUDING CHANGES IN INTEREST RATES AND FINANCIAL MARKETS); PRICING COMPETITION
AND OTHER INITIATIVES BY COMPETITORS; LEGISLATIVE AND REGULATORY DEVELOPMENTS;
WEATHER CONDITIONS (INCLUDING THE SEVERITY AND FREQUENCY OF STORMS, HURRICANES,
SNOWFALLS, HAIL AND WINTER CONDITIONS); DRIVING PATTERNS; COURT DECISIONS AND
TRENDS IN LITIGATION AND HEALTH CARE COSTS; UNFORESEEN TECHNOLOGICAL ISSUES
ASSOCIATED WITH THE YEAR 2000 COMPLIANCE EFFORTS AND THE EXTENT TO WHICH
VENDORS, PUBLIC UTILITIES, GOVERNMENTAL ENTITIES AND OTHER THIRD PARTIES THAT
INTERFACE WITH THE COMPANY MAY FAIL TO ACHIEVE YEAR 2000 COMPLIANCE; AND OTHER
MATTERS DESCRIBED FROM TIME TO TIME BY THE COMPANY IN OTHER DOCUMENTS FILED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE THE INFORMATION IN THIS ANNUAL REPORT.

50
<PAGE> 38

QUARTERLY FINANCIAL AND COMMON SHARE DATA
(not covered by report of independent accountants)

(millions-except per share amounts)

- -----------------------------------------------------------------------------------------------------------------------------------
Net Income Operating Income(1) Stock Price(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Per Per Rate of Dividends
Quarter Revenues(3) Total(4) Share(5) Total(4) Share(5) High-Low Close Return(6) Per Share

- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999
1 $ 1,333.3 $ 105.3 $ 1.41 $ 104.0 $ 1.39 $174 1/4 - 115 7/16 $143 1/2 $ .065
2 1,416.8 112.1 1.50 98.5 1.32 152 1/8 - 12 3/8 145 .065
3 1,474.5 74.0 .99 59.5 .80 144 15/16 - 81 1/2 81 11/16 .065
4 1,506.5 3.8(7) .05(7) 4.7(7) .06(7) 97 5/8 - 68 1/2 73 1/8 .065
- -----------------------------------------------------------------------------------------------------------------------------------
$ 5,731.1 $ 295.2 $ 3.96 $ 266.7 $ 3.58 $174 1/4 - 68 1/2 $731 (56.7)% $ .260
===================================================================================================================================

1998
1 $ 1,156.2 $ 120.1 $ 1.58 $ 102.8 $ 1.35 $135 1/2 - 106 11/16 $134 11/16 $.060
2 1,237.2 123.0 1.61 109.1 1.43 150 - 126 1/2 141 .060
3 1,290.9 135.1 1.81 134.4 1.80 156 3/4 - 95 112 3/4 .065
4 1,301.9 78.5(8) 1.05(8) 103.1 1.38 172 - 94 169 3/8 .065
- -----------------------------------------------------------------------------------------------------------------------------------
$ 4,986.2 $ 456.7 $ 6.11 $ 449.3 $ 6.01 $172 - 94 $169 3/8 41.6% $.250
===================================================================================================================================

1997
1 $ 905.7 $ 76.5 $ 1.02 $ 78.6 $ 1.05 $ 73 5/8 - 63 7/8 $ 63 7/8 $.060
2 1,020.9 102.1 1.36 82.8 1.10 87 3/8 - 61 1/2 87 .060
3 1,090.1 116.2 1.54 89.3 1.18 111 7/8 - 86 1/2 107 1/8 .060
4 1,218.1 105.3 1.39 85.3 1.13 120 7/8 - 99 119 7/8 .060
- -----------------------------------------------------------------------------------------------------------------------------------
$ 4,234.8 $ 400.0 $ 5.31 $ 336.0 $ 4.46 $120 7/8 - 61 1/2 $119 7/8 78.4% $.240
===================================================================================================================================
</TABLE>

