EX-10.B



 







Exhibit 10(B)




EMPLOYMENT AGREEMENT




     This EMPLOYMENT AGREEMENT, dated as of the 17th day of July, 2006 (this “Agreement”), by and
between THE PROGRESSIVE CORPORATION, an Ohio corporation (the “Company”), and John P. Sauerland
(the “Executive”),



     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the
best interests of the Company and its shareholders to assure that the Company will have the
continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined herein). The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties and risks created
by a pending or threatened Change of Control and to encourage the Executive’s full attention and
dedication to the current Company and in the event of any threatened or pending Change of Control,
and to provide the Executive with compensation and benefits arrangements upon a Change of Control
that ensure that the compensation and benefits expectations of the Executive will be satisfied and
that are competitive with those of other corporations. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.



NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:




     Section 1. Certain Definitions.



     (a) “Effective Date” means the first date during the Change of Control Period (as defined
herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the
contrary, if a Change of Control occurs and if the Executive’s employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (1) was at the request of a third
party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise
arose in connection with or in anticipation of a Change of Control, then “Effective Date” means the
date immediately prior to the date of such termination of employment.



     (b) “Change of Control Period” means the period commencing on the date hereof and ending on
the third anniversary of the date hereof; provided, however, that, commencing on the date one year
after the date hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof, the “Renewal Date”), unless previously terminated, the Change of Control
Period shall be automatically extended so as to terminate three years from such Renewal Date,
unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive
that the Change of Control Period shall not be so extended.



     (c) “Company” means the Company as hereinbefore defined and any successor to its business
and/or assets as described below whether by merger, consolidation, purchase or otherwise, that
assumes and is bound to perform this Agreement by operation of law or otherwise.



     (d) “Affiliated company” means any company controlled by, controlling or under common
control with the Company.



     (e) “Change of Control” means:



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     (1) The acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the then-outstanding common shares of
the Company (the “Outstanding Company Common Shares”) or (B) the combined voting power of
the then-outstanding voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”); provided, however,
that, for purposes of this Agreement, the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by
the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any affiliated company, (iv) any acquisition by any
corporation pursuant to a transaction that complies with Sections l(d)(3)(A), l(d)(3)(B) and
l(d)(3)(C), or (v) any acquisition of 20% or more of the Outstanding Company Common Shares
or Outstanding Company Voting Securities by any Person who has acquired the Outstanding
Company Common Shares or Outstanding Company Voting Securities 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 Person of a statement on Schedule 13G (including amendments thereto) pursuant
to Regulation 13D under the Exchange Act, as long as such Person continues to hold the
Outstanding Company Common Shares or Outstanding Company Voting Securities with an
Investment Intent, unless the Incumbent Board (as defined below) determines, by a majority
vote, that the acquisition or holding of Outstanding Company Common Shares or Outstanding
Company Voting Securities by such Person constitutes a Change of Control.




     (2) Individuals who, as of the date hereof, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board.




     (3) Consummation of a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, immediately following such Business Combination, (A)
all or substantially all of the individuals and entities that were the beneficial owners of
the Outstanding Company Common Shares and the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or indirectly,
more than 60% of the then-outstanding common shares and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation that, as a result of such transaction, owns the Company or
all or substantially all of the Company’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership immediately prior to
such Business Combination of the Outstanding Company Common Shares and the Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding any corporation
resulting from such Business



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Combination or any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then-outstanding common shares of the
corporation resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to the extent that such
ownership existed prior to the Business Combination, and (C) at least a majority of the
members of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of the initial
agreement or of the action of the Board providing for such Business Combination; or




     (4) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.



     Section 2. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to
the terms and conditions of this Agreement, for the period commencing on the Effective Date and
ending on the third anniversary of the Effective Date (the “Employment Period”).



     Section 3. Terms of Employment. 




     (a) Position and Duties.




     (1) During the Employment Period, (A) the Executive’s position (including status,
offices, titles and reporting requirements), authority, duties and responsibilities shall be
at least commensurate in all material respects with the most significant of those held or
exercised by and assigned to the Executive at any time during the 120-day period immediately
preceding the Effective Date and (B) the Executive’s services shall be performed at the
office where the Executive was employed immediately preceding the Effective Date or at any
other location less than 25 miles from such office.




