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EXHIBIT 4(a)
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The Progressive Corporation 1998 Directors' Stock Option Plan
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THE PROGRESSIVE CORPORATION
1998 DIRECTORS' STOCK OPTION PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purposes of The Progressive Corporation 1998 Directors' Stock
Option Plan (the "Plan") are to enable The Progressive Corporation (the
"Company") to attract, retain and reward directors of the Company and to
strengthen the mutuality of interests between such directors and the Company's
shareholders by offering such directors options to purchase Common Shares of the
Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Award" means any award of Stock Options under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(d) "Committee" means the Committee referred to in Section 2 hereof.
(e) "Company" means The Progressive Corporation, an Ohio
corporation, or any successor corporation.
(f) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan, or in the absence of
the Committee, the Board.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" means, as of any given date, the mean
between the highest and lowest quoted selling price, regular way, of the
Stock on such date on the New York Stock Exchange or, if no such sale of
the Stock occurs on the New York Stock Exchange on such date, then such
mean price on the next preceding day on which the Stock was traded. If the
Stock is no longer traded on the New York Stock Exchange, then the Fair
Market Value of the Stock shall be determined by the Committee in good
faith.
(i) "Non-Qualified Stock Option" means any Stock Option that is not
an incentive stock option, within the meaning of Section 422 of the Code or
any successor section thereto.
(j) "Option Term" has the meaning given to such term in Section
4(b)(2).
(k) "Plan" means The Progressive Corporation 1998 Directors' Stock
Option Plan, as amended from time to time.
(l) "Stock" means the Common Shares, $1.00 par value per share, of
the Company.
(m) "Stock Option" or "Option" means any option to purchase shares
of Stock granted pursuant to Section 4.
(n) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
In addition, the terms "Change in Control," "Potential Change in
Control" and "Change in Control Price" shall have meanings set forth,
respectively, in Sections 5(b), (c) and (d) below.
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SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than three
directors of the Company, all of whom shall be directors who are "Non-Employee
Directors", as defined in Section 16 of the Exchange Act or the rules and
regulations promulgated thereunder. Such directors shall be appointed by the
Board and shall serve as the Committee at the pleasure of the Board. The
functions of the Committee specified in the Plan shall be exercised by the Board
if and to the extent that no Committee exists which has the authority to so
administer the Plan.
The Committee shall have full power and authority to interpret and
administer the Plan and, subject to Section 4(a) below, full authority to select
the individuals to whom Awards will be granted, and to determine the number of
shares of Stock that may be purchased upon exercise of Awards granted under the
Plan, the consideration, if any, to be paid for such Awards, the timing of such
Awards, the terms and conditions of Awards granted under the Plan and the terms
and conditions of the related agreements which will be entered into with
participants.
The Committee shall have the authority to adopt, alter and repeal
such rules, guidelines and practices governing the Plan as it shall, from time
to time, deem advisable; to interpret the terms and provisions of the Plan and
any Award issued under the Plan (and any agreements relating thereto); to direct
employees of the Company or other advisors to prepare such materials or perform
such analyses as the Committee deems necessary or appropriate; and otherwise to
supervise the administration of the Plan.
Any interpretation and administration of the Plan by the Committee,
and all actions and determinations of the Committee in connection with the Plan,
shall be final, binding and conclusive on the Company, its shareholders, all
participants in the Plan, their respective legal representatives, successors and
assigns, and upon all persons claiming under or through any of them. No member
of the Board or of the Committee shall incur any liability for any action taken
or omitted, or any determination made, in good faith in connection with the
Plan.
SECTION 3. STOCK SUBJECT TO THE PLAN.
(a) AGGREGATE STOCK SUBJECT TO THE PLAN. Subject to adjustment as
provided in Section 3(c) below, the total number of shares of Stock
reserved and available for Awards under the Plan is 200,000. Any Stock
issued hereunder may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
(b) FORFEITURE OR TERMINATION OF AWARDS OF STOCK. If any Award
granted hereunder is forfeited or an Award otherwise terminates or expires
without the issuance of Stock, the unissued Stock that is subject to such
Award shall again be available for distribution in connection with future
Awards under the Plan as set forth in Section 3(a).
(c) ADJUSTMENT.