(1) Represents net income less realized gains and losses on security sales and
one-time items.
(2) Prices as reported on the consolidated transaction reporting system. The
Company's Common Shares are listed on the New York Stock Exchange.
(3) Represents premiums earned plus service revenues.
(4) The sum may not equal the total due to rounding in the individual periods.
Each period is properly stated.
(5) Presented on a diluted basis. The sum may not equal the total because the
average equivalent shares differ in the periods.
(6) Represents annual rate of return, including quarterly dividend
reinvestment.
(7) During the fourth quarter 1999, the Company increased loss reserves $33
million, $.29 per share, primarily relating to the 1999 accident year and
recognized $7 million, $.06 per share, of losses related to Hurricane
Irene. The remainder of the decline was primarily attributable to
increased loss severity.
(8) During the fourth quarter 1998, the Company wrote down $24.5 million,
$.21 per share, on investment securities considered to have other than
temporary declines in market value and realized a $9.2 million, $.08 per
share, net loss on an anticipatory hedge.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
51
<PAGE> 39

TEN YEAR SUMMARY--FINANCIAL HIGHLIGHTS
(not covered by report of independent accountants)

(millions--except per share amounts and number of people employed)

- -------------------------------------------------------------------------------------------------------------------------
1999 1998

- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE COMPANIES SELECTED FINANCIAL INFORMATION
AND OPERATING STATISTICS--STATUTORY BASIS
Reserves:
Loss and loss adjustment expense(1) $ 2,200.2 $ 1,945.8
Unearned premiums 2,694.5 2,253.3
Policyholders' surplus(1) 2,258.9 2,029.9
Ratios:
Net premiums written to policyholders' surplus 2.7 2.6
Loss and loss adjustment expense reserves to policyholders' surplus 1.0 1.0
Loss and loss adjustment expense 75.0 68.5
Underwriting expense 22.1 22.4
- -------------------------------------------------------------------------------------------------------------------------
Statutory combined ratio 97.1 90.9

SELECTED CONSOLIDATED FINANCIAL INFORMATION--GAAP BASIS
Total revenues $ 6,124.2 $ 5,292.4
Total assets 9,704.7 8,463.1
Total shareholders' equity(2) 2,752.8 2,557.1
Common Shares outstanding 73.1 72.5
Common Share price
High $ 174 1/4 $ 172
Low 68 1/2 94
Close(3) 73 1/8 169 3/8
Market capitalization $ 5,345.4 $ 12,279.7
Book value per Common Share(2) $ 37.66 $ 35.27
Return on average common shareholders' equity(4) 10.9% 19.3%
Debt outstanding $ 1,048.6 $ 776.6
Ratios:
Debt to total capital 28% 23%
Price to earnings(5) 20 28
Price to book 1.9 4.8
GAAP underwriting margin(2) 1.7 8.4
Number of people employed 18,753 15,735
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) During 1994, the Company began accruing salvage and subrogation
recoverables.
(2) In 1994, the $71.0 million "supplemental reserve" was eliminated,
increasing book value per share $.65, underwriting profit margin 3.2% and
shareholders' equity $46.2 million.
(3) Represents the closing price at December 31.
(4) Net income minus preferred share dividends divided by average common
shareholders' equity.
(5) Represents the closing stock price divided by operating earnings per share.

All share and per share amounts were adjusted for the December 1992, 3 for 1
stock split.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

<PAGE> 40

- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990

- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>

$ 1,867.5 $ 1,532.9 $ 1,314.4 $ 1,100.2 $ 1,053.7 $ 994.7 $ 901.7 $ 827.4
1,901.9 1,382.9 1,140.4 954.8 688.9 538.5 513.6 474.1
1,722.9 1,292.4 1,055.1 945.1 701.9 658.3 676.7 636.7

2.7 2.7 2.8 2.6 2.6 2.2 2.0 1.9
1.1 1.2 1.2 1.2 1.5 1.5 1.3 1.3
71.1 70.2 71.6 64.2 62.6 68.3 65.7 62.1
20.7 19.8 21.4 22.4 25.4 29.8 33.5 31.1
- -----------------------------------------------------------------------------------------------------------------------------------
91.8 90.0 93.0 86.6 88.0 98.1 99.2 93.2