     (2) During the Employment Period, and excluding any periods of vacation and sick leave
to which the Executive is entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the Executive hereunder, to
use the Executive’s reasonable best efforts to perform faithfully and efficiently such
responsibilities to the best of his or her ability. During the Employment Period, it shall
not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so long as such activities
do not significantly interfere with the performance of the Executive’s responsibilities as
an officer or employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that, to the extent that any such activities have been conducted by
the Executive prior to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of the Executive’s
responsibilities to the Company.



     (b) Compensation.




     (1) Base Salary. During the Employment Period, the Executive shall receive an annual



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base salary (the “Annual Base Salary”), which Annual Base Salary shall be at least equal to 12
times the highest monthly base salary paid or payable, including any base salary that has been
earned but deferred, to the Executive by the Company and the affiliated companies during the
12-month period immediately preceding the month in which the Effective Date occurs. The Annual Base
Salary shall be paid one-twelfth (1/12th) each month. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the
last salary increase awarded to the Executive prior to the Effective Date. Any increase in the
Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under
this Agreement. During the Employment Period, the Annual Base Salary shall not be reduced after any
such increase and the term “Annual Base Salary” shall refer to the Annual Base Salary as so
increased.




     (2) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual
Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s Executive Bonus
and/or Gainsharing Plans, or any comparable bonus under any predecessor or successor plan, for the
last three full fiscal years prior to the Effective Date (annualized, in the event that the
Executive was not employed by the Company for the whole of such fiscal year) (the “Recent Annual
Bonus”). Each such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is awarded, except to the
extent that the Executive shall elect to defer the receipt of such Annual Bonus pursuant to and in
accordance with the Company’s Executive Deferral Plan or any successor plan thereto then in effect.




     (3) Company Equity Incentive Plans. During the Employment Period, the Executive shall
be entitled to participate in all restricted stock, stock option and other equity incentive plans,
practices, policies and programs (“Equity Incentive Plans”) applicable generally to other peer
executives of the Company and the affiliated companies, but in no event shall such Equity Incentive
Plans provide the Executive with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction is applicable), in
each case, less favorable, in the aggregate, than the most favorable of those provided by the
Company and the affiliated companies for the Executive under such Equity Incentive Plans as in
effect at any time during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the Effective Date to other
peer executives of the Company and the affiliated companies. The basis for the valuation for such
equity incentive awards for Executive shall be the highest applicable percent of salary within the
last three fiscal years prior to the Effective Date, based upon Executive’s job classification, and
a target award value that is equal to or greater than the highest target award value of any of the
equity incentive awards granted to the Executive during such 3-year period.




     (4) Savings. Retirement and Welfare Benefit Plans. During the Employment Period, the
Executive and as applicable the Executive’s family, as the case may be, shall be eligible for
participation in and shall receive all benefits under any incentive, savings, retirement plans and
welfare benefit plans, policies, practices and programs provided by the Company and the affiliated
companies (including, without limitation, medical, prescription, dental, disability, employee life,
group life, accidental death and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and the affiliated companies, but in
no event shall such plans, practices, policies and programs provide the Executive and/or the
Executive’s family with benefits that are less favorable, in the aggregate, than the most favorable
of such plans, practices, policies and programs in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other peer executives of the
Company and the affiliated companies. In the event that



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because of applicable law, or for other good and valid reasons, such applicable benefit plans
cannot be provided Executive by the Company following Change of Control, the Company by agreement
with Executive, which agreement shall not be unreasonably withheld, may provide Executive with an
amount having an overall equivalent tax adjusted value for the applicable period to those employee
benefits, programs and the like, not otherwise being provided by the Company to Executive.




     (5) Expenses. During the Employment Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in the furtherance of
the business or affairs of the Company or any of the Affiliated companies in accordance with the
most favorable policies, practices and procedures of the Company and the affiliated companies in
effect for the Executive at any time during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and the affiliated companies.




     (6) Office and Support Staff. During the Employment Period, the Executive shall be
entitled to an office or offices of a size and with furnishings and other appointments, and to
personal secretarial and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and the affiliated companies at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as
provided generally at any time thereafter with respect to other peer executives of the Company and
the affiliated companies.