(1) If the Company (i) pays a dividend or makes a
distribution in shares of Stock, (ii) subdivides or splits its
outstanding Stock into a greater number of shares, or (iii) combines
its outstanding Stock into a smaller number of shares, the aggregate
number of shares of Stock reserved for issuance pursuant to the Plan
and the number and option price of shares of Stock subject to
outstanding Options granted pursuant to the Plan immediately prior
thereto shall be adjusted so that, assuming that Options had been
previously granted for all of the shares of Stock so reserved, the
participants would be entitled to receive for the same aggregate
price that number of shares of Stock which they would have owned
after the happening of any of the events described above had they
exercised all of such Options prior to the happening of such event.
An adjustment made pursuant to this Section 3(c)(1) shall become
effective immediately after the record date
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in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision or
combination.
(2) If the Company reclassifies or changes the Stock (except
for splitting or combining, or changing par value, or changing from
par value to no par value, or changing from no par value to par
value) or participates in a consolidation or merger (other than a
merger in which the Company is the surviving corporation and which
does not result in any reclassification of or change in the Stock
except as stated above), the aggregate number of shares of Stock
reserved for issuance pursuant to the Plan and the number and option
price of shares of Stock subject to outstanding Options granted
pursuant to the Plan immediately prior thereto shall be adjusted so
that, assuming that Options had been previously granted for all the
shares of Stock so reserved, the participants would be entitled to
receive for the same aggregate price that number and type of shares
of capital stock which they would have owned after the happening of
any of the events described above had they exercised all of such
Options prior to the happening of such event.
(3) No adjustment pursuant to this Section 3(c) shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such number or price; PROVIDED, HOWEVER,
that any adjustments which by reason of this Section 3(c)(3) are not
required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this Section
3(c) shall be made to the nearest cent or to the nearest full share,
as the case may be. Anything in this Section 3(c) to the contrary
notwithstanding, the Company shall be entitled to make such
reductions in the option price, in addition to those required by
this Section 3(c), as it in its discretion shall determine to be
advisable in order that any stock dividends or distributions,
subdivisions or splits of shares, distribution of rights to purchase
stock or securities, or a distribution of securities convertible
into or exchangeable for stock hereafter made by the Company to its
stockholders shall not be taxable.
SECTION 4. STOCK OPTIONS.
(a) GRANT. All directors of the Company who are not full time
employees of the Company or any of its Subsidiaries are eligible to be
granted Stock Options under the Plan. The Committee shall determine the
individual directors to whom, and the time or times at which, grants of
Stock Options will be made, the number of shares purchasable under each
Stock Option granted hereunder and the other terms and conditions of the
Stock Options in addition to those set forth in Sections 4(b). Any Stock
Option granted under the Plan shall be in such form as the Committee may
from time to time approve. Stock Options granted under the Plan will be
NonQualified Stock Options.
(b) TERMS AND CONDITIONS. Options granted under the Plan shall be
evidenced by Option agreements substantially in the form of Exhibit A
hereto (or such other form as the Committee may approve), shall be subject
to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(1) OPTION PRICE. The option price per share of Stock
purchasable under a Stock Option shall be equal to the Fair Market
Value of the Stock on the date the Option is granted.
(2) OPTION TERM. The term of each Stock Option shall be
determined by the Committee and may not exceed ten (10) years from
the date the Option is granted ("Option Term").
(3) EXERCISE. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be
determined by the Committee at or after
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grant; provided, however, that, unless otherwise provided herein or
determined by the Committee at or after grant, no Stock Option shall
be exercisable prior to six months and one day following the date of
grant. If any Stock Option is exercisable only in installments or
only after a specified vesting date, the Committee may accelerate or
waive, in whole or in part, such installment exercise provisions or
vesting date at any time at or after grant based on such factors as
the Committee shall determine, in its sole discretion.
(4) METHOD OF EXERCISE. Subject to whatever installment
exercise provisions apply with respect to such Stock Option and, if
applicable, the six month and one day holding period set forth in
Section 4(b)(3), a Stock Option may be exercised, in whole or in
part, at any time during the related Option Term, by giving the
Company written notice of exercise specifying the number of shares
of Stock to be purchased.
Such notice shall be accompanied by payment in full of
the option price of the shares of Stock for which the Option is
being exercised, in cash or by check or such other instrument as the
Committee may accept. Unless otherwise determined by the Committee,
in its sole discretion, at or after grant, payment, in full or in
part, of the option price may be made in the form of unrestricted
Stock then owned by the participant or Stock that is part of the
Stock Option being exercised. The value of each share of such Stock
so surrendered or withheld shall be 100% of the Fair Market Value of
the Stock on the date the Option is exercised.