$ 4,608.2 $ 3,478.4 $ 3,011.9 $ 2,415.3 $ 1,954.8 $ 1,738.9 $ 1,493.1 $ 1,376.2
7,559.6 6,183.9 5,352.5 4,675.1 4,011.3 3,440.9 3,317.2 2,912.4
2,135.9 1,676.9 1,475.8 1,151.9 997.9 629.0 465.7 408.5
72.3 71.5 72.1 71.2 72.1 67.1 63.3 69.3

$ 120 7/8 $ 72 1/4 $ 49 1/2 $ 40 1/2 $ 46 1/8 $ 29 3/8 $ 20 5/8 $ 18 3/4
61 1/2 40 3/8 34 3/4 27 3/4 26 5/8 14 3/4 15 11
119 7/8 67 3/8 48 7/8 35 40 1/2 29 1/8 18 17 1/8
$ 8,667.0 $ 4,817.3 $ 3,523.9 $ 2,492.0 $ 2,920.1 $ 1,954.3 $ 1,139.4 $ 1,186.8
$ 29.54 $ 23.45 $ 19.31 $ 14.97 $ 12.62 $ 7.94 $ 5.83 $ 5.89
20.9% 20.5% 19.6% 27.4% 36.0% 34.7% 6.7% 21.5%
$ 775.9 $ 775.7 $ 675.9 $ 675.6 $ 477.1 $ 568.5 $ 644.0 $ 644.4

27% 32% 31% 37% 32% 47% 58% 61%
27 16 17 13 15 17 15 11
4.1 2.9 2.5 2.3 3.2 3.7 3.1 2.9
6.6 8.5 5.7 11.5 10.7 3.5 (3.7) 1.0
14,126 9,557 8,025 7,544 6,101 5,591 6,918 6,370
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 41

TEN YEAR SUMMARY--GAAP CONSOLIDATED OPERATING RESULTS
(not covered by report of independent accountants)

(millions-except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998

- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Direct premiums written:
Personal lines $ 5,799.4 $ 4,987.1
All other lines 505.9 464.2
- -----------------------------------------------------------------------------------------------------------------------------------
Total direct premiums written 6,305.3 5,451.3
Reinsurance assumed -- --
Reinsurance ceded (180.6) (151.6)
- -----------------------------------------------------------------------------------------------------------------------------------
Net premiums written 6,124.7 5,299.7
Net change in unearned premiums reserve(1) (441.1) (351.7)
- -----------------------------------------------------------------------------------------------------------------------------------
Premiums earned 5,683.6 4,948.0
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Losses and loss adjustment expenses(2) 4,256.4 3,376.3
Policy acquisition costs 745.0 659.9
Other underwriting expenses 583.8 495.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total underwriting expenses 5,585.2 4,532.0
- -----------------------------------------------------------------------------------------------------------------------------------
Underwriting profit (loss) before taxes 98.4 416.0
Provision (benefit) for income taxes 34.4 145.6
- -----------------------------------------------------------------------------------------------------------------------------------
Underwriting profit (loss) after taxes 64.0 270.4
Service operations profit (loss) after taxes 4.3 4.8
- -----------------------------------------------------------------------------------------------------------------------------------
68.3 275.2
Investment income after taxes 249.6 221.3
Net realized gains (losses) on security sales after taxes 30.7 7.4
Interest expense after taxes (49.7) (39.7)
Proposition 103 reserve reduction after taxes -- --
Non-recurring items after taxes -- --
Other income (expenses) after taxes(3) (3.7) (7.5)
- -----------------------------------------------------------------------------------------------------------------------------------
Income before tax adjustments and cumulative
effect of accounting change 295.2 456.7
Tax adjustments(4) -- --
Cumulative effect of accounting change(5) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 295.2 $ 456.7
===================================================================================================================================
Operating income $ 266.7 $ 449.3
===================================================================================================================================
Per share(6)
Net income(2) $ 3.96 $ 6.11
Operating income 3.58 6.01
Dividends .260 .250
Average equivalent shares
Basic 72.9 72.5
Diluted 74.6 74.7
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Amount represents change in unearned premiums reserve less change in
prepaid reinsurance premiums.
(2) In 1994, the "supplemental reserve" was eliminated, resulting in a one-time
decrease to losses and loss adjustment expenses of $71.0 million, or $.62
per share.
(3) Reflects other income and investment expenses after taxes and other tax
adjustments.
(4) 1991 reflects a deferred tax asset write-down and 1990 reflects a fresh
start tax benefit.
(5) Reflects adoption of SFAS 109, "Accounting for Income Taxes."
(6) Presented on diluted basis. In 1997, the Company adopted SFAS 128,
"Earnings Per Share," and, as a result, restated prior periods per share
amounts, if applicable.