     (7) Vacation. During the Employment Period, the Executive shall be entitled to paid
vacation in accordance with the most favorable plans, policies, programs and practices of the
Company and the affiliated companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of the Company and
the affiliated companies.



     Section 4. Termination of Employment



     (a) Death or Disability. The Executive’s employment shall terminate automatically if
the Executive dies during the Employment Period. If the Company determines in good faith that the
Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant
to the definition of “Disability”), it may give to the Executive written notice in accordance with
Section ll(b) of its intention to terminate the Executive’s employment. In such event, the
Executive’s employment with the Company shall terminate effective on the 30th day after receipt of
such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time performance of the
Executive’s duties. “Disability” means the absence of the Executive from the Executive’s duties
with the Company on a full-time basis for 180 consecutive business days as a result of incapacity
due to mental or physical illness that is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal
representative.



     (b) Cause. The Company may terminate the Executive’s employment during the Employment
Period for Cause. Subject to the last paragraph of Section 4(b), “Cause” means:




     (1) the willful failure of the Executive to perform, and the continuance of such
failure to perform for 60 days following the Executive’s receipt of notice from the Company,
substantially the Executive’s duties with the Company or any affiliated company (other than
any such failure resulting from incapacity due to physical or mental illness), after a
written demand



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for substantial performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company that specifically identifies the manner in which the Board
or the Chief Executive Officer of the Company believes that the Executive has not
substantially performed the Executive’s duties; or




     (2) the willful engaging by the Executive in illegal conduct or gross misconduct that
is materially and demonstrably injurious to the Company; or




     (3) any violation of the Code of Conduct of the Company, as in effect immediately prior
to the Effective Date.


For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be
considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive’s action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a
senior officer of the Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company.




     Notwithstanding the foregoing, the cessation of employment of the Executive shall not be
deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of
a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an opportunity, together
with counsel for the Executive, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in Sections 4(b)(l) or
4(b)(2), and specifying the particulars thereof in detail.



     (c) Good Reason. The Executive’s employment may be terminated by the Executive for
Good Reason. “Good Reason” means:




     (1) the assignment to the Executive of any duties inconsistent in any respect with the
Executive’s position (including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 3 (a), or any other action
by the Company that results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;




     (2) any failure by the Company to comply with any of the provisions of Section 3(b),
other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and
that is remedied by the Company promptly after receipt of notice thereof given by the
Executive;




     (3) the Company’s requiring the Executive to be based at any office or location other
than as provided in Section 3(a)(l)(B) or the Company’s requiring the Executive to travel on
Company business to a substantially greater extent than required immediately prior to the
Effective Date;




     (4) any purported termination by the Company of the Executive’s employment otherwise
than as expressly permitted by this Agreement; or




     (5) any failure by the Company to comply with and satisfy Section
10(c).



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For purposes of this Section 4(c), any good faith determination of Good Reason made by the
Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.




     (d) Notice of Termination. Any termination by the Company for Cause, or by the
Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto
given in accordance with Section 11(b). “Notice of Termination” means a written notice that (1)
indicates the specific termination provision in this Agreement relied upon, (2) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive’s employment under the provision so indicated, and (3) if the Date
of Termination (as defined herein) is other than the date of receipt of such notice, specifies the
Date of Termination (which Date of Termination shall be not more than 30 days after the giving of
such notice). The failure by the Executive or the Company to set forth in the Notice of Termination
any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the
Company’s respective rights hereunder.



     (e) Date of Termination. “Date of Termination” means (1) if the Executive’s
employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified in the Notice of Termination, as
the case may be, (2) if the Executive’s employment is terminated by the Company other than for
Cause or Disability, the Date of Termination shall be the date on which the Company notifies the
Executive of such termination, and (3) if the Executive’s employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.