No Stock shall be issued pursuant to an exercise of an
Option until full payment has been made. A participant shall not
have rights to dividends or any other rights of a shareholder with
respect to any Stock subject to an Option unless and until the
participant has given written notice of exercise, has paid in full
for such shares, has given, if requested, the representation
described in Section 8(a) and such shares have been issued to such
participant.
(5) NON-TRANSFERABILITY OF OPTIONS. Stock Options shall not be
transferable by the participant, and all Stock Options shall be
exercisable during the participant's lifetime only by the
participant or, subject to Section 4(b)(7), by the participant's
authorized legal representative if the participant is unable to
exercise an Option as a result of the participant's Disability.
(6) TERMINATION BY DEATH. If any participant dies while
holding unexercised Stock Options, any Stock Option held by such
participant at the time of his or her death may thereafter be
exercised, to the extent such Option was exercisable at the time of
death or would have become exercisable within one year from the time
of death had the participant continued to fulfill all conditions of
the Option during such period, by the estate of the participant
(acting through its fiduciary) for a period of one year (or such
other period as the Committee may specify at or after grant) from
the date of such death, regardless of the term of the Stock Option
remaining at the date of the participant's death.
The balance of the Stock Option shall be forfeited.
(7) TERMINATION BY REASON OF DISABILITY. If a participant is
unable to serve as a director by reason of Disability, any Stock
Option then held by such participant may thereafter be exercised, to
the extent such Option was exercisable at the inception of such
Disability or would have become exercisable within one year
thereafter had the participant continued to fulfill all conditions
of the Option during such period, by the participant or by the
participant's duly authorized legal representative if the
participant is unable to exercise the Option as a result of his or
her Disability, for a period of one year (or such other period as
the Committee may specify at or after grant) from the date of the
inception of such Disability; provided, however, that in no event
may any such Option be exercised prior to six months and one day
from the date of grant; and provided, further, that if the
participant dies within such one-year period (or such other period
as the Committee shall specify at or after grant), any unexercised
Stock Option held by such
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participant at the time of his or her death shall thereafter be
exercisable by the estate of the participant (acting through its
fiduciary) to the same extent to which it was exercisable
immediately prior to the time of death for a period of one year ( or
such other period as the Committee may specify at or after grant)
from the date of the inception of such Disability. The balance of
the Stock Option shall be forfeited.
(c) BUYOUT PROVISIONS. The Committee may at any time buy out, for a
payment in cash or Stock, an Option previously granted, based on such terms
and conditions as the Committee shall establish and agree upon with the
participant, provided that no such transaction shall be structured or
effected in a manner that would violate, or result in any liability on the
part of the participant under, Section 16 of the Exchange Act or the rules
and regulations promulgated thereunder.
SECTION 5. CHANGE IN CONTROL PROVISIONS.
(a) IMPACT OF EVENT. In the event of: (1) a "Change in Control" as
defined in Section 5(b), or (2) a "Potential Change in Control" as defined
in Section 5(c), the value of all outstanding Awards shall be cashed out on
the basis of the "Change in Control Price" as defined in Section 5(d) as of
the date such Change in Control or such Potential Change in Control is
determined to have occurred.
(b) DEFINITION OF CHANGE IN CONTROL. For purposes of this Section 5,
a "Change in Control" means the happening of any of the following:
(1) When any "person" as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the Exchange Act,
but excluding the Company and any Subsidiary and any employee
benefit plan sponsored or maintained by the Company or any
Subsidiary (including any trustee of such plan acting as trustee),
directly or indirectly, becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act, as amended from time to time),
of securities of the Company representing twenty percent (20%) or
more of the combined voting power of the Company's then outstanding
securities; provided, however, that the terms "person" and "group"
shall not include any "Excluded Director"; and the term "Excluded
Director" means any director who, on the effective date of the Plan,
is the beneficial owner of or has the right to acquire an amount of
Stock equal to five percent (5%) or more of the number of shares of
Stock outstanding on such effective date; and further provided that,
unless otherwise determined by the Board or any committee thereof,
the terms "person" and "group" shall not include any entity or group
of entities that has acquired Stock of the Company in the ordinary
course of business for investment purposes only and not with the
purpose or effect of changing or influencing the control of the
Company, or in connection with or as a participant in any
transaction having such purpose or effect, ("Investment Intent"), as
demonstrated by the filing by such entity or group of a statement on
Schedule 13G (including amendments thereto) pursuant to Regulation
13D under the Exchange Act, as long as such entity or group
continues to hold such Stock with an Investment Intent;
(2) When, during any period of 24 consecutive months during
the existence of the Plan, the individuals who, at the beginning of
such period, constitute the Board (the "Incumbent Directors") cease
for any reason other than death to constitute at least a majority
thereof; provided, however, that a director who was not a director
at the beginning of such 24-month period shall be deemed to have
satisfied such 24-month requirement (and be an Incumbent Director)
if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually (because they were
directors at the beginning of such 24-month period) or by prior
operation of this Section 5(b)(2); or
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(3) The occurrence of a transaction requiring shareholder
approval for the acquisition of the Company by an entity other than
the Company or a Subsidiary through purchase of assets, by merger or
otherwise;
provided, however, a change in control shall not be deemed to be a Change
in Control for purposes of the Plan if the Board had approved such change
prior to either (i) the occurrence of any of the events described in
Section 5(b)(1), (2), (3) or 5(c)(1), or (ii) the commencement by any
person other than the Company or a Subsidiary of a tender offer for Stock.