All share and per share amounts were adjusted for the December 1992, 3 for 1
stock split.

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
54

<PAGE> 42

- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990

- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4,355.9 $ 3,165.4 $ 2,644.6 $ 2,181.7 $ 1,548.9 $ 1,214.6 $ 1,047.4 $ 876.0
469.3 473.0 424.3 463.4 417.5 422.2 489.4 482.8
- ----------------------------------------------------------------------------------------------------------------------------------
4,825.2 3,638.4 3,068.9 2,645.1 1,966.4 1,636.8 1,536.8 1,358.8
-- 3.8 .1 2.9 9.2 4.3 .1 .1
(160.1) (200.5) (156.2) (190.8) (156.4) (189.9) (212.3) (162.6)
- ----------------------------------------------------------------------------------------------------------------------------------
4,665.1 3,441.7 2,912.8 2,457.2 1,819.2 1,451.2 1,324.6 1,196.3
(475.6) (242.4) (185.6) (266.1) (150.5) (25.1) (37.7) (5.1)
- ----------------------------------------------------------------------------------------------------------------------------------
4,189.5 3,199.3 2,727.2 2,191.1 1,668.7 1,426.1 1,286.9 1,191.2

2,967.5 2,236.1 1,943.8 1,397.3 1,028.0 930.9 858.0 762.9
607.8 482.6 459.6 391.5 311.6 304.1 313.7 292.7
336.0 208.5 167.2 150.8 151.3 141.5 162.1 123.7
- ----------------------------------------------------------------------------------------------------------------------------------
3,911.3 2,927.2 2,570.6 1,939.6 1,490.9 1,376.5 1,333.8 1,179.3
- ----------------------------------------------------------------------------------------------------------------------------------
278.2 272.1 156.6 251.5 177.8 49.6 (46.9) 11.9
97.4 95.2 54.8 88.0 62.2 16.9 (15.9) 4.0
- ----------------------------------------------------------------------------------------------------------------------------------
180.8 176.9 101.8 163.5 115.6 32.7 (31.0) 7.9
.9 2.8 5.6 6.5 4.4 (2.8) (1.4) 2.8
- ----------------------------------------------------------------------------------------------------------------------------------
181.7 179.7 107.4 170.0 120.0 29.9 (32.4) 10.7
205.3 175.6 156.2 131.2 107.1 110.4 121.1 126.4
64.0 4.6 30.4 15.5 70.1 9.6 4.9 (8.4)
(42.0) (40.0) (37.1) (35.9) (25.8) (29.4) (31.6) (32.0)
-- -- -- -- -- 70.0 -- --
-- -- -- -- (2.6) (42.6) -- --
(9.0) (6.2) (6.4) (6.5) (1.5) (8.3) (14.9) (13.2)
- ----------------------------------------------------------------------------------------------------------------------------------

400.0 313.7 250.5 274.3 267.3 139.6 47.1 83.5
-- -- -- -- -- -- (14.2) 9.9
-- -- -- -- -- 14.2 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
$ 400.0 $ 313.7 $ 250.5 $ 274.3 $ 267.3 $ 153.8 $ 32.9 $ 93.4
==================================================================================================================================
$ 336.0 $ 309.1 $ 220.1 $ 212.7 $ 197.3 $ 129.8 $ 85.1 $ 127.9
==================================================================================================================================
$ 5.31 $ 4.14 $ 3.26 $ 3.59 $ 3.59 $ 2.08 $ .41 $ 1.20
4.46 4.12 2.85 2.76 2.62 1.74 1.19 1.62
.240 .230 .220 .210 .200 .191 .172 .160

72.0 71.6 71.8 71.6 69.3 60.7 65.4 72.3
75.3 74.2 74.2 74.0 71.8 70.9 66.6 81.9
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 43

QUANTITATIVE MARKET RISK DISCLOSURES
(not covered by report of independent accountants)

Quantitative market risk disclosures are only presented for market risk
categories when risk is considered material. Materiality is determined based on
the fair value of the financial instruments at December 31, 1999, and the
potential for near term losses from reasonably possible near term changes in
market rates or prices.