     Section 5. Obligations of the Company upon Termination, (a) Good Reason: Other
Than for Cause, Death or Disability. If, during the Employment Period, the Company terminates
the Executive’s employment other than for Cause or Disability or the Executive terminates
employment for Good Reason:




     (1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the
Date of Termination the aggregate of the following amounts:




     (A) the sum of (i) that portion of the Executive’s Annual Base Salary that has
accrued prior to the Date of Termination to the extent not theretofore paid, (ii)
the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual
Bonus paid or payable, including any bonus or portion thereof that has been earned
but deferred (and annualized for any fiscal year consisting of less than 12 full
months or during which the Executive was employed for less than 12 full months), for
the most recently completed fiscal year during the Employment Period, if any (such
higher amount, the “Highest Annual Bonus”) and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination and the denominator of which is 365, and (iii) any compensation
previously deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case, to the extent not theretofore
paid (the sum of the amounts described in subclauses (i), (ii) and (iii), the
“Accrued Obligations”); and



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     (B) the amount equal to the higher of (i) the product of (x) two and (y) the
sum of (l) the Executive’s Annual Base Salary and (2) the Highest Annual Bonus or
(ii) the product of (x) four and (y) the Executive’s Annual Base Salary; less




     (C) the value of amounts paid or to be paid to the
Executive under any
severance pay plans or programs of the Company then in effect.




     (2) for two years after the Executive’s Date of Termination, or such longer period as
may be provided by the terms of the appropriate plan, program, practice or policy, the
Company shall continue benefits to the Executive and/or the Executive’s family at least
equal to those that would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 3(b)(4) if the Executive’s employment had not
been terminated or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and the affiliated companies
and their families, provided, however, that, if the Executive becomes re-employed with
another employer and is eligible to receive medical or other welfare benefits under another
employer provided plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have remained employed until three years
after the Date of Termination and to have retired on the last day of such period;




     (3) the Company shall, at its sole expense as incurred, provide the Executive with
outplacement services the scope and provider of which shall be selected by the Executive in
the Executive’s sole discretion; and




     (4) to the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or provided to
the Executive or that the Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and the affiliated companies (such other
amounts and benefits, the “Other Benefits”).



     (b) Death. If the Executive’s employment is terminated by reason of the Executive’s
death during the Employment Period, this Agreement shall terminate without further obligations to
the Executive’s estate, beneficiaries or legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The
Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the
Other Benefits, the term “Other Benefits” as utilized in this Section 5(b) shall include, without
limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and the affiliated companies
to the estates and beneficiaries of peer executives of the Company and the affiliated companies
under such plans, programs, practices and policies relating to death benefits, if any, as in effect
with respect to other peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive’s estate and/or the
Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other
peer executives of the Company and the affiliated companies and their beneficiaries.



     (c) Disability. If the Executive’s employment is terminated by reason of the
Executive’s Disability during the Employment Period, this Agreement shall terminate without further
obligations to



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the Executive, other than for payment of Accrued Obligations and the timely payment or
provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other
Benefits, the term “Other Benefits” as utilized in this Section 5(c) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally provided by the Company and the
affiliated companies to disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive and/or the
Executive’s family, as in effect at any time thereafter generally with respect to other peer
executives of the Company and the affiliated companies and their families.



     (d) Cause; Other Than for Good Reason. If the Executive’s employment is terminated for
Cause during the Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive (1) that portion of the Executive’s
Annual Base Salary that has accrued prior to the Date of Termination, (2) the amount of any
compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the
extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for the Accrued Obligations and the timely payment or
provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.



     Section 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive’s continuing or future participation in any plan, program, policy or practice
provided by the Company or the affiliated companies and for which the Executive may qualify, nor,
subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or the affiliated companies.
Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the Company or the
affiliated companies at or subsequent to the Date of Termination shall be payable in accordance
with such plan, policy, practice or program or contract or agreement, except as explicitly modified
by this Agreement.



     Section 7. Full Settlement. The Company’s obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall not be subject to
set-off or otherwise affected by any counterclaim, recoupment, defense, or other claim, right or
action that the Company or any of the Affiliated companies may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of the provisions of
this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal
fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of
the outcome thereof) by the Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any payment pursuant to
this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
“Code”).



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     Section 8. Certain Additional Payments by the Company.



     (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the Company or the
affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise but determined without regard
to any additional payments required under this Section 8) (the “Payment”) would be subject to the
excise tax imposed by Section 4999 of the Code, as the same may be hereafter modified or amended or
any successor provision, or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and penalties, collectively, the
“Excise Tax”), then the Executive shall be entitled to receive an additional payment (the “Gross-Up
Payment”) in an amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.