(c) DEFINITION OF POTENTIAL CHANGE IN CONTROL. For purposes of this
Section 5, a "Potential Change in Control" means the happening of any one
of the following:
(1) The approval by shareholders of an agreement by the
Company, the consummation of which would result in a Change in
Control of the Company as defined in Section 5(b); or
(2) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Company
or a Subsidiary or any Company employee benefit plan (including any
trustee of such plan acting as such trustee)) of securities of the
Company representing five percent (5%) or more of the combined
voting power of the Company's outstanding securities and the
adoption by the Board of a resolution to the effect that a Potential
Change in Control of the Company has occurred for purposes of this
Plan.
(d) CHANGE IN CONTROL PRICE. For purposes of this Section 5, "Change
in Control Price" means the highest price per share paid in any transaction
reported on the New York Stock Exchange Composite Index, or paid or offered
in any bona fide transaction related to a Change in Control or Potential
Change in Control of the Company, at any time during the 60-day period
immediately preceding the occurrence of the Change in Control (or, where
applicable, the occurrence of the Potential Change in Control event).
SECTION 6. AMENDMENTS AND TERMINATION.
Subject to the following sentence, the Board may at any time, in its
sole discretion, amend, alter or discontinue the Plan, or amend the terms of any
outstanding Stock Option granted under the Plan, but no such amendment,
alteration or discontinuation shall be made which would impair the rights of a
participant under an Award theretofore granted, without the participant's
consent. Notwithstanding the foregoing, no such amendment or alteration shall be
made which would make the exemption from Section 16(b) of the Exchange Act
provided by Rule 16b-3 thereunder unavailable to any participant holding an
Award or which would result in any liability on the part of any participant
under Section 16(b) of the Exchange Act.
SECTION 7. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a participant by the
Company, nothing contained herein shall give any such participant any rights
that are greater than those of a general creditor of the Company.
SECTION 8. GENERAL PROVISIONS.
(a) The Company may require each participant acquiring Stock
pursuant to an Option under the Plan (i) to represent and warrant to and
agree with the Company in writing that the participant is acquiring the
Stock for investment and without a view to the distribution thereof, and
(ii) to make such additional representations, warranties and agreements
with respect to the investment intent of such participant as the Company
may request. The certificates for such
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shares may include any legend which the Company deems appropriate to
reflect any restrictions on transfer.
All shares of Stock or other securities delivered under the Plan
shall be subject to such stop-transfer orders and other restrictions as the
Company may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed, and any applicable federal or state
securities law, and the Company may cause a legend or legends to be put on
any certificates for such shares to make appropriate reference to such
restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
(c) No later than the date as of which an amount first becomes
includable in the gross income of the participant for federal income tax
purposes with respect to any Award under the Plan, the participant shall
pay to the Company, or make arrangements satisfactory to the Company
regarding the payment of, any federal, state or local taxes or other items
of any kind required by law to be withheld with respect to such amount.
Subject to Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder, withholding obligations may be settled with
unrestricted Stock then owned by the participant or Stock that is issuable
upon the exercise of the Option which gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes or other
items from any payment of any kind otherwise due to the participant.
(d) The Plan, all Awards made and actions taken thereunder and any
agreements relating thereto shall be governed by and construed in
accordance with the laws of the State of Ohio.
(e) All agreements entered into with participants pursuant to the
Plan shall be subject to the Plan.
(f) The provision of Awards need not be the same with respect to
each participant.
SECTION 9. EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board on February 6, 1998, subject to
approval by shareholders of the Company in accordance with applicable law. The
Plan will become effective on the date of such shareholder approval.
SECTION 10. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after April 24,
2008, but Awards granted prior to such date may extend beyond that date.
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