OTHER THAN TRADING FINANCIAL INSTRUMENTS

Financial instruments subject to interest rate risk as of December 31, 1999
were:

(millions)
- ----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
-200 BPS -100 BPS +100 BPS +200 BPS
CHANGE CHANGE ACTUAL CHANGE CHANGE

- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government obligations $ 346.0 $ 331.3 $ 316.5 $ 301.8 $ 287.0
State and local government obligations 1,371.3 1,351.8 1,332.2 1,312.6 1,293.0
Asset-backed securities 1,927.3 1,883.7 1,831.1 1,771.8 1,721.4
Other debt securities 1,121.2 1,086.4 1,052.9 1,020.6 989.3
Preferred stocks 417.3 407.6 397.9 387.3 376.7
Term trust certificates 234.8 232.5 230.2 227.9 225.6
Short-term investments 229.5 229.3 229.0 228.8 228.6
- ----------------------------------------------------------------------------------------------------------------------------------
$ 5,647.4 $ 5,522.6 $ 5,389.8 $ 5,250.8 $ 5,121.6
==================================================================================================================================
</TABLE>

Exposure to risk is represented in terms of changes in fair value due to
selected hypothetical movements in market rates. Bonds and preferred stocks are
individually priced to yield to the worst case scenario. State and local
government obligations, including lease deals and super sinkers, are assumed to
hold their prepayment patterns. Asset-backed securities are priced assuming deal
specific prepayment scenarios, considering the deal structure, prepayment
penalties, yield maintenance agreements and the underlying collateral. Over 89%
of the preferred stocks have mechanisms that are expected to provide an
opportunity to liquidate at par.

Financial instruments subject to equity market risk as of December 31, 1999
were:
<TABLE>
<CAPTION>

(millions)
- ----------------------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL
MARKET CHANGES
- ----------------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE +10% -10%

- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stocks $ 987.7 $ 1,079.7 $ 898.8
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES

<PAGE> 44

The model represents the estimated value of the Company's common stock portfolio
given a + (-) 10% change in the market, based on the common stock portfolio's
weighted average beta of .89. The beta is derived from recent historical
experience, using the S&P 500 as the market surrogate. The historical
relationship of the common stock portfolio's beta to the S&P 500 is not
necessarily indicative of future correlation, as individual company or industry
factors may affect price movement. Betas are not available for all securities.
In such cases, the change in market value reflects a direct + (-) 10% change;
the number of securities without betas is less than 25%. The common stock
portfolio includes stock index futures with a market value of $1.3 million. The
model does not include term trust certificates, which comprised $230.2 million
of the common stock portfolio at the end of 1999, as these securities are
subject to interest rate risk rather than equity market risk.

Financial instruments subject to foreign currency risk as of December 31, 1999
were:

(millions)

MARKET NOTIONAL HYPOTHETICAL
VALUE VALUE GAIN (LOSS)

- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Canadian fixed income investments $ 71.0 N/A $ 7.1
Other foreign fixed income investments 11.8 N/A 1.2
Foreign equity investments 79.7 N/A 8.0
Foreign currency forwards-liabilities (.8) (13.7) (.1)
- ----------------------------------------------------------------------------------------------------------------------
$ 161.7 N/A $ 16.2
======================================================================================================================
</TABLE>

N/A = not applicable; notional value pertains only to derivative instruments

The foreign equity portfolio, which may include stock index futures,
foreign currency forwards and foreign preferred stocks, is comprised of numerous
currencies, none of which are individually material. Therefore, sensitivity
results are presented by class of financial instrument. The model calculates a
gain or loss in market value if the U.S. dollar depreciates by 10% to the
respective currency. The model does not attempt to reflect the correlation of
multiple currencies to changes in the U.S. dollar. At December 31, 1999, the
Company did not have any cross currency exposures.

TRADING FINANCIAL INSTRUMENTS

At December 31, 1999, the Company had trading positions with a net market value
of $50.2 million. During 1999, net activity in the trading portfolio was not
material to the Company's financial position, cash flows or results of
operations and exposure to loss from open trading positions was not material
individually or in the aggregate.