     (b) Subject to the provisions of Section 8(c), all determinations required to be made under
this Section 8, including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be
made by PricewaterhouseCoopers LLP or such other nationally recognized independent accounting firm
as may be designated by the Executive (the “Accounting Firm”). The Accounting Firm shall provide
detailed supporting calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments that will not have been made by the Company should have been
made (the “Underpayment”), consistent with the calculations required to be made hereunder. In the
event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.


      (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 10 business days after the
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which the Executive gives
such notice to the Company (or such shorter period ending on the date that any payment of taxes
with respect to such
claim is due). If the Company notifies the Executive in writing prior to the expiration of such
period that the Company desires to contest such claim, the Executive shall:



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     (1) give the Company any information reasonably requested by the Company relating to
such claim,




     (2) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably selected by the
Company,




     (3) cooperate with the Company in good faith in order effectively to contest such
claim, and




     (4) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such contest, and
shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax
or income tax (including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 8(c), the Company shall control all proceedings taken in
connection with such contest, and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the applicable taxing
authority in respect of such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that, if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to the Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and provided, further, that any
extension of the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company’s control of the contest shall be
limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and
the Executive shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.



     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, upon
receipt of such refund, the Executive shall (subject to the Company’s complying with the
requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made
that the Executive shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.



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     Section 9. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or the affiliated companies, and their respective businesses, which
information, knowledge or data shall have been obtained by the Executive during the Executive’s
employment by the Company or the affiliated companies and which information, knowledge or data
shall not be or become public knowledge (other than by acts by the Executive or representatives of
the Executive in violation of this Agreement). For two years after termination of the Executive’s
employment with the Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those persons designated by the
Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a
basis for deferring or withholding any amounts otherwise payable to the Executive under this
Agreement.



     Section 10. Successors.



     (a) This Agreement is personal to the Executive, and, without the prior written consent of the
Company, shall not be assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s
legal representatives.



     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.



     (c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession had taken place.



     Section 11. Miscellaneous.



     (a) This Agreement shall be governed by and construed in accordance with the laws of the State
of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified other than by a written agreement executed by the parties hereto or their
respective successors, permitted assigns and legal representatives.



     (b) All notices and other communications hereunder shall be in writing and shall be given by
hand delivery to the other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:



     if to the Executive:


John P. Sauerland

(at his home address)




     if to the Company:


The Progressive Corporation

6300 Wilson Mills Road N72

Mayfield Village, Ohio 44143

Attention: Chief Legal Officer




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or to such other address as either party shall have furnished to the other in writing in accordance
herewith. Notice and communications shall be effective when actually received by the addressee.




     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.



     (d) This Agreement shall not be deemed to modify, amend or supplement the terms of any
existing benefit plan or program of the Company.



     (e) The Company may withhold from any amounts payable under this Agreement such United States
federal, state or local or foreign taxes or other items as shall be required to be withheld
pursuant to any applicable law or regulation.



     (f) The Executive’s or the Company’s failure to insist upon strict compliance with any
provision of this Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to terminate employment
for Good Reason pursuant to Sections 4(c)(l) through 4(c)(5), shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.



     (g) The Executive and the Company acknowledge that, except as may otherwise be provided under
any other written agreement between the Executive and the Company, the employment of the Executive
by the Company is “at will” and, subject to Section l(a), prior to the Effective Date, the
Executive’s employment and/or this Agreement may be terminated by either the Executive or the
Company at any time prior to the Effective Date, in which case the Executive shall have no further
rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.



     IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the
authorization from the Board, the Company has caused these presents to be executed in its name on
its behalf, all as of the day and year first above written.



	 	 	 	 	 
	 	 	 
	 	                           /s/ John P. Sauerland
 	 
	 	John P. Sauerland 	 
	 	 	 
	 
	 	THE PROGRESSIVE CORPORATION

 	 
	 	By:  	/s/ Glenn M. Renwick
 	 
	 	 	Name:  	Glenn M. Renwick 	 
	 	 	Chief Executive Officer 	 
	 




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