<PAGE> 45

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES (LAE) DEVELOPMENT
(not covered by report of independent accountants)

(millions)
- -----------------------------------------------------------------------------------------------------------------------------------
For the years ended 1989 1990 1991 1992 1993 1994(3) 1995 1996 1997 1998 1999
December 31,

- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss and LAE
reserves(1) $ 748.6 $ 791.6 $ 861.5 $ 956.4 $1,012.4 $1,098.7 $1,314.4 $1,532.9 $1,867.5 $1,945.8 $2,200.2
Re-estimated
reserves as of:
One year later 685.4 748.8 810.0 857.9 869.9 1,042.1 1,208.6 1,429.6 1,683.3 1,916.0
Two years later 677.9 726.5 771.9 765.5 837.8 991.7 1,149.5 1,364.5 1,668.5
Three years later 668.6 712.7 718.7 737.4 811.3 961.2 1,118.6 1,432.3
Four years later 667.1 683.7 700.1 725.2 794.6 940.6 1,137.7
Five years later 654.7 666.3 695.1 717.3 782.9 945.5
Six years later 647.1 664.8 692.6 711.1 780.1
Seven years later 645.7 664.5 688.2 709.2
Eight years later 645.4 661.4 687.9
Nine years later 641.9 660.4
Ten years later 641.5
Cumulative
redundancy $ 107.1 $ 131.2 $ 173.6 $ 247.2 $ 232.3 $ 153.2 $ 176.7 $ 100.6 $ 199.0 $ 29.8
Percentage(2) 14.3 16.6 20.2 25.8 22.9 13.9 13.4 6.6 10.7 1.5
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The chart represents the development of the property-casualty loss and LAE
reserves for 1989 through 1998. The reserves are re-estimated based on
experience as of the end of each succeeding year and are increased or decreased
as more information becomes known about the frequency and severity of claims for
individual years. The cumulative redundancy represents the aggregate change in
the estimates over all prior years.

(1) Represents loss and LAE reserves net of reinsurance recoverables on unpaid
losses at the balance sheet date.

(2) Cumulative redundancy divided by loss and LAE reserves.

(3) In 1994, based on a review of its total loss reserves, the Company
eliminated its $71.0 million "supplemental reserve."

DIRECT PREMIUMS WRITTEN BY STATE
(not covered by report of independent accountants)

(millions)
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995

- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Florida $ 895.6 14.2% $ 784.4 14.4% $ 663.0 13.7% $ 467.4 12.9% $ 421.9 13.7%
New York 600.4 9.5 522.2 9.6 446.3 9.2 358.0 9.8 225.6 7.4
Texas 557.6 8.8 518.6 9.5 509.4 10.6 349.9 9.6 313.2 10.2
Ohio 528.1 8.4 447.7 8.2 404.3 8.4 340.8 9.4 284.1 9.3
California 416.0 6.6 343.2 6.3 291.7 6.0 171.6 4.7 126.6 4.1
Pennsylvania 322.3 5.1 292.3 5.4 248.3 5.1 201.3 5.5 184.9 6.0
Georgia 301.9 4.8 277.8 5.1 261.9 5.4 212.1 5.8 155.1 5.1
All other 2,683.4 42.6 2,265.1 41.5 2,000.3 41.6 1,537.3 42.3 1,357.5 44.2
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 6,305.3 100.0% $5,451.3 100.0% $ 4,825.2 100.0% $ 3,638.4 100.0% $ 3,068.9 100.0%
==================================================================================================================================
</TABLE>

<PAGE> 46

DIRECTORS CORPORATE OFFICERS
Milton N. Allen(1),(2) Peter B. Lewis
Director, Chairman, President and
various companies Chief Executive Officer

B. Charles Ames(1) Charles B. Chokel
Partner, Chief Executive Officer -
Clayton, Dubilier & Rice, Inc. Investments and
(investment banking) Capital Management

James E. Bennett III(3) Glenn M. Renwick
Senior Executive Vice President Chief Executive Officer -
KeyCorp Insurance Operations
(banking)
R. Steven Kestner
Charles B. Chokel Secretary
Chief Executive Officer -
Investments and Capital W. Thomas Forrester
Management Treasurer

Charles A. Davis(4) Jeffrey W. Basch
President and Vice President
Chief Executive Officer
Marsh & McLennan Capital, Inc. Janet A. Dolohanty
(investment banking) Vice President

Stephen R. Hardis(2),(4) Thomas A. King
Chairman of the Board and Vice President
Chief Executive Officer
Eaton Corporation
(manufacturing)

Janet Hill(1)
Vice President
Alexander & Associates, Inc.
(management consulting)
and President,
Staubach Alexander Hill, LLC
(commercial real estate
consulting)

Peter B. Lewis(2),(4)
Chairman of the Board,
President and
Chief Executive Officer

Norman S. Matthews(3)
Consultant,
formerly President,
Federated Department Stores, Inc.
(retailing)

Glenn M. Renwick
Chief Executive Officer -
Insurance Operations

Donald B. Shackelford(3)
Chairman,
Fifth Third Bank of Central Ohio
(commercial bank)

(1) Audit Committee member
(2) Executive Committee member
(3) Executive Compensation Committee member
(4) Investment and Capital Committee member

ANNUAL MEETING
The Annual Meeting of Shareholders will be held at the offices of The
Progressive Corporation, 6671 Beta Drive, Mayfield Village, Ohio 44143 on April
21, 2000, at 10:00 a.m. There were 3,877 shareholders of record on December 31,
1999.

PRINCIPAL OFFICE
The principal office of the Progressive Corporation is at 6300 Wilson Mills
Road, Mayfield Village, Ohio 44143

TOLL-FREE TELEPHONE NUMBERS
For assistance after an accident or to report a claim, 24 hours a day, 7 days a
week, call: 1-800-274-4499

To check rates available to you from Progressive and up to three other leading
auto insurance companies, call: 1-800-AUTO-PRO(R)(1-800-288-6776) or visit:
progressive.com

For 24 Hour Policy Service, call: 1-800-888-7764

COUNSEL
Baker & Hostetler LLP, Cleveland, Ohio

TRANSFER AGENT AND REGISTRAR
If you have questions about a specific stock ownership account, write or call:
Corporate Trust Customer Service, National City Bank, 1900 East Ninth Street,
Cleveland, Ohio 44114. Phone: 1-800-622-6757

COMMON SHARES
The Progressive Corporation's Common Shares (symbol PGR) are traded on the New
York Stock Exchange. Dividends are customarily paid on the last day of each
quarter.

SHAREHOLDER/INVESTOR RELATIONS
The Progressive Corporation does not maintain a mailing list for distribution of
shareholders' reports. To hear the text of the latest earnings release, receive
key financial information for the past several quarters, receive dividend and
other information, shareholders can call 1-800-879-PROG. This toll-free
shareholder services line is available 24 hours a day, 7 days a week. Such
information is also available from the Company's Web site: progressive.com.

To request copies of public financial information on the Company, shareholders
and potential investors may call the Company's shareholders services line at
1-800-879-PROG or write to: The Progressive Corporation, Investor Relations,
6300 Wilson Mills Road, Box W33, Mayfield Village, Ohio 44143.

For specific questions on financial or other Company information call:
440-446-2851.

<PAGE> 47

Design: Nesnadny + Schwartz, Cleveland + New York + Toronto
Artwork: All pieces are untitled.(C)1999 Gregory Crewdson
Printing: Fortran Printing, Cleveland Printed on Recycled Paper

<PAGE> 1

EXHIBIT NO. 21

SUBSIDIARIES OF THE PROGRESSIVE CORPORATION

Jurisdiction
of
Name of Subsidiary Incorporation
- ------------------ --------------

1890 Insurance Agency, Inc. Wyoming
Airy Insurance Center, Inc. Pennsylvania
Allied Insurance Agency, Inc. Ohio
Express Quote Services, Inc. Florida
Garden Sun Insurance Services, Inc. Hawaii
Gold Key Insurance Agency California
Greenberg Financial Insurance Services, Inc. California
Halcyon Insurance Company Ohio
Husky Sun Insurance Services, Inc. Washington
Insurance Confirmation Services, Inc. Delaware
Lakeside Insurance Agency, Inc. Ohio
Maryland Auto Insurance Solutions, Inc. Maryland
Midland Financial Group, Inc. Tennessee
Agents Financial Services - Tennessee, Inc. Tennessee
Agents Financial Services - Illinois, Inc. (90% owned) Illinois
Agents Financial Services, Inc. (40% owned) Florida
AutoSurance of America, Inc. Arizona
Progressive Home Insurance Agency Tennessee
Specialty Risk Insurance Company Tennessee
Midland Risk Services, Inc. Tennessee
Midland Risk Services - Arizona, Inc. Arizona
Midland Risk Services - Nevada, Inc. Nevada
Midland Risk Insurance Services - California, Inc. California
Midland Risk Services - Illinois, Inc. (85% owned) Illinois
Midland Risk Services - Tennessee, Inc. Tennessee
Mountain Laurel Assurance Company Pennsylvania
Mountainside Insurance Agency, Inc. Colorado
National Continental Insurance Company New York
Pacific Motor Club California
PCIC Canada Holdings, Ltd. Canada
Progressive Casualty Insurance Company of Canada Canada
Progny Agency, Inc. New York
Progressive Adjusting Company, Inc. Ohio
Progressive American Insurance Company Florida
Bayside Underwriters Insurance Agency, Inc. Florida
Progressive American Life Insurance Company Ohio
Progressive Life Insurance, Ltd. Turks & Caicos
Islands
Progressive Auto Pro Insurance Agency, Inc. Florida
Progressive Auto Pro Insurance Company Florida
Progressive Bayside Insurance Company Florida
Progressive Capital Management Corp. New York
Progressive Casualty Insurance Company Ohio
PC Investment Company Delaware
Progressive Gulf Insurance Agency Mississippi
Progressive Specialty Insurance Company Ohio

<PAGE> 2

Progressive Classic Insurance Company Wisconsin
Progressive Consumers Insurance Company Florida
Progressive DirecTrac Service Corp. Texas
Progressive Express Insurance Company Florida
Progressive Hawaii Insurance Corp. Hawaii
Progressive Insurance Agency, Inc. Ohio
Progressive Agency Holdings Corp. Ohio
Barry Scott Companies, Inc. Delaware
Barry Scott Agency, Inc. New York
Baron Cycle, Inc. New York
Barry Scott Acquisition Corp. New York
Aard Vark Agency, Ltd. New York
Progressive Investment Company, Inc. Delaware
RRM Holdings, Inc. Delaware
Progressive Marathon Insurance Company California
Progressive Max Insurance Company Ohio
Progressive Michigan Insurance Company Michigan
Progressive Mountain Insurance Company Colorado
Progressive Northeastern Insurance Company New York
Progressive Northern Insurance Company Wisconsin
Progressive Premier Insurance Company of Illinois Illinois
Progressive Universal Insurance Company of Illinois Illinois
Progressive Northwestern Insurance Company Washington
Progressive Paloverde Insurance Company Arizona
Progressive Preferred Insurance Company Ohio
Progressive Premium Budget, Inc. Ohio
Progressive Resources Services Company Ohio
Progressive Security Insurance Company Louisiana
Progressive Southeastern Insurance Company Florida
Progressive West Insurance Company California
Silver Key Insurance Agency, Inc. Nevada
The Progressive Agency, Inc. Virginia
United Financial Casualty Company Missouri
United Financial Insurance Agency, Inc. Ohio
United Financial Insurance Agency, Inc. Washington
Village Transport Corp. Delaware
Wilson Mills Land Co. Ohio

Except as indicated, each subsidiary is wholly owned by its parent

<PAGE> 1
EXHIBIT NO. 24
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint R.
Steven Kestner, Dane A. Shrallow and Michael R. Uth, and each of them, my true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for me and in my name, place and stead, in any and all
capacities, to sign and file with the Securities and Exchange Commission the
Annual Report on Form 10-K of The Progressive Corporation for the year 1999, and
any and all amendments relating thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary and requisite to be done in connection with the foregoing, as fully to
all intents and purposes as I might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
respective substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, I have hereunto subscribed my name in the
capacity(ies) set forth below this 8th day of March, 2